Case 2:22-cv-00825-DMG-PD Document 1 Filed 02/07/22 Page 1 of 17 Page ID #:1
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`
`BRIAN M. BOYNTON
`Acting Assistant Attorney General
`Civil Division
`ARUN G. RAO
`Deputy Assistant Attorney General
`GUSTAV W. EYLER
`Director
`Consumer Protection Branch
`LISA K. HSIAO
`Assistant Director
`MARCUS P. SMITH
`Trial Attorney
`Consumer Protection Branch
`U.S. Department of Justice
`P.O. Box 386
`Washington, DC 20044
`(202) 353-9712
`marcus.p.smith@usdoj.gov
`
`Attorneys for Plaintiff United States of America
`
`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
`
`
`
`No. 2:22-CV-825
`
`COMPLAINT FOR PERMANENT
`INJUNCTION AND MONETARY
`JUDGMENTS FOR CIVIL
`PENALTIES AND CONSUMER
`REDRESS, AND OTHER RELIEF
`
`DEMAND FOR JURY TRIAL
`
`
`
`v.
`
`Plaintiff,
`
`UNITED STATES OF AMERICA,
`
`
`
`
`
`BURGERIM GROUP USA, INC.,
`
`
`
`BURGERIM GROUP, INC.,
`
`and
`
`OREN LONI, individually and as an
`officer of Burgerim Group USA, Inc.
`and Burgerim Group, Inc.,
`
`
` Defendants.
`
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`Case 2:22-cv-00825-DMG-PD Document 1 Filed 02/07/22 Page 2 of 17 Page ID #:2
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`Plaintiff, the United States of America, acting upon notification and
`authorization to the Attorney General by the Federal Trade Commission (“FTC”),
`pursuant to Section 16(a)(1) of the Federal Trade Commission Act (“FTC Act”),
`15 U.S.C. § 56(a)(1), for its Complaint alleges:
`1.
`Plaintiff brings this action under Sections 5(a), 5(m)(1)(A), 13(b) and
`19 of the Federal Trade Commission Act (“FTC Act”), 15 U.S.C. §§ 45(a),
`45(m)(1)(A), 53(b), 56(a), 57b, and the FTC’s Trade Regulation Rule entitled
`“Disclosure Requirements and Prohibitions Concerning Franchising,” as amended
`(the “Franchise Rule” or “the Rule”), 16 C.F.R. Part 436, for permanent injunctive
`relief, monetary relief, civil penalties, and other relief for Defendants’ acts or prac-
`tices in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), and the Fran-
`chise Rule, 16 C.F.R. Part 436.
`
`SUMMARY
`2.
`Defendants lure would-be entrepreneurs into paying tens of thousands
`of dollars to open a burger franchise under the trade name “Burgerim.” These fran-
`chises require a large upfront investment. Purchasers included veterans and people
`with different backgrounds and business experiences. Many purchasers relied on
`obtaining loans for tens of thousands of dollars to fund their franchise. Defendants,
`however, glossed over the risks of these hefty investments, touting the franchise as
`a “business in a box,” and purporting to offer refunds in the event franchisees
`could not open the restaurant.
`3.
`The Franchise Rule was designed to help prospective entrepreneurs
`evaluate the risks and benefits of a franchise opportunity with a disclosure docu-
`ment. In marketing and selling Burgerim franchises, Defendants fell woefully short
`of complying with the Rule. Left out of Defendants’ disclosure document was the
`information necessary to enable prospective franchisees to analyze earning repre-
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`sentations or to get unvarnished experiences from prior purchasers. Worse, De-
`fendants muddied the waters by making representations in their disclosure docu-
`ment that contradicted other statements they made to the prospective franchisees.
`4.
`Defendants sold more than 1,500 Burgerim franchises, but the over-
`whelming majority of Burgerim franchisees never got their businesses off the
`ground. Hundreds sought to cancel their franchise agreements. In many cases, De-
`fendants did not honor their promises to provide refunds, and in this scheme, have
`bilked aspiring business owners out of millions of dollars.
`JURISDICTION AND VENUE
`5.
`This Court has subject matter jurisdiction over this action pursuant to
`28 U.S.C. §§ 1331, 1337(a), 1345, and 1355, and 15 U.S.C. § 53(b). This action
`arises under 15 U.S.C. § 45(a).
`6.
`Venue is proper in this District under 28 U.S.C. §§ 1391(b)-(d) and
`1395(a), and 15 U.S.C. § 53(b).
`SECTION 5 OF THE FTC ACT
`7.
