In BusinessWeek by guest blogger Janet Sparks.
Following Dunkin’ Donuts Independent Franchise Owners’ (DDIFO) twentieth annual meeting in September, president Jim Coen issued a letter to members stating that the association favors a more collaborative approach to reconciling the problems that Dunkin’ Brands sees the need to litigate against. He declared, “Dunkin’ Brands continues to pursue litigation against franchisees and shows no signs of changing their seemingly harsh and predatory practices.”
According to Coen, DDIFO is willing and able to take this discussion with Dunkin’ behind closed doors, but the franchisor has not shown as of yet, its willingness to do so. He explains, “Keep in mind that there are hundreds of Dunkin’ Donuts franchise owners who are today, fighting for their livelihood, trying to protect and defend their sweat equity built over many years, against a seemingly arrogant and intractable Dunkin’ Brands Loss Prevention with very deep pockets. I think that is unacceptable.”
Recently in news articles, it was reported that there were approximately 350 lawsuits between Dunkin’ and its franchisees. The company has been accused of aggressively targeting shop owners in an effort to terminate franchise agreements and in the process collect hefty fees and penalties for alleged contract violations.
Eric Karp, Witmer, Karp, Warner & Ryan, representing the independent franchisee association avows that there is too much litigation going on in the donut system. He said they recently looked at the franchisor-initiated lawsuits from public records for 2007 and 2008 and it was quite revealing. “In each of those two fiscal years, Dunkin’ filed more than 125 lawsuits against franchisees.” In doing the math, Karp explained that means the company filed a lawsuit every six days over that two-year period.
Karp said now under the new franchise rule franchisors don’t have to give the larger description that everyone is custom to seeing in the Item 3 litigation section of the disclosure documents. “They only have to give the kind of lawsuit it was, where it was filed and who the parties are. But he adds, “No matter how you look at it, it can’t be good news for a franchisor to have this amount of litigation.” Karp asks, “Is it cheaper to file a lawsuit in federal court than it is to help a franchisee get into compliance where they need assistance? This makes no sense to me, unless there is some ulterior motive at work.”
But Karp feels the big issue is whether Dunkin’ is misusing its superior financial resources against franchisees in the system to try to essentially reorient or redesign the entire system. And he feels that there is profit to be made. “Dunkin is the full employment for franchisor lawyers. Can you imagine the legal fees that are being spent on these cases?” he asks. “So the lawyers are profiting and Dunkin Donuts is profiting through the fines and penalties that they are extracting. And the small operators are taking it on the chin,” he said.
In past years, Dunkin’ has been accused of its hardball tactics against small operators, terminating their contracts and turning their stores over to large multi-unit operators. When asked if Dunkin’ is still aggressively trying to get rid of the small operators, Karp said, “It certainly seems that way to me.”
Read more at: BusinessWeek