Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Pro-Cuts made illegal financial performance representations, complaint alleges, (Aug 25, 2015)

By Greg Hammond, J.D.

RPC Acquisition Corp. (Pro-Cuts) and parent company Regis Corp. allegedly violated the Minnesota Franchise Act and Wisconsin Fair Dealership Act by making illegal performance representations and otherwise misrepresenting the franchise opportunity, a group of Twin-City area franchisees have claimed. The franchisees filed suit in the Minnesota District Court in the County of Hennepin (Ansari v. Regis Corp., August 21, 2015).

Pro-Cuts operates and franchises sport-themed hair care and product salons under the Pro-Cuts Sports brand. Various individuals and corporations entered into franchise agreements with Pro-Cuts between April 2012 and January 2014, granting them the right to operate Pro-Cuts Sports salons in the Twin Cities area. However, the franchisees claim Pro-Cuts violated the Minnesota Franchise Act, and committed common law fraud and negligent misrepresentation, by making illegal financial performance representations and misrepresenting the franchise opportunity. Specifically, the franchisees claim that Pro-Cuts provided them with a franchise disclosure document before the franchisees signed their agreements, and told the franchisees to refer to Item 19, which contained data on the financial performance of Supercuts brand salons, to see the financial performance they could expect if they signed up as a Pro-Cuts Sports franchise. The financial performance representations were misleading, the complaint asserts, because the franchisees failed to achieve financial performances anywhere near the representations.

Pro-Cuts also allegedly represented that the Pro-Cuts Sports brand would be Regis’ number one priority, and that it would experience rapid growth, with 30 salons in the Twin Cities by 2013 and 900 Salons in the United States and Canada within 10 years. The Pro-Cuts brand, however, has been effectively abandoned, the franchisees claim, resulting in the de facto termination of the franchises. Pro-Cuts allegedly announced that additional Pro-Cuts Sports salons would not be added; the current company-owned salons would be sold to new franchisees for conversion to the Supercuts brand; and Regis would not be actively trying to sell Pro-Cuts Sports franchises to prospective franchisees.

In addition, the franchisees claim that Pro-Cuts misrepresented the marketing and advertising it would conduct. While the franchisor stated that it would engage in a $300,000, two phased marketing plan in the Twin Cities market, only the first phase was completed. Additional advertising occurred in late 2014, but the franchisees claim it was “too little, too late,” and that they have been left with a failing brand, with little public awareness and with a lack of advertising support from Pro-Cuts to reverse the “death spiral.”

Lastly, the franchisees claim Pro-Cuts misrepresented the operational, advertising, and financial services support they would receive, by telling the franchisees they would receive extensive support in the operation of their salons, that Regis’ marketing team would provide the franchisees with marketing plans and support in carrying those plans out, and that Regis’ financial services teams would monitor the franchisees’ financial data and provide advice on improving performance. In reality, the franchisees were given little to no support from Pro-Cuts for advertising, operations, and financial services, the complaint alleges.

The five-count complaint claims violation of the Minnesota Franchise Act, violation of the Wisconsin Fair Dealership Law, common law fraud, negligent misrepresentation, and declaratory judgment. The franchisees seek rescission of the franchise agreements; restitution and other damages; judgment declaring that the franchise agreements do not contain a valid, enforceable agreement to arbitrate and that the plaintiffs are not required to arbitrate their claims; and an award of attorney fees, costs, disbursements, and interest.

Attorneys: J. Michael Dady (Dady & Gardner, P.A.) for Plaintiffs.

Companies: JBJL, LLC; Frangipani LLC; SKC Concepts, Inc.; Link Jas, Inc.; Schwings Centennial Lakes, Inc.; Salon Waters, Inc.; Look Sharp, LLC; Regis Corp.; RPC Acquisition Corp.

News: FranchisingDistribution MinnesotaNews