A federal judge in Denver, Colorado last week upheld a temporary injunction against American sandwich chain Quiznos, thereby allowing the case to proceed to trial, the Denver Post has reported.
Quiznos had sought to strip eight franchisees of their franchises after a franchisee gripe site posted the suicide note of a Quiznos franchisee on its website. The note blamed the Quiznos Corporation for ruining his business and his life. The franchisee, Bhupinder “Bob” Baber, was found dead last November in the bathroom of a Quiznos restaurant in Whittier, California, after pumping three rounds from a .380 caliber handgun into his own chest.
The setback against the corporation is only the latest legal headache for the popular fast food chain, famous for its toasted sandwiches and explosive growth in the hyper-competitive American market. In 2001, after publishing a dodgy proxy statement to shareholders, the principal stakeholders took the company private at a fraction of market value. The bought-out investors went ballistic, and the company got taken to the cleaners in federal court. In August of 2006, the Senior Vice President of Marketing was arrested for soliciting a 13 year old girl in an internet chat room. As if that weren’t enough bad publicity, Quiznos is also currently the subject of class action litigation by angry franchisees in Michigan, Wisconsin, New Jersey and Illinois.
The latest knot in the tangled web of litigation surrounding the company arose out of the same circumstances that gave rise to this wave of class action activity. Quiznos forces its franchisees to buy all their ingredients from a Quiznos subsidiary at inflated prices and takes a hefty chunk of gross franchise revenue as royalty fee, making the franchises considerably less lucrative than the traffic would indicate. Of course, with that kind of arrangement, Quiznos does well regardless of the profit margin – but for franchisees such as Mr. Baber, slender margins mean a continual struggle to maintain a livelihood.
Mr. Baber grew increasingly upset with Quiznos after the company opened other stores within his franchise area, and he attempted to organize other frustrated franchisees into the Quiznos Franchisee Association. The company responded by terminating his two franchises, and Mr. Baber – who had sunk his life’s savings into his two locations – took the company to court for violation of the franchise agreement and fraud.
On October 31, the Court of Appeals in California ruled that Baber’s litigation had to be pursued in Denver, as mandated in the franchisee agreement. Out of money, fearful of losing his house, and unable to travel and manage his businesses at the same time, Mr. Baber strolled into the Quiznos in Whittier on November 27, ordered a soft drink, chatted up the manager, and then walked into the bathroom and shot himself in the chest.
Another group of angry franchisees, the Toasted Subs Franchisee Association (TSFA), took up his cause, and posted his suicide note on its website to raise money for the Baber family. Quiznos quickly responded by yanking the franchises of the eight directors of the TSFA, and the TSFA responded by filing for an injunction in federal court in Denver seeking to hold onto their franchises until the defamation allegations filed by Quiznos could be litigated.
Just how much protection the TSFA has under the 1st Amendment to the American Constitution will depend on how the court categorizes the disputed speech. What is undisputed is that Quiznos is in store for protracted litigation over its controversial business model, and corporate America’s long-running battle with ornery websites is far from over. ®
Burke Hansen, attorney at large, heads a San Francisco law office