Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Child care franchisee alleges fraudulent inducement to sign franchise and management agreements, (Jul 9, 2014)

By Linda O’Brien, J.D., LL.M.

A franchisor of child care centers engaged in unfair or deceptive practices by fraudulently inducing a franchisee to enter into franchise and management agreements and intentionally mismanaging the franchisee’s franchised child care centers, according to a complaint filed in the federal district court in Fort Lauderdale (Creative American Education, LLC v. The Learning Experience Systems, LLC, July 8, 2014).

The Learning Experience Systems (TLE) is a franchisor of child care centers and has more than 200 locations across the country. Katijah Alaudeen, sole owner of Creative American Education, is a foreign citizen who wished to immigrate to the United States under an employment based preference immigrant visa program.

The complaint states that, in 2011, Alaudeen contacted TLE for information about investing in a TLE franchise pursuant to the visa program. A franchise consultant of TLE allegedly informed her that TLE franchisees experience unprecedented growth and profits and TLE applicants received a fast track processing route to a visa. The TLE website stated that a requirement of the visa program was a $1 million investment and an independent attorney would be recommended to assist with visa applications. The website also promised extensive initial training, ongoing training and support, and an environment of cultural diversity. The TLE franchise consultant sent Alaudeen a franchise application and financial fact sheet, stating that $500,000 would be needed to open each TLE center and $150,000 would be sufficient to operate the centers annually.

In September 2011, Alaudeen, in trust for Creative Education, signed two franchise agreements with TLE to open two centers, based on TLE representations that her investment would be refunded if her visa application was denied. Alaudeen and her spouse, Bernard Loganathan, made investment payments of $330,000 into a business account that TLE had complete control over and would use to fund the centers. After Alaudeen and her spouse’s visa applications were denied, TLE offered to manage her TLE centers in exchange for a management fee. In January 2012, Alaudeen and Creative Education executed management agreements under which TLE assumed control over the operation of the two TLE centers and made additional investments totaling $1 million, the complaint alleged.

According to the complaint, when Alaudeen and her spouse arrived in the United States under a business visa in June 2013, they became aware of TLE’s gross mismanagement of the centers, which included employee complaints of harassment, staffing shortages, lack of marketing and program curriculum, and violations of state regulations. TLE failed to adequately train Alaudeen on critical aspects of the centers’ management and systematically undermined all attempts by Alaudeen to transition the operation of the centers to her. After Alaudeen determined that continued operation of the centers was not sustainable, TLE refused to purchase the centers from her or sell them on her behalf. However, after Alaudeen suggested temporarily closing the centers, TLE took over control of the centers and barred Creative Education from accessing any funds from the operation of the centers.

The complaint alleges that TLE referred Alaudeen to attorney Anthony Korda to assist with her visa application. Korda was not an independent attorney, but instead was more invested in TLE’s interests than Alaudeen’s interests, according to Creative American Education. Korda allegedly failed to (1) submit Alaudeen’s visa petition; (2) advise her that a $1 million investment was not needed to qualify for the visa; (3) review any of the documents provided by TLE; (4) advise her that her money should have been invested in an escrow account; (5) advise her to retain alternative counsel; (6) timely file her visa application until after both centers were already operational; and (7) advise her to obtain a temporary visa to avoid the management agreement.

Creative Education asserts claims for fraudulent misrepresentation, negligent misrepresentation, breach of contract, breach of covenant of good faith and fair dealing, attorney malpractice, breach of fiduciary duty, and violations of Florida’s Deceptive and Unfair Trade Practices Act. The action seeks rescission, damages, interest, costs of suit, and any other just and proper relief.

The case is No. 9:14-cv-80900-JIC.

Attorneys: Andre Dreyfuss and Leon Hirzel (Hirzel & Dreyfuss, PA) and Michael Einbinder and Mackenzie Dimitri (Einbinder & Dunn) for Creative American Education, LLC.

Companies: Creative American Education, LLC; The Learning Experience Systems, LLC

News: FranchisingDistribution FloridaNews