How to Sue a Franchisor for Providing Fraudulent Information

As the popularity of franchises increases, so does the prevalence of fraudulent franchisors. When exploring franchise opportunities, it's important to ask questions about a company's Uniform Franchise Offering Circular—the primary disclosure document for franchise businesses. In this document, you'll find information on the company's history, any prior litigations and its training program. But even careful research can't prevent all problems, and sometimes you are forced to sue a franchisor for providing fraudulent information.

Difficulty: Challenging

Instructions

Things You'll Need:

• Records of written and verbal communication with the franchisor
• Franchising lawyer
• Franchisor's Uniform Franchise Offering Circular

1. Find a qualified franchising lawyer. Research franchising attorneys by networking with other investors or asking your personal attorney for recommendations. Your state bar association and other law Web sites can also provide a list of franchising attorneys who specialize in fraudulent information cases (see Resources below).

2. Be proactive when searching for investment opportunities in order to prevent future litigation. To help ensure you don't have to bring legal action against a franchisor, review their disclosure document carefully and bring it to your attorney for review. The Small Business Administration provides helpful tips on evaluating potential franchisors (see Resources below).

3. Watch out for obvious warning signs, such as companies that use high-pressure tactics or those that have earning claims that are too good to be true. Be cautious when entering into a contract with franchisors who display these red flags.

4. Provide your attorney with a copy of the Uniform Franchise Offering Circular, which includes all of the franchisor's financial, material and litigation history. Providing your attorney with this information will help him or her prove that misleading or fraudulent statements were made.

5. Keep thorough records of all written and verbal communication with the franchisor and bring them to your lawyer. Gathering this information will help your lawyer determine which pieces of evidence will best support your legal action against the franchisor, providing you have a case.

6. Expect to spend several months (and in some cases, years) searching for a legal resolution. Many of the larger corporations employ savvy legal teams that use delaying tactics to discourage franchisees from pursuing legal action against the franchisor.

Tips & Warnings

• Ensure that the attorney you choose is highly experienced in the complexities of franchise law, including the many individual regulations that vary from state to state. Having a lawyer who fully understands the language of franchise contracts and disclosure documents will give you the best chance of winning your legal suit against the franchisor.
• Many states require franchisors to provide Uniform Franchise Offering Circulars to every potential franchisee. However, the information contained in these disclosure documents isn't verified, so it's important to get the opinion of a knowledgeable franchise lawyer before entering into a contractual agreement. Once you sign a contract, you are liable for any responsibilities included therein, and you will have a difficult time successfully suing the franchisor if the contract included any clauses that allow changes to the terms of the agreement on a whim.

Who Can Help:

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[SmithM99]

on 10/6/2008 good info