FRANCHISE FRAUD AND MISREPRESENTATION
Franchise and distribution litigation almost always involves claims of fraud. In the franchise and distribution context, sales fraud is most often based upon a sales representative’s false representations made to intentionally induce people to buy expensive franchises and dealerships. Examples of supplier and franchise fraud include a franchisor or suppliers’ false claims as to the following: the prior franchisees or dealers’ profits; the uniqueness or value of the franchisor or supplier’s products or services; the prior successes or failures of franchisees in particular areas; and, the amount of ongoing regular investment that the franchisor or supplier has made in the franchise or distribution system.
Not surprisingly, franchise fraud is one of the most heavily regulated areas in the legal franchise world. The Federal Trade Commission at the federal level, and numerous agencies at the state level, regulate certain disclosures that must be made by franchisors and suppliers before they are permitted to sell franchises and dealerships. These anti-fraud statutes and regulations’ impetus was to rid the market of the rampant sales fraud that afflicted the franchise industry. Unfortunately, despite this regulation of pre-sales disclosures, franchisees and dealers are still regularly victimized by franchise fraud today.
Franchisor and supplier representatives often seek to side-step the legal prohibitions against fraud, and have, over time, become more savvy about to accomplish this goal. Many people, including some lawyers, incorrectly believe that a franchisor or supplier’s promise to provide support and assistance after a franchise or distribution agreement has been signed will ordinarily support a fraud claim. The law, unfortunately, considers such non-factual promises to be innocent and permissible huffing and puffing. A fine line exists between this permissible conduct and real franchise fraud, and the lawyers at the Goldstein Law Firm, based upon their more than thirty years of experience, are uniquely capable of posturing their clients’ franchise fraud claims to achieve the best result possible.
Further, ironically, prolific fraud lawsuits and increased regulation regarding fraud has tended to make franchisors and suppliers more misleading in their sales pitches to potential purchasers, not more honest. Constant litigation and agency enforcement regarding supplier and franchisor fraud has more clearly identified the boundaries of permissible conduct. Armed with this reverse-legal shield, franchisors and suppliers frequently make false representations and promises that improperly lure investors to purchase flawed franchises and dealerships.
The common law of fraud, which also impacts how franchise laws and regulations are interpreted, only makes matters worse for franchisees and dealers. The common law of fraud has begun to heavily favor the restrictive view that franchisor or suppliers’ pre-sale comments or promises – truthful or not – will not be given any legal weight in a court after a supplier or franchise agreement has been executed, unless those specific comments or promises were written down and included directly in the agreement. Obviously, courts’ heavy inclination toward refusing to acknowledge the legal force of such statements incentivizes suppliers and franchisors to refuse to memorialize any pre-sale representations and promises in writing, particularly in their distribution and franchise agreements.
SUCCESS OF GOLDSTEIN LAW FIRM COMBATTING SUPPLIER AND FRANCHISE FRAUD
Jeff Goldstein and the lawyers at the Goldstein Law Firm have used their vast experience and expertise to locate, identify and unearth all forms of dealer and franchise fraud for over thirty years. As with wrongful franchise terminations, Attorney Goldstein and Goldstein Law have a proven track record in successfully representing only franchisees and dealers in supplier and franchise fraud cases around the country.
In appropriate cases, where damages would not wholly compensate a franchisee or dealer that was defrauded in purchasing a franchise or dealership, the Goldstein Law Firm has successfully obtained rescission of fraudulently sold franchise or dealer agreements. They have done so under the theory that a defrauded franchisee or dealer should be compensated to an extent that would put that franchisee or dealer back into the exact same place that it was right before the fraudulent sale. In essence, this means that any monies or other consideration paid by the franchisee or dealer to the franchisor or supplier would need to be returned. It also means that rescission of the agreement would require that the franchisor or supplier reimburse the franchisee or dealer for all other funds that the franchisee or dealer spent to obtain the services or products of third parties that were required to open the franchise or distribution business.
Jeff Goldstein and the Goldstein Law Firm have been highly successful in litigating supplier and franchise fraud claims on behalf of their franchisee and dealer clients. In this regard, because fraud is considered to be a tort, as opposed to a contract breach, the common law of almost all states, as well as some statutory remedies, permit courts to award punitive damages on top of compensatory damages to franchisees and dealers that have been defrauded in purchasing franchises or dealerships. Jeff Goldstein and the other franchisee lawyers at Goldstein Law are exceptionally postured to evaluate whether your case might contain claims that would entitle you to such extraordinary damages.
WHAT TO DO IF YOU SUSPECT YOU HAVE BEEN WRONGFULLY DEFRAUDED
As with all legal claims, it is crucial to formally address or file a fraud claim as soon as possible after you discover that you may have been defrauded. Many times, it is not until long after a franchisee or dealer has been defrauded, and only after losing their entire investment, that they realize they were wrongfully duped into making a defective and worthless purchase. As with a wrongful termination, timing is almost everything in the face of franchise fraud. In most circumstances of fraud, courts will begin counting the statute of limitations (the tolling of which will certainly prevent the filing of fraud claims), not from the time that a franchisee or dealer discovers the fraud, but instead from the time that the court believes that a reasonable person should and would have discovered such fraud. Therefore, the legal stopwatch often starts before the franchisee or dealer actually discovers that he or she has been defrauded. Many franchisors and suppliers have also begun to include incredibly short ‘statutes of limitation’ in their distribution and franchise agreements. Courts and arbitrators almost universally respect these clauses.
If you suspect that you’ve been defrauded, you should contact Jeff Goldstein at the Goldstein Law Firm at 202-293-3947. Don’t let your franchisor or supplier’s fraud result in you losing your entire franchise or dealer investment.
