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Of course Bob Frankman does not have a problem with Quiznos ripping off newly signed franchise owners because they should have done their due diligence.
Class Action Alleges 3000 Quiznos Sold but Not Opened
Submitted by Janet Sparks on Mon, 2007/08/20 - 15:17.
Lawsuit Claims Quiznos Collecting Upfront Fees, Giving Prospects Nothing in Return
DENVER (Blue MauMau) - Because the problem is now nationwide, an amended class action lawsuit was filed in U.S. District Court in Colorado on August 1 to expand the scope of the New Jersey lawsuit filed previously. The amended version alleges that Quiznos fraudulently induced prospects to purchase franchises at a price of $20,000 to $25,000 each, knowing that their stores would never open. It states that, according to Quiznos' own figures, it sold more than 3,000 franchises that never opened, resulting in approximately $75 million in revenues for the franchisor, without providing anything in return to the purchasers. The named franchisees in the lawsuit represent a putative class of thousands.
Last July, Quiznos in Canada agreed to pay $2 million in a class action settlement with Canadian franchisees, for similar accusations. It will allow the Quiznos Sub sandwich chain to refund part of an estimated 170 deposits and taxes to franchisees. The Canadian settlement will cover losses for more than 25 franchisees named in the lawsuit who lost fees in the range of $30,000 each.
Alleged Churning in System is Equivalent to "Ponzi Scheme"
Justin M. Klein, Marks & Klein, lead attorney for the U.S. amended suit, states in the complaint that franchisees are required to open a restaurant within a twelve-month period of signing their agreement or they will be in default. Quiznos maintains unilateral discretion over the approval of the franchisee's location and the franchise lease, both included in the franchise agreement. It states the terms are "extremely one-sided in favor of Quiznos." If a location cannot be secured, Quiznos then threatens termination due to the franchisee's failure to open a store within the time period. The franchisee can be held liable for years of unpaid royalties.
As an alternative to termination, franchisees are given two choices: they can extend the time to find a location in exchange for a general release, freeing Quiznos from any liability; or they can voluntarily terminate the franchise, which includes signing a release, and again freeing Quiznos from any liability. The class action lawsuit claims that the releases are then used by Quiznos to protect itself from the franchisees it has defrauded through threats and intimidation. It says, "Quiznos' overall approach to the SNO (Sold Not Opened) is the equivalent of a 'Ponzi Scheme,' which it hucksters to the general public."
The complaint also alleges that the franchisor sells the same trade area to multiple franchisees, stating, "That is, Quiznos 'churns' trade areas by selling the same area multiple times in an incessant need to raise capital and promote brand growth to the national marketplace." In doing so, it fails to disclose to a new franchisee that another had owned it and could not secure a location.
Inherent Conflict of Interest in Compensating Employees for Sales
The amended complaint also claims that Quiznos bases the compensation of its franchise salespeople and other employees on their ability to sell franchises. By doing so, it says, "This creates an inherent conflict of interest for Quiznos' salespeople, who are placed in a position where their livelihood depends upon selling franchises without regard for the franchisee's ability to ever open a store." The franchisor also provides bonuses to employees who sign up prospective franchisees to attend seminars, and to those who are able to secure signed applications. They are also paid to those who are able to secure a signed franchise agreement. This information is not disclosed in order to give franchisees a sense of trust and confidence in the Quiznos employees.
Franchisees are requesting, among other things, rescission of the franchise agreements due to their unconscionable nature and as induced by fraud, rescission of all contracts and releases obtained through economic duress, and damages. It also asks the court to issue an order for preliminary and permanent injunction enjoining the franchisor and its entities from continuing to take illegal action in selling any future franchises in the U.S., until all current franchisees are provided approved locations to open and/or Quiznos reimburses the fees collected to those who want them returned.
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Previous Quiznos Article:
FUNDED OR UNFUNDED?
Submitted by RichardSolomon on Tue, 2007/08/21 - 08:29.
