News Briefs

Quiznos Again Sued By Would-Be New Jersey Franchisees

In a virtual replay of a dispute settled less than a year ago, at least 10 prospective New Jersey Quiznos franchisees have filed a class action lawsuit against Quiznos in Middlesex County, NJ, charging deceptive recruitment practices and failure to deal in good faith. The franchisees allege that Quiznos has thwarted their efforts to open franchise locations, and they are seeking refunds of their franchise fees and punitive damages under the New Jersey Consumer Fraud Act.

'What Quiznos does is lure you in by making you think they have a location for you and giving you an area license. Then, the prospect can't find a location, and Quiznos has the right to final approval ' which never comes,' said Justin Klein, an attorney at Marks & Klein (Red Bank, NJ), who represents the plaintiffs. Klein also represents Toasted Subs, an independent association of Quiznos franchisees.

Klein settled an almost-identical lawsuit on behalf of 24 plaintiffs in June 2005 (see FBLA, July 2005). Potentially, the new lawsuit will encompass more than 250 franchisees who made payments to Quiznos at least 1 year ago and have been unable to open restaurants. 'The difference this time is that we have filed a class action, and we are seeking an injunction to stop Quiznos from selling any additional franchises in New Jersey until all current prospects have either been given locations or given a full refund,' Klein told FBLA.

Quiznos did not respond to a request for comment.

EEOC, McDonald's Franchisee Settle Sexual Harassment Lawsuit

The U.S. Equal Employment Opportunity Commission ('EEOC') announced on March 10 the settlement of a class action lawsuit with a McDonald's franchisee in Albuquerque, EEOC v. Pand Enterprises, Inc., d/b/a McDonald's Restaurant (Civil Action No. CIV- 05-204 in U.S. District Court for the District of New Mexico). The plaintiffs, several male teenagers who claimed sexual harassment, were awarded $90,000 to be paid by Pand Enterprises Inc., the McDonald's franchisee.

The harassment was alleged to have occurred in 2003, and the lawsuit was filed in February 2005. The plaintiffs alleged that a supervisor had abused young workers by unwanted touching, requests for sex, and sexual remarks, and one employee had his work hours cut in retaliation for protesting the alleged harassment.

'We commend Pand Enterprises for working cooperatively with us to reach this agreement,' said EEOC Phoenix Regional Attorney Mary Jo O'Neill, who added that Pand Enterprises will incorporate harassment training for its staff.

Kentucky Tightens Noose on In-State Taxation

Effective Feb. 1, 2006, Kentucky became the latest state to seek to tax income earned by corporations that do not directly operate in the state. The measures were contained in HB 276, which primarily expanded the range of businesses that are subject to the state's corporation income tax. The new tax nexus standards clearly have the potential to affect franchisors, according to Bruce S. Schaffer, president of Franchise Valuations Ltd. (New York).

Business entities that engage in the following activities are covered by the new Kentucky law, according to Schaeffer and Denise V. Corsaro, partner, Venable LLP:

• supervising the operations of a franchisee or other similar party;
• monitoring, inspecting, or approving work performed by an independent contractor under a warranty or other similar contractual arrangement;
• consigning stock of goods or other tangible personal property for sale to any person, including an independent contractor; or
• entering into a franchising or licensing agreements.

Subway Franchisee Sued for Firing Man Because He Has HIV

Lambda Legal, one of the nation's most prominent gay-rights advocacy groups, filed a lawsuit in February in the U.S. District Court for the District of Nevada, Las Vegas Division, on behalf of a man who was fired by a Subway restaurant franchisee because he has HIV. The case is Hickman v. Donna Curry Investments, LLC, Doctor's Associates, Inc., et al. (dba Subway).

Robert Hickman worked in Subway restaurants in Henderson, NV and Las Vegas from November 2004 to February 2005. He alleges that he was fired one day after Subway learned that he has HIV. In the few months he had worked at the franchise outlets, Hickman says he earned a merit increase in his salary and helped raise sales at the Las Vegas store to record levels.

'Terminating Bob Hickman because he has HIV flies in the face of established law and basic science that shows that HIV did not affect our client's ability to do his job,' said Jen Sinton, staff attorney at Lambda Legal and lead attorney on the case. The firing violated the federal Americans with Disabilities Act ('ADA') and the Nevada Employment Practices Act, she said.

The franchises where Hickman worked are owned by Donna Curry Investments, a multi-unit franchisee. Donna Curry Investments, through its attorney, Raymond A. Garcia, Garcia & Milas (New Haven, CT), told FBLA that it has no comment on the litigation.

Donna Curry, owner of Donna Curry Investments, is a Subway development agent in Nevada. Because of Curry's ties to the franchisor, Lambda Legal also sued Doctor's Associates, the owner of Subway. However, Sinton could not discuss whether she is alleging that Curry violated Subway's hiring and employment rules, or whether Subway's rules and oversight are inadequate, or both. Subway did not return calls for comment.

