News Briefs

Trial Court Allows Wives of Snap-on Dealers to Sue

In a legal opinion that potentially has implications for many franchisors, a New Jersey trial court judge has ruled that the wives of Snap-on Tools franchise dealers have an independent legal right to sue the franchisor in court before a jury. The judge ruled that because the wives did not sign the UFOC, they are not bound to bring their claims before the American Arbitration Association, as outlined in the franchise agreement. The wives are suing for economic and emotional losses they claim to have incurred while supporting their husbands' Snap-on Tools franchises.

“Non-signatories cannot be bound to arbitrate unless under traditional principles of contract and agency law they are equated to a signatory of the underlying agreement,” wrote New Jersey Superior Court Judge Mathias E. Rodriguez in his decision. “Since the plaintiffs [in this case] are not signatories to those agreements, they may not be compelled to arbitrate.” He added that the wives are not third-party beneficiaries to the agreement (which would possibly have required them to arbitrate), and they are not “equitably estopped” from denying an obligation to arbitrate.

A statement from Snap-on provided to FBLA indicated that it is “considering its procedural options” to challenge the judge's ruling and noted that the judge only ruled on the forum for pursuing a claim, not the merits of the claim.

Gerald A. Marks, Red Bank, NJ, the attorney for the three plaintiffs in the case, called the ruling by Judge Rodriguez an “extremely significant decision because it breaks the arbitration hold that Snap-on Tools claimed for a spouse or any other person who contributes money or is economically or emotionally injured, but who did not sign the UFOC.”

“Franchisors have resorted to restrictive arbitration clauses in order to lessen the rights of parties that are injured, and to keep lawsuits confidential,” Marks told FBLA. “That's what we are fighting against.”

But Snap-on noted that the “judge's ruling is not binding on any other court; nor is it binding on any other judge ' even in New Jersey. In fact, other courts had very different opinions on this issue. For instance, just last year, two Texas judges, in cases virtually identical to the New Jersey one, handed down opposite opinions in Snap-on's favor and sent those cases to arbitration.”

Using New Jersey's Consumer Fraud Act and Law Against Discrimination, Marks is representing three litigants. Each plaintiff has a different twist, but they each allege loss due to fraud by the franchisor. The three plaintiffs are:

• Nancy Casey, Middletown, NJ. She contributed $40,000 of her inheritance from her father's estate. She asked to be co-owner of the franchise, but was not allowed to sign the UFOC.
• Abbye Goldwasser, New Brunswick, NJ. She borrowed money from her father to finance her husband's investment in Snap-on Tools.
• Maritza Franco, Scotch Plains, NJ. Based on what is alleged to be “false representations made by a franchise salesman,” she left a full-time job and took a lesser-paying part-time job in order to help her husband build his franchise business. The loss of joint marital assets created financial strains, and the struggle of the business created emotional strains.

Marks believes that the business policies of Snap-on probably contributed to Judge Rodriguez's decision. Snap-on explicitly prohibits a husband and a wife to co-own a franchise, according to Marks.

“There are about 3400 Snap-on dealers in the United States, and there probably are not a dozen that are women,” said Marks. “I believe it's a way that Snap-on can keep spouses in the dark about the financial arrangements of the franchises and the amount of debt that their husbands are taking on.”

Snap-on did not comment on whether it prohibits a husband-and-wife team to become joint franchisees.

Marks told FBLA that he will file additional lawsuits on behalf of the wives of Snap-on franchisees in California, Florida, New York, Ohio, and perhaps other states.

The Athlete's Foot Franchisees Unaffected by Chapter 11 Filing

Franchisees of The Athlete's Foot Stores LLC (Kennesaw, GA) will be unaffected by the Dec. 2004 announcement that the corporation filed for Chapter 11 liquidation with the U.S. Bankruptcy Court for the Southern District Court of New York. The liquidation will result in the closure of all 124 company-owned stores, according to Kimberly Garwood, communications manager for The Athlete's Foot.

“The Athlete's Foot Stores LLC has a corporate structure for supporting company-owned stores, and a separate structure for supporting our franchisees. The franchise support system will remain intact,” said Garwood.

