In a lawsuit currently pending in the United States District Court for the Northern District of Georgia, a Federal District Court Judge ruled in April of 2012 that franchisees may use racketeering claims against Moe’s Southwest Grill. The lawsuit was filed by franchisees who alleged that the franchisor had been taking money from the franchisees through a deceptive kickback scheme involving the supply chain for the company. The lawsuit is not finalized as of this date but it still can serve to teach us how to proceed in handling business issues.
Racketeering is generally defined as “an organized conspiracy to commit the extortion or coercion, or attempts to commit extortion or coercion. From the standpoint of extortion, it is the obtaining of money or property from another, without his consent, induced by the wrongful use of force or fear”. (Black’s Law Dictionary) The definition of racketeering can get much more complicated but the above is a general definition sufficient enough for the understanding of the current allegations of the franchisees.
The attorney for the franchisees stated that the case “is just another example of greedy franchisors using the supply chain as a vehicle to earn hidden royalties”.
The real issue which the franchisees disagreed with was that the franchisor allegedly earned money off the supply chain without disclosing it based upon the franchisee’s purchases of supplies. Thus, the franchisees filed suit for fraud, breach of contract and now racketeering claims among other claims. The franchisees have alleged that the franchisor created a scheme to sell food supplies to the franchisees (the Moe’s store owners) and in doing so, had other companies involved; this provided profit to the franchisor based upon the food sold to the franchisees without disclosing this to the franchisees or potential franchisees.
This case will likely be a good case for business owners to review and follow in order to learn how to handle similar issues in the future.
Take Away Thus Far: As business owners and/or executive level officers, it is important to understand the dealings between vendors, customers, and related businesses. In today’s business climate, most every business is looking for opportunities to improve revenue. Increasing revenue and ultimately increasing profit for a business is a good thing. In every business setting, the executive officers need to understand the relationships between the parties, the owners, the pricing structure, etc. to insure that the relationship and business connections are properly set up. Likewise, there may be times when disclosure is required between parties to insure that all the parties fully understand the contractual relationship between the companies.