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Illinois Franchisees File Class Action Suit Against Quiznos Sub

This press release was just issued by Marks & Klein LLP, litigating attorneys.

Also read Janet Sparks interview with Chris Bray, President of the Toasted Subs Franchisee Association, Inc. published on BlueMauMau.org

Illinois Franchisees File Class Action Suit Against Quiznos Sub
2007-04-19 20:23:17 -

CHICAGO, April 19 /PRNewswire/ - A class-action lawsuit was filed against Quiznos Sub today in the U.S. District Court for the Northern District of Illinois, alleging that the company has systematically defrauded its franchisees in a scheme designed to build the brand at the expense of its operators in the field.

Among other things, the lawsuit contends that the company forces franchisees to buy food, supplies, and services from Quiznos or its affiliates at inflated prices while concurrently setting artificially low retail prices for its products - in many instances, making the stores unprofitable for the franchisees. In addition, the plaintiffs allege that Quiznos unlawfully participates in a scheme to sell the franchises by omitting or otherwise misrepresenting key facts about Quiznos' business operations in an effort to induce potential franchisees to buy into the system. In seeking damages for lost investments as well as injunctive relief, the suit alleges, among other things, statutory and common law fraud, violations of federal and state antitrust laws, violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act, breach of contract, and violations of Illinois franchise and consumer protection laws.

The suit in Illinois is the third class-action brought on behalf of Quiznos franchisees in less than a year, according to Justin M. Klein, Esq., a partner in the Red Bank, N.J. law firm of Marks & Klein, LLP. Klein also represents the plaintiffs in similar actions filed on behalf of Wisconsin and Michigan franchisees, joined by Mark M. Leitner and Joseph S. Goode of the Milwaukee-based law firm of Kravit, Hovel & Krawczyk S.C.

"Quiznos has been taking advantage of its franchisees for years through practices that we contend are illegal and in violation of the franchise agreement," said Chris Bray, president of the Toasted Subs Franchisees Association, Inc. (TSFA), a trade group representing Quiznos franchisees that helped organize the class-action suit. Bray, who owns two locations in Texas and has been a franchisee for nine years, said Quiznos "has slowly, methodically and deliberatively modified the business model, year over year, to inflate corporate profits at the expense of franchisees system wide. This has led to a lack of franchisee profitability and excessive store closures. It is time to put a stop to this."

Added Klein: "There are Quiznos franchisees around the country that have been and continue to be injured and we will continue to fight to protect their interests."

Defendants in the Illinois lawsuit include, among others, The Quiznos Franchise Company, LLC, and Quiznos Franchising LLC, both of Denver, Colo.; various affiliates of the company; Richard E. Schaden of Lafayette, Colo., and Richard F. Schaden, of Westminster, Colo., the father-son owners of Quiznos; and Cervantes Capital, LLC, of Denver, which is alleged to run the Quiznos operations. The plaintiffs in the class action are all operators of Quiznos franchises in Illinois.

In April 2006, Quiznos announced that J.P. Morgan Partners, the private- equity division of J.P. Morgan Chase & Co (JPM) would acquire a significant share of Quiznos pursuant to undisclosed terms. Since the acquisition, the company has replaced its CEO with former Burger King CEO Greg Brenneman. Almost one year later, in a February 24, 2007 article published in the New York Times, Brenneman acknowledged historical problems with the franchise and vowed to work to correct those problems. In that article, Brenneman is quoted as saying, "it was clear [when he got involved with the company] that food costs, as a percent of revenue were, quite honestly, out of line ..."

"Management changes are a step in the right direction, but there is still a lot of work that needs to be done before there can truly be a synergy between Quiznos and its franchisees, and even that won't help all of those that have already been damaged," concluded Klein.