Lambda Legal facilitated settlement of a very similar case in February 2006 on behalf of Aron Pelela, who was fired as a restaurant cook at a caf' in Wrightsville Beach, NC, when the owners found out he had HIV. Under the agreement that ended that litigation, the caf' instituted a policy ensuring that it will not discriminate against employees with HIV, agreed to educate all employees about the transmission of HIV, and agreed to pay Pelela an undisclosed monetary settlement.

Maryland Commercial Financing Statements Will Become Void on June 30, Unless Updates Filed

Financing statements filed in Maryland under the Uniform Commercial Code ('UCC') before July 1, 2001, will become ineffective on June 30, 2006, unless the company refiles by June 29, 2006. Companies that are organized under Maryland law (including corporations, limited partnerships, and limited liability companies) or have assets or offices located in Maryland, and parties that have made secured loans to such companies are among those that may be affected, according to an alert about the law's impact issued by the Finance Practice Group of DLA Piper Rudnick.

'Under the Uniform Commercial Code in effect before July 1, 2001 ('Old UCC'), financing statements filed in Maryland were effective for 12 years,' noted DLA Piper Rudnick in a memo. 'Secured parties that filed financing statements in Maryland under the Old UCC would not have needed to continue those filings for 12 years.

'As part of the transition from the Old UCC to the Current UCC (which has a 5-year filing period for most financing statements), a financing statement filed in Maryland before July 1, 2001 under the Old UCC that is still effective but has not been continued under the Current UCC ceases to be effective at the earlier of (i) the date the financing statement would have ceased to be effective under the Old UCC or (ii) June 30, 2006 ' even if June 30, 2006 is before the end of the 12-year period under the Old UCC ' unless the financing statement is properly continued within the 6 months before June 30, 2006,' wrote DLA Piper Rudnick.

More than 200,000 filings potentially are affected, but Maryland's Department of Assessments and Taxation said that as of January 2006, only about 1000 filings had been updated. Maryland's legislature apparently is considering legislation to extend the deadline, but companies are advised to meet the June 29 deadline nonetheless.

For more information, go to DLA Piper Rudnick's 'Finance Alert' at www.dlapiper.com/files/upload/Finance_Alert060227.htm or call Paul Novak (410-580-4229), Ed Levin (410-580-4700), or Leeann Kelly-Judd (410-580-4183).

Quiznos Again Sued By Would-Be New Jersey Franchisees

In a virtual replay of a dispute settled less than a year ago, at least 10 prospective New Jersey Quiznos franchisees have filed a class action lawsuit against Quiznos in Middlesex County, NJ, charging deceptive recruitment practices and failure to deal in good faith. The franchisees allege that Quiznos has thwarted their efforts to open franchise locations, and they are seeking refunds of their franchise fees and punitive damages under the New Jersey Consumer Fraud Act.

'What Quiznos does is lure you in by making you think they have a location for you and giving you an area license. Then, the prospect can't find a location, and Quiznos has the right to final approval ' which never comes,' said Justin Klein, an attorney at Marks & Klein (Red Bank, NJ), who represents the plaintiffs. Klein also represents Toasted Subs, an independent association of Quiznos franchisees.

Klein settled an almost-identical lawsuit on behalf of 24 plaintiffs in June 2005 (see FBLA, July 2005). Potentially, the new lawsuit will encompass more than 250 franchisees who made payments to Quiznos at least 1 year ago and have been unable to open restaurants. 'The difference this time is that we have filed a class action, and we are seeking an injunction to stop Quiznos from selling any additional franchises in New Jersey until all current prospects have either been given locations or given a full refund,' Klein told FBLA.

Quiznos did not respond to a request for comment.

EEOC, McDonald's Franchisee Settle Sexual Harassment Lawsuit

The U.S. Equal Employment Opportunity Commission ('EEOC') announced on March 10 the settlement of a class action lawsuit with a McDonald's franchisee in Albuquerque, EEOC v. Pand Enterprises, Inc., d/b/a McDonald's Restaurant (Civil Action No. CIV- 05-204 in U.S. District Court for the District of New Mexico). The plaintiffs, several male teenagers who claimed sexual harassment, were awarded $90,000 to be paid by Pand Enterprises Inc., the McDonald's franchisee.

The harassment was alleged to have occurred in 2003, and the lawsuit was filed in February 2005. The plaintiffs alleged that a supervisor had abused young workers by unwanted touching, requests for sex, and sexual remarks, and one employee had his work hours cut in retaliation for protesting the alleged harassment.

'We commend Pand Enterprises for working cooperatively with us to reach this agreement,' said EEOC Phoenix Regional Attorney Mary Jo O'Neill, who added that Pand Enterprises will incorporate harassment training for its staff.

