You're Toast!

According to Klein's complaint, Quiznos also saturates the market with stores, distributes coupons for free and discounted food for which franchisees receive no reimbursement, and uses a portion of the advertising fee it charges franchisees to sell more franchises instead of to promote their product.

Klein cites a 2003 court document from another case in which Quiznos attorney Ric Cohen stated that "40 percent of Quiznos units are not breaking even," -- a figure that was not disclosed to his clients before they signed into the company. "What happens with Quiznos franchisees now is that it's just a matter of time before their debt catches up to them, before they max out their credit cards and take out their second mortgages and ruin their lives and their family's lives and their family's family's lives, meaning in-laws and whomever else they can borrow money from to try to get it to work, because franchisors will tell you: 'If you just keep it open a little bit longer...'"

Fred Westerfield is a client who couldn't hold it together any longer. He's closed his three Wisconsin Quiznos stores and filed for bankruptcy. He and his wife are losing their home and cars and almost ended their twelve-year marriage.

"We had money we earned and invested," he says. "We were smart. I thought this was going to be a good investment. They classify people as bad operators. They can't say that about me. I won awards. I followed all the rules. I worked seventy-plus hours a week. I put my heart and soul into those stores."

So did Colorado franchisees Dan Walsh, Dan Serafin and Samir Tailor, who sued the company in 2004 for encroachment, claiming that their sales dropped dramatically when Quiznos allowed additional stores to open in close proximity to theirs. Since the company's contract with franchisees does not grant any territorial exclusivity -- the company can open stores as close to existing stores as it wants -- attorney Ted Bendelow argued that the issue was about economic viability. "The knowledge of the marketplace and what it takes to sustain a franchise is really within the unique and sole knowledge of the franchisor," he says. "That's where I think they have the greatest responsibility, not putting people into a situation where going in, you know there's trouble."

Denver District Court Judge R. Michael Mullins didn't agree and ruled for Quiznos, saying the plaintiffs had not proven that their reduced sales were caused by the proximity of other stores. More important, the plaintiffs' contract stated that site selection is their responsibility and that sites do not come with territorial protection. "In short, the Franchise Agreements are clear that Quizno's approval of a site was in no way a guarantee as to the sustainability of the location or as to its future success and also that Quizno's retained the right to open franchises anywhere else it chose," he wrote.

Walsh lost his two stores and his investment during the course of the litigation. He recently filed for bankruptcy. "Basically, you're signing away your life," he says today. "They made you believe they were going to take care of you. It turned out to be a crock."

Instead, Quiznos expects Walsh and other franchisees to adhere to the letter of their contracts, which require that they acknowledge the risk of owning a business and disregard any promise or assurance a Quiznos employee or contractor might have made. Bendelow, however, sees that as a problem because the Quiznos franchise agreement is an adhesion contract, meaning it's one-sided and non-negotiable. "The franchisee literally cannot change a comma or a period in the document," he says. "It was written by Quiznos for Quiznos, and so, as one might expect, the franchisor has all the rights, and the franchisee has all the responsibility. It doesn't do you any good to read the contract, because you can't negotiate it anyway. Here it is. Either you're in or you're out. You really go in with a leap of faith."