Early Top Pot Investor Cries Foul

An artist claims she’s entitled to the spoils of the entire company’s good fortune, not just the Cap Hill location’s.

On Feb. 24, an early investor in Top Pot Doughnuts filed suit against the company and its owners, claiming they defrauded her of her stake in the enterprise. Jan Johnson, who owns the Panama Hotel in the International District and the well-known teahouse on its ground floor, claims she gave Top Pot's founders $100,000 to open their first store on Capitol Hill. In exchange, she says, she got a 20 percent stake in the company. Her suit claims that through a series of "fraudulent" business moves, Top Pot founders Mark and Michael Klebeck and Joel Radin managed to shrink her share. By the time they inked a deal with Starbucks in 2005, the complaint says, she unwittingly owned only a tiny percentage. "[The Top Pot founders] took steps to expand the business calculated to improperly dilute Johnson's interest in the Top Pot business," the suit says. The Klebeck brothers and Radin got to know Johnson, an artist, when they opened one of their Zeitgeist coffeehouses on the same block (the 600 block of South Main Street) as her hotel, which she bought in 1986 and whose rooms are now used primarily for low-income housing. In 2000 she decided to add a tea and coffee shop/gallery on the street level. The Klebecks, Radin, and their business partner, Bryan Yeck, helped her design the space. What happened next, according to Johnson's filing in King County Superior Court, is that in 2001 she agreed to invest $100,000 in the Klebecks' and Radin's plan to open a doughnut shop on Capitol Hill. The store was successful, so the Klebecks and Radin decided to open another location on Fifth Avenue downtown. In court records, Johnson states she continued to provide financial support, pushing her investment over $150,000 and buying them a commercial mixer for $2,500. Her ownership in Top Pot, Inc., the company formed to open the Capitol Hill store, increased to 25 percent. During that time, she says, the founders would ask her opinion on things related to the downtown store and called her their partner in the project. What she didn't know, she claims, is that they actually opened that store as a separate company: Top Pot Doughnuts Fifth Avenue, Inc. Then in 2005, Starbucks approached the Klebecks about selling Top Pot's doughnuts in stores nationwide. Johnson's attorney, John Du Wors, says that based on his review of his client's case, it appears the Klebecks decided to merge all their assets into one giant company, Doughnut Corporation of America. In order to complete the merger, Johnson had to sign off. She says in court records that the Klebecks brought her a merger agreement, assured her she was still a partner in the business, and told her she needed to sign. Johnson says she asked to have more time to let a business advisor review the agreement, but the Klebecks said she needed to sign immediately, and she did. Du Wors says his 65-year-old client is "uneducated, unsophisticated," and didn't understand what she was signing. Because of the merger, her large stake in the original company is now only a tiny percentage of Doughnut Corporation. Accordingly, she is entitled to a much smaller percentage of any profit from the Starbucks deal or any other money generated as part of the much larger Top Pot enterprise. (Top Pot has since opened stores in Wedgwood, Queen Anne, and Bellevue.) Mark Klebeck declined to discuss the specifics of the suit, as did his attorney, Josh Brower. "Top Pot Doughnuts has always worked really hard to maintain positive relationships with its investors," Brower says, adding that his client "looks forward to resolving this as quickly as possible."

 
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