The Burgerim lawsuit claims that the franchisor received millions without delivering
In a suit filed by the Federal Trade Commission, Burgerim and its owner are accused of making false promises to and withholding legally required disclosure information from 1,500 people who bought franchises for $50,000 to $70,000. The Burgerim lawsuit alleges that the franchisor received tens of millions of dollars in such fees despite most franchisees never even being able to open their businesses.
Burgerim lawsuit details
The complaint, filed by the Department of Justice for the FTC, accuses Burgerim and owner Oren Loni of:
- Persuading franchisees to invest in “a business in a box” that requires little to no business experience while minimizing the challenges restaurant operations.
- Luring veterans to buy in via discount programs.
- Assuring franchisees that if they were unable to open, the company would refund the franchise fee. After months of requests for refunds, franchisees did not receive them.
- Failing to make disclosures required under the FTC Franchise Rule, which mandates that franchisors supply prospective franchisees with prescribed information for considering when deciding whether to invest in a franchise, including a Franchise Disclosure Document. The FDD provides data on the franchisor, franchise business and spells out terms of the franchise agreement.
Relief sought for franchisees
Filed on behalf of the U.S. District Court for the Central District of California as well as the FTC, the complaint requests that the court stop the above violations, require monetary and other relief to affected consumers, and impose civil penalties on the franchisor. The Franchise Rule carries a potential civil penalty of up to $46,517 for each violation, according to an FTC news release.
The FTC refers a complaint for civil penalties to the Department of Justice when the alleged offending parties are believed to be violating or are about to violate the law and that a court proceeding is in the public interest. The case will be decided by the court.
To complain about a franchisor
In its news release about the lawsuit, the FTC also outlined its new reporting vehicle for consumers to report unlawful practices by franchisors. Consumers can send complaints to the FTC through the website ReportFraud.ftc.gov (click “Report Now” and then follow the automated prompts). Burgerim, with its U.S. headquarters in Calabasas, Calif., was founded in Israel – Burgerim means “many burgers” in Hebrew. At one point the franchisor had more than 200 American sites, primarily on the West and East Coasts and in Texas. But troubles have been brewing in recent years including a class action lawsuit against Burgerim, according to media accounts.