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Quiznos Settlement Deadline Nears

 Quiznos Landmark Store in Downtown  Denver
Quiznos landmark store in downtown Denver, photo/sparks

DENVER – Tomorrow will be the deadline for Quiznos Subs franchisees to join in or opt out of the settlement agreement of four class action lawsuits that was approved by Judge Rebecca Pallmeyer in Illinois federal court last November. The 160-page legal document cautiously details the structure of the plan to compensate approximately 10,000 restaurant owners, in order to wipe the slate clean for Quiznos after years of litigation and bad press.

Included in that number are current and former franchisees, and various classes of SNOs (Sold but Not Opened) where buyers bought franchises but were unable to find locations or open their stores in the required time period of their franchise agreements. SNOs had to forfeit their franchise fees.

Quiznos claims the cost of settling the lawsuits is approximately $100 million, which will impact almost 7,000 individuals in the system, as well as several thousand more who have closed or never opened their stores. Because the litigation revolved around the company’s supply chain and food costs, marketing and advertising funds, disputes with franchise owners and other franchise investors, the settlement offers related solutions.

Although the monetary compensation to be paid out is less than $25 million, which includes the forgiveness of unpaid royalties and advertising and marketing fees, the remainder of the $100 million is made up in contributions by the franchisor to additional programs. Quiznos agrees to finance an advertising and marketing fund, a dispute resolution program and a new franchisee association to be recognized by the company. In lieu of cash payments, Quiznos will also pay many current owners with credits toward future purchases of food and equipment.

As part of the settlement, franchisee attorneys will walk away with $11 million.

The franchisor has stated that the settlement is very good news for Quiznos. A spokesperson for the company declared, “Litigation is a time-consuming process that shifts valuable time and resources away from our most important focus—great-tasting food, franchise owner profitability and customer satisfaction.”

Franchisee counsel Justin M. Klein, Marks & Klein, agreed. He stated to Nation’s Restaurant News, “The settlement is the culmination of several years of contentious litigation and reflects what we believe is a positive step for the future of the Quiznos system.”

But despite how this settlement offer is being sold by Quiznos and franchisee attorneys, many franchise owners feel they are being sold down the river. 

Franchisees Respond

One person who is speaking out about the settlement is Chris Bray, founder and former president of the current independent Toasted Subs Franchisee Association (TSFA). He said he personally believes the Quiznos' offer is sort of a “mixed bag of fruit.”

Bray, who was sued by the franchisor along with other TSFA board members for posting on its website the suicide note of former franchisee Bob Baber in November 2006, has since settled the legal dispute and is no longer a franchisee. He now acts as consultant to TSFA.

Bray gave this opinion:

Since there are multiple classes of litigants, the settlement conditions vary for each class of litigant. Each litigant will need to carefully evaluate whether the settlement, as it applies to them, is sufficient to relinquish their claims against Quiznos. Where a litigant of one particular class may be content, I suspect a litigant of another class may not.

What is most disappointing is that nothing in the settlement specifically addresses or resolves the root complaints for which the litigation was originally filed.  Those complaints centered around the contention of an unprofitable business model experienced by the majority of franchisees, coupled with franchisee-unfavorable business practices by the corporation. Without any resolution of those fundamental issues, it remains to be seen if this settlement can have any lasting, positive impact.

Jude Ryan, a franchisee in New Jersey and a TSFA board member, gave his own personal opinion (not as a representative of TSFA) stating that the settlement does not affect everyone equally and that is the biggest problem. The main named litigants in the lawsuits will probably get about $50k each, according to his calculations, but the other franchisees will basically get peanuts.

Ryan reminds franchise owners that if they take no action in opting in or opting out, they will automatically be opted in. “That is the default. If they want to opt out they must do it before January 29, otherwise they will be part of the settlement, like it or not,” he warned. He also reminds operators that if they do end up in the settlement they are required to file a claim by the January 29 deadline for the amount owed them, according to his interpretation of the agreement.

“I think everyone is getting a raw deal, that Quiznos is just trying to get franchisees to sign a piece of paper that makes them give up their right to sue. They are not really getting anything in return,” he stated.

Ryan is planning to bring another lawsuit against Quiznos and he is encouraging others to join in. In an email sent out this week to TSFA members, he explains that an attorney in Colorado has agreed to represent them. He states in the email that Jeff Cohen of Patton Boggs has successfully settled with Quiznos on behalf of other franchisees, and he has had a victory in one recent case in Denver. He said Cohen has been litigating against Quiznos since 2005.

So what would the new lawsuit cost? Ryan said it will not be cheap, that it could run anywhere from $200k to $300k, with an initial retainer of approximately $50k.  But he said, “. . .I strongly believe that the odds of success have never been better, and with each lawsuit that is being brought against Quiznos, and with each settlement Quiznos reaches with a franchisee, the odds of success increases.

But Ryan also admits there are risks, risks of losing the lawsuit and franchisees losing money. He states,

In order to manage the downside risk but preserve the upside potential (our initial investment in Quiznos and the damages we could get from Quiznos) I am looking for other franchisees who are willing to join me in suing Quiznos. I am committed to raising the $200,000 to $300,000 required for this lawsuit.

Ryan said he is looking for at least nine other franchisees who are willing to opt out and pony up anywhere from $20,000 to $30,000 spread over 18 months, with an initial upfront retainer of $5,000. Besides the money, he said the franchisees must be committed to dealing with the aggravation of the lawsuit over the next year and a half.

As another reminder, Ryan said, “Once you opt out and preserve your rights to sue, we have more breathing time to file the lawsuit. Keep in mind that if you closed your store early on, there may be a statute of limitation that may prevent you from filing the lawsuit. You may have to look into your agreement to figure this out and you can check with Jeff Cohen as well.

In closing, Ryan advised, “Reach out to others who are inclined to continue fighting the good fight against Quiznos, and who are looking for other kindred souls to fight along with them, and let them know about this lawsuit. Our day in court has yet to come, and I personally am looking forward to it.”

Quiznos Conducting Business as Usual

According to some franchisees who do not want to be named for fear of retaliation, Quiznos is still up to its old tricks. The franchisor has been raising prices recently on products and franchisees feel this is in attempt to offset some of the losses that they will experience due to the litigation. They say the cost of inflation is not going up, but yet Quiznos’ prices are going up numerous percentage points.

Others claim Quiznos is now down to 3200 stores in North America and more store closures are on the way. US alone is at approximately 2800. One source said even with all the store closures, Quiznos continues its egregious behavior. They are forcing a mandatory remodel costing about $4,000. And they continue to increase the cost of products that franchise owners are required to buy from them. Bread has gone up to $4 a case, and sandwich condiments are also on the rise.

Another unnamed source said their quarterly food rebate is “on hold” and that going forward, it sounds like Quiznos will discontinue all food rebate monies.

Telephone calls and emails to plaintiff attorney Justin Klein, Marks & Klein, requesting an interview regarding the settlement have not been returned since the settlement was approved by Judge Pallmeyer last November.

A phone call to Quiznos corporate only prompted their same statement issued last November that the judge’s ruling did not include any finding of fault by any party. They stated that they were pleased with the settlement.

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About Janet Sparks

Janet Sparks's picture

Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.