Under the rules of franachise accounting adopted by the Financial Accounting Standards Board of the AICPA, initial fees are not to be "taken into" general revenue accounts until the store is open/up and running.
As this is different from an impound in which the initial fee income is required to be escrowed until "up and running" is achieved, it is likely that this treatment is an accounting fiction only within Quiznos and that the money is "gone". $ 75,000,000 is a lot of money. If a court ordered it ponied up into an escrow account pending performance by Quiznos of what is related to that revenue, could they do it, or would that plunge Quiznos into immediate bankruptcy?
Is this a choke point that might compel Quiznos to come to terms on this issue to avoid bankruptcy?
Richard Solomon
www.FranchiseRemedies.com
Q and Lawsuits
Submitted by Guest on Tue, 2007/08/21 - 13:38.
Nice to see our hard earned money being used to pay lawyers to get Q out of another mess. This company seems to look for the line that divides shady from illegal and walk as close to it as possible.
Those of you looking for an investment please take this friendly piece of advice: stay as far away from Quiznos as possible. If you see an infomercial turn the station, if a rep calls hang-up, if they invite you to a seminar refuse to go, if they come to your house slam the door in their face.
If you still need a reason or reasons to stay away post your question or questions and they will be answered. Trust me. At best you'll be working 7 days a week with no way out. At worst, it's a 200+ thousand dollar mistake that will haunt you for years. This company is the anti-McDonalds, the anti-Subway and the "new" management hasn't changed that.
Internal Barriers to Group Action
Submitted by Guest on Mon, 2008/01/28 - 06:17.
Franchising is a process: It causes changes in the way humans view themselves, the world and their relationships.
A side-affect of this process for the franchisee is a temporary increase in these emotions (affects) and behaviours:
* passivity (a form of "sleepwalking thru life")
* loss of meaning (depression),
* silence (pain cannot talk directly),
* shame/guilt/hubris, and
* interpersonal distrust.
All of these are big barriers to a healthy resolution of what some franchise investors come to see as a form of imprisonment.
This is why an adversarial format is so ineffective: The franchising process itself cripples the capacity of the individual to seek a just remedy. The legal system continues this incarceration psychology.
Faustian Bargain
There is a "victory" but the tempter always returns to collect his side of the deal.
The betrayer and confederates pay in their existential pain: A different manifestation than the franchisee but perhaps more corrosive over time.
The ends do justify the means, don't they?
And this is universally, 100%, categorically true because every fairy tale says so!!!
Les Stewart
gone fishin'
Rip Offs
Submitted by Bob Frankman on Tue, 2007/08/21 - 20:02.
I have a big problem with franchisors ripping off franchisees.
But let us also not forget that franchisees are "adults responsible for their own actions", paraphrasing Franpro.
Example. When the UFOC highlights, stars, centers, and writes in capitals on page 1, "THE FTC DOES NOT READ OR CHECK THESE DOCUMENTS", I cannot reasonably support a franchisee saying that the government conspires to trick them that it monitored the accuracy of UFOCs.
Q PR and Lawsuits
Submitted by Guest on Tue, 2007/08/21 - 14:50.
The regulators must certainly understand that the same PR and Publicity and Advertising that sells a Quiznos Sub to the public is the same PR, etc.. that sells the concept as a franchise to new prospects. New prospects of Quiznos and The UPS Store, and the Coffee Beanery, and CSC, and SonaMedSpa have no idea of what they are getting into. This whole PR vehicle of being an Entrepreneur and buying the American Dream of a business of your own has been very successful.
Unfortunately, the truth and the news of the lawsuits don't get out to the general public and it is apparently cheaper for ZORS like Quiznos and MBE-UPS and many others to fight the lawsuits than to make any substantial changes to help their ZEES.
Quiznos is expanding into the world market and as long as their profits and bottom line aren't substantially impacted, they have no reason to make any real changes that will help the ZEES.
They have probably already figured out that if they can keep a certain percentage of their network trapped at breakeven, working hard to service their debt, the royalties will sustain Quisnos Corporate as they spread out into the world. The state of the law greatly favors the Franchisors and the lawsuits don't worry them.
