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Doughnut dilemma: Legal battle between Mini Doughnut Factory founders and investors shuts down shops

The doughnut company with shops in Tampa and St. Pete is being sued by its lead investor, who says its founders breached a contract in addition to owing him nearly $1 million.
Published Jan. 2, 2019

Some of Tampa Bay's cutest pastries are off the market, as a legal battle rages in Hillsborough County Circuit Court over the future of the Mini Doughnut Factory.

Both its locations in South Tampa and St. Petersburg have closed "due to restructuring," according to notes posted on their doors.

Since at least May, founders Patrick and Zezura Ruddell have been at odds with investors, according to court records. On Dec. 19, Tampa real estate agent and investor Lee Kearney filed two lawsuits against the Ruddells: One said the couple was in default and owed Kearney and his associated companies roughly $875,000 and the second accused the couple of mismanaging the doughnut shops and breaking legal agreements to the point that Kearney had to take over.

"While my client's goal is to keep this business running, this step to temporarily close the company's locations was necessary to protect the assets of the company," Kearney's lawyer Michael C. Hildebrandt II said in a statement. "My client will be striving to get the locations back open as soon as possible but that requires cooperation from the Ruddells."

And the Ruddells, according to Hildebrandt, are "unwilling to cooperate."

Kearney's lawsuits lay out months of back-and-forth and include a signed mediation agreement between the Ruddells and investors about how the business should be run. It requires things such as the Ruddells filing for a Small Business Administration loan and logging their on-site working hours. Failure to meet the terms of the agreement would result in Kearney taking over management, it says.

Patrick Ruddell did not return a request for comment.

Problems seemed to appear early into the investing partnerships. Kearney and another investor, Christopher Mercer — who has since resigned, leaving his shares to Kearney — had given the Ruddells two promissory notes that totaled more than $1 million so the couple could open the second doughnut shop in St. Petersburg. But the lawsuit says that shop on 4th Street N opened six months behind schedule in December 2017 and costs ran twice what was budgeted.

In July 2018, another blow: The Mini Doughnut Factory was sued by a Chicago shop with nearly the same name, the Mini Donut Factory, claiming it had the rights on its use. The Tampa company had planned on growing into a chain with franchises. It had filed a suit of its own earlier in the year against another Tampa doughnut shop to remove "mini" from its name.

By June 19, the mediation agreement was signed declaring that if the Ruddells failed to meet their end, their stake in the company would drop to 49 percent, according to Kearney's lawsuit. At of the start of November, the Mini Doughnut Factory had barely $19,000 in its bank account, according to Kearney's records.

By Nov. 23, the doughnut company was unable to pay its bills and could not afford to pay the Ruddells their management salaries, according to Kearney's suit. The Ruddells on Dec. 5 requested a severance package of $150,000 to turn over control, according to an email referenced in the court filing.

"If the former management (the Ruddells) would have cooperated with the transition and followed through with their agreements and promises they made in the Settlement Agreement, the company would not have had to close the locations and would not be in the position where it is today," Hildebrandt said.

Kearney said through his attorney that gifts cards will be accepted when the store reopens, though the timing of a reopening was still unclear Wednesday. Those who want gift cards refunded can contact the company at MDF@spincompanies.com.

Contact Sara DiNatale at sdinatale@tampabay.com. Follow @sara_dinatale.

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