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.

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More Q Lies

Regarding the Franchise Times article:

How do food costs go down when you're deeply discounting sandwiches, your food prices on products provided by Q are skyrocketing, and the only attempt to lower costs is to lower portioning on some subs by 1oz? The answer is they don't.

Also, those franchisees expressing their opinions at the very bottom of the article were probably provided by Quiznos. The reason? Frachisees have had their agreements terminated for expressing their honest opinion about Q and how it does business. No franchisee will talk with the media unless it has been cleared by the goons at Q. And if that's the best they could do than you know they're not happy.

Finally, the cost comparison with Subway doesn't end with the cost of food, paper, and supplies. Quiznos franchisees pay 12% off the top for the "privledge" of being a Q. Compare that with other chains and frachisees have a real problem trying to stay competitive.

Quiznos closure rate 8% in 5 years

According to QSR magazine, "Quiznos closure rates are the highest among the $1 billion-plus restaurant chains we cover"

Quiznos president David Deno attributes the closings to the explosive growth earlier in the decade. Somebody help me here. What does "explosive growth" have to do with store closings? If explosive growth relates to encroachment, I understand that. In previous interviews, Schaden and Schafer both commented that Quiznos still had plenty of room to grow. I'm confused because Subway has many more locations than Quiznos and Quiznos closure rate is four times higher than Subway. Someone please help a simple-minded fool like me understand.

1,000 stores?

Yeah,
Seems like overkill. However, quoting a few franchisees in a sea of many doesn't put a whole bunch of credibility in the article. Especially after taking the time to speak to several executives.

Franchise Times Article

I agree with guest.
The article came out after only a few months of trial with the Sammies. As time went on, some of us came to realize the lost sales due to customers trading down to a sammie. This hurt overall cash flow and in some instances made situations worse.

Major progress? Measured by whom and based on what criteria?

It seems that the executives at Q have been using that spin for some time now. The measurments I have seen along with some fellow franchisees I know have been minimal if not worse.

I suggest Franchise Times interview 25% of franchise owners to get a more clear picture.

Interview 1000 Q Franchise Owners

"I suggest Franchise Times interview 25% of franchise owners to get a more clear picture."

Hey, whatever your smoking, pass it over. Judging from your writing, it's good stuff. Hurry over to your closest Q and buy a $2 Sammie or two. It'll taste especially awesome if you eat shortly.

Quiznos Brenneman Report Card

FFFFFFFFFFFFFFFFFFFFFFFFFF

Franchisor Journal Gives Brenneman Good Marks

Franchise Times disagrees with the person posting above. It reports to the industry's franchisors that Brenneman is making major progress.

Many franchisees, including some of the chain's harshest critics, say that the efforts are showing results. Food costs are down. The chain's new and profitable $2 Sammies, flatbread sandwiches, are drawing positive early reviews. New ads are bringing in traffic to the restaurants, and the company is more responsive to complaints.

Franchise Times And Q

The article was from January of this year which was well before the $5 sub.

Franchise Times A Schill For Quiznos

What kind of investigative reporting did the magazine do? Seems like someone got a call from Q, took notes on what was said, typed it up and published it. They'll probably get some advertising from Q in return as well.

Q Schills Everywhere

Seems like someone got a call from Q, took notes on what was said, typed it up and published it. - Guest

In the same FT article that quotes several executives:

"He probably listens more than most upper management I've seen," said Steve Price, who owns two stores in Indianapolis. "He's out there every week communicating with us about how he's changing things internally."

And then there is this skeptical franchisee.

Some aren't entirely convinced, mostly because at $2 the sandwiches may be too cheap, even with the food costs at 25 percent. "I'm still a little indecisive as far as the Sammies," said Jeanne Rice, who owns a store in Brownsburg, Indiana. "They're a good product. But at $2 I have to sell so many. I'm working twice as hard." Still, she agreed that a different group is coming in to buy them.