Bob Nelson, the longest-serving member of The Athlete's Foot's franchisee advisory council, told FBLA that the bankruptcy filing was “disappointing but not surprising. My feeling was that they just couldn't make the stores work.”

Nelson, who owns or co-owns eight stores in North Carolina, added that franchisees “know our markets better. That's the key. There are many instances of Athlete's Foot turning company stores into franchises, and sales quickly going up.”

As of Jan. 1, 2005, Athlete's Foot Brands Inc., the franchisor and owner of the Athlete's Foot trademarks, had 594 U.S. franchised stores and more than 100 international stores. “We added 43 domestic and 48 international franchises in the past year, and we have a goal of reaching 1000 U.S. franchises in the next few years,” said Garwood. “As our CEO has said, we are transitioning from being a retail company with a franchise business to becoming a franchisor that might at a later date have retail stores.”

HomeVestors Fights Back After Former Franchisee Alleges Racial Discrimination

HomeVestors of America Inc. (Dallas) has sued a former franchisee in Houston and two of her business partners for libel after they alleged that HomeVestors engaged in racial discrimination by not allowing the former franchisee to sell her business to the two businessmen. HomeVestors franchises a system for buying distressed houses at bargain prices, fixing them up, and reselling them quickly at a profit.

The dispute began in Feb. 2004 when Pamela Lincoln-Sam sought permission to bring on Sean Joseph and David Hollins as partners in her Houston HomeVestors franchise, which is called MVP Homebuyers, Inc. Lincoln-Sam had owned the franchise since 1999, and it was due for renewal in June 2004.

HomeVestors asked for financial information and other documentation before approving the sale ' and, according to HomeVestors, that's when the trouble started. “Despite numerous additional communications on these issues, it was not until June 2004, shortly before the franchise was to expire, that HomeVestors first received application from two of the proposed new owners of PLSI [the name of the proposed new franchisee]. However, the other required documentation was not provided at that time,” wrote HomeVestors in its libel lawsuit brief, which was filed in the District Court of Dallas County.

HomeVestors granted a series of extensions to PLSI and MVP Homebuyers through Nov. 2004, but it says it still never received complete or proper documentation.

Meanwhile, the prospective franchisees complained to HomeVestors that another HomeVestors franchisee referenced PLSI with a racial slur. Joseph and Hollins are African-American, as is Lincoln-Sam, the owner of MVP. None of them heard the comment, but say that they were told about it by a third party.

HomeVestors says it investigated the alleged incident and discovered that the third party who related the incident is engaged in a business dispute with the alleged source of the slur. It could find no evidence that the slur occurred. Also, HomeVestors states in its brief that even if the slur did occur, it came from an independently owned franchise, not from a member of the corporate franchisor and does not reflect the franchisor's views or policies.

In mid-November 2004, counsel retained by the former franchisee, Lincoln-Sam, Joseph, and Howard contacted HomeVestors with allegations of racial discrimination and a demand for $800,000 in compensation for the thwarted transfer of the franchise. HomeVestors refused.

A week later, at HomeVestors' annual convention in Miami, HomeVestors was informed of the filing of the racial discrimination lawsuit, and a protest was staged at the convention hotel. One TV news network in Miami covered the protest, and several newspaper articles have been written since that time. HomeVestors is suing for libel based on the allegations related to the media during and after its annual meeting.

“The allegations of racial discrimination are baseless, completely without merit, and inaccurate,” said Stephen Sapp, Locke, Liddell & Sapp (Dallas), which is representing HomeVestors. “At no time during the five-and-one-half-years that Ms. Sam was a franchisee was there any suggestion of discrimination … We view the request for compensation as a shakedown, [and] they're trying to get something to which they're not entitled.” He added that the company “intends to vigorously defend the discrimination lawsuit.”

When contacted for comment, counsel for MVP and PSLI, Larry Green of Larry V. Green & Associates (Houston) stated, “Inasmuch as we are in talks with HomeVestors at this stage of the lawsuit, we will have no immediate comments on the matter until further notice.”