`Section 5(a) of the FTC Act, 15 U.S.C. § 45(a), prohibits “unfair or
`deceptive acts or practices in or affecting commerce.”
`8. Misrepresentations of material facts constitute deceptive acts or prac-
`tices prohibited by Section 5(a) of the FTC Act.
`THE FRANCHISE RULE
`9.
`The Franchise Rule defines a “franchise” as any continuing commer-
`cial relationship or arrangement, whatever it may be called, in which the terms of
`the offer or contract specify, or the franchise seller promises or represents, orally or
`in writing, that:
`a) The franchisee will obtain the right to operate a business that is identified or
`associated with the franchisor’s trademark, or to offer, sell, or distribute
`goods, services, or commodities that are identified or associated with
`the franchisor’s trademark;
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`b) The franchisor will exert or has authority to exert a significant degree of
`control over the franchisee’s method of operation, or to provide significant
`assistance in the franchisee’s method of operation; and
`c) As a condition of obtaining or commencing operation of the franchise,
`the franchisee makes a required payment or commits to make a required
`payment to the franchisor or its affiliate. 16 C.F.R. § 436.1(h).
`10. Under the Franchise Rule, a “franchise seller” is a person that offers
`for sale, sells, or arranges for the sale of a franchise. The term encompasses the
`franchisor and the franchisor’s employees, representatives, agents, subfranchisors,
`and third-party brokers who are involved in franchise sales activities. It does not
`include existing franchisees who sell only their own outlet and who are otherwise
`not engaged in franchise sales on behalf of the franchisor. 16 C.F.R. § 436.1(j).
`11. A “franchisor” means any person who grants a franchise and partici-
`pates in the franchise relationship. Unless otherwise stated, it includes sub franchi-
`sors. For purposes of this definition, a “subfranchisor” means a person who func-
`tions as a franchisor by engaging in both pre-sale activities and post-sale perfor-
`mance. 16 C.F.R. § 436.1(k).
`12. The Franchise Rule requires a franchisor to provide prospective fran-
`chisees with a basic Franchise Disclosure Document (“FDD”) containing twenty-
`three categories (or “Items”) of information, including information about: the fran-
`chisor and its affiliates (Item 1); prior or pending litigation (Item 3); the initial fee
`paid by franchisees, including conditions under which the fee is refundable (Item
`5); franchisee obligations to purchase or lease goods and services from designated
`suppliers and payments to the franchisor from such suppliers based on those pur-
`chases (Item 8); franchise endorsement by public figures (Item 18); the assistance
`provided by the franchisor (Item 11); and statistical information on the number of
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`company-owned and franchisee-owned outlets in the franchisor’s system, includ-
`ing the names, addresses, and telephone numbers of existing franchisees (Item 20).
`16 C.F.R. § 436.5(a)-(w).
`13. The FDD must be current (16 C.F.R. § 436.2(a)) and marked with an
`issuance date (16 C.F.R. § 436.3(e)(6)). Additional disclosures are required if the
`franchisor elects to make any financial performance representations, such as in-
`cluding those financial performance representations in Item 19 of the franchisor’s
`FDD, among other things. 16 C.F.R. § 436.9(c). Franchise sellers are prohibited
`from making any representations that contradict the information required to be dis-
`closed in the FDD. 16 C.F.R. § 436.9(a).
`14. Pursuant to Section 18(d)(3) of the FTC Act, 15 U.S.C. 57a(d)(3), and
`subparts B, D, and F, 16 C.F.R. § 436.2, § 436.6(a), and § 436.9, violations of the
`Franchise Rule constitute unfair or deceptive acts or practices in or affecting com-
`merce, in violation of Section 5(a) of the FTC Act, 15 U.S.C. § 45(a).
`15. Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A), as mod-
`ified by Section 4 of the Federal Civil Penalties Inflation Adjustment Act of 1990,
`28 U.S.C. § 2461, the Federal Civil Penalties Inflation Adjustment Act of 2015,
`Public Law 114-74, sec. 701, 129 Stat. 599 (2015), and Section 1.98(d) of the
`FTC’s Rule of Practice, 16 C.F.R. § 1.98(d), authorizes this Court to award mone-
`tary civil penalties of not more than $46,517 for each violation of the Franchise
`Rule assessed after January 10, 2022, including penalties whose associated viola-
`tion predated January 10, 2022, that is made with actual knowledge or knowledge
`fairly implied on the basis of objective circumstances that such act is unfair or de-
`ceptive and is prohibited by such rule.
