Arbitrator awards $400,000 in Sona MedSpa case
An arbitrator in April awarded franchisees of Sona MedSpa International $400,000, finding that the Tennessee-based laser hair removal company was “guilty of negligent misrepresentation” for urging franchisees to pass on to customers misleading information on the company’s technology.
Yet the arbitrator denied the 10 other claims made by the group, as well as the counterclaims made by Sona MedSpa. In addition, the award is only a fraction of the $9 million in damages the group initially requested, and the franchisee will have to pay arbitration and legal fees.
Kempton & Associates, a Boston area company that purchased a Sona laser center in 2003, filed the request for arbitration in late 2005, claiming that it purchased the franchise based on the company’s information about the effectiveness of its treatments—which indicated that 93 to 97 percent of unwanted hair could be removed in five treatments.
The arbitrator agreed with Kempton that this information was faulty and ruled that Sona MedSpa—as well as owners Carousel Capital Partners, James Amos and Heather Rose—were negligent in using this information. But the arbitrator didn’t think that the information constituted outright fraud, Kempton’s most serious allegation. Carousel, Amos and Rose bought Sona MedSpa in 2004.
Illinois franchisees sue Quiznos
Quiznos Subs is facing its third class-action lawsuit in less than a year. The most recent suit, filed in April in U.S. District Court in Illinois alleges that the sandwich chain has systematically defrauded franchisees in Illinois.
The suit alleges that Quiznos forced franchisees to buy food, supplies, and services from the company at inflated prices, while setting low retail prices for its products. The franchisees also contend that the company misrepresented key facts about its business operations to entice new franchisees.
The Colorado-based Quiznos has been dogged by problems in its relationship with franchisees. One group, the Toasted Subs Franchisee Association, even posted a two-page note from a California franchisee criticizing Quiznos’ treatment of its franchises—the franchisee committed suicide. Previous lawsuits have been filed against the company in Wisconsin and Michigan, and franchisees have vowed to sue the company in several different states.
Multiple class-action suits filed against Choice Hotels
Two class-action lawsuits have been filed in the Colorado U.S District Court on behalf of those who purchased stock in Choice Hotels International Inc. between April 25, 2006 and July 26, 2006.
The suits allege that the hotel chain misrepresented its financial status when it said revenues and earnings were growing even though the number of new franchise contracts and hotel conversions declined sharply.
The complaints say that company insiders sold more than $16 million of their shares before Choice Hotels reported its actual status. On June 25, Choice reported its declining franchise growth and the following day the company’s stock fell $14.65 per share, or approximately 25 percent.
Choice Hotels is the franchisor of several hotel brands including Comfort Inn, Clarion, Sleep Inn, Econo Lodge, and Cambria Suites. The company has more than 5,400 hotels worldwide, with an additional 900 in development.
UPS accused of cheating franchisees
Franchisees filed suit against UPS in May, accusing the shipping giant of using an inaccurate measurement system that cost 4,000 Mail Boxes Etc. and UPS Store franchisees millions of dollars in back charges. The suit was filed in San Francisco’s U.S. District Court.
According to the complaint, franchisees measure packages in the store and charge the customers for shipping costs before sending the packages to UPS, where they are re-measured. The suit alleges the re-measuring system is inaccurate. Franchisees call this system unfair because the off-site re-measurement doesn’t allow them to argue the revised costs or to assess the customer additional charges.
The franchisees are charged for the difference, at prices ranging from $3.52 to $31.43 per package. The suit says that UPS’ laser measuring technology has not been approved by any state’s Weights and Measures Department.