Bought a franchise 5 years ago. The products, support and marketing have been woefully inadequate and caused many franchise failures. Their failure rate is now 80% over 6 years.
They are still selling franchises. We know that we are past the statute of limitations on a lawsuit, but isn't there anything that can be done to stop having to pay the fees? Isn't there a government agency that should be investigating?
Unfortunately PA does not have a state franchise law that can help you in the way some states (NY, CA, MD, VA, etc) do. The FTC governs franchising nationwide, but does not have a private right of action - meaning that it does not provide you with a right to have them sue on your behalf. You can have them investigate the matter, but they are quite back-logged and understaffed.
The Statute of Limitations on fraud does not begin to toll until you had knowledge of the fraud. If that is recent, it is possible that the Statute of Limitations has not run out. It is a difficult claim to prove. If you are still within the time to bring suit and have a case for fraud, you could bring a private action in PA. It is difficult to prove and would likely be quite costly. In addition, if the franchisor is financially weak, you may just throw them into bankruptcy and obtain a judgment that is worthless.
If the FDD (or UFOC) had false claims in it, see if it was registered in any state that governs franchises, such as the ones I listed above. If so, perhaps franchisees (or former franchisees) in those states may want to bring an action with that state's Attorney General's office, which perhaps you could join as part of a class action.
I hope this helps. If it does, kindly mark this as a best answer.
Hi there,
While fraud may be an issue, there is a very high burden of proof and it would be a matter for a criminal investigation by the appropriate authorities. It sounds like what you're looking for is more like relief from your contractual obligations under your franchise agreement, and that could be a possibility. Both the franchisor and franchisee have right and obligations under the agreement. If the franchisor is failing to meet their contractual obligations, it might be considered breach and cause for terminating the contract. As to whether this would actually be the case in your situation, an attorney would of course need to hear all the facts and review the documents in question.
If you would like to discuss your matter further over a free and confidential phone consult, please contact me at your convenience.
Regards,
Michael J. Duffy
Duffy Law, LLC
1-888-414-5773
www.mduffylaw.com
[email protected]
As a franchise attorney, I basically agree with the other attorney answers but add the following. Being five-years out, you likely have significant statute of limitations issues on the contract (and on any disclosure violations in the then-called UFOC). If the company is still selling franchises with an 80% failure rate, what does that tell you about the due diligence and intellect of their franchise buyers? You can complain to the FTC, which administers the federal franchise rule. They were never very good with enforcement actions, given their limited budget and things are now even worse. They recently told one client it would take them 4 to 5 years to just look into things, and whether they would ultimately take an enforcement action was quite another story and yet more years. In terms of getting out of the franchise contract signed, you need to show that to a good franchise attorney in your area. For example, if they are in default, have you given them any kind of default notice? Be sure to follow the exact requirements of the contract you signed, and as I said, consult with a good franchise attorney. Best of luck.
Kevin B. Murphy, B.S., M.B.A., J.D.
Attorney at Law
Director of Operations - Mr. Franchise
FRANCHISE FOUNDATIONS APC
P Adam DavisMergers / Acquisitions AttorneyIndianapolis, IN ·
Absolutely. Regardless of whether you are in a franchise protected states, most states have legislation making deception and fraud a crime. They usually will fall under statutes geared to the buying and selling of "business opportunities". Nevertheless, consumer protection acts in each state can be utilized as well. While little FTCs (meaning state franchise acts) are thought of as a battering ram against wrongdoers, don't forget that in the absence of this battering ram you may still have a baseball bat in the trunk that will get the job done as well (i.e., referring to other state laws of course...and to the bat as well).
