Fraud Claims

Most fraud claims in franchising arise in the sales process when the franchisee comes to believe that the value of the franchise was misrepresented as the result of an express misrepresentation by the franchisor or its sales agent, or omitting material facts that, if known, would have dissuaded the buyer from purchasing on the same terms.

However, fraud claims may also arise at other stages of the franchise relationship, whenever one party believes it was damaged by its reliance on deception by the other.

Carmen D. Caruso Law Firm has extensive experience bringing and defending against claims for fraud in franchising. These claims may be brought under franchising statutes such as the Illinois Franchise Disclosure Act, statutes known as “Little FTC Acts” that create state law claims for violations of the Federal Trade Commission Franchise Rule and in severe cases, the federal Racketeer Influenced & Corrupt Organizations Act (“RICO”), as well as under the common law. We have reviewed hundreds of Franchise Disclosure Documents (or their predecessors, Uniform Franchise Offering Circulars) and comparable prospectuses for other forms of business, and we know what to look for to prove or disprove fraud in franchising or similar relationships involving dealerships, business opportunities or other distribution arrangements.

Some highlights include:

  • Success in a federal court evidentiary hearing defending an international retailing franchisor from claims it defrauded its Texas franchisee in the sales process and for alleged post-sale fraud regarding the franchisee’s bank financing.
  • Success in obtaining a multi-million dollar recovery for six owners of consumer electronic dealerships on proof that the manufacturer had made false financial performance representations and overstated the past success of their supposedly proven retail concept.
  • Recovery of substantial damages in a confidential settlement on behalf of a U.S. franchisee and area developer who alleged fraud based on the inclusion by a U.S. sub-franchisor in its offering circular of false and misleading financial statements from an Australian parent company.
  • Success in obtaining damages in a confidential settlement for the franchisees that owned the entire Chicago market of a national steakhouse restaurant chain that alleged fraud in the inducement of the restaurant franchises and failure to maintain system standards.
  • Success in proving in a bench trial that one of the world’s largest oil companies committed fraud by omission in offering its company-owned gas stations for sale as PMPA franchises, creating the false impression that the purchasing franchisees would earn more profit margin on every gallon of gasoline to be sold than the company would allow.

Disclosure Violations

The Illinois Franchise Disclosure Act and the Illinois Consumer Fraud & Deceptive Business Practices Act (and similar statutes in other states) protect the buyer of a franchise from failure by the franchisor to accurately comply with the franchise disclosure laws even where the disclosure violation would not rise to the level of fraud.

  • Carmen D. Caruso Law Firm has protected numerous franchisees that were victims of disclosure violations, often successfully negotiating the rescission of the franchise agreement without the need to sue.
  • Carmen D. Caruso Law Firm has also protected franchisors from outside of Illinois that found themselves in violation of the Illinois Franchise Disclosure Act by negotiating successful outcomes with the Illinois Attorney General and affected franchisees.
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