Quiznos Franchisees Lose Class-Action Suit in Canada

Attorney Says Will Appeal

TORONTO (Blue MauMau) – An Ontario judge has ruled against Quiznos franchisees forming a class action suit against their franchisor in Canada, Quiznos Canada Restaurant Corporation. Because lawsuits can be too expensive for individuals, class action lawsuits are often initiated but must be certified by a court as a group having a common interest. Canadian provincial judge Paul Perrell of Ontario's Superior Court of Justice ruled on March 4 that all 427 individuals and firms carrying on business under a "Quiznos" franchise agreement after May 11, 2006 did not qualify to band together in a class action suit. Every franchisee's case would need to be decided individually.

Justice Perrell points out to the plaintiffs that they don't have their case quite nailed down. Perrell sympathetically and rather philosophically concludes, "I recognize the collective aspiration of the class members to band together to have their day in court to obtain justice for their perceived grievances, but, in my opinion, based on the evidentiary record now before the court, their claims are a large square peg of law and facts that cannot fit into the large round hole of procedure that is a class proceeding."

Quizno's Franchising LLC in Denver, Colorado considers this a significant legal win. Rich Emmett, Quiznos' chief legal counsel, declares, "We believe it [the verdict] is indicative of what is going to occur in the United States."

Claiming price gouging by Quiznos, franchisees say Quiznos limits what prices sandwiches and menu items can be sold for, while the firm contracts for inflexible food prices with high markups and rebates to the corporation, a practice that the franchisees contend is against Ontario's Antitrust Act.

"This [allegation] is untrue and unfounded," replies Quiznos' legal counsel. "The facts bear out that franchisees have actually saved millions and millions of dollars by purchasing through Quiznos."

Attorney Michael Webster, whose Ontario practice focuses primarily on franchise and distribution law, summarizes why the class action failed, based on the justice's 34-page court opinion paper (TIF file, 2MB). "The justice accepted the franchisor's contention that there was no evidence of a common price maintenance effect [price fixing] on franchisees. Unless the franchisees could establish that they could buy at uniform prices, they could not establish a common effect.

"Without a formed association or buying group, it will be difficult to litigate on a class basis what the prices 'should have been.' This is not to say that an individual or three might not succeed in showing their damages, but at a class level, without having a co-op or buying group in existence, you are going to find it difficult to establish class wide damages. However, if the co-op or buying group exists, the necessary economic evidence is no longer speculative. How much did the co-op lose because it was denied opportunities to purchase on par with the franchisor?"

Mr. Webster, a member of the American Association of Franchisees and Dealers, an organization that helps create independent franchisee associations, concludes, "Without trying and possibly failing to create a franchisee buying co-operative, the court is going to find the class action procedure mimicking an individual assessment of damages, which means no class action certification."

Franchisee attorney Allan Dick, partner of Sotos LLP of Toronto, Ontario, who helped bring the franchisees' lawsuit to trial, states, "We expect to be appealing this decision. Quiznos was fighting certification of the case on quite a few grounds. The judge did not accept most of their grounds for denying certification. He focused primarily on one aspect of the case in denying certification that we will address."

Meanwhile, Quiznos continues to march forward in Canada. Mr. Emmett says, "Quiznos Canada is on a roll. They are posting huge positive comp [same-store-sales compared to last year's] numbers. They are developing additional stores and the profitability is higher than it's been in many years. We only see continued good things on the horizon for Quiznos Canada. The biggest indicator of that is that a large portion of our development is actually coming from existing Quiznos franchisees who want to build more stores."

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Here are the major legal events in this case.

• Franchise owners file a class-action suit for relief from alleged price gouging of supplies by franchisor and supplier
• Quiznos filed for a stay of action, saying the franchise agreement banned class action suits. Justice denied the stay of action.
• However, court rules that procedurally Quiznos franchisees did not reach the qualifications for a class-action suit

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Related reading:

• Example of Illegal Price Maintenance in Ontario, Canada
• Quiznos to Pay $2M in Canadian Settlement  
• Judge Rules Quiznos Case Cannot Be Dismissed  
• Class Action Alleges 3000 Quiznos Sold but Not Opened
• Judge Dismisses Federal Lawsuit against Quiznos
• Quiznos Operators File Class Action in Wisconsin State Court
• Quiznos' Chief Counsel Speaks Out on Issues 
• Michael Webster's BizOp News, Quiznos' Class Action Fails  

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