Dermacare's future uncertain in wake of closure, lawsuits

Phoenix Business Journal Story - by Angela Gonzales

A Maricopa County Superior Court judge has appointed a receiver to handle the financial future of Dermacare Laser & Skin Care Clinics Inc., which at one time planned to sign on more than 120 franchisees nationwide.

The Scottsdale-based franchisor is embroiled in several arbitration cases and lawsuits. Its corporate offices have closed, and several franchisees have abandoned the Dermacare name.

At one point, Dermacare had six facilities throughout the Valley.

The company's founder, Carl Mudd, could not be reached for comment.

Four Valley franchisees no longer are affiliated with Dermacare. A facility in Litch­field Park is keeping the brand name, but operating independently.

A records search at Maricopa County Superior Court shows 10 lawsuits have been filed within the past several years against Dermacare Laser & Skin Care Clinics Inc.; its parent, DLC Dermacare LLC; and Mudd. The lawsuits were filed by vendors, franchisees and former Derma­care employees, claiming the company didn't pay its bills.

For example, WS Inc., formerly WGS Packaging Inc., was awarded a judgment of $384,000 against Dermacare Laser & Skin Care Clinics. According to the lawsuit, WS Inc. sued Dermacare in 2006 for not making payments on the clinic Mudd operated in Paradise Valley.

Richard Thomas, attorney for WS, said his client also has a pending claim through the American Arbitration Association for nonpayment of that note.

WS has received default judgments against Mudd, DLC Dermacare and Dermacare Laser Clinics, Thomas said.

"As to both of the entities, Dermacare has obtained the appointment of a formal receiver," he said.

Also named in the WS lawsuit was a Dermacare doctor, Abraham J. Sayegh, who was one of the first doctors to join Dermacare and later became its medical director.

Sayegh also is facing censure by the Ari­zona Medical Board. In March, the board cited him for drug and/or alcohol use after an anonymous complaint was filed in February. According to those filings, Sayegh said he would cease practicing medicine. It was Sayegh's second relapse, according to the medical board.

Meanwhile, Mudd filed a lawsuit in January against a blog on MedicalSpaMD.com, which features communications by former franchisees. Many of the blog entries criticized Mudd and Dermacare. In his lawsuit, filed in Maricopa County Superior Court, Mudd asked the site to reveal the bloggers' Internet service provider addresses so he could sue former Dermacare franchisees for defamation of character.

Mudd's attorney listed in that suit was John Skiba, but he filed a motion with the court Feb. 4 to withdraw as Dermacare's counsel.

Jeff Barson, founder of MedicalSpaMD.com, said the most active Dermacare discussion includes nearly 1,000 comments from existing and former franchisees.

"MedicalSpaMD.com has received numerous 'cease and desist' letters, threats and demands, including copies of a lawsuit and threats of suit against the site and myself personally if I didn't close down the discussion forums and identify all of the individuals who may have commented," Barson said.

"I refused to comply and posted the letters and suit, as well as the case law around anonymous comments on the Web," he said.

Superior Court records show Mudd's lawsuit might be dismissed. Under Arizona law, a plaintiff has 120 days after filing a complaint to serve the defendants. If that does not happen, the court can dismiss the case.

Court records do not show affidavits have been served, said Andre Merrett, an attorney with Quarles & Brady LLP who is representing six Dermacare franchisees in an arbitration dispute through the American Arbitration Association.

When franchisees signed on with the company, their contracts included a stipulation that they would settle disputes through arbitration in lieu of lawsuits, Merrett said.

Trish Gulbranson owned the Dermacare franchises in Mesa and Chandler until February. She recently started getting calls from customers of the nearby Ahwatukee facility, saying it had closed and they were left holding prepaid packages or gift certificates.

Gulbranson decided to honor any unfinished laser services or valid gift certificates that had been purchased from the Dermacare of Ahwatukee office if customers could show their receipts.

"In light of the complete deterioration of the franchise system, (franchisees) simply want to be free from Dermacare and be allowed to go out and operate their businesses on their own in an effort to try and save their investments," Merrett said.

He said he hopes to connect with the receiver to see if the disputes his clients have with the company can be resolved without further litigation.

Other local franchise owners were not willing to discuss the matter.