`DEFENDANTS
`16. Defendant Burgerim Group USA, Inc. (“BIMGUSA”) is a California
`corporation with its principal place of business at 23945 Calabasas Road, Cala-
`basas, California 91302. BIMGUSA sells burger restaurant franchises under the
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`trade name “Burgerim.” BIMGUSA transacts or has transacted business in this
`District and throughout the United States. At all times relevant to this Complaint,
`acting alone or in concert with others, BIMGUSA has advertised, marketed, dis-
`tributed or sold Burgerim franchises to consumers throughout the United States.
`17. Defendant Burgerim Group, Inc. (“BIMG”) is a Delaware corporation
`with its principal place of business at 23945 Calabasas Road, Calabasas, California
`91302. BIMG transacts or has transacted business in this District and throughout
`the United States. Since 2019, BIMG, acting alone or in concert with others, has
`advertised, marketed, distributed or sold Burgerim franchises to consumers
`throughout the United States.
`18. Defendant Oren Loni (“Loni”) was at all relevant times the chief ex-
`ecutive officer of BIMGUSA and BIMG (collectively, “Corporate Defendants”).
`Acting alone or in concert with others, he has formulated, directed, controlled, had
`the authority to control, or participated in the acts and practices of Corporate De-
`fendants, including the acts and practices set forth in this Complaint. Loni has ad-
`vertised, marketed, distributed or sold Burgerim franchises to consumers through-
`out the United States. At all times material to this Complaint, Loni formulated, di-
`rected, controlled, had the authority to control, or participated in the acts and prac-
`tices of Corporate Defendants. Loni has been a signatory on BIMGUSA and BIMG
`bank accounts, communicated with prospective and existing franchisees about the
`Burgerim franchise opportunity, entered into agreements, and negotiated contracts
`with franchisees. In connection with the matters alleged herein, Loni transacts or
`has transacted business in this District and throughout the United States.
`COMMON ENTERPRISE
`19. Defendants BIMGUSA and BIMG have operated as a common enter-
`prise while engaging in the deceptive and unlawful acts and other violations of law
`alleged below. BIMGUSA was incorporated in California in October 2014 with its
`initial principal place of business at 16861 Ventura Boulevard, Suite 303, Encino,
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`California 91436. BIMG was incorporated in Delaware in June 2019 with its prin-
`cipal place of business at the same address. On September 4, 2019, pursuant to
`California Corporations Code sections 201(b) and 2106(b), and California Code of
`Regulations sections 21003-21004, Oren Loni, as CEO of BIMGUSA, granted per-
`mission to BIMG to do business in California under that name. Since at least Au-
`gust 2019, BIMG has participated in the operation of the Burgerim franchise busi-
`ness, including, but not limited to, communicating with and managing the business
`relationships with BIMGUSA franchisees, enforcing agreements entered into by
`BIMGUSA and its franchisees; receiving rebate payments sent to BIMGUSA un-
`der agreements with product and service suppliers; and making payments to em-
`ployees or former employees of BIMGUSA.
`20. Corporate Defendants have conducted the business practices de-
`scribed below through interrelated companies that have common management; co-
`ordinated business functions; shared office space, employees and resources; shared
`revenues, and comingled funds. Because these Corporate Defendants have oper-
`ated as a common enterprise, each of them is liable for the acts and practices as al-
`leged below.
`
`COMMERCE
`21. At all times relevant to this Complaint, Defendants have maintained a
`substantial course of trade in or affecting commerce, as “commerce” is defined in
`Section 4 of the FTC Act, 15 U.S.C. § 44.
`DEFENDANTS’ BUSINESS ACTIVITIES
`22. Since at least 2016, Defendants BIMGUSA and Oren Loni, and since
`2019, Defendant BIMG, have offered and sold franchises of Burgerim, a fast-cas-
`ual restaurant specializing in multiple types of hamburgers.
`23. For those interested in opening a Burgerim franchise, the investment
`of time and money is quite substantial. In many instances, franchisees paid De-
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`fendants a franchise fee between $50,000 and $70,000 for a single franchise loca-
`tion. In many instances, Defendants offered incentives to purchase more than one
`Burgerim franchise, such as a discounted franchise fee of $40,000 per franchise.
`To secure the money to pay the franchise fees, many prospective franchisees have
`sought and taken out loans backed by the Small Business Administration or a com-
`mercial bank lender.
`24. Defendants have targeted military veterans, recruiting them to the
`franchise by offering them, in many instances, a $10,000 to $15,000 discount off
`the franchise fee for a single Burgerim franchise. In many instances, Defendants
`have incentivized veterans to purchase more than one location by offering a dis-
`count to veterans who purchased multiple locations.