Trial Court Allows Wives of Snap-on Dealers to Sue

In a legal opinion that potentially has implications for many franchisors, a New Jersey trial court judge has ruled that the wives of Snap-on Tools franchise dealers have an independent legal right to sue the franchisor in court before a jury. The judge ruled that because the wives did not sign the UFOC, they are not bound to bring their claims before the American Arbitration Association, as outlined in the franchise agreement. The wives are suing for economic and emotional losses they claim to have incurred while supporting their husbands' Snap-on Tools franchises.

“Non-signatories cannot be bound to arbitrate unless under traditional principles of contract and agency law they are equated to a signatory of the underlying agreement,” wrote New Jersey Superior Court Judge Mathias E. Rodriguez in his decision. “Since the plaintiffs [in this case] are not signatories to those agreements, they may not be compelled to arbitrate.” He added that the wives are not third-party beneficiaries to the agreement (which would possibly have required them to arbitrate), and they are not “equitably estopped” from denying an obligation to arbitrate.

A statement from Snap-on provided to FBLA indicated that it is “considering its procedural options” to challenge the judge's ruling and noted that the judge only ruled on the forum for pursuing a claim, not the merits of the claim.

Gerald A. Marks, Red Bank, NJ, the attorney for the three plaintiffs in the case, called the ruling by Judge Rodriguez an “extremely significant decision because it breaks the arbitration hold that Snap-on Tools claimed for a spouse or any other person who contributes money or is economically or emotionally injured, but who did not sign the UFOC.”

“Franchisors have resorted to restrictive arbitration clauses in order to lessen the rights of parties that are injured, and to keep lawsuits confidential,” Marks told FBLA. “That's what we are fighting against.”

But Snap-on noted that the “judge's ruling is not binding on any other court; nor is it binding on any other judge ' even in New Jersey. In fact, other courts had very different opinions on this issue. For instance, just last year, two Texas judges, in cases virtually identical to the New Jersey one, handed down opposite opinions in Snap-on's favor and sent those cases to arbitration.”

Using New Jersey's Consumer Fraud Act and Law Against Discrimination, Marks is representing three litigants. Each plaintiff has a different twist, but they each allege loss due to fraud by the franchisor. The three plaintiffs are:

• Nancy Casey, Middletown, NJ. She contributed $40,000 of her inheritance from her father's estate. She asked to be co-owner of the franchise, but was not allowed to sign the UFOC.
• Abbye Goldwasser, New Brunswick, NJ. She borrowed money from her father to finance her husband's investment in Snap-on Tools.
• Maritza Franco, Scotch Plains, NJ. Based on what is alleged to be “false representations made by a franchise salesman,” she left a full-time job and took a lesser-paying part-time job in order to help her husband build his franchise business. The loss of joint marital assets created financial strains, and the struggle of the business created emotional strains.

Marks believes that the business policies of Snap-on probably contributed to Judge Rodriguez's decision. Snap-on explicitly prohibits a husband and a wife to co-own a franchise, according to Marks.

“There are about 3400 Snap-on dealers in the United States, and there probably are not a dozen that are women,” said Marks. “I believe it's a way that Snap-on can keep spouses in the dark about the financial arrangements of the franchises and the amount of debt that their husbands are taking on.”

Snap-on did not comment on whether it prohibits a husband-and-wife team to become joint franchisees.

Marks told FBLA that he will file additional lawsuits on behalf of the wives of Snap-on franchisees in California, Florida, New York, Ohio, and perhaps other states.

The Athlete's Foot Franchisees Unaffected by Chapter 11 Filing

Franchisees of The Athlete's Foot Stores LLC (Kennesaw, GA) will be unaffected by the Dec. 2004 announcement that the corporation filed for Chapter 11 liquidation with the U.S. Bankruptcy Court for the Southern District Court of New York. The liquidation will result in the closure of all 124 company-owned stores, according to Kimberly Garwood, communications manager for The Athlete's Foot.

“The Athlete's Foot Stores LLC has a corporate structure for supporting company-owned stores, and a separate structure for supporting our franchisees. The franchise support system will remain intact,” said Garwood.