Some Thought to Your Postings, Puuhleeeze

Your report card receives an "F". F for no details, F for no thought, F for no process. This is a lazy posting.

Is it too much to ask to put some original thought and link to supporting information in your posts?

Jeez, we are a lazy bunch.

Some Thoughts To Your Posting

Your post gets an F

Click reply so we can see entire thread

OK. I see the person may be the same person as a post from a guest below that did give details. The two posts weren't in the same thread.

Please click on "reply" instead of "add new comment". Add new comment adds a new discussion thread in isolation and "reply" continues the discussion thread.

Quizno's dilemma

TIF said:
Let me ask you again what would you like to see happen at Quizno's?

An immediate drop in food costs to the franchisees for a start. That will relieve the pressures felt by franchisees through this difficult economy. Quizno's Corporate has been promising us this for over a year with no measurable results.

Now they want us to lower our MSRP's without a reduction in essential goods prices. There will be massive carniage.

Talk is cheap.

Guest,
Not all franchisees involved in the lawsuit are ex-zees. When the suits were first filed, most were active.

Re: Quizno's dilemma

To add to that, the first steps in solving a problem, is admission,recognition and definition.
Q refuses to accept the fact they have a major revenue and market position problem on their hands, as witnessed by all the "happy talk" every Friday !
Then the issue of "transparency" has to see the light of day - again mentioned a couple of times but never fully disclosed.
They need to disclose to the FO community, the actual costs of food invoiced to Q,the component of costs incurred by Q to run a purchasing department, and what is costs to pay for the services of the regional food distributor.
All of the above applies to monies collected and spent for advertising.
This is not going to happen, unless JPM/CCMP starts to show red ink in their P&L on the Q investment, and starts to ask the difficult question - what the hell happened and why are we loosing so many stores ....... ?

The Quizno's Dilemma

Until the current, former zees and zees from other franchises the Quiznos people started will do something nothing will change.

Quiznos Brenneman Report Card

What has Greg done? Let me list a few...

1. Further complicated an already complicated menu by changing sandwich weights as well as added additional line of sandwiches. Grade F He promised to simplify the menu when coming on board.

2. After setting a goal of 26% food cost, he is running at least six percentage points higher. He said when he came on board that food costs were too high and he has managed to raise them higher. Grade F.

3. Greg's announced goal was to increase franchise owner profitability by $10,000 a year. The average Quiznos is less profitable, not more profitable this year. Grade F.

4. The average store collected on two funded kickbacks from Quiznos. The STAR award and the food rebate program. The STAR was eliminated and now the average franchisee gets less rebates. Grade F.

5. Innovation and marketing. Quiznos rolled out the $2.00 Sammie to combat the impression of being too high priced. They went one step further and jumped on the $5 large sub bandwagon which is now killing franchise owners profitability. Grade D

6. Quiznos Delivery program. Hit and miss. Mostly miss. He wants us to train our customers to quit coming into our locations and making us go to them while spending $4.00 a gallon for gas. Oh yes, for that privlege, we get to spend $6500 to get started and increase our fixed expenses by a large amount to cover drivers, insurance, etc. Grade F.

Does Greg ever give us a report of how the average franchise owner is doing? No he doesn't. He will comment on an e-mail that he received from one franchise owner out in Kansas who said he has seen his sales jump to an unbelievable level because of this or that reason. Good for him but what about the 90% of owners who aren't experiencing that?

I can't wait for tomorrows Friday CEO pep rally though.

Subway laughing at Quiznos

To Subway executives..... You tricked a 100 pound weakling into stepping into the ring with you and have clubbed them upside the head. You convinced Quiznos to fight to "your" strengths and the Q boys fell for it. Good job.

Quiznos Corp know how to "dance"...that's for sure

This isn't mine but I found it and it's just too funny..

http://www.myspace.com/insidetheq

More Bad News For Q Scum

More bad news for the pirates at Quiznos. Sources say that last week 10% of the royalty/ad ach's came back with a NSF code - not sufficient funds. That coupled with layoffs and the # of rats that are now bailing is a sure sign that Quiznos is in bigggg trouble. And from where I stand it couldn't happen to a meaner, more incompetent group of human excrement.

