Norfolk-based Geeks On Call sued by 10 of its franchisees

NORFOLK

Friction between a widely known provider of at-home and on-site computer repairs and some of its franchisees has spilled into the courtroom.

Six franchisees of Norfolk-based Geeks On Call America Inc. filed identical lawsuits in federal court in Norfolk last week, alleging that the company breached its contracts and engaged in fraud. Four others filed suits with similar allegations on the same day in Norfolk Circuit Court.

On Thursday, an attorney representing all 10 plaintiffs asked the Norfolk Circuit Court to bar Geeks On Call from restricting customer calls to one of the plaintiffs or taking any action that threatens the franchisee's business.

Chief Circuit Judge Everett Martin Jr. said the court couldn't act on the franchisee's motion for a preliminary injunction but allowed his attorney to amend the complaint within 21 days. The attorney, Patrick Blasz, said he planned to do so by early next week.

Each of the suits contends that Geeks On Call took business away from franchisees by operating a competing online repair service. Meanwhile, the installation of a new system for routing customers to specific franchisees has hampered their customer service and ability to communicate with Geeks On Call, the plaintiffs said.

The franchisees are especially concerned that changes at the company's dispatch center, including cutbacks in its work force, will hamper the flow of calls they receive from customers, Blasz said after Thursday's hearing.

In their complaints, the plaintiffs also contend that the company abandoned its Geeks On Call trademark for the brand "1 800 905 GEEK," creating brand confusion and reducing the value of their franchises.

Seven of the plaintiffs are seeking $1 million for damages that they said they suffered from Geeks' actions: $500,000 for breach of contract and $500,000 for fraud. Three other plaintiffs are asking for damages of $1.4 million, $4 million and $5 million.

Mark Baumgartner, general counsel for Geeks on Call and its parent Geeks On Call Holdings Inc., denied the allegations and attributed the complaints to financial difficulties that several plaintiffs have encountered. Some who filed suits are in default on payments they owe Geeks On Call, he said Friday.

"What they are trying to do is avoid having to comply with their financial agreements" with Geeks On Call, Baumgartner said.

The company didn't abandon the Geeks On Call brand, he said. The "1 800 905 GEEK" brand that Geeks On Call developed is a way to extend the company's reach, he explained.

The company-owned repair service cited by plaintiffs as a competitor is offered only in those parts of the country where service from franchisees isn't available, he said.

As for concerns about cutbacks at the company's call center, "two people were terminated, and two have been hired," Baumgartner said. "There has been no reduction in the staff."

Geeks On Call will file its responses to the suits before the end of the month, he said.

The burst of suits from franchisees comes amid continued financial pressure on Geeks On Call. Earlier this month, Geeks On Call Holdings Inc. reported a net loss of $4.96 million on revenue of $5.24 million for the fiscal year ended Aug. 31.

It blamed the loss on higher costs related to its conversion to a publicly traded company last winter and to a bad debt expense, according to its 10-K filing with the Securities and Exchange Commission. Revenue was down 26 percent compared with the previous fiscal year because it had fewer active franchises, it said in the filing for fiscal year 2008.

Geeks On Call cited continued cash-flow difficulties and weak internal controls for its financial reporting in the 10-K, which was filed Dec. 4.

"We have sufficient funds to conduct our operations for approximately six months," the company said in the filing. "There can be no assurance that financing will be available in amounts or on terms acceptable to us, if at all."

Richard Cole, Geeks on Call's chief executive officer and chairman, acknowledged Friday that dealing with the franchisee litigation puts additional pressure on the company. However, the company has been raising additional capital by means of private placements of stock and warrants, and its financial condition has improved since August, he said.

Still, "it's extraordinarily difficult to raise capital in the current environment," Cole said. "When you compound that with naysayers, that becomes more difficult," he said, referring to franchisees who filed suits against the company.

Shares of Geeks On Call Holdings, which trade on the over-the-counter bulletin board, closed Friday at 8 cents each, down from a high of $2.93 on Feb. 20. The shares began trading publicly on Feb. 14.

Tom Shean, (757) 446-2379, tom.shean@pilotonline.com