News Briefs

Weight-Loss Franchisor Settles California Lawsuit

A California franchisor of weight-loss programs has settled civil lawsuits filed by district attorneys in two California counties by agreeing to consumer refunds, a fine of $40,000, and changes in how it promotes weight-loss franchises to potential franchisees.

Cos-Medical Inc. and Cos-Medical International Inc. (Santa Clara, CA) offer “body wraps” that they claim can help people lose weight and have firmer bodies. When a few customers complained that the body wraps did not work and that Cos-Medical resisted refunding their money, district attorneys in Santa Clara County and Orange County investigated and eventually filed a lawsuit. “This began as a customer complaint, but when we investigated we also saw advertising material that we believed made claims they could not substantiate about the number of customers that a franchisee could expect,” said Michelle Cipolletti, Orange County Deputy District Attorney. “In fact, they could not substantiate their [franchisee revenue] claims.”

In a settlement filed with the Santa Clara Superior Court, Cos-Medical agreed not to violate California's Weight Loss Contract Law, as well as to the fines and consumer restitution. The district attorneys offices in Orange County and Santa Clara County will monitor the company and have an injunction in place so that they can quickly challenge any other alleged violations, said Cipolletti.

Fight at McDonald's Results in $25,000 Civil Award

On Oct. 10, a jury in Cumberland (Maine) County awarded Kenneth Hanlon $25,000 for “wrongful injury” after two employees of a McDonald's in Westbrook, ME beat him up in November 2001. The two people who fought with Hanlon ' Patricia Frank and her boyfriend, J.D. Morin ' were found liable, as was the franchise's owner, Stephen Goble and TMM Inc. However, McDonald's International, from which Hanlon was seeking $500,000, was ruled to bear no responsibility or liability.

The fight arose from a dispute over payment for food from the McDonald's drive-in window. A fight began between Hanlon and the store manager after Hanlon tried to return the food because he was told to pay twice. Police charged Hanlon with disorderly conduct, but he was acquitted at a trial last year; Frank, one of the defendants in the civil suit, did plead guilty to assault.

Liberty Tax Service Files Lawsuit Against One of Its Franchisees

Liberty Tax Service is suing a former franchisee for submitting hundreds of fraudulent tax returns and defrauding a bank that issued refund-anticipation loans based on those fraudulent claims. Liberty has already severed its relationship with the franchisee, and is now trying to help the Internal Revenue Service (IRS) to resolve the disputed tax returns.

“We have terminated the franchisee's contract, but in the meantime a substantial number of fraudulent tax returns were filed, and a bank is out a lot of money,” said Martha O'Gorman a spokesperson for Liberty. “Every tax office runs the risk of submitting a fraudulent return from a client who comes in for the first time, but this was hundreds of them. At some point the franchisee must take responsibility.”

Liberty is suing the former franchisee for preparing fraudulent returns and overcharging for refund-anticipation loans, many of which were tied to the fraudulent returns, says Liberty. The refunds were claimed by people who used doctored W-2 tax forms that cited them as earning wages that they did not earn and also withholding larger amounts than people would typically do. The combination led to large individual returns, which the individuals then used to obtain prepayment loans.

IRS investigators first uncovered the high incidence of problems and contacted Liberty early in 2003, according to O'Gorman, at which point the company began working with the Agency to uncover the extent of the fraud.

The lawsuit also charges the former franchisee with improperly using Liberty's name and logo on letterhead, business cards, and other materials after it was terminated.

Liberty is not adjusting its training or oversight programs in the wake of the problem, said O'Gorman. “Our franchisees get close scrutiny before we sign them on,” she said. “Then we give them extensive training in identifying potential problems. This franchisee is an anomaly, and our system is working fine.”

GNC Sold for $750 Million

General Nutrition Centers (GNC), a franchisor of vitamin stores, has been sold by its parent company, Royal Numico NV to Apollo Management LLC for $750 million. The deal will officially close in the first quarter of 2004, according to a press statement from Royal Numico.

As detailed in the October issue of FBLA, GNC is presently in litigation with several former franchisees in Pennsylvania, who are alleging that the company overcharged for fees for advertising and in-store displays. Apollo, which is a Los Angeles-based investment firm, would not comment on whether it will seek to settle the litigation.

