FTC Wins Landmark Case Against National Franchisor

The Federal Trade Commission today announced that a federal court has found Minuteman Press International, Inc., its wholly-owned affiliate Speedy Sign-A-Rama, U.S.A., Inc., and two of the corporations’ officers, liable for violations of federal consumer protection and franchise disclosure laws. The U. S. District Court for the Eastern District of New York, after a six-month trial, found that the FTC proved that the defendants made false and unsubstantiated claims to prospective franchisees about gross earnings and profits they could expect to achieve by buying and operating defendants’ franchise quick print and sign shops. The court held that these practices violate the FTC Act and the FTC’s Franchise Rule. Because of these violations, the District Court found that the defendants should be permanently enjoined from such practices, and that redress to injured franchisees should be paid.

The court found that the defendants, including Minuteman and Speedy chairman Roy Titus, were responsible for false and misleading claims about earnings, including gross sales and profitability levels, made by their sales force. The court’s 35-page decision describes the defendants’ pattern of providing false and unsubstantiated information about earnings to people interested in buying one of defendants’ franchises. The court further concluded that prospective purchasers reasonably relied upon this false and unsubstantiated information in making their investment decisions, and that franchisees suffered substantial economic harms as a result. The court also held that defendants’ written disclaimers stating that no earnings claims were made or authorized did not prevent the FTC from challenging the oral earnings claims made.

The court noted two important distinctions between a FTC enforcement action and a private action against a franchisor. The first distinction is that where a franchisor makes earnings claims to prospective purchasers, an enforcement action is not barred because the franchisor provides written disclaimers indicating that no earnings claims were made and that no officer, director or employee of the franchisor was authorized to make such claims. In fact, a contradiction between a franchisor’s actual practices and its written disclaimers is a violation of the FTC’s Franchise Rule. The second distinction is that in an enforcement action, injured consumers are entitled to redress under the FTC Act, even if they signed a franchise agreement containing an acknowledgment that the franchisor did not make earnings claims. Applying this principle to the facts of this case, the court found that individuals who purchased franchises from Minuteman and Speedy would have the “common-sense net impression” from the actions of Minuteman, Speedy and their representatives that the prospective purchaser was being furnished important specific earnings claims information to assist in the decision-making process, notwithstanding the general disclaimers about earnings claims.

The court determined that the defendants caused substantial economic injury to many of their current and past Minuteman and Speedy franchisees. A later proceeding will be held to determine the appropriate amount of monetary redress.

Minuteman was founded in 1975 and is headquartered in Farmingdale, New York. Speedy was founded in 1987 and is headquartered in the Palm Beach, Florida area. Defendant Roy Titus is the chairman of both Minuteman and Speedy and, at the time the FTC began its action, was the chairman and chief executive officer and sole shareholder of both companies. Defendant Jeffrey Haber is the now former vice president and general manager of both Minuteman and Speedy.

Copies of the permanent injunctions and orders are available from the FTC’s web site at http://www.ftc.gov and also from the FTC’s Consumer Response Center, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-FTC-HELP (202- 382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.

(Civil Action No. 93-cv-2496 DRH)