Litigation Merry go Round

Another class action lawsuit was filed this week as reported by Richard Gazarik at the Pittsburgh Tribune-Review: Quiznos franchise owners sue sandwich company.


I took the article into the Information Sharing Project as Record# 1,575. Here is what the Word file looks like before I split it out into the Access database. The present keywords that I extract from the article are here:

  • Bankruptcy
  • Churning (serial reselling)
  • Coupon programs (forced) destroy franchisee margins
  • Discount programs destroy retail margins but boost wholesale profits
  • Encroachment (too many outlets put in territory),
  • Fear of poverty
  • Fear mongering
  • Forced ordering
  • Franchisor overcharges for required products
  • Gouging on supplies
  • Lawsuits just a cost of doing business
  • Lawsuits, class action
  • Must buy entirely useless goods and services
  • Must buy only through franchisor (tied buying)
  • Must pay future royalties, even when the franchise fails (liquidated damages)
  • Racketeering
  • System designed to fail for franchisees
  • Threats of lawsuits
  • Will work even when Variable Costs > than Selling price

The Future? These are the keywords that will likely fit this situation as it grinds onto the inevitable useless conclusion [if the trajectory does not change]:

  1. Bootstrapping the assets of a corporation
  2. Class-action dead end
  3. Credence good fraudulent expert
  4. Don’t owe your lawyer money
  5. Fee surprises at settlement time
  6. Federal insolvency laws used to shirk legal claims
  7. Franchise agreements create a License to Lie, Cheat & Steal
  8. Financial failure of first franchisee a material fact to the second
  9. Franchisor bankruptcy
  10. Franchisor corporation created to fail
  11. Franchisor insolvency, intentional
  12. Futility of taking legal action
  13. Health consequences
  14. Loan pushing
  15. Piling on: franchisor can afford a few awards but not hundreds
  16. Settlement just covers fees
  17. Sue lender for not doing their lender’s due diligence
  18. Sue the sales agent
  19. System under scrutiny withdraws membership from franchisor association
  20. Trading in false hope
  21. Within the four corners of the contract

I honestly feel for the operators but fighting this [or any other] franchisor in the Courts is just for fools and their paid cheerleaders.

Numbers 8, 14, 17 & 18: They hold some real promise as a group action.

  • I wonder why the franchise bar never argues along these lines?

One Response to Litigation Merry go Round

  1. Carol Cross says:

    Obviously, franchisors and the government and the other special interests who profit from franchising knew that there would always be failures in the very best of retail franchise systems. They knew, perhaps, that franchisors would have to be protected from lawsuits for fraud from those who failed, especially in view of the fact that the risk/rewards in terms of historical unit performance statistics would not be disclosed to new buyers of franchises in the sales process or through the regulatory process. But, if “failed” franchisees could win in fraudulent inducement lawsuits, this could endanger the existence of franchisors and harm those franchisees who were standing at breakeven or even making profits and not failing. Regulatory policy would favor franchisors and their systems that would feed local economies.

    However, those franchisees who would fail to thrive would feel cheated and defrauded and believe that the value of the franchise investment was misrepresented to them and would try to address the courts. These franchisees invest based on appearances and pre-sale hype and are encouraged by the sellers of the franchises to believe that there is very little risk in the investment. The long-term contract itself and any required government disclosure as well as the visibility of the franchisor in the economy and on government guaranteed loan lists implies value and profits to inexperienced investors.

    I agree with Les Stewart that “fighting this (or any other) franchisor in the Courts is just for fools and their paid cheerleaders.” The deck is stacked! and sits right next to the Bible of Franchise Case Law and the Bible of Contract Law.



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