A class-action lawsuit was filed against Quiznos Sub April 19 in the U.S. District Court for the Northern District of Illinois, alleging that the company has systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field.
The lawsuit also contends that the company forces franchisees to buy food, supplies, and services from Quiznos or its affiliates at inflated prices while concurrently setting artificially low retail prices for its products.
In addition, the plaintiffs allege that Quiznos unlawfully participates in a scheme to sell the franchises by omitting or otherwise misrepresenting key facts about Quiznos' business operations in an effort to induce potential franchisees to buy into the system.
Quiznos responded to the lawsuit April 20, saying the allegations were "false" and "misleading."
In seeking damages for lost investments as well as injunctive relief, the suit alleges, among other things, statutory and common law fraud, violations of federal and state antitrust laws, violations of the Racketeer Influenced and Corrupt Organizations Act, breach of contract, and violations of Illinois franchise and consumer protection laws.
The suit in Illinois is the third class-action brought on behalf of Quiznos franchisees in less than a year, according to Justin M. Klein, Esq., a partner in the Red Bank, N.J., law firm of Marks & Klein, LLP. Klein also represents the plaintiffs in similar actions filed on behalf of Wisconsin and Michigan franchisees.
"Quiznos has been taking advantage of its franchisees for years through practices that we contend are illegal and in violation of the franchise agreement," said Chris Bray, president of the Toasted Subs Franchisees Association Inc., in a news release.
The association is a trade organization representing Quiznos franchisees that helped organize the class-action suit.
Bray, who owns two locations in Texas, and has been a franchisee for nine years, said Quiznos "has slowly, methodically and deliberatively modified the business model, year over year, to inflate corporate profits at the expense of franchisees system wide. This has led to a lack of franchisee profitability and excessive store closures. It is time to put a stop to this."
In April 2006, Quiznos announced that J.P. Morgan Partners, the private-equity division of J.P. Morgan Chase & Co. would acquire a significant share of Quiznos pursuant to undisclosed terms.
Since the acquisition, the company has replaced its chief executive with former Burger King CEO Greg Brenneman.
Almost one year later, in a Feb. 24, 2007, article published in the New York Times, Brenneman acknowledged historical problems with the franchise and vowed to work to correct those problems.
Quiznos' problems began last year with the firing of an executve in August over an Internet sex scandal. In November, several lawsuits were filed by The Toasted Subs Association, made up of Quiznos franchisees, claiming Quiznos has systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field.
Things got worse in December when Quiznos franchisee, Baber Vhupinder, also known as Bob Baber, committed suicide. Vhupinder was one of several franchisees suing Quiznos for fraud, exploitation, saturating geographies and violating the conditions of its Uniform Franchise Offering Circular.
And in January, Quiznos franchisees in Kentucky closed two locations, criticizing the corporation's business practices, rising food costs and a corporate requirement to accept coupons without reimbursement.
