Judge Dismisses Federal Lawsuit against Quiznos

Federal Judge Rules That Quiznos Franchisees "Are Bound by the Terms of the Franchise Agreements They Signed."

MILWAUKEE (Blue MauMau) – Federal Judge William Griesbach of the U.S. Eastern District Court of Wisconsin announced today the dismissal of a banner lawsuit against Quiznos. Twelve franchisees, represented by attorney Justin M. Klein of Marks & Klein, allege that Quizno’s Franchise Company, LLC defrauded them. The sandwich shop owners accuse Quiznos of gouging franchisees to require them to purchase food, supplies and services at exorbitant prices from approved vendors, who in turn provide hidden kick-backs to Quiznos. It is alleged that the company then set artificially low retail prices that dug into store profitability.

Allegations of the franchisor having exorbitant mark-ups and kick-backs were ruled as vague. There was another more critical issue. Whether such price gouging exists or not, the judge specifically cited that the Uniform Franchise Offering Circular (UFOC) in which all franchise owners must sign was quite clear. The franchisor could charge mark-ups and kick-backs without restriction; specifically:

ITEM 8 of UFOC: We (Quiznos) and our affiliates have the right to receive payments from suppliers on account of their dealings with you and other Franchisees and to use the amounts we receive without restriction for any purpose we or our affiliates deem appropriate...

The claims of the franchise owners were undone by the franchise agreements that each signed (see attached memorandum and order, pdf - 28 pgs). Summarizes the judge, “Having chosen to become Quiznos franchisees, plaintiffs are bound by the terms of the franchise agreements they signed. If Quiznos has breached its agreement with them by charging them exorbitant prices for the goods and services needed to operate their franchises, their remedy lies in contract, not under the antitrust laws."

Federal racketeering, Sherman anti-trust and fraud charges were all dismissed. In regards to these charges, the court observed, “claims of fraud on which plaintiffs’ civil RICO claims rest are fatally undermined by the exhaustive disclosures and specific disclaimers and non-reliance clauses set forth in the franchise agreements they signed. I also conclude that the complaint fails to state a claim under the Sherman Act and its Wisconsin equivalent."

Franchise owners claimed that area developers gave them false expectations of what their store would earn when they were investigating to buy a franchise. The court dismissed the allegation saying that such false earnings claims were not relevent because the UFOC expressly stated this warning in all capitals and bold letters (see below):

"OTHER THAN THE ABOVE INFORMATION, WE DO NOT FURNISH OR AUTHORIZE OUR SALESPERSONS TO FURNISH ANY ORAL OR WRITTEN INFORMATION CONCERNING THE ACTUAL OR POTENTIAL SALES, INCOME OR PROFITS OF A QUIZNO’S RESTAURANT."

The court also ruled that the jurisdiction of the lawsuit was not entirely appropriate. State claims should be tried at the state level, not in federal court. Comments the judge, "With plaintiffs’ federal claims gone, I then dismiss the remaining state law claims without prejudice to allow plaintiffs to pursue them in state court under whose law they arise.”

With the franchisee lawsuit having failed, Richard Emmett, Executive Vice President and Chief Legal Officer for Quiznos, spoke with Blue MauMau about how the ruling could help the network focus on important issues.

“Now hopefully this distraction is behind us. We do not want to spend our time in court", says Mr. Emmett. "We want to spend our time improving the system and franchisee profitability. So we are pleased with the decision, not only because we think the decision is right but also because it will allow us to direct more resources to the benefit of our franchisees.”

Franchisee attorney Justin Klein is currently evaluating whether to file the suit in state court and / or appeal in federal court.

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• National Class Action Filed Against Quiznos
• Quiznos' Chief Counsel Speaks Out on Issues
• Quiznos to Pay $2M in Canadian Settlement
• Quizno’s Australia, 7 Years via the ACCC