A franchisee organization claims Edible Arrangements imposed system-wide changes that violated its franchise agreement.
A Connecticut judge ruled that a lawsuit against Edible Arrangements, a franchising company that creates fresh fruit arrangements, may proceed in the U.S. District Court for the District of Connecticut.
In September, the Edible Arrangements Independent Franchisee Association, an organization representing the company's franchisees, filed a lawsuit against the company on behalf of 170 franchisees claiming that Edible Arrangements altered its business agreement and unfairly imposed company-wide practices.
Edible Arrangements, the franchise-company that sells fruit arranged in bouquets, was founded in 1999 in Wallingford, Connecticut, and has appeared on the Inc. 5000 multiple times in recent years.
Edible Arrangements asked the court to dismiss the complaint, saying EAIFA did not have standing to make complaints on behalf of its franchisees. Judge Warren W. Eginton dismissed Edible Arrangements's request in an order Tuesday.
Sherri Vertorano, who owns an Edible Arrangements franchise in Moorseville, North Carolina, and is a founding members of EAIFA, says although the organization was reluctant to take their complaints to court, its members are confident going forward.
"We were very pleased," she says. "This is the outcome we had hoped for. We really believe that the federal court is where we need to be in."
Executives at Edible Arrangements declined Inc.com's request for comment, but released a statement acknowledging they are aware of the Connecticut court's decision.
"We continue to strongly disagree with EAIFA's characterization of the facts and conclusions and plan to defend the complaint vigorously," the statement reads. "Since its inception, our main objective has been and always will be to continuously improve the business opportunity for our franchisees and the customer experience."
Vertorano, a franchisee, says EAIFA formed in late 2009 in reaction to an Edible Arrangements policy that required franchises to extend their hours and be open seven days a week. EAIFA sent letters from 300 U.S. franchise owners to Edible Arrangements's corporate offices to get the company to reconsider or discuss the new mandate, but Vertorano says no action was taken.
EAIFA and Edible Arrangements also sat down to a settlement conference, Vertorano says, but ultimately the organization decided it needed to turn to litigation.
Justin Klein, a franchise attorney, says EAIFA members decided to file its lawsuit after other negotiation attempts failed.
In its complaint, EAIFA claims that Edible Arrangements unfairly implemented system-wide mandates—such as using specific online product ordering and fulfillment software systems—as well as imposing new fees. EAIFA also claims that Edible Arrangements unfairly changed the wholesale system by imposing higher costs and extending hours, in addition to creating dippedfruit.com, a website affiliated with Edible Arrangements that EAIFA members say competes for business with franchisees.
Klein says Edible Arrangements's practices violated Connecticut Unfair Trade Practices Act, breached its contracts with franchisees, and breached covenants of good faith and fair dealings. He says Edible Arrangements gave itself an unfair advantage.
"It really asks the court to determine whether Edible Arrangements has gone beyond the boundaries of their franchise agreement and that they do not have the unfettered discretion to change the system on a whim," he says.
Linda Morris Belford, who has been an Edible Arrangements franchise owner in Grand Blanc, Michigan, for six years and is executive vice president of EAIFA, says she enjoyed partnering with the company for her first two years in the business. She says she has been dissatisfied with the partnership since.
"The franchisee and the franchiser should be partners, but it has evolved more into an employee-employer relationship," she says. "We're supposed to be independently owned and operated, but it's turned out that we're independently operated only to the extent that we're risk managers and liable for loss."
Klein says going forward, Edible Arrangements will file an answer to EAIFA's complaint, and both parties will then engage in a discovery period to compile documents and evidence before going to trial.
W. Michael Garner, a franchise attorney and author of the legal treatise "Franchise and Distribution Law and Practice," says the case between Edible Arrangements and EAIFA could set a new precedent, because it raises the issue of how far a franchisor can go in making unilateral changes to the system without changing a franchise agreement.
"This is an area that the courts haven't really ventured into that much," he says. "This will be a case that both franchisors and franchisees should be watching to see where the court draws the line."
Morris Belford, the Michigan franchisee, compared a franchise business to a stool whereby the brand is at the center held up by three legs: franchisees, franchisors, and vendors. She says she is worried about the stability of the Edible Arrangements brand if EAIFA's complaints are not resolved.
"If one of those legs break, the others cannot hold up the brand," she says. "What we see happening here is there are really two broken legs, and the brand is really going to self-destruct if we don't really start partnering and working together."
What do you think? Should a franchisor have the right to make unilateral changes to the system?