According to a recent article in the Franchise Times, a group of Cell Phone Repair franchisees has sued the franchisor’s parent company alleging that it misled them into incurring substantial additional costs. As reported, the franchisees allege that the franchisor’s parent company—Assurant, which insures cell phones and other mobile devices—promised to send insured customers to their franchised outlets for covered repairs. However, after franchisees invested in preparing their stores to manage this additional volume, the plaintiffs allege that Assurant reversed course and decided to handle these covered repairs in-house.
Ultimately, the Franchise Times reports that Assurant decided to uphold its promise after the franchisees filed suit. But this type of situation is not uncommon, and it raises an important question for franchisees in all franchise systems: If your franchisor misled you, should you sue?
Suing a Franchisor for Fraudulent Misrepresentations
Deciding whether to sue your franchisor for fraudulent misrepresentations requires consideration of a variety of different factors. First and foremost, you will need to decide: Is it worth it?
In the Cell Phone Repair case discussed above, it appears that the franchisees incurred material financial costs as a result of Assurant’s alleged misrepresentation. They invested in their franchises in anticipation of getting more business. Then, when it appeared that this additional business was not forthcoming, they apparently found it worth it to sue in an effort to recover their losses.
Franchisors make misrepresentations all the time—both during and after the sales process. This is an unfortunate reality of the franchise industry, and it is also unfortunate that, for many franchisees, holding their franchisors accountable simply isn’t worth the time and resources involved. Franchisors know this, and too often they use it to their advantage.
But, in some cases, taking legal action will be worth it—and holding a franchisor accountable may even be necessary to protect franchisees’ investments. When this is the case, misled franchisees will also need to consider factors such as:
- Does a state franchise relationship or disclosure law apply? Several states have franchise laws that give franchisees the ability to pursue legal action for pre-sale and post-sale misrepresentations.
- Is the dispute subject to mandatory mediation or arbitration (or both)? Most franchise agreements include either a mandatory mediation clause or a mandatory arbitration clause, if not both.
- Where do franchisees need to file their lawsuit? When franchisees have the ability to sue under their franchise agreements, they will typically need to pursue litigation in the franchisor’s chosen jurisdiction and venue.
- Can other franchisees help bear the cost (and build leverage)? If you have been misled by your franchisor, there is a good chance that other franchisees have been misled as well. If this is the case, you may be able to work as a group to collectively seek a favorable outcome.
Schedule a Confidential Consultation at the Goldstein Law Firm
If you have questions about suing your franchisor, whether individually or as a group, we encourage you to contact us for more information. To schedule a confidential consultation with attorney Jeffrey M. Goldstein, please call 202-293-3947 or send us your contact information online today.
