Heavy-Handed and Lighter-in-the-Wallet, Quizno's Shocked By Wrongful Termination Verdict
Perhaps most noteworthy about the large wrongful termination verdict delivered in blistering fashion by the court in Quiznos Franchising II, LLC v. Zig Zag Restaurant Group, LLC, et al, (Denver County (CO) District Court, Civil Action No. 06-CV-10765) is that the case literally revolved around a single ounce - the ounce of meat that Quizno's claimed the franchisee had shorted from one of its sandwiches in September 2006, for which Quizno's thereafter sought to terminate the franchise agreement.
In Zig Zag, the Colorado state judge, the Hon. Morris B. Hoffman, described Quizno's default and termination notices - sent to the defendant as well as 300 other franchisees - as a "charade", driven not by any genuine concern as to whether the franchisee was making sandwiches to company specifications, but instead by Quizno's overriding public relations desire to substantiate its national advertising campaign against Subway, in which Quizno's claimed that its sandwiches had "more than twice the meat" of comparable Subway sandwiches.
The court observed that the mystery shopper test upon which the default and termination notices were based was "laughingly unreliable", and it further noted that Quizno's own staff had classified the alleged one-ounce shortcoming as "not 100% intentional".
The court concluded that Quizno's had singled out the defendants by pursuing the threatened termination (unlike the other 300 franchisees who were not forced to close as a result of the failed mystery shopper test) because its general counsel was angry that the defendants had planned to call a news conference to discuss the unreasonable manner in which they were being treated.
In our view, the Zig Zag ruling is a classic example of the extent to which courts will find a way to hammer franchisors who seek to wield their often superior financial resources against franchisees in a heavy-handed manner.
We note the post-judgment comments of Quizno's President and CEO, Dave Deno, that Quizno's is "diligently focused on building a positive partnership with our franchisees and have instituted a number of new programs to that end . . . That's not to say there won't be challenges, but it is certainly not our desire to engage in litigation with our franchisees. Instead, we will continue to dedicate our resources to improving franchise profitability, strengthening relationships with franchise owners and enhancing the Quizno's brand".
While we suspect that Mr. Deno's comments may be met with deep skepticism by Quizno's franchisees, we hope for the sake of the entire system that the company is sincere in this commitment. See Eric H. Karp and David J. Meretta, Regulation FD: Roadmap to Better Relations Between Franchisors and Franchisees, American Bar Association Franchise Law Journal, Vol, 26, No. 3, Winter 2007. Perhaps Quizno's finally understands that heavy-handed conduct of this variety quite literally is a lightning rod.
About the author: Eric Karp is a partner with Boston's Witmer, Karp, Warner & Ryan LLP. He is regarded as one of the top franchise attorneys in the country. He serves as counsel to numerous franchisee associations and has testified before Congress on behalf of franchisee related issues.
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