Quiznos denial

After many years in this franchise called Quiznos, I had my first NSF for a check. The bank covered it with a $25 fee so that in itself is no big deal. What is a big deal is that Brenneman and his cronies have planted a self-destructing time bomb for all franchise owners which will mean massive closures. It's going to get ugly...

Re: More Bad News For Q Scum

What are you hoping happens to Quizno's? 

How will reduced royalty/ad fund income, layoffs and employee departures help franchisees? 

The Truth Shall Set You Free!

TIF

TIF and Quiznos

The one reason I think it is important to point out Q's corporate problems is because they will never make meaningful changes if they don't feel the pain as well. They can force franchise owners to honor a ridiculous $5.00 price point and make the franchisee suffer but they won't come off that decision unless they feel consequences of that marketing plan as well.

If you believe that Quiznos will make changes to benefit the franchise owners on theirown, you have not paid attention to the past many years of being screwed time and time again.

TIFF, you obviously don't believe that the franchisor/franchisee relationship should in some degree represent a partnership. If you ever find yourself unemployed, look no further than Quiznos for a job because your moral compass matches theirs closely.

Re: TIF and Quiznos

My moral compass notwithstanding, I believe that Quizno's management will have to do those things that will improve the buisness long term and in the short term there will have to be a cleansing of the system whereby the weakest stores close and the viable ones remain.

The Truth Shall Set You Free!

TIF

P.S. The franchisee/franchisor construct is a business relationship and not a partnership.

Re: Re: TIF and Quiznos

Yes, TIF, the weakest Quiznos stores will close, approximately 90% of the chain!

tif......he slinked out again

Why do you foolish people engage in any type of dialogue with the number one troll, tiff? He just recently came out from under his bridge after disappearing because he got slapped silly for trolling. He got a little brave and peeped out from under his bridge and now some here are encouraging him to come out further. Let the troll stay where he belongs, collecting tolls from strollers in the woods. tif, you better crawl back under your bridge before I get upset and send you off crying and whimpering again. I won't be as kind this time.

Re: tif......he slinked out again

Cowardly Troll Guest hasn't got the cajones to go up against me!

It is best for the Troll Guest to run and hide before I bring supreme vengeance upon him.

The Truth Shall Set You Free!

TIF

Re: tif......he slinked out again

Couldn't come up with anything tif, except to repeat what I said?

What does "tif" tell us about you? ID yourself for us like you dare everyone else, or don't you have the gonads? Did you forget them under your bridge...or did you never have them? Actually, I lopped them off in our last go-round so you'd have just a little bit more room to tuck your tail.....and I do mean just a little bit more room.

Facilitators of constructive dialog sorely needed

"The franchisee/franchisor construct is a business relationship and not a partnership."

TIFF makes a good point.

All we hear are the efforts by Quiznos ex-franchisees and their lawsuits of fraud. That's not going to be of much help to existing franchise owners. We hear anger and bitterness.

We are pragmatic business owners. Yet we hear precious little on improving existing franchisee contracts to be fairer or what is being done to leverage the existing franchisee voice in purchasing decisions. We hear nothing constructive about what to do to handle the few honest-to-goodness deadbeats in the network that drag everyone down.

Sometimes you have to agree to part. How would franchisees like that to happen or are they happy with the way terminations are being done now - with considerable litigation?

Where is the Toasted Subs Franchisee Association?

Re: Re: TIF and Quiznos

That will be a relatively short lived "business relationship".

Such an entitled attitude.

All relationships must be mutually beneficial or eventually they will cease. Eventually Quiznos reputation will be tarnished beyond repair. No one will work with or for them.