`25.
`In exchange for the franchise fee, Defendants provided franchisees the
`right to establish and operate a Burgerim restaurant. The fee does not include other
`costs of opening or operating the franchise, such as securing a location, building
`out the restaurant, outfitting it with necessary equipment, and obtaining products
`and supplies. Defendants have estimated that it may cost franchisees more than
`$600,000 to begin operation of a Burgerim franchise.
`26. Defendants control the franchise operations by, among other things,
`approving sites for Burgerim restaurant locations, imposing building design speci-
`fications, and requiring franchisees to sell specific items, use certain equipment,
`and purchase only approved products and supplies.
`27. Franchisees who paid Defendants the franchise fee come from differ-
`ent backgrounds and business experiences. In many instances, Burgerim fran-
`chisees had no prior experience running a restaurant before signing up to be a
`Burgerim franchisee.
`28. Defendants make it a point to undersell the risks and difficulties of
`opening a franchise. In their online and in-person marketing, Defendants represent
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`that their franchise is a “business in a box,” which prospective franchisees do not
`need any prior business experience to operate.
`29. Anticipating that inexperienced franchisees may be intimidated by the
`process, Defendants represent they will assist franchisees every step of the way.
`For example, Defendants represent in the Burgerim “Brand Book,” which they pro-
`vide to prospective franchisees, that “…[o]ur Burgerim Team walks you through
`the entire process of becoming a restaurateur [sic].” The Brand Book also states,
`among other things, that Defendants will assist franchisees with “locking in a
`prime location” for their restaurant, obtaining financing, and “acquiring the archi-
`tect and contractors, as well as the different licenses needed to open the restau-
`rant.” Defendants also promise to provide ongoing support to franchisees.
`30. Defendants also make the following representations on their website,
`www.burgerim.com:
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` “All you need is the will to succeed. Our international fast food franchising
`team paves the way for you to become a thriving business owner. We’ll help
`you customize your location, hire a small team, and generate wealth.”
` “Burgerim’s experienced global team has conducted extensive research into
`the US fast casual dining market and has developed training, branding and
`operations protocols designed to empower franchise owners and support
`them in operating successful and profitable Burgerim stores in their commu-
`nities.”
`31.
`In many instances, throughout the sales process, Defendants have
`pitched prospective franchisees on the financial performance of their franchise op-
`portunity. Defendants have made verbal representations about the financial perfor-
`mance of existing locations and prospective franchisees’ likely performance, such
`as estimates for weekly or monthly sales figures and break-even points. For exam-
`ple, a Burgerim representative told one franchisee that the break-even point for
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`open Burgerim stores was $50,000 per month and that they were all hitting that
`number in two weeks or sooner.
`32. Further downplaying the financial risk of paying the franchise fees, in
`many instances, Defendants, verbally or in writing, have represented to prospective
`and existing franchisees that if they were unable to obtain financing or secure a
`restaurant location, Defendants would refund the prospective franchisees their
`franchise fees. In some instances, Defendants entered into written refund and can-
`cellation agreements with existing franchisees whereby Defendants agreed to pro-
`vide a refund of the franchise fees. In exchange, the franchisees agreed, among
`other things, not to disparage Defendants.
`33. For many franchisees who paid franchise fees to Burgerim, Defend-
`ants’ promises were illusory. In numerous instances, franchisees could not secure
`the financing necessary to pay necessary costs, such as conducting the build out of
`the restaurant to the specifications demanded by Defendants. Other franchisees
`could not secure a restaurant location.
`In many cases, Defendants did not provide the promised refunds to
`34.
`franchisees who requested one. Even franchisees who persisted with repeated re-
`quests spanning several months often were unable to obtain a refund. For example,
`some franchisees who were unable to secure financing, and had a signed letter
`from Oren Loni promising that Burgerim would refund their franchise fee under
`such circumstances, spent more than a year trying to get their money back to no
`avail. Ultimately, a Burgerim representative told them that in order to get their
`money back, they would have to sign a new document, which included a non-dis-
`paragement clause and other obligations.
`35. Since 2017 Burgerim has sold more than 1,500 franchises across the
`United States, for which Defendants received tens of millions of dollars. Despite
`Defendants receiving franchise fee payments from prospective franchisees for the
`right to open a Burgerim franchise, the majority of those franchises never opened.
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`36.
`In addition to their misrepresentations and broken promises, Defend-
`ants withheld material information required by the Franchise Rule. The Franchise
`Rule requires franchisors to provide aspiring entrepreneurs with a FDD containing
`certain mandatory disclosures, a key purpose of which is to enable prospective
`franchisees to assess the risks of the paying the franchise fee and entering into a
`franchise agreement.