Kentucky Tightens Noose on In-State Taxation

Effective Feb. 1, 2006, Kentucky became the latest state to seek to tax income earned by corporations that do not directly operate in the state. The measures were contained in HB 276, which primarily expanded the range of businesses that are subject to the state's corporation income tax. The new tax nexus standards clearly have the potential to affect franchisors, according to Bruce S. Schaffer, president of Franchise Valuations Ltd. (New York).

Business entities that engage in the following activities are covered by the new Kentucky law, according to Schaeffer and Denise V. Corsaro, partner, Venable LLP:

• supervising the operations of a franchisee or other similar party;
• monitoring, inspecting, or approving work performed by an independent contractor under a warranty or other similar contractual arrangement;
• consigning stock of goods or other tangible personal property for sale to any person, including an independent contractor; or
• entering into a franchising or licensing agreements.

Subway Franchisee Sued for Firing Man Because He Has HIV

Lambda Legal, one of the nation's most prominent gay-rights advocacy groups, filed a lawsuit in February in the U.S. District Court for the District of Nevada, Las Vegas Division, on behalf of a man who was fired by a Subway restaurant franchisee because he has HIV. The case is Hickman v. Donna Curry Investments, LLC, Doctor's Associates, Inc., et al. (dba Subway).

Robert Hickman worked in Subway restaurants in Henderson, NV and Las Vegas from November 2004 to February 2005. He alleges that he was fired one day after Subway learned that he has HIV. In the few months he had worked at the franchise outlets, Hickman says he earned a merit increase in his salary and helped raise sales at the Las Vegas store to record levels.

'Terminating Bob Hickman because he has HIV flies in the face of established law and basic science that shows that HIV did not affect our client's ability to do his job,' said Jen Sinton, staff attorney at Lambda Legal and lead attorney on the case. The firing violated the federal Americans with Disabilities Act ('ADA') and the Nevada Employment Practices Act, she said.

The franchises where Hickman worked are owned by Donna Curry Investments, a multi-unit franchisee. Donna Curry Investments, through its attorney, Raymond A. Garcia, Garcia & Milas (New Haven, CT), told FBLA that it has no comment on the litigation.

Donna Curry, owner of Donna Curry Investments, is a Subway development agent in Nevada. Because of Curry's ties to the franchisor, Lambda Legal also sued Doctor's Associates, the owner of Subway. However, Sinton could not discuss whether she is alleging that Curry violated Subway's hiring and employment rules, or whether Subway's rules and oversight are inadequate, or both. Subway did not return calls for comment.

Lambda Legal facilitated settlement of a very similar case in February 2006 on behalf of Aron Pelela, who was fired as a restaurant cook at a caf' in Wrightsville Beach, NC, when the owners found out he had HIV. Under the agreement that ended that litigation, the caf' instituted a policy ensuring that it will not discriminate against employees with HIV, agreed to educate all employees about the transmission of HIV, and agreed to pay Pelela an undisclosed monetary settlement.

Maryland Commercial Financing Statements Will Become Void on June 30, Unless Updates Filed

Financing statements filed in Maryland under the Uniform Commercial Code ('UCC') before July 1, 2001, will become ineffective on June 30, 2006, unless the company refiles by June 29, 2006. Companies that are organized under Maryland law (including corporations, limited partnerships, and limited liability companies) or have assets or offices located in Maryland, and parties that have made secured loans to such companies are among those that may be affected, according to an alert about the law's impact issued by the Finance Practice Group of DLA Piper Rudnick.

'Under the Uniform Commercial Code in effect before July 1, 2001 ('Old UCC'), financing statements filed in Maryland were effective for 12 years,' noted DLA Piper Rudnick in a memo. 'Secured parties that filed financing statements in Maryland under the Old UCC would not have needed to continue those filings for 12 years.

'As part of the transition from the Old UCC to the Current UCC (which has a 5-year filing period for most financing statements), a financing statement filed in Maryland before July 1, 2001 under the Old UCC that is still effective but has not been continued under the Current UCC ceases to be effective at the earlier of (i) the date the financing statement would have ceased to be effective under the Old UCC or (ii) June 30, 2006 ' even if June 30, 2006 is before the end of the 12-year period under the Old UCC ' unless the financing statement is properly continued within the 6 months before June 30, 2006,' wrote DLA Piper Rudnick.

More than 200,000 filings potentially are affected, but Maryland's Department of Assessments and Taxation said that as of January 2006, only about 1000 filings had been updated. Maryland's legislature apparently is considering legislation to extend the deadline, but companies are advised to meet the June 29 deadline nonetheless.

For more information, go to DLA Piper Rudnick's 'Finance Alert' at www.dlapiper.com/files/upload/Finance_Alert060227.htm or call Paul Novak (410-580-4229), Ed Levin (410-580-4700), or Leeann Kelly-Judd (410-580-4183).