8 franchisees claim negative results at USA Mobile Drug Testing
USA Mobile Drug Testing told prospects its franchisees were doing well—through recorded testimonials rather than live conversations. That’s one claim by eight angry franchisees, who have abandoned the brand.
“How much can I make?”is the question most often posed by prospective franchisees. A group of eight franchisees at USA Mobile Drug Testing say they never came close to hitting the franchisor’s claims, which they call “misleading and fraudulent.”
The franchisor says they’re changing some practices, including doing away with recorded testimonials and adding Discovery Days, and the company’s 2013 filing will include accurate figures. The dispute centers around Item 19—a notoriously tricky element of the Franchise Disclosure Document that all franchisors must file.
Asking for damages
Established franchisors often provide answers to the how-much-can-I-earn question via Financial Performance Representations, in the Item 19 of their documents. Solid FPRs show actual earnings of franchisees after operating the business for stated time periods. New franchisors lack such data but may, with disclaimers, show revenue from corporate-owned units.
When USA Mobile Drug Testing in Tampa, Florida, a concept whose franchisees collect urine samples for alcohol and drug testing at employees’ workplaces, started franchising in 2008, it had no corporate locations. So it filed an FPR based on an entity in Connecticut, which operated what the FDD said was a “similar business” as “an adjunct to its existing medical services business.”
This winter, a group of eight franchisees, represented by attorney Mario Herman of Washington, D.C., announced they were terminating their franchise agreements and asking for $635,000 in damages. The franchisees claim they’ve never come close to the FPR’s numbers. In 2010, for example, the entity, called a “USA Mobile Drug Testing Business in New Haven, CT” in the company’s 2011 FDD, showed total revenue of $363,787.24 and income of $144,577.40. Franchisees have never met the entity’s owner, Aron Galinovsky, although he’s been listed as a fellow franchisee since 2009. When one of the resigning franchisees, Jackie Parker, of Skaneateles, New York, did reach him by phone, Galinovsky said he had never even activated his USA Mobile Drug Testing email account and had no affiliation with the company, she said.
Ilie Saracovan, a Ph.D. chemist from Romania, said he had concerns about USA Mobile while investigating franchises in 2011, because the other companies presented to him by a franchise broker invited him to visit their headquarters and provided lists of current franchisees to call. The USA Mobile franchise salesperson told him to “save my money for training, and arranged a conference call with CEO Joe Strom and other executives instead,” Saracovan said. “When I asked to talk to other franchisees, he said they were too busy, and gave me a recording of testimonials.”
“I still foolishly selected them,” Saracovan said, “because they told me they had tested the model in New Haven, just 30 minutes away from my home in New London. After I had paid my fees and finished training, I called Aron (Galinovsky) to introduce myself as a neighbor and colleague, but I never reached him and someone there told me he was never part of the franchise,” Saracovan said. Galinovsky did not return phone calls seeking comment.
Numbers ‘not realistic’
According to attorney Herman, Galinovsky’s business, A&B Employer Solutions, was started as an add-on to his family’s existing business, A&B Homecare Solutions. Galinovsky never paid a franchise fee, a start-up marketing fee (now $19,500) or royalties. Although the USA Mobile documents state Galinovsky operates from a territory similar in size to a franchisee’s, A&B’s recorded telephone message says it has “over 5,000 collection sites nationwide.”
“Those income numbers were not realistic,” said a former franchisee who asked that his name not be used. “I operated for 18 months and, in order to make over $140,000 in profits, I would have had to service every Home Depot in the country.” Other franchisees called at random said they are doing fine. Leonard Munson, of Barrington, Illinois, who opened in February 2012, said he is not paying himself a salary, “but I am breaking even and slowly finding customers.” “Nobody said it was easy,” said another.
‘We are just the messenger’
Or did they? Instead of hiring its own franchise sales force, USA Mobile used franchises sales and development company Rhino7, in Apex, North Carolina, and departing franchisees said their Rhino7 representatives used the Item 19 figures as validation of the franchise model. A December 30, 2011, article in the Tampa Business Journal quoted Rhino7 Vice President Brian Garoutte saying that USA Mobile franchisees “can achieve revenue of about $145,000 a year.” Rhino7 co-founder and President John Cohen, Jr. said Garoutte should not have divulged any earnings number and said he is no longer an employee.
Cohen said he had asked Mobile Drug Testing’s CEO Strom about the numbers in the FPR and “Joe said it was an accurate representation. We have to rely on the information they give us and we have a strong indemnification clause saying so. We are just the messenger.”
Nevertheless, Cohen said he urged Strom to “prove out” his system by opening a corporate unit in Tampa. Strom’s team operated a unit for a few months, then sold it to a franchisee, Richard Schaub, who said, “There were very few accounts when I took it over.”
The attorney who worked with Strom to draft his FDD, Mark Kirsch, at the time with Plave Koch in Reston, Virginia, and now with Gray Plant Mooty, said attorney/client privilege prevented him from talking about the USA Mobile Item 19. “In general,” he said, “earnings claims are legitimate as long as they explain what is disclosed.”
Strom did not return phone calls, but sent a statement via email that said, “We currently support 36 franchise units, who actively implement our business model within 77 territories throughout the United States. We are fully engaged in supporting them, and expect they will find continued success.”
The letter continued, “We are very confident that we have followed all of our contractual and regulatory requirements, and expect that appropriate decision-makers will so find.”
David Bell, USA Mobile’s vice president of marketing since last June, said he was authorized to speak for the company. “Joe was new in franchising, so he relied heavily on Rhino7’s advice and some franchisee complaints are valid,” Bell said. “We are no longer using recorded testimonials and we are inviting prospective franchisees in for Discovery Days.”
Bell said the company will hire its own sales force and its 2013 FDD will replace Galinovsky’s financials with those of a franchisee in Oklahoma City. “When I read the old documents, I knew Galinovsky’s business was not the exact model of what we do. Our franchisees work the system themselves or might hire one or two employees, and Aron has multiple employees.”
Going on their own
A total of 52 franchisees signed on under the old system and 16 of them, including the eight represented by Herman, have left. So far, USA Mobile has not invoked its two-year non-compete clause against exiting franchisees, but Bell said he felt the company “should not allow franchisees to take advantage of us and should pursue non-competes especially against the recent dropouts who are still going on their own.”
One of them, Gina Kesler in Phoenix, said she felt justified in continuing to operate the drug testing business she launched in January 2012, because “Joe had some great-big idea, but he never tried it out before selling franchises. We had to learn this industry as we went along. Any time we asked him a question, it fell into a black hole.”
Quarles & Brady in Milwaukee is representing USA Mobile against the rebel franchisees, and Quarles attorney Daniel Janssen declined to comment. At least one broker network has removed the franchisor from its client list. Cohen, who claimed Rhino7 dropped USAMDT as a client before they dropped him, said, “Joe’s concept still has legs and some franchisees are executing and happy.”
A current franchisee, who asked that his name not be used, said, “If other franchisees are disgruntled now, they should bow out gracefully.” Making their complaints public (the site UnhappyFranchisee.com has published most of the franchisees’ complaints), he said, “doesn’t help the rest of us who are trying to get customers.”