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EVALUATING A FRANCHISE OPPORTUNITY
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SHOULD A FRANCHISEE LITIGATE?
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Stephen A. Katz, P.C.
111 John Street, Suite 800
New York, NY 10038-3180

(212) 349-6400
(800) 251-3529
(212) 349-6407 (Fax)
sakatz00@aol.com
 

 

SHOULD A FRANCHISEE LITIGATE?

Franchisors can harass their franchisees to the point where the franchisee has grounds for suing.  Katz will examine the facts of each case in light of applicable regulations, statutes, contracts, and case law and determine whether grounds for a franchisee’s lawsuit exist.

Examples of such grounds are

  • A frozen-custard franchisor started selling its product in supermarkets, thereby cutting into its franchisees’ sales.

  • Franchisees put up money for advertising, out of which they believed the franchisor was taking 2% for itself.  But they discovered that it was pocketing 15% of the communal-ad funds.

  • An oil-change franchisor’s requiring franchisees to buy lubricants, equipment, and services from it, instead of letting them purchase the products at competitive prices on the open market, could violate the antitrust laws.

  • Predatory pricing: the franchisor marks of up its wholesale prices that its franchisees must pay, then sells the franchised product to the public at lower prices than the franchisees can charge, forcing them to sell at uncompetitive prices and eventually letting the franchisor take over their franchises.

  • Encroachment: the franchisor’s surrounding the franchisee’s store with company-owned stores until it puts the franchisee out of business and takes over its store.

  • Franchising may be done to market profitable businesses that earn money for both franchisee and franchisor.  Or franchising may be done solely to sell franchises, with the franchisor knowing full well that most of its franchisees will fail but not caring because it only wants the initial franchise fee that it receives when it sells a franchise.  Franchising of that second kind may be a criminal conspiracy, and the franchisor may be liable to its franchisees under a state anti-racketeering statute.

 

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