Quiznos Rebukes Latest Pennsylvania Class Action as Copy Cat Lawsuit

PITTSBURGH (Blue MauMau) - A class action lawsuit against Quiznos Subs was filed on July 3 on behalf of Pennsylvania franchisees by attorney Peter J. Daley and Associates, P.C. The litigation arises from the illegal business scheme by Quiznos and its "web of affiliated entities and individuals who control and operate the Quiznos franchise system," according to the Complaint filed in the U.S. District Court.

Through the alleged scheme, Quiznos is accused of having fraudulently induced franchisees into the system and then exploited their control and economic power in order to extract exorbitant and unjustifiable payments and expenditures from them. The lawsuit states, "As a result, Defendants [Quiznos] reap grossly inflated sales and profits creating an illusion of corporate growth and business prosperity while causing substantial, permanent, irreparable financial harm to existing franchisees."

But Richard Emmett, Quiznos' Chief Legal Officer quickly dismisses the class action as nothing more than a copy cat version of those already filed. "We call it a "me too" lawsuit, meaning we're going to file one as well."  He feels Daley is just trying to pick off some of the Pennsylvania franchisees.

Emmett said there is nothing new here and they are totally unimpressed with the litigation. He adds, "His allegations are all based on past business practices and we expect the same results here that happened in Illinois. In fact, he alleged some of the claims that were dismissed in both Illinois and Wisconsin. So we're not quite sure where this gentleman is coming from."

A number of other class action lawsuits have been filed over the past few years in various states including Colorado, Illinois, New Jersey and Wisconsin, as well as a national class suit, all by lead attorney Justin Klein, Marks & Klein law firm in Red Banks, New Jersey. 

Mr. Klein did not return phone calls in our attempt to get his comments.

Primary Components to Class Action

The class action Complaint explains the two primary components to Quiznos' alleged scheme. The first claims that after the sub-sandwich chain induces franchisees into the system by misrepresenting the facts, it further takes advantage of the store operators by saturating geographic areas with more restaurants than can reasonably be supported. Quiznos then enforces biased and discriminatory policies and practices designed to deliberately decrease its obligation to compensate franchisees for mandated products.  They further allege that the policy keeps outspoken franchisees "in-line" and "towing the line" regarding its unfair, unethical and deceptive business practices.

The second component of the lawsuit accuses Quiznos of exploiting the overwhelming economic power it holds over its franchisees by creating a captive artificial consumer market, comprised of all of its franchisees, for products and services that it requires to start and continue a franchise business. While concealing its own relationship with its vendors, Quiznos also uses exclusive control over the franchise system, forcing franchisees to purchase unneeded products at unreasonable prices, and to accept coupons from customers for free or highly discounted products.

Franchisees also claim violations of the Racketeer Influence and Corrupt Organization (RICO) Act, and of various Pennsylvania statutes, breach of contract and fraud. They are seeking declaratory injunctive relief as well as damages.

Quiznos' "Unsustainable Business Plan"

The suit gives a detailed account of what it identifies as "Quiznos' Unsustainable Business Plan," going back to 1994 when Richard (Rick) Schaden and father Dick Schaden took over the company. In explaining the franchisor's current situation with JP Morgan Partners, the Complaint states that in April 2006 Quiznos sold an undisclosed stake in the company to the investment firm.  Upon their believe, it sold a 49 percent share to JP Morgan for approximately $858 million, giving it the opportunity to purchase the remainder of the shares still held by Schadens Ownership Group at a specified time and for a specified price if certain conditions are met.

The class suit explains that for Quiznos to complete the sale of itself to JP Morgan, "it must maintain and even improve the financial results, including substantial revenue growth, it has experienced over the last several years." The lawsuit states, "To that end, Quiznos has continued and even enhanced a number of deceptive and fraudulent practices with respect to its franchisees that allow it to extract millions upon millions of dollars from the franchisees, while simultaneously making it difficult if not impossible for most Quiznos franchisees to operate profitably."

Attorney Peter J. Daley did not return phone calls prior to publishing.

Related reading:

• Judge Rules Quiznos Case Cannot Be Dismissed
• Wisconsin Court Reverses Quiznos Judgment, Franchisees Claims Granted
• Judge Dismisses Federal Claims against Quiznos without Prejudice
• Canadian Attorneys Say Quiznos' Counsel Mistaken in Remarks
• TSFA's Open Letter to Quiznos' CEO Brenneman
• Quiznos Responds to TSFA Letter
• Quiznos' Chief Counsel Speaks Out on Issues