Due Dilegence on Q
Submitted by franpro on Tue, 2007/08/21 - 18:10.
Quiznos has always been a case study in why not to get into franchising, in my opinion. I always have used it as a bad example when I do seminars around Cleveland.
Having said that, it is the prospective franchise owners job to learn how to do proper due diligence, which includes the most important part of the research phase:
Calling current and past franchise owners. If some of the Q franchise owners who never were able to open their stores did at least that..they would have found out about the problems with non-store openings. If they would have then taken the emotion out of the equation, and stuck with the facts and the data, they may have looked at another option or two in franchising.
Adults are responsible for their own decisions.
Franpro
3000 Bamboozled By Quiznos
Submitted by Bob Frankman on Wed, 2007/08/22 - 21:43.
FastCasual.com's editor has posted this story from Blue MauMau, emphasizing the "Ponzi Scheme" part of this whole mess.
3,000 Sold Not Opened (SNA) Quiznos Franchises?
For any new buyers out there, what that means is that the franchise buyer (you) lose your tens of thousands you paid upfront for the franchise fee, as per the Quiznos franchise agreement, because Quiznos has not approved the various sites you sent them. Sweet deal, no?
They can minimize their support costs in setting up a new store, while just taking in your franchise fee revenue, and training fee.
Besides FastCasual's "Ponzi Scheme", these words fit the situation:
- bait and switch
- hussle
- sting
- bamboozle
- swindle
- rip-off
- scam
- bilk
- shark
- flimflam
- con
Can anyone out there think of any other words that fit? (And can be published in a public forum.)
HOUSTON'S UPCOMING QUIZNOS FRANCHISE EXTRAVAGANZA
Submitted by RichardSolomon on Fri, 2007/08/24 - 06:09.
In this morning's Houston Chronicle (p. A-18), Quiznos announces that on 28th August - next Tuesday - they are having a Quiznos franchise fair - ONLY A LIMITED NUMBER OF AVAILABLE FRANCHISES. Why aren't these available to the 3,000 claimed sold but unopened folks in the lawsuit?
WHO'LL BE THERE? - Aspiring Entrepreneurs - Top Level Employees and Executives tired of the corporate grind - Motivated Indiividuals - Couples With Big Dreams
Endorsements from present franchisees:
"I worked in restaurants for years and was interested in opening a sub shop. Quiznos has great support for their franchisees, the training program is great and they want you to do well" Rachel Stewart - Colorado
"Quiznos is very innovative when it comes to product and customer service.. everything is there for yu. All you have to think about is running your business." Paul Arnold - Colorado
TODAY'S QUESTION IS - WILL THE QUIZNOS FRANCHISEES WHO CLAIM THEY GOT CHEATED BY THERE AT THE HOUSTON MARRIOTT WEST LOOP AT 7 PM ON TUESDAY 28 AUGUST TO TELL THEIR SIDE OF IT?
Richard Solomon
www.FranchiseRemedies.com
From a GAAP standpoint....
Submitted by Tinker on Tue, 2007/08/21 - 09:12.
the franchise fee should remain as a liability (customer deposits, etc) until the point the fee is 'earned' or becomes non-refundable. This is probably where the contention lies. From a 'real world' perspective, these franchise fees should stay in this account until the location has opened or the 1 year has passed. However, I'm sure Quiznos will argue that since the franchise fee is non-refundable from the minute it passes into their hands, they could use their "discretion" to declare it as revenue immediately.
Lisha
Quiznos Contract
Submitted by michael webster on Tue, 2007/08/21 - 08:53.
Interesting point, but the Q contract deems the initial payment to be earned immediately upon payment.
Why would the accounting standards trump the contract, at least in the US? (The standards might trump in Ontario because of our stand alone good faith, fair dealing and commerically reasonable standards clause - unfortunately this was not pleaded in the Ontario class action.)
Michael Webster PhD LLB
Another franchise like QUIZNOS is 123 FIT by the same people.