Weight-Loss Franchisor Settles California Lawsuit

A California franchisor of weight-loss programs has settled civil lawsuits filed by district attorneys in two California counties by agreeing to consumer refunds, a fine of $40,000, and changes in how it promotes weight-loss franchises to potential franchisees.

Cos-Medical Inc. and Cos-Medical International Inc. (Santa Clara, CA) offer “body wraps” that they claim can help people lose weight and have firmer bodies. When a few customers complained that the body wraps did not work and that Cos-Medical resisted refunding their money, district attorneys in Santa Clara County and Orange County investigated and eventually filed a lawsuit. “This began as a customer complaint, but when we investigated we also saw advertising material that we believed made claims they could not substantiate about the number of customers that a franchisee could expect,” said Michelle Cipolletti, Orange County Deputy District Attorney. “In fact, they could not substantiate their [franchisee revenue] claims.”

In a settlement filed with the Santa Clara Superior Court, Cos-Medical agreed not to violate California's Weight Loss Contract Law, as well as to the fines and consumer restitution. The district attorneys offices in Orange County and Santa Clara County will monitor the company and have an injunction in place so that they can quickly challenge any other alleged violations, said Cipolletti.

Fight at McDonald's Results in $25,000 Civil Award

On Oct. 10, a jury in Cumberland (Maine) County awarded Kenneth Hanlon $25,000 for “wrongful injury” after two employees of a McDonald's in Westbrook, ME beat him up in November 2001. The two people who fought with Hanlon ' Patricia Frank and her boyfriend, J.D. Morin ' were found liable, as was the franchise's owner, Stephen Goble and TMM Inc. However, McDonald's International, from which Hanlon was seeking $500,000, was ruled to bear no responsibility or liability.

The fight arose from a dispute over payment for food from the McDonald's drive-in window. A fight began between Hanlon and the store manager after Hanlon tried to return the food because he was told to pay twice. Police charged Hanlon with disorderly conduct, but he was acquitted at a trial last year; Frank, one of the defendants in the civil suit, did plead guilty to assault.

Liberty Tax Service Files Lawsuit Against One of Its Franchisees

Liberty Tax Service is suing a former franchisee for submitting hundreds of fraudulent tax returns and defrauding a bank that issued refund-anticipation loans based on those fraudulent claims. Liberty has already severed its relationship with the franchisee, and is now trying to help the Internal Revenue Service (IRS) to resolve the disputed tax returns.

“We have terminated the franchisee's contract, but in the meantime a substantial number of fraudulent tax returns were filed, and a bank is out a lot of money,” said Martha O'Gorman a spokesperson for Liberty. “Every tax office runs the risk of submitting a fraudulent return from a client who comes in for the first time, but this was hundreds of them. At some point the franchisee must take responsibility.”

Liberty is suing the former franchisee for preparing fraudulent returns and overcharging for refund-anticipation loans, many of which were tied to the fraudulent returns, says Liberty. The refunds were claimed by people who used doctored W-2 tax forms that cited them as earning wages that they did not earn and also withholding larger amounts than people would typically do. The combination led to large individual returns, which the individuals then used to obtain prepayment loans.

IRS investigators first uncovered the high incidence of problems and contacted Liberty early in 2003, according to O'Gorman, at which point the company began working with the Agency to uncover the extent of the fraud.

The lawsuit also charges the former franchisee with improperly using Liberty's name and logo on letterhead, business cards, and other materials after it was terminated.

Liberty is not adjusting its training or oversight programs in the wake of the problem, said O'Gorman. “Our franchisees get close scrutiny before we sign them on,” she said. “Then we give them extensive training in identifying potential problems. This franchisee is an anomaly, and our system is working fine.”

GNC Sold for $750 Million

General Nutrition Centers (GNC), a franchisor of vitamin stores, has been sold by its parent company, Royal Numico NV to Apollo Management LLC for $750 million. The deal will officially close in the first quarter of 2004, according to a press statement from Royal Numico.

As detailed in the October issue of FBLA, GNC is presently in litigation with several former franchisees in Pennsylvania, who are alleging that the company overcharged for fees for advertising and in-store displays. Apollo, which is a Los Angeles-based investment firm, would not comment on whether it will seek to settle the litigation.