If you have been misled by your franchisor, you could have a claim for fraud. In this scenario, it will be critical to ensure you make informed decisions, and you will want to promptly discuss your legal options with an experienced franchise attorney. Jeffrey M. Goldstein, founding attorney of Goldstein Law Firm, represents franchisees nationwide.
What if your franchisor isn’t telling you the truth? Unfortunately, this is an all-too-common scenario. Whether franchisors run into financial trouble or decide to pursue unfair or anticompetitive business practices, there are various reasons they may choose to mislead their franchisees.
As a result, if you have concerns, you should not ignore them.
If your franchisor isn’t telling you the truth, you may have grounds to hold your franchisor accountable. Franchisees can pursue fraud claims in various circumstances. From contract-based fraud claims to claims under state franchise laws, defrauded franchisees can pursue claims through various avenues and hire an experienced franchise attorney to seek appropriate remedies on their behalf.
What Constitutes Franchisor Fraud?
Franchisor fraud can take many different forms. Ultimately, if you have any reason to believe your franchisor has misled you at any stage of the franchise relationship, it is worth discussing your options with an experienced franchise attorney.
Some of the more common examples of franchisor fraud claims include:
- Fraudulent disclosures during the franchise buying process (including fraudulent disclosures in the Franchise Disclosure Document (FDD))
- Fraudulent misrepresentations related to franchisors’ use of marketing funds
- Fraudulent misrepresentations in connection with attempted renewals and transfers
- Omissions of material information about franchisors’ relationships with vendors
- Omissions of material information about the franchisor’s financial or legal standing
All of these forms of fraud can directly undermine franchisees’ ability to succeed. As a result, they can all potentially warrant legal action. With that said, every case is unique, and to find out if you have a fraud claim against your franchisor, you will need to discuss the specific circumstances of your case with an experienced franchise attorney.
Are Franchisor Fraud Claims Subject to Mandatory ADR?
As a general rule, franchisor fraud claims are subject to the mandatory alternative dispute resolution (ADR) provisions in franchisees’ franchise agreements. As a result, pursuing a fraud claim against your franchisor will most likely involve filing for mediation or arbitration. While there are exceptions, they apply only in fairly limited circumstances.
What Should I Do to Hold My Franchisor Accountable?
If you have a fraud claim against your franchisor, there are some important steps you should take promptly to hold your franchisor accountable. To help maximize your chances of securing a favorable resolution as efficiently as possible, you should:
1. Preserve All Records that May Be Relevant to Your Fraud Claim
Franchisees who have claims against their franchisors should preserve all relevant records. If you have a fraud claim, this could include your copy of the franchisor’s FDD, your franchise agreement, emails and other communications with your franchisor, receipts, account statements, and various other forms of documentation. For now, if you have anything that you think may be relevant to your claim, you should keep it until you discuss your situation with an attorney.
2. Remain in Compliance with Your Franchise Agreement
This is a situation in which two wrongs do not make a right. As a result, even if you have a fraud claim against your franchisor, you should still do what you can to remain in compliance with your franchise agreement. Violating your franchise agreement could give your franchisor grounds to pursue a claim against you as well—and it could potentially put your franchise in jeopardy.
3. Speak with a Franchise Attorney About Your Next Steps
Regardless of the situation, seeking to hold your franchisor accountable will require experienced legal representation. An experienced franchise attorney will be able to help you make informed decisions about your next steps, and will be able to initiate mediation or arbitration on your behalf if warranted. With that said, your attorney may be able to negotiate with your franchisor on your behalf as well, and pursuing good-faith negotiations can lead to an efficient and favorable resolution in many cases.
FAQs: Filing a Fraud Claim Against Your Franchisor
What are my rights if my franchisor misled me?
If your franchisor misled you and you have suffered financial losses (or are at risk of suffering financial losses) as a result, you may have grounds to pursue a claim against your franchisor. In this scenario, an experienced franchise attorney will be able to explain your rights based on the terms of your franchise agreement and applicable law.
Can I get out of my franchise if my franchisor omitted material information from its FDD?
Whether you can get out of your franchise in this situation depends on where your franchise is located, among other factors. Some states have franchise laws that allow franchisees to pursue rescission in qualifying circumstances. Here too, an experienced franchise attorney can assess your situation and help you make an informed decision about how best to proceed.
Can franchisees work together to sue their franchisor for fraud?
Yes, franchisees can—and often do—work together to sue their franchisors. If you and one or more other franchisees have similar fraud claims, you may be able to leverage your collective bargaining power and resources to achieve a favorable resolution.
What Goldstein Law Firm Can Do to Help
At Goldstein Law Firm, our practice is devoted to protecting the rights of prospective, current, and former franchisees. If you have a fraud claim against your franchisor, we can take appropriate legal action on your behalf. To learn more, schedule a free initial consultation today.
Schedule a Free Initial Consultation with National Franchise Attorney Jeffrey M. Goldstein
To schedule a free initial consultation with national franchise attorney Jeffrey M. Goldstein, please call 202-293-3947 or contact us online. We will arrange for you to speak with Mr. Goldstein in strict confidence as soon as possible.