I wont buy a sandwich there , I havent for years since reading all of this because I wont allow a penny of my money to find its way to there pockets.

What comes around goes around Mr. Tiff. Only a sleaze chooses to conduct themsleves the way that they do and only a sleazzer person can justify those actions.

Not "justify"

Guest writes:What comes around goes around Mr. Tiff. Only a sleaze chooses to conduct themsleves the way that they do and only a sleazzer [sic] person can justify those actions.

TiF was not justifying the actions. In fact he noted that he was setting aside his "moral compass" and giving a pragmatic analysis of what Quiznos must do to ensure survival of the brand.

In one commercial litigation matter which I am dealing with, one of the sleaziest people I know is represented by one of the sleaziest attorneys I know. But that guy just came into $6M and now both the sleaze and the sleaze-attorney are rolling in the dough.

So no, life is not one big game of karma. Sometimes the bad guys not only win, but kick you in the shins for good measure.

Quiznos will change when the Schadens deem that it is in their interest to change. To date, I don't see much indication that we are at that point.

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400

Re: Re: Re: TIF and Quiznos

Yes, It takes a sleaze to know a sleaze! I hope Rick Schaden (the Wicked Dick of the West, Greg Brenneman (self proclaimed REACH... I mean Turn-Around King), Rich Emmett, and Steve Schaffer all live long enough to see what Ken Lay avoided by dying first.

Ken Lay isn't dead

The heart attack was a fake. He is alive and living in Montivideo, incognito but in ducal splendor.--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Ducal Splendor

Had he been a little greedier and more skilled at cover-ups, he could have been living in Montevideo in regal splendor, not ducal. Had he worked in franchising, he could have lived happily in the open, instead of incognito.

Sleaze

Uh-huh. And then what?

Feeling better now that you've vented?

Too bad Mother Theresa is not around to take over. But then in your book if she took over, her saintliness would be tainted with sleaze.

No friend of Q Franchisees

"I wont buy a sandwich there"

Then you are no friend to Quiznos franchisees.

I understand Blimpie has the sector's highest franchise failure rates. Might I suggest you find out and tell us about their franchisor, Kahala?

Its so funny.

Its so funny how you would think because I have respect for the hardworking franchisee that I will spend money at a brand that does what quizno does.

It will be a cold day in hell those sleazeballs get one red cent from me.

If I ever did I would specifically ask the franchisee not to ring me up so his franchisor never see the transaction. Or I would not purchase food there. I would tell him why and my bet is that he or she would be more than happy to accomodate a transaction without a receipt.

F - U Quiznos.

Re: Its so funny.

Well F - U Guest I am shocked that your moral compass would allow you to suggest a Quizno's franchisee underreport their income and cheat the franchisor.  

The Truth Shall Set You Free!

TIF

No Friend Here

".. I have respect for the hardworking franchisee SO I will NOT spend money at a brand that does what quizno does."

With friends of franchisees like you, who needs enemies?

Cash is King!

No record no royalties. The Franchisee still makes money.

F U Quizno Corporate H aha ha.

Im your worst enemy because I know what you are and I know how to hurt you.

TIF - Truth In Fiction?

what a hypocrite, he is!

Any truth in what he posts is purely coincidental!

More Bad News For Q Scum

TIF, spoken like a true franchisor. Alot of concern for the Quiznos franchisees now that poor management and greed have driven them to this point, none for the potential franchisees who would keep this con game running and would stand to lose all THEY have by buying in. So you don't care about those folks? That's vital information for them.

In fact, you probably could care less about the current q franchisees. What you might care about is that Quiznos' policies and deceit give all franchisors a bad name - which is bad for your business, hypocrite.

Two Sides

"TIF, spoken like a true franchisor."

Good. Someone has to.

True franchisor? What does that mean?

I think it's impossible to discuss Quiznoose in terms of true franchising. It's an oxymoron.

