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Quiznos Settles 8-Year Suit with Canadian Franchisees for $275K

A shuttered Quiznos in Montreal, Quebec
A shuttered Quiznos in Montreal, Quebec. photo/ps

ONTARIO, Canada – After eight years of litigation, Quiznos Canada Restaurant Corporation is settling its dispute with franchisees. The settlement amount is only C$275,000 for the 600 franchisee members.

What isn’t clear is whether the low settlement offer being presented to Canadian franchisees is a direct result of the Quiznos U.S. chain filing for bankruptcy in Delaware court on March 14, 2014. After Quiznos Denver headquarters announced its Chapter 11 filing, The Globe and Mail reported in April that franchise owners in Canada were not worried that the Canadian sandwich chain’s parent company had filed for bankruptcy protection in the United States. “There’s nothing wrong in Canada,” one store owner told a Globe and Mail reporter. Another agreed saying, “No, we are not worried.”

The Canadian newspaper also told how Quiznos had been relatively more successful in Canada than in the United States. Quiznos U.S. had 5,000 or more units in 2007, but dropped to 1,500 at the time it filed for bankruptcy protection. And Quiznos in Canada had 450 stores in 2009, but now operates some 370 locations.

Globe and Mail explained that while Quiznos’ Canada Restaurant Corporation franchisor was not listed as a debtor in the bankruptcy filing, Quiznos Canada Holdings, the franchisor’s direct parent, which oversees all the company’s operations in country, does hold some of the U.S. company’s $500 million in debt. It is named as a debtor and reports show it is a wholly owned subsidiary of the bankrupted company.

As the franchisees waited for their attorneys at Sotos law firm to decipher what the bankruptcy in the U.S. would mean for their case in Canada, one litigator spoke out for his clients. Sotos’ attorney Allan Dick reminded Mail and Globe subscribers that Quiznos forced its franchisees to pay too much for food and other products, requiring them to buy from Gordon Food Service in Michigan. He said Quiznos “illegally conspired with GFS to charge higher prices.”  The Toronto attorney also told the reporter that the Ontario judge would hear motions by Quiznos and GFS to dismiss their case at an upcoming hearing, and it could have an impact on the Canada class action. If Quiznos’ reorganization plan goes through, Dick explained that it could make it impossible to pursue action against some, though not all, of the Quiznos business units named in the lawsuit.

Class action lawsuit alleges conspiracy of food kick-backs

The class action lawsuit, filed in 2006, alleges that the Canadian franchisor of Quiznos and others conspired to enhance and fix the prices of food and supplies purchased by the franchisees for their restaurants. The store owners assert that Quiznos and its food distribution center, GFS, operated a system of kickbacks. Among the allegations, franchisees claim Quiznos violated a federal statute that prohibits price maintenance and conspiracies to maintain prices. They state that under this law “it is illegal to force or coerce a distributor to fix or enhance the prices at which it sells goods or to set a minimum resale price.”

Franchisees also allege Quiznos violated the Competition Act, essentially by inflating prices on supplies and raw materials purchased by the franchisees for their businesses.  They claim Quiznos received a portion of the enhanced price, which the distributor sold to the franchisees. The store owners complain that the prices for these suppliers were above what is commercially reasonable-and therefore in further violation of laws that protect franchisees.

The franchisees asked for a monetary award that represents the harm that the class members suffered and an award of punitive damages designed to punish the Quiznos defendants.

Canadian class settlement terms that affect franchisees' future rights

On July 9, 2014, attorneys on all sides agreed to a proposed settlement agreement under the Ontario Superior Court of Justice; Sotos LLP for the Quiznos franchisee class members, Cassels Brock & Blackwell LLP for all Quiznos defendants, and Stikeman Elliott LLP for Gordon Food Services.

Although Sotos attorneys did not respond to Blue MauMau’s requests for an interview last Friday to discuss the resolution of the class action lawsuit, the firm’s website outlines the terms. It states, “The proposed settlement is a compromise of the disputed claims in the class action, and takes into account a variety of risks inherent in lawsuits.” It also notifies qualifying franchisees, past and present, that the court will decide whether to approve the settlement at a hearing to be held October 2, 2014. Any franchisee who owned a franchise between May 12, 2006 and November 23, 2009, and who did not opt out of this class action, can be part of the class settlement.

In light of the eight-year litigation and the C$275,000 (US$252,000) that Quiznos has agreed to pay to approximately 600 Canadian franchisee class members, the proposed settlement explains: “At this hearing the Court will determine whether the Settlement Agreement is fair, reasonable and in the best interests of class members.” It says the payment is “in respect of disbursements incurred in the action.”

Quiznos and its affiliate companies do not admit to any wrongdoing or liability to the franchisee class members. They say they are entering into the settlement in order to achieve a final resolution of all claims asserted against them. Quiznos also says the settlement will allow the franchising firm to avoid the expense, inconvenience and burden of the litigation, and it will put to rest the “controversy and avoid the risks inherent in uncertain litigation.” The court warns franchisees to read the settlement offer carefully as it may affect their legal rights.

As part of the settlement, franchisees and Quiznos Canada agree to the “released claims,” thoroughly detailed in the proposed settlement. The parties release each other of all future claims, existing now or in the future, related to the franchisees’ ownership or operation of any Quiznos franchise in Canada or elsewhere.


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Quiznos Canada Settlement-Agreement July 11 2014.pdf1.49 MB
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