Judge finds evidence Culver’s discriminated against franchisee

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A federal judge has denied burger and frozen custard chain Culver’s motion to throw out a case brought by a franchisee, holding that there is sufficient evidence of intentional discrimination that the case should proceed to trial. Michael Wilbern, one of Culver’s first African-American franchisees, alleges in the lawsuit that the chain stopped him from opening stores in majority African-American neighborhoods and impeded his ability to operate the store Culver’s did let him open in a mostly white suburb.

Wilbern contends that from 2003 to 2012 he repeatedly tried to open a Culver’s on Chicago’s predominantly black South Side. Wilbern charges Culver’s “denied those locations every time” even though local officials offered him tax breaks to open there. Instead, Wilbern claims, Culver’s steered him to a site in suburban Franklin Park.

Wilbern charges that the “overwhelming majority” of Culver’s restaurants are located in areas where African Americans are in the minority.

The Chicago Tribune explains:

Wilbern, who previously managed a dozen KFC restaurants in Wisconsin, went along with that offer because he wanted to build a relationship with Culver’s, the suit says.

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Franchisee burned by Planet Beach tanning chain

Franchisee burned by Planet Beach tanning chain

Shrinking spa chain Planet Beach is suing a Mississippi franchisee who allegedly walked away from her franchise, demanding royalties she would have paid if her tanning salon had stayed open. The company charges in court papers that Marie Porter “abandoned” her Biloxi unit and is demanding she pay royalties for the remaining nine years of her franchise agreement – plus attorney’s fees and “additional sums arising from and related to Defendants’ damage to Plaintiff’s brand and the resulting loss of goodwill.”

Porter is not alone in closing up shop. Although Planet Beach touts itself as “the future of the spa industry,” a wave of closures has hit its franchisees, who have shuttered 85 outlets in the last three years. That represents 30 percent of the chain’s 280 units at the start of 2012, according to the Planet Beach Franchise Disclosure Document.

The Wall Street Journal reported that the Small Business Administration had charged off over $10 million in loans to Planet Beach franchisees over a 10-year period. WeAreMainSt research also shows rising failure rates on SBA loans to franchised businesses. Please let us know what you think about the risks and financial pressures in your franchise system.

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Gas station/convenience store franchisees testify to BP’s alleged abuses

Gas station/convenience store franchisees testify to BP’s alleged abuses

Current and former franchisees of ARCO and AMPM gas station/convenience stores have presented their testimony in a trial alleging that BP’s improper pricing policy cost them $1.65 million. Oil giant BP used to own the ARCO gasoline brand and still franchises AMPM stores. In a group of related lawsuits, franchisees allege that BP required them to purchase supplies from vendors that sent kickbacks to BP and that BP interfered with franchisees trying to sell their stores, among other claims.

A Los Angeles County jury is now deliberating on the suit, Hogan v. BP West Products LLC, which was filed in 2011 and is being treated as a “bellwether” case, which means the legal findings and outcome of the trial could influence the other pending lawsuits against BP involving dozens of franchisees from several western states.

Key allegations in the complaint filed in 2011 include:

  • BP required franchisees to use approved vendors, which cost each plaintiff tens or hundreds of thousands of dollars because of inflated prices and kickbacks to BP.
  • BP forced franchisees to buy a defective point-of-sale and inventory-control system that cost franchisees up to $35,000 each.

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Ruling reveals details of 7-Eleven’s alleged ‘churning’ of franchisees

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A federal judge’s ruling in franchisee litigation provides details on 7-Eleven’s “Operation Philadelphia,” a scheme whose existence the company initially denied and which franchisees say involved targeting for termination outspoken franchisees, South Asian franchisees and those with profitable stores.

Magistrate Judge Joel Schneider noted that witnesses who provided details of 7-Eleven’s alleged “churning” scheme “were privy to 7-Eleven’s internal workings while employed at 7-Eleven.” Schneider’s ruling included the following points:

  • Former 7-Eleven officials provided evidence about “Operation Philadelphia,” centered in the Philadelphia/southern New Jersey area and also known as “Operation Take Back,” and “Project P.” The judge cited former Senior Field Consultant and Market Manager Ian Shehaiber, who stated that the company targeted South Asian franchisees and “franchisees that were opinionated, successful and involved in franchise associations.” In addition, former Field Consultant John Spavlik also stated that 7-Eleven engaged in a practice of targeting franchisees for termination and that this practice originated in 7-Eleven headquarters.
  • 7-Eleven first denied that Operation Philadelphia existed and then admitted its existence but claimed that its purpose was to staff stores after findings of alleged franchisee fraud, rather than to use terminations to retaliate and discriminate against franchisees or to pad revenues.

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