As a franchisee, you have the right to hold your franchisor to its end of the bargain. As a result, if your franchisor overpromised and underdelivered, you may have grounds to take legal action. In this scenario, your legal options depend on the specific circumstances at hand, and you will want to engage a franchise law firm to help you make informed and strategic decisions.
Selling franchises is like selling any other product: To beat competitors, franchisors need to make their offerings as attractive as possible. Unfortunately, this leads many franchisors to make false claims—and, in turn, leads many franchisees to make uninformed buying decisions.
If you bought a franchise from a franchisor that overpromised and underdelivered, it will be worth contacting a franchise law firm to discuss your legal rights.
As a prospective franchisee, you had the right to make an informed buying decision. You had the right to receive accurate information about the franchise opportunity you ultimately chose, and you had the right to rely on what the franchisor’s executives and sales representatives told you. If they misled you—and if you would have made a different decision had you known the truth—you may have grounds to take legal action.
When Can Franchisors Be Held Liable for Making False or Misleading Representations to Prospective Franchisees?
Franchisors can be held liable for making false or misleading representations when their statements (or omissions) impact prospective franchisees’ buying decisions. If you would have moved forward regardless of what you were told, the franchisor’s misrepresentation or omission was not material to your buying decision; generally, you will not have a claim to pursue.
However, if the franchisor’s misrepresentation or omission was material to your buying decision, you may have a fraud claim. Some examples of potential grounds for fraud claims include:
- Misrepresentations about startup costs
- Misrepresentations about earning potential
- Misrepresentations about system size, growth, or projections
- Misrepresentations about the level of training or support provided
- Omissions related to litigation or the franchisor’s financial condition
Again, these are just examples, and whether a fraud claim is warranted is case-specific, with reliance as a key factor. Crucially, however, a false or misleading statement or omission does not have to be the sole basis for a prospective franchisee’s decision to move forward. Even if a misrepresentation or omission was just one of several factors you considered in deciding to buy a franchise, a fraud claim may still be warranted.
What Are Franchisees’ Legal Options After Being Misled Into Purchasing a Franchise?
If you were misled into purchasing a franchise, your legal options depend on the circumstances. Some examples of factors that will require careful consideration include:
- Was the franchisor’s misrepresentation or omission material?
- Can you prove the misrepresentation or omission?
- How long has it been since you purchased your franchise?
- What does your franchise agreement say about fraud, integration, and dispute resolution?
- Does your state have a franchise relationship or disclosure law?
Depending on the answers to these questions (among others), you could have grounds to file a claim. If you do, you may be entitled to seek one or more of the following:
- Rescission of Your Franchise Agreement – In some (but not all) circumstances, franchisees who were misled into buying a franchise will be entitled to seek rescission. Rescinding your franchise agreement will terminate your franchise and your obligations to your franchisor.
- Damages for Losses Incurred – Franchisees misled into buying a franchise can seek damages for their actual losses. If you have a claim for damages, assessing the value of your claim will be critical for making informed decisions about your next steps.
- Other Equitable Remedies – If you do not wish to rescind your franchise agreement (or are not eligible to seek rescission), you may be able to pursue other equitable remedies. For example, you may be able to secure additional protections that mitigate your risk of loss going forward.
Making an informed decision in this scenario is not easy. Many factors come into play, and you need to clearly understand your rights under applicable law. That said, you should act promptly—waiting to take action could compromise your claim if you decide to move forward.
FAQs: Filing a Fraud Claim Against Your Franchisor
Can I sue my franchisor if I was misled into buying a franchise?
If you were misled into buying a franchise, you may have grounds to file a claim against your franchisor. This is called “fraudulent inducement,” and it can provide clear grounds for legal action in appropriate cases.
How can I prove that I was misled during the franchise buying process?
If you were misled during the franchise buying process, you may have various forms of evidence to prove it. Be sure to keep any communications and documents in your possession, and your franchise law firm can take depositions and pursue other discovery if needed.
Are fraudulent inducement claims subject to mandatory ADR?
Fraudulent inducement claims may or may not be subject to mandatory alternative dispute resolution (ADR). To determine whether your claim is subject to mandatory ADR, you will need to engage a franchise law firm that can analyze your case under the governing law.
How Our Franchise Law Firm Can Help
If you want to learn more about filing a fraud claim against your franchisor, we can provide the insights and information you need to make sound decisions about your next steps. We offer free initial consultations and prioritize cost-effective resolutions for our clients.
Contact Us for a Free, No-Obligation Consultation About Your Legal Options
To arrange a free initial consultation at Goldstein Law Firm, contact us today. Call us at 202-293-3947 or contact us online to schedule an appointment as soon as possible.
