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BRIDGEPORT, Conn. – After Edible Arrangements International, Inc. tried to get a district judge to dismiss a lawsuit by an independent franchisee association for lack of standing, he denied its request, allowing the case to go to trial.
The EA Independent Franchisee Association alleges in its complaint, filed last September, that the franchisor altered the business arrangement with its franchisees over the last several years to the detriment of its members and all other store owners in the system. By doing so, they assert that Edible Arrangements is in violation of its contractual obligations and general principles of fairness.
Attorney for the association Justin M. Klein of New Jersey-based Marks & Klein, LLP declared, “We are extremely pleased with the court’s determination.” Klein said the decision benefits not only Edible Arrangements franchise owners, but franchisees throughout the United States, adding, “It means that individual franchisees may rely on associations they join to help protect their interests against overbearing conduct of a franchisor.”
Franchisees first initiated a campaign in January 2010 to open communications with CEO Tariq Farid, who founded the company in 1999. They presented 270 letters of opposition to his mandates, one being to increase labor costs without conducting well-executed feasibility studies. They also accused him of increasing corporate revenues at the expense of franchisees’ profitability.
When Farid refused to respond to their concerns, the franchise owners formed the EA Independent Franchisee Association, hiring Justin Klein as their attorney. At that time, they had 15 percent of franchisees in the system. Today it has approximately 200 members, or 23 percent, out of a chain of approximately 867 U.S. stores according to Edible Arrangements’ website listing state-by-state. It is unknown how many of those are company-owned.
Prior to filing the lawsuit, Klein put Farid on notice of the association’s intentions, stating they were prepared to litigate their issues if he did not respond with open communications to resolve the problems. Farid did not respond to Klein’s request, and on September 10, 2010, he filed the complaint against Edible Arrangements and its affiliates EA Connect, Netsolace, and Dipped Fruit.
Edible Arrangements, represented by John F. Verhey of DLA Piper in Chicago, then asked the court to dismiss the franchisees’ complaint on the grounds that the association did not have standing to bring claims on behalf of its franchisee members. The company also argued that its franchise agreement required the owners to arbitrate any disputes before the American Arbitration Association as a basis for the court to dismiss the complaint.
In his opinion, Senior U.S. District Judge Warren W. Eginton determined that Edible Arrangements’ legal arguments were without merit, and denied the motion to dismiss.
Prefacing his decision, he gave background of the complaint. He stated that the franchisee association alleges that Edible Arrangements violated federal regulations by failing to disclose its relationships with its affiliates while requiring its franchisees to do business with them. The franchisee group also claims that there were undisclosed fees associated with franchisees’ mandatory use of an online ordering system provided by EA Connect and computer software provided by NetSolace.
The franchisees also allege that the franchisor improperly imposed new rules requiring longer hours of operations and the purchase of supplies from only certain vendors. And, the company has sanctioned franchisees who do not comply with the new rules by imposing special costs and barring them from filing orders placed via Edible Arrangements website.
The franchisee association further alleges that the company used the money franchisees paid to the national advertising fund for its own benefit and for its affiliate Dipped Fruit, which sells products similar to those of Edible Arrangements. They claim the company unfairly allows only selected franchisees to fill orders for Dipped Fruit.
The EA Independent Franchisee Association seeks a declaratory judgment that Edible Arrangements breached their franchise agreements, violated the implied covenant of good faith and fair dealing, and violate Connecticut Unfair Trade Practices Act. In his discussion, Judge Eginton wrote in his ruling, “In considering a motion to dismiss for lack of standing, the Court construes the complaint in favor of the Plaintiff [EA Independent Franchisee Association], accepting the material allegations as true.” He then explained the three prongs of association standing and why he ruled as he did.
In hearing the judge’s decision, Sherri Vertorano, a North Carolina franchise owner and active member of the association remarked, “We believe the court got it right on all points. We have been forced to protect our business investments as a result of unfortunate decisions made by the company that, quite frankly, work severely against the franchisees. Now that the court has given the EA Independent Franchisee Association the opportunity to fight this fight, we will vigorously pursue the claims to ensure that the franchisees system-wide can have a fair chance at success.”
Edible Arrangements declined our request for an interview with Tariq Farid. Instead, the company issued this statement:
Edible Arrangements International, Inc. is aware of the Court’s decision to proceed with the lawsuit filed by the EAIFA. We continue to strongly disagree with EAIFA’s characterization of the facts and conclusions and plan to defend the complaint vigorously. Since its inception, our main objective has been and always will be to continuously improve the business opportunity for our franchisees and the customer experience.
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