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"…I find, that this whole charade of 'terminating' and 'defaulting' franchisees who failed the field test was just that—a charade—not driven by Quiznos' genuine concern about whether its franchisees were making sandwiches to spec, but rather by its overriding public relations desire to be able to proceed with its national advertising campaign targeting Subway." — District Court Judge Morris B. Hoffman decision on Quiznos Franchising v. Zig Zag Restaurant Group
DENVER (Blue MauMau) – In the last hours of 2008 federal judge Morris Hoffman issued a ruling that said Quiznos seemed more concerned with their competitor Subway than their own franchisees' welfare, trying to shut them down over a bogus meat test that masked the real reason of pettiness.
At the end of a five-day trial which began on December 8, District Court Judge Morris B. Hoffman stated that he would not be able to rule from the bench because the lawsuit was too complicated. He told the parties that he would issue his decision before the end of the year.
Yesterday, Judge Hoffman made his ruling on the lawsuit by Quiznos filed against two terminated franchisees for being slightly under the required five-ounce portion of meat on one of its tested Philly cheese steak sandwiches. In his decision he said all Quiznos' claims against franchisees Rich Piotrowski and Ellen Blickman, husband and wife, are dismissed with prejudice in favor of the franchise owners in the amount of $349,797 plus fees, costs and post-judgment interest at the contract rate of 24% per annum. The franchisees' counterclaim for rescission of one of two of their franchise agreements was also dismissed with prejudice.
Just prior to midnight, Piotrowski emailed a group of franchisees, elated over the decision. He exclaimed that the reality of the judge's ruling is that it is more of a moral victory than a monetary one. "What you do need to know is the last two plus years have been hell. What Quiznos did to us was as unconscionable as anything they could have done. Quiznos tried to shut us down, based on a bogus test that they claimed we failed. When we stood up to them, they set out to destroy us strictly because they can. If you read the Judge's ruling you can see that."
More Than 7% of Quiznos Franchisees Sent Termination Notices
The franchisees entered two franchise agreements with Quiznos in April 2006, but ended up only operating one restaurant in Pennsylvania. The first agreement had originally been put on hold after their selected site at a mall fell through when the mall failed to open. At that time, Quiznos agreed to extend the 12-month period required to open their store after signing their contract. The second store, purchased from an existing franchisee, was only operated under their ownership for eight months, at which time Quiznos allegedly determined that they intentionally under-portioned the meat of one sandwich tested by a mystery shopper. The sandwich had less than the required five ounces of meat, which undermined Quiznos' aggressive ad campaign claiming its prime rib philly cheese steak sandwich had more than twice the meat of a comparable Subway sandwich.
The judge pointed out that Quiznos' then general counsel, Michael Daigle, testified that they had no interest in terminating any franchisees without giving them an opportunity to get back into compliance. But despite his inconsistent protocol, 300 franchisees were sent notices of termination, more than 7 percent of U.S. operators. According to the judge's decision, Piotrowski and Blickman were the only ones who were not given a chance to have their termination rescinded if they passed a third-party inspection after they responded to Quiznos' demands.
Judge Hoffman stated, "It is clear to me, and I find, that this whole charade of "terminating" and "defaulting" franchisees who failed the field test was just that--a charade--not driven by Quiznos' genuine concern about whether its franchisees were making sandwiches to spec, but rather by its overriding public relations desire to be able to proceed with its national advertising campaign targeting Subway."
But he further states, "This explains the sort of non-termination termination process Mr. Daigle came up with.
What he did not count on was that franchisees like Defendants might actually take the notice of termination at face value." When Daigle had testified that he "was done with Mr. Piotrowski," the judge asked him to explain that. But he continued saying, "Mr. Daigle got mad at Defendants because Mr. Piotrowski threatened to call a news conference, and Mr. Daigle decided at that instant that he would not afford Defendants the same opportunity he had afforded every other of the roughly 300 franchisees who were terminated."
Franchisees in ‘Shadow Land’ of Being or Not Being a Franchise
Although Quiznos had invited Piotrowski and Blickman to "mitigate damages" by remaining open despite their termination, the judge expressed that they began what ended up being a 14-month period of operating their stores in a “Kafkaesque kind of shadow land between approved Quiznos franchisee and terminated franchisees." Although Quiznos allowed them to buy food from authorized suppliers and to use its trademarks and service marks, it cut them off from Quiznos' Help Line and from other sources of official information. He said, "Quiznos even went so far as to physically bar Defendants from a regular marketing meeting they attempted to attend after the purported termination."
But he said the strangest element of this shadow existence was that Quiznos stopped taking its royalties and advertising fees. "This failure to collect royalties and fees is a symptom of how profoundly confused Quiznos’ legal department was about the nature of this shadow period," Judge Hoffman explained.
Out of the Shadows
Even after closing the store under the Quiznos name, the franchisees still didn’t give up. They remodeled, removed all Quiznos material, and reopened the store in May 2008 as the American Sub Sandwich Shop, selling sandwiches of their own design and buying food and paper products from their own independent suppliers. Judge Hoffman states, "Defendants operated this store until August 2008, at which time they chose to close it, in no small part because of the increasing demands of this litigation. Zig Zag remains liable on the lease. And of course Zig Zag and Defendants remain liable on the SBA loan." He said that he does not believe the franchisees must prove they closed their new operation because of Quiznos because at that point Quiznos was officially out of the picture, shadow and all. He said, "The question, again, becomes mitigation, and as with their operation of the Quiznos store in the shadow period, I find that Defendants acted reasonably in attempting to mitigate their damages by operating a non-Quiznos sub shop in that same location."
Pointing Fingers at Franchisees' Disparaging Internet Postings About Quiznos Is Just Smoke, It Has No Bearing on Case
Quiznos introduced evidence in the case that both before and after the franchisees’ purported termination in October 2006, Piotrowski posted numerous messages on a web site dedicated to having Quiznos franchisees air their grievances. The judge agreed with Quiznos that many of the postings were disparaging, but found they had absolutely nothing whatsoever to do with Quiznos’ decision to terminate the franchise. Judge Hoffman stated that Quiznos failed to prove that any disparagement so materially impaired their goodwill that they were justified in terminating the franchisees because of it.