Bob Nelson, the longest-serving member of The Athlete's Foot's franchisee advisory council, told FBLA that the bankruptcy filing was “disappointing but not surprising. My feeling was that they just couldn't make the stores work.”

Nelson, who owns or co-owns eight stores in North Carolina, added that franchisees “know our markets better. That's the key. There are many instances of Athlete's Foot turning company stores into franchises, and sales quickly going up.”

As of Jan. 1, 2005, Athlete's Foot Brands Inc., the franchisor and owner of the Athlete's Foot trademarks, had 594 U.S. franchised stores and more than 100 international stores. “We added 43 domestic and 48 international franchises in the past year, and we have a goal of reaching 1000 U.S. franchises in the next few years,” said Garwood. “As our CEO has said, we are transitioning from being a retail company with a franchise business to becoming a franchisor that might at a later date have retail stores.”

HomeVestors Fights Back After Former Franchisee Alleges Racial Discrimination

HomeVestors of America Inc. (Dallas) has sued a former franchisee in Houston and two of her business partners for libel after they alleged that HomeVestors engaged in racial discrimination by not allowing the former franchisee to sell her business to the two businessmen. HomeVestors franchises a system for buying distressed houses at bargain prices, fixing them up, and reselling them quickly at a profit.

The dispute began in Feb. 2004 when Pamela Lincoln-Sam sought permission to bring on Sean Joseph and David Hollins as partners in her Houston HomeVestors franchise, which is called MVP Homebuyers, Inc. Lincoln-Sam had owned the franchise since 1999, and it was due for renewal in June 2004.

HomeVestors asked for financial information and other documentation before approving the sale ' and, according to HomeVestors, that's when the trouble started. “Despite numerous additional communications on these issues, it was not until June 2004, shortly before the franchise was to expire, that HomeVestors first received application from two of the proposed new owners of PLSI [the name of the proposed new franchisee]. However, the other required documentation was not provided at that time,” wrote HomeVestors in its libel lawsuit brief, which was filed in the District Court of Dallas County.

HomeVestors granted a series of extensions to PLSI and MVP Homebuyers through Nov. 2004, but it says it still never received complete or proper documentation.

Meanwhile, the prospective franchisees complained to HomeVestors that another HomeVestors franchisee referenced PLSI with a racial slur. Joseph and Hollins are African-American, as is Lincoln-Sam, the owner of MVP. None of them heard the comment, but say that they were told about it by a third party.

HomeVestors says it investigated the alleged incident and discovered that the third party who related the incident is engaged in a business dispute with the alleged source of the slur. It could find no evidence that the slur occurred. Also, HomeVestors states in its brief that even if the slur did occur, it came from an independently owned franchise, not from a member of the corporate franchisor and does not reflect the franchisor's views or policies.

In mid-November 2004, counsel retained by the former franchisee, Lincoln-Sam, Joseph, and Howard contacted HomeVestors with allegations of racial discrimination and a demand for $800,000 in compensation for the thwarted transfer of the franchise. HomeVestors refused.

A week later, at HomeVestors' annual convention in Miami, HomeVestors was informed of the filing of the racial discrimination lawsuit, and a protest was staged at the convention hotel. One TV news network in Miami covered the protest, and several newspaper articles have been written since that time. HomeVestors is suing for libel based on the allegations related to the media during and after its annual meeting.

“The allegations of racial discrimination are baseless, completely without merit, and inaccurate,” said Stephen Sapp, Locke, Liddell & Sapp (Dallas), which is representing HomeVestors. “At no time during the five-and-one-half-years that Ms. Sam was a franchisee was there any suggestion of discrimination … We view the request for compensation as a shakedown, [and] they're trying to get something to which they're not entitled.” He added that the company “intends to vigorously defend the discrimination lawsuit.”

When contacted for comment, counsel for MVP and PSLI, Larry Green of Larry V. Green & Associates (Houston) stated, “Inasmuch as we are in talks with HomeVestors at this stage of the lawsuit, we will have no immediate comments on the matter until further notice.”