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Quiznos Franchisees Accuse Franchisor of Fraud, Misdealing

Anyone who opens a business here in New York or anyplace else will likely encounter a legal dispute at some point or another. Franchise disputes tend to involve disclosure or contract issues, or an actual or perceived failure of a franchisor to properly support a franchisee.

Quiznos is currently facing at least 10 lawsuits from its franchisees, who have accused the franchisor of engaging in fraud and misdealing by way of its supply system. The franchisees say that Quiznos raked in hundreds of millions of dollars by improperly marking up food and supplies that franchisees were forced to purchase due to contractual obligations. Several years ago, about 8,000 current and former Quiznos franchisees cited similar allegations in multiple lawsuits, resulting in an estimated settlement of more than $200 million.

Quiznos did not admit to any of the claims alleged in those earlier suits, and the company is reportedly continuing to run its supply system in the same manner.

Quiznos also recently announced cuts to a franchisee benefit that has further upset franchisees. The company has ended a program through which franchisees were able to earn a 4 percent rebate on their food costs if they hit certain benchmarks.

Quiznos officials say that money that was being spent on that program will be shifted to marketing, another area in which franchisees say they need support.

The future of these lawsuits is unknown as the chain continues to lose locations and struggles to compete against more successful sandwich chains. These disputes illustrate how business relationships can become strained between franchisees and franchisors. In ideal situations, both sides are forthright and reasonable, but when fraud or misrepresentation may exist, it is wise to seek legal counsel to protect one’s interests.

Source: Nation’s Restaurant News, “Quiznos faces new wave of franchisee lawsuits,” Lisa Jennings, March 11, 2013

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