September 2, 2005--Franchisees of sandwich chain Quiznos are fighting what they say are policies that allow the Denver, Colorado company to open too many franchises in a single market, leading to cannibalization of revenues.
On Aug. 26, a Los Angeles County judge told Quiznos it could not shut down a Long Beach, Calif. chain and ordered Quiznos into arbitration with Bhupineer "Bob" Baber and his wife Ratty Baber, who claimed that new stores in their area siphoned customers from their two Long Beach franchises. If the Babers win that round, Quiznos may not be able to open new stores in cases where sales are likely to cut into the business of existing franchises.
"There is an implied covenant of good faith and fair dealing that says you don't dump competition on top of your existing franchisees," said Fred Pardes, attorney for the Babers.
Quiznos' franchise agreements do not restrict the company from opening franchises within the proximity of existing locations.
But Don Boroian, a franchise consultant with Francorp, said franchisers like Quiznos have an obligation to prevent locations from encroaching on each other's territory.
Boroian is serving as an expert witness in a separate lawsuit against Quiznos in which the plaintiff, Royce Gwin, is arguing that he was denied commissions for selling franchises.
In 2004, Quiznos opened two franchises less than two miles from the Babers' Quiznos. Pardes said that within months, the Babers' revenue fell by one third and blamed it on the new competition.
The Babers founded a not-for-profit last December to organize Quiznos franchisees with similar grievances. One month later, Quiznos revoked the Babers' franchise on the grounds of health code violations. The City of Long Beach said the chain passed all health code inspections.
But the closure prompted the Babers to sue Quiznos.
Quiznos would not comment on the allegations or the suit.
"We are moving forward with arbitration in California," wrote a Quiznos spokesperson in an e-mail. " We're not going to comment further regarding ongoing litigation."