Submitted by Guest on Tue, 2007/09/25 - 12:31.
This comment has been moved here.
Les is there anything positive about franchising?
Submitted by Guest on Mon, 2008/01/28 - 07:19.
What can you tell us that is good and wholesome or is it all doom and gloom?
Is franchising simply part of the failed capitalist system that rewards the bourgeois fat cats and subjugates the proletariat?
Do we need to dismantle the franchise economic model and replace it with a communal system that rewards people according to their need?
NeoPopulista
Comment Moved
Submitted by Mr. Blue MauMau on Thu, 2008/05/22 - 00:27.
This comment has no tie into the topic of the Quiznos class-action lawsuit in Colorado. It has been moved here.
Can't Excuse Con and Ineffective Regulation
Submitted by Guest on Tue, 2007/08/21 - 19:33.
True, Franpro, but we can't excuse the con and the cooperation of government to obscure the truth about the risk in franchising because adults don't do effective due diligence.
It is too late after you have been "had" and the PR and Advertising of Franchising in a positive manner and naive and inexperienced prospects put together sets ordinary nice citizens up to be marks for predators. The government knows this and doesn't care. The pain of the individual little people who lose everything is ignored and not looked at under public policy. I expect more from my country.
I know you are a good man and I know that you know
this. Do you think franchising could survive if the ZOR known failure rate of first-generation franchisees was required to be disclosed under disclosure law? If this known risk factor is disclosed to prospects and they want to take the risk, franchising would then be an ethical and moral business practice.
As it is now, it is kind of oranized crime.
Rip Offs and Con
Submitted by Guest on Tue, 2007/08/21 - 21:23.
The FTC was mandated by Congress in the late 70's to regulate franchising because of the growing incidence of fraud in the nation.
We have a growing incidence of fraud today and the RULE of the 70's isn't doing the job.
If government is going to pretend that it is regulating franchising and permit ZORS to churn and hide their failed first-generation franchisees in UFOC's to obscure the real risk from new first generation franchisees who don't pay big bucks for due diligence, this is not acceptable.
The cop out of "THE FTC DOES NOT READ OR CHECK THESE DOCUMENTS" is no excuse for the DEAL of Item 20 that permits government to ignore the stealing and fraud that goes on when unviable franchises are sold to the innocent public.
Now they want to permit the predators to work over the Veterans who will not spend scarce dollars for due diligence and who will think that those franchises on the SBA Registry and the Vet-Fran Discount implies that the franchise is a safe and good investment. You know they will be buying franchises with very high failure rates and risk but you just stand by and spout that shit of "due diligence."
How about the government requiring bold type in the front of the UFOC advising that THIS UFOC CANNOT BE USED WITHOUT THE HELP OF PROFESSIONAL DUE DILIGENCE EXPERTS. LET THE BUYER BEWARE. DO NOT SIGN A FRANCHISE AGREEMENT WITHOUT PROFESSIONAL ADVICE. How about the government making the ZORS disclose the reasons for the transfers in Item 20?
Psychology
Submitted by michael webster on Wed, 2007/08/22 - 05:03.
Bob, would you change your opinion if a battery of psychological tests showed that most people didn't understand the significance of this risk warning - wouldn't that make a difference?
Do you think that it is important that the FTC doesn't have a single page on its site showing an example of how to check out the UFOC representations?
Do you think it important that the vast majority of attorney's who perform due diligence, even experienced franchisee attorney's, limit themselves to a review of the contract?
Michael Webster PhD LLB
Q Due Diligence
Submitted by michael webster on Wed, 2007/08/22 - 05:43.
Franpro writes: "Calling current and past franchise owners. If some of the Q franchise owners who never were able to open their stores did at least that..they would have found out about the problems with non-store openings."
How would they have found the names of the SNOs? (Stores not opened)
Michael Webster PhD LLB
Advertising Fund Now Raided
Submitted by Guest on Thu, 2007/08/23 - 04:02.
