About 20 franchisees who own 50-plus Cell Phone Repair stores have filed individual arbitration actions against parent company Assurant, alleging "deceitful business practices" benefitting the franchisor "at the franchisees' expense."
More are coming, with an expected 35 arbitration claims total representing 60 to 80 stores, said Dan Klein, attorney for the Cell Phone Repair Independent Owners Association.
"It's been a long road to get here," said Shane Mericle, a Cell Phone Repair franchisee and board member of the independent association, which was formed in 2018/2019. "The goal was never to get involved in anything legal. The goal was to formalize our association and get the franchisor to work with us and solve some of the problems."
The group joined AAFD, the American Association of Franchisees & Dealers, and started to "build a legal trust to begin getting some attorneys to tell us what to do." CPRIOA members who want to contribute do so, "and that gives us a pool of money that allows us to begin trying to address" the issues. Klein declined to disclose the size of the legal fund.
"When I started with this franchisor, I didn't realize how bad our agreement was. Our franchise agreement is really bad. They give us almost no rights," Mericle said.
Andy Mus, director of external communications for Assurant, declined an interview request, writing "we do not comment on pending litigation."
Arbitration expense 'cuts both ways,' attorney says
Last fall the group sued the franchisor and Assurant, a Fortune 500 insurance company that bought Cell Phone Repair in 2019, but the judge in the case compelled all cases to arbitration. Read more about the Cell Phone Repair group's lawsuit here.
Filing and pursuing so many arbitration cases is costly, but Klein said, "I think that sword cuts both ways, in that it's expensive for the franchisor to have to defend a large number of arbitrations. There's expenses and burdens on both sides." Klein's firm is Johnston Clem Gifford.
Added Mericle, "One upside, it's incredibly risky and expensive as an individual franchisee to arbitrate or take legal proceedings, but one of the upsides to them requiring arbitrations, it almost forces you to form a group that has more collective power. It ends up becoming a little bit of a benefit to the franchisees."
The group's complaints include mandatory national advertising fees, which CPR collected and "then sent the vast majority of that money, over $1 million in some years, to a company owned by the former franchisor. That company claimed to spend most of its time on managing and 'optimizing' CPR's website, but Assurant recently admitted the website hadn't been updated in over five years and needed to be totally redone," the group's press release said.
CPR "forced franchisees to purchase all repair parts from Mobile Defenders, a supplier Assurant partially owned," even though the parts "cost more, are of similar or worse quality than competing suppliers," the press release said.
And Assurant "directly competed with CPR franchisees" by opening "hundreds of repair kiosks in T-Mobile stores—many located within CPR franchisees' territory—and hired franchisees' employees to staff those kiosks," the release said.
Klein noted "some positive moves" by the franchisor, including selling Mobile Defenders and shutting down the T-Mobile repair centers and transitioning the business back to CPR stores. "Again, it doesn't solve the damages that were done to us previously."
Mericle summed up the years-long process this way: "Yes, it's exhausting."