As recently reported by the Franchise Times, the U.S. Federal Trade Commission (FTC) has filed a lawsuit against Burgerim alleging franchise fraud. According to the publication, the FTC is, “accusing the fast-food chain and its owner, Oren Loni, of enticing more than 1,500 people to purchase franchises ‘using false promises while withholding information required by its Franchise Rule.’” This is a notable development in the world of franchising, as franchise attorney Jeffrey M. Goldstein explains.
FTC: The Majority of New Burgerim Franchisees Were Never Able to Open for Business
The FTC’s lawsuit against Burgerim alleges that “as many as 1,500 consumers” paid Burgerim initial franchise fees of $50,000 to $70,000; however, after paying these fees, “the majority of the people who paid them were never able to open restaurants.” Prior to the FTC’s lawsuit, Burgerim had already faced a string of failures and legal issues. The California Department of Financial Protection & Innovation (DFPI) ordered the franchisor to offer rescission and pay $57 million in refunds to franchise buyers in 2021, and the franchisor subsequently issued a public statement saying it did not have the money to pay. Burgerim also reportedly submitted a settlement offer that the California DFPI rejected.
According to the California DFPI, Burgerim sold more than 1,500 franchises between 2015 and 2019, but only about 130 of the company’s new franchisees opened for business. The Franchise Times reports that Burgerim was “going to try to revive the brand with any of the [franchisees] still operating who wished to remain,” but it is unclear where this effort currently stands.
The FTC’s Enforcement Action Against Burgerim is Its First Since 2007
While the FTC has the authority to enforce franchisors’ disclosure obligations under the agency’s Franchise Rule, it rarely does so. In fact, until its case against Burgerim, the FTC had not pursued a single case involving alleged disclosure violations against a franchisor in roughly 15 years.
As a result, the fact that the FTC is pursuing legal action against Burgerim is notable in itself. But, even more notable is the fact that this may be just the beginning of a new trend in FTC franchise fraud enforcement. According to FTC Chair Lina Khan, “This action—[the FTC’s] first under the Franchise Rule since 2007—reflects a renewed commitment across the agency to protecting franchisees from illegal practices.”
Franchisees Still Need to Be Proactive about Asserting Their Legal Rights
While it is important that the FTC does its part to hold franchisors accountable, it is equally important – if not more so – that individual franchisees take legal action to protect themselves. Franchisees can pursue claims against their franchisors for fraud, and this often affords the greatest and most efficient opportunity for obtaining refunds and other damages.
If you believe that you may be a victim of franchisor fraud, you should not wait for the FTC to take action—even though there may be a greater likelihood that the FTC will take action than in years past. Instead, you should take a proactive approach to asserting your legal rights, and this starts with engaging a franchise attorney to evaluate any and all potential claims.
Contact National Franchise Attorney Jeffrey M. Goldstein
Do you have a claim for franchisor fraud? If you need to know more about your legal rights as a franchisee, we encourage you to contact us promptly. Please call 202-293-3947 or contact us online to arrange a free initial consultation with national franchise attorney Jeffrey M. Goldstein.