Our advertising fund is now being raided. When was the last time you saw a Quiznos commercial? We had more television ads running when threre were less than a 1000 stores. Now with over 5000 Quiznos, our ads are non-existent. The cynicial side of me wonders if our advertising funds are funding the legal machine at corporate. With over 5000 stores and at the minimum 4% total fee that goes to Quiznos; they have squandered 1.6 million dollars a WEEK from us.
THE MORON ARMY SYNDROME
Submitted by RichardSolomon on Thu, 2007/08/23 - 02:56.
The mind boggles that there are so many dishonest franchisors out there and that people who can produce upwards of a half million dollars to a million dollars in cash and commitment are so easy to bamboozle with a slick sales presentation engineered to simulate professionalism.
What is it that makes these thieves believe that such people would believe nonsense without competent investigation?
The answer is that they do believe it. They drink it in like free cold beer at a political rally. Hell, everyone will vote for free cold beer, right?
The crooks see these people as a gift from God. After all, they posit, if God didn't intend that there be shearing, She would not have created sheep.
They present themselves as rich morons. They don't/won't competently consider - even though they may read it - the warnings that are placed right in front of their eyes. These warnings include, for example:
- The FTC admonition quoted by Frankman that the FTC hasn't checked the reliability of the information in the UFOC and doesn't know whether it is correct - and that you better get professional help on this.
- That people tell them that due diligence if available for free. Someone who is paid by the franchisor if they confirm that you should buy a franchise, and who, if they saw the dangers couldn't warn you away without failing to get paid at all IS NOT WORKING FOR YOU, BUT IS WORKING FOR THE FRANCHISORS. There's no free lunch, baby!
The biggest public service that we can all try to accomplish in BMM is to try to wake these folks up and get them to pull their heads out of their arses.
The poor bastards who bought the 3,000 sold but unopened Quiznos franchises are to be viewed as just an addition to the hundreds who are open and can't make a living being a Quiznos (insert any of dozens of other franchise names) franchisee.
You could posit that the 3,000 who were cheated out of their initial fees are the lucky ones. Actually opening a Quiznos franchise will cause you to lose a lot more money than just the initial fee if the stories told in here are correct.
We gotta get 'em to desert the Moron Army.
Richard Solomon
www.FranchiseRemedies.com
AND BY THE WAY
Submitted by RichardSolomon on Fri, 2007/08/24 - 06:38.
Muldoons is justs a few blocks away from the Quiznos franchise extravaganza location. If the protestors wanna meet at Muldoons and paint posters and nail 'em to sticks and get drunk before wandering over to the hotel to picket, I'll set it up - All you can drink cash bar.
Richard Solomon
www.FranchiseRemedies.com
THEY DON'T
Submitted by RichardSolomon on Tue, 2007/08/21 - 09:29.
They don't trump the contract - that's why I made the distinction between the accounting issue and an escrow.
But if Quiznos had to account for its ability to refund for non performance - if ordered to account by a court as an exercise of its equity powers - what might that lead to?
I don't know if there's an accounting claim in the complaint, but if the lawsuit is in part about selling franchises that aren't available and accounting for money that is tied to a specific non performance issue, it could get rather delicious.
Richard Solomon
www.FranchiseRemedies.com
Dear David: BLT, hold the maya
Submitted by Guest on Mon, 2008/01/28 - 07:53.
Some traditions consider the material world an illusion or a gymnasium designed to let us develop our strengths and overcome our weaknesses.
You get one (or lots) of chances to burn away error.
Certain core pain is useful because they can show us we may a little off-base in our thinking. My best spiritual friends have always stabbed me in the front.
But then again, everything's gotta die to let something else live, right?
Cha-cha-cha-changes...
Les Stewart
fisher
Gov't Cannot Protect Us from Ourselves
Submitted by Bob Frankman on Tue, 2007/08/21 - 22:15.
