Franchisees Accuse Francorp of Unauthorized Practice of Law in Partnering with Client
The proposed 4th Amended Complaint filed in state court by Robert Einhorn, Zarco, Einhorn, Salkowski & Brito, on behalf of five area franchisees states the facts of the case. One pertinent issue arising from the latest amended version is the allegation that Boroian and his firm were engaged in the unauthorized practice of law in drafting and delivering disclosure documents to the company, although they were not admitted to practice law in any jurisdiction. The lawsuit claims that because Francorp knew that prospective store operators would be relying on that information when purchasing their franchises, Francorp was engaged in practicing law which was "unauthorized, illegal and deceptive."
The Start of the Litigation
The franchise company at the core of the litigation is South Beach Franchising, brought to Francorp in 2003 by a former client who had a thirty-year history with Don Boroian and his firm. Carol Brothers, (now Carol Myers) had first brought her "Pop-In-Maid Service" concept to Francorp in 1978, a franchise which ended in bankruptcy after seven years. Her latest venture consisted of two models--South Beach Wellness, a system of spa locations for medically supervised health treatments, and South Beach Naturals, a program offering the sale of health products with nutritional value for skin care.
Francorp in marketing itself as the international leader in franchise development and consulting, gave assistance to Brothers and South Beach in preparing its business plans and disclosure documents in setting up its franchise system under South Beach Franchising. Although the firm states that clients must have their own attorney to review and revise documents, the consulting firm actually prepared the Uniform Franchise Offering Circular. Francorp also states that it takes no responsibility for the registration process of disclosure documents.
Brother's prior bankruptcy was not a requirement of the UFOC, but franchisees felt they should have been told about it. "Our point is that Don Boroian knew all about Carol Brothers past," said Einhorn. "The disclosure that does exist in the UFOC is not accurate in terms of her background for a number of years," he continued.
The complaint states that Francorp worked intimately with Brothers and South Beach in the development of its plans and operations, and executed an agreement called the "Full Franchise Development System." It included Francorp's promise to assist in launching a marketing and sales campaign, and effectively recruiting, training and servicing franchisees. It further alleges that Boroian and others met directly with investors who were interested in buying into the system.
Einhorn accuses Francorp of wrongful and fraudulent conduct in accordance to its agreement, that led to the injuries suffered by the franchisees. He further states that Boroian and his firm acted in concert with Brothers and South Beach Franchising in the perpetration of fraudulent and wrongful activities.
Francorp had a mutuality of interest in sale of South Beach's franchises
But the lawsuit also notes that Francorp did not receive compensation for its services, rather, it deferred payment under the agreement until after the sales of the master franchises were to commence. A payment schedule was agreed upon by the parties which stated:
"equal monthly installments of $5,000, plus an amount covering interest at one and one-half (1.5%) per month on the remaining unpaid balance and allowing amortization of principal. [sic] due 11/1/05 . . . Payments will begin upon sale of master franchises."
By agreeing to the arrangement, Einhorn alleges that Francorp had "a mutuality of interest in the sale of South Beach's franchises," and was engaged in a partnership, joint venture or agency relationship with Brothers and South Beach Franchising.
As part of their allegations of misrepresentations in the UFOC, franchisees claim that the South Beach concept and marks were part of the "system," but that "they did not possess any proprietary line of products, nor did it own any established trademarks or commercial symbols." After they executed their agreements, the company instructed that they could no longer use the name "South Beach Naturals" in the sale of the franchise or products. Instead, they were give a new official name, "AdaptoGenetics."
Francorp and South Beach are being accused of violating the Illinois Uniform Deceptive Trade Practices Act, the Florida Franchise Act and the Florida Deceptive and Unfair Trade Practices Act. The 11 counts against them include breach of contract and conspiracy. Plaintiffs are asking for rescission of the master franchise agreements and all other related agreements.
In summing up the case Einhorn said, "Don Boroian and his company completely stepped out of the role of being franchise consultants and became Brothers' partner, her joint venturer and her legal counsel. They actively participated in a scheme to defraud my clients."
Carl F. Schoeppl, Schoeppl & Burke, P.A., representing Boroian, Francorp, Brothers and South Beach Franchising, did not return this reporter's phone calls prior to publishing. He has filed a response opposing Einhorn's proposed fourth amended complaint. Francorp has taken the position in the lawsuit that they were only acting as consultants to South Beach Franchising, that they have no direct relationship to Einhorn's clients and are not liable.
Related article:
| Attachment | Size |
|---|---|
| Proposed4thAmendedComplaintFrancorp.pdf | 2.77 MB |
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