There are enough terrible franchisors out there, but there are also many where the franchisees make money and have regularly made money. While they may sometimes be arbitrary in how they get things done, the test of "true franchising" is that the brand succeeds and the franchisees make money. There is no other test of true franchising.

To say that organizations like Quiznoose are  "true franchisors" speaks only to the writer's bias, not to the quality of the franchisor.

Any franchisor that meets the test I just stated is a true franchisor. All others are not true franchisors. Scammers and abusers are not true franchisors.

If your brand works and you have consistently made money, you should definitely count your blessings. If you don't get your way very often, but your brand works and you consistently make money you might just remember that no one put you in charge. Often, unfortunately, franchisees that have done well financially assume that they ought to call the shots. If you want to call the shots, get your own show.

I agree that there needs to be more franchisor input on BMM. When I do that, there are always a few whiners that have wonderful names to call me because I don't see the world their way. I am now going to begin making the case here for good franchisor positions. Maybe you drive away franchisor posting with your bad manners. You can't drive me away with your bad manners. My skin is too thick, and I can just ignore you.

From now on there will be a lot more positive posting about good franchising and how in the presence of good franchising, whiners are really of little value or significance. --

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Franchisee / Franchisor Relations

The passionate positions spoken by obvious franchisees do have a ring of trith to them. I work for a different system, we have many successes and yes we have failures too.

And reading the complaint, I can see how plaintiffs perceive that they have been wronged. But you need to step back and ask yourself and truthfully and answer, the following question. " Have I done everything in my power to enable this venture to succede?" That question works for both the Franchisee and Franchisor.

If you can't answer YES, try again tomorrow.

Life is hard, it's called work for a reason.

Action

True franchisor? What does that mean?

I think it's impossible to discuss Quiznoose in terms of true franchising. It's an oxymoron.

There are enough terrible franchisors out there, but there are also many where the franchisees make money and have regularly made money. While they may sometimes be arbitrary in how they get things done, the test of "true franchising" is that the brand succeeds and the franchisees make money. There is no other test of true franchising.

To say that organizations like Quiznoose are  "true franchisors" speaks only to the writer's bias, not to the quality of the franchisor.

Any franchisor that meets the test I just stated is a true franchisor. All others are not true franchisors. Scammers and abusers are not true franchisors.

If your brand works and you have consistently made money, you should definitely count your blessings. If you don't get your way very often, but your brand works and you consistently make money you might just remember that no one put you in charge. Often, unfortunately, franchisees that have done well financially assume that they ought to call the shots. If you want to call the shots, get your own show.

I agree that there needs to be more franchisor input on BMM. When I do that, there are always a few whiners that have wonderful names to call me because I don't see the world their way. I am now going to begin making the case here for good franchisor positions. Maybe you drive away franchisor posting with your bad manners. You can't drive me away with your bad manners. My skin is too thick, and I can just ignore you.

From now on there will be a lot more positive posting about good franchising and how in the presence of good franchising, whiners are really of little value or significance. --

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Re: More Bad News For Q Scum

Let me ask you again what would you like to see happen at Quizno's?

How will reduced royalty/ad fund income, layoffs and employee departures help franchisees?

I don't think you want to improve the situation at Quizno's since if that were to happen and the franchisee's improve their businesses so does the franchisor. Which is quite a dilemma for someone hell bent on getting their pound of flesh.

The Truth Shall Set You Free!

TIF

How will the Bad News help fanchisees?

"How will reduced royalty/ad fund income, layoffs and employee departures help franchisees?"

How will increased royalty/ad fund income, increased hiring and good retention of employees help franchisees? It never has, has it? Wonder what scenario would actually help the Q franchisees. There must be something that could happen that would actually help them out. No?

-K-

Re:How will the Bad News help fanchisees?

Great non-answer -K-!  I guess you don't know what you want!

The Truth Shall Set You Free!

TIF

Easy

It will keep good people from ever BECOMING franchisees in the first place.

If a poor Zor only is able to ttract stupid people, how is that good for the Zor?

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