"How about the government requiring bold type in the front of the UFOC advising that THIS UFOC CANNOT BE USED WITHOUT THE HELP OF PROFESSIONAL DUE DILIGENCE EXPERTS." - Guest
I think the FTC must've heard you years ago. From a UFOC of 4 years ago, Page 1. The FTC warning is centered, framed, and formatted to stand out on the page.
##
WE HAVEN'T CHECKED IT (THIS UFOC), AND DON'T KNOW IF IT'S CORRECT... (i.e. Buyer Beware. The gov't wants you to be clear that it does not check these documents.)
BUYING A FRANCHISE IS A COMPLICATED INVESTMENT. TAKE YOUR TIME TO DECIDE. IF POSSIBLE, SHOW YOUR CONTRACT AND THIS INFORMATION TO AN ADVISOR, LIKE A LAWYER OR AN ACCOUNTANT (i.e. Use professional due diligence experts when looking through this.)
...THERE MAY BE RISKS CONCERNING THIS FRANCHISE. (i.e. Just in case you didn't get it the first time, buyer beware!!)
FEDERAL TRADE COMMISSION
Washington, D.C. 20580
FTC Watches for Me
Submitted by Bob Frankman on Wed, 2007/08/22 - 06:17.
"would you change your opinion if a battery of psychological tests showed that most people didn't understand the significance of this risk warning?" - Webster
Possibly.
When you say "a battery of psychological tests showed that most people didn't understand", you mean like how a battery of psychological tests show that most of us cannot even ascertain how many Fs are in the sentence below when we read it quickly?
FINISHED FILES ARE THE RE-
SULT OF YEARS OF SCIENTIF-
IC STUDY COMBINED WITH
THE EXPERIENCE OF YEARS.
.
.
.
.
.
Answer: There are 6 Fs. You may want to count again.
Non opened Due Dil
Submitted by franpro on Wed, 2007/08/22 - 07:46.
Michael,
If one were to call current and past franchisees from the UFOC, one, I would hope, get a feeling for the current state of a particular franchise company, including disgruntled zees who have not been able to open..
I have found that asking great questions leads to getting great answers.
I would say it is all about the ability to peel the onion.
Wouldn't you?
Franpro
Vets and Due Dil
Submitted by franpro on Wed, 2007/08/22 - 07:51.
Guest,
How do YOU know that Veterans won't spend their "scarce dollars" on due dilegence?
Most due dilegence is FREE, anyway. As is free info.
Franpro
Quizno's Ad Fund Reporting
Submitted by Guest on Thu, 2007/08/23 - 05:11.
Quizno's has an obligation to report the financials of the ad fund to its franchisees and it would be doubtful if they are using it for legal fees. However Quizno's has broad latitude on how these monies are spent (e.g., media buys, creative, local store collateral, marketing agencies, certain marketing staff, etc...).
Have you contacted your FAC and asked for the last report of the Ad Fund. Have you read your franchise agreement to learn what it says about Ad Fund reporting?
I agree with thisl
Submitted by Guest on Sun, 2008/01/27 - 04:09.
How can a franchisee contact names of people that never opened? In the UFOC of 123 fit (which is owned by 123 fit and fromer owner of Quisno's-Rick Scaden.) Only 2 stores were disclosed as closed in the fall of 2006. The number of clubs that were sold were 146. By the way they changed the numbers of the clubs. When we bought our 123 fit club I questioned the integrity of the company after our build out. We did it their way and got screwed. Today more clubs are closing and will be closing. There is more information out there than when we bought a franchise. We only lasted 8 months. Lost all our retirement money and much more. It's sad that ethics is not a priorty in this company. In a fitness club you want to help people reach a healthy state. Too bad 123 fit doesn't care about it's people at all. Except to take the franchisee's money and ruin their lives. From doing research on the internet it sounds like many more Quisno's people lives were ruined. When 123 fit doesn't make it, (Only 29 clubs left and few more opening- poor souls their in for a roller coaster ride that will crash eventually after you've spent all your money.) Rick and Brooksy will start another franchise and then another franchise. Their good at what they do robbing from hard working people. That is the only way they know how to make money. Signed Disgusted