`37. For example, in numerous instances, Defendants’ FDDs did not in-
`clude in Item 2 the name and position of the franchisor’s principals or any other in-
`dividuals who would have management responsibility relating to the sale or opera-
`tion of the franchises, impeding prospective franchisees from conducting appropri-
`ate due diligence.
`38. Defendants’ FDDs, in numerous instances, did not provide contact in-
`formation for prior purchasers as required in Item 20, impeding prospective fran-
`chisees from contacting other franchisees and learning about their experiences with
`Defendants.
`39. Defendants failed to include in Item 19 of the FDDs, the verbal finan-
`cial performance representations they provided to prospective franchisees. In fact,
`Defendants not only failed to include this required information, they contradicted
`their verbal representations by stating in the FDDs that no such representations had
`been made.
`40. Despite Defendants’ representations that under certain conditions they
`would refund the franchisees’ franchise fees, in numerous instances, Item 5 of De-
`fendants’ FDDs did not identify all such conditions. In fact, not only did Defend-
`ants fail to include all such conditions, but in certain instances, the FDDs contra-
`dicted Defendants’ own representations by stating the franchise fee was non-re-
`fundable.
`41. Defendants’ unlawful activities have harmed people across the coun-
`try. Many franchisees find themselves crushed by substantial debt or ruined credit,
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`in addition to the time and effort they exerted to make their entrepreneurial aspira-
`tions a reality.
`42.
`In early 2020, the Maryland Attorney General’s office, the Washing-
`ton Department of Financial Institutions, and Indiana’s Secretary of State each is-
`sued orders against BIMGUSA that prohibit it from selling franchises in their re-
`spective states based upon various violations of their respective state franchise
`laws. In addition, in February 2021, the Commissioner of Financial Protection and
`Innovation for the State of California issued a citation and cease and desist order
`against Defendants for injunctive and monetary relief for violations of California
`law.
`
`43. Defendants continue to advertise the Burgerim franchise opportunity
`on their website, burgerim.com.
`44. Based on the facts and violations of law alleged in this Complaint, the
`FTC has reason to believe that Defendants continue to violate or are about to vio-
`late laws enforced by the Commission.
`VIOLATIONS OF SECTION 5 OF FTC ACT
`COUNT I
`45. Paragraphs 1-44 are incorporated as if set forth herein.
`46.
`In numerous instances in connection with the advertising, marketing,
`promotion, offering for sale, or sale of Burgerim franchises, Defendants have made
`false or misleading representations of material facts to franchisees.
`47. For example, Burgerim represented directly, or indirectly, expressly
`or by implication, that it will provide a refund of the franchise fee to franchisees
`who are unable to secure financing or a restaurant location. In fact, in numerous in-
`stances where Defendants represented that Burgerim would provide a refund of the
`franchise fee to franchisees who were unable to secure financing or a restaurant lo-
`cation, Defendants did not refund the franchise fee.
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`48. Therefore, Defendants have made false or misleading representations
`of material facts that constitute deceptive acts or practices in violation of Section
`5(a) of the FTC Act.
`VIOLATIONS OF THE FRANCHISE RULE
`COUNT II
`Disclosure Violations
`49. Paragraphs 1-48 are incorporated as if set forth herein.
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`50. The Burgerim opportunity sold by Defendants is a “franchise” pursu-
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`ant to the Franchise Rule.
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`51. Defendants are “franchise sellers” pursuant to the Franchise Rule.
`52. Defendants are “franchisors” pursuant to the Franchise Rule.
`53.
`In many instances, Defendants furnish prospective franchisees with
`disclosures that fail to comply with the FTC’s Franchise Rule’s disclosure require-
`ments.
`54. Defendants had knowledge of the requirements of the Franchise Rule
`as evidenced by the fact that they provided an FDD to prospective franchisees.
`55.
`In connection with the offering for sale and sale of franchises, as
`“franchise” is defined in 16 C.F.R. § 436.1(h), in many instances, Defendants fur-
`nish prospective franchisees with FDDs that fail to: (1) include all of the infor-
`mation required by the Franchise Rule, 16 C.F.R. § 436.5 and (2) follow the in-
`structions for preparing disclosure documents set forth in 16 C.F.R. §§ 436.3 and
`436.6 of the Franchise Rule. For example, in certain instances Defendants failed to
`disclose the following:
`a) the issuance date of each FDD (16 C.F.R. § 436.3(e)(6));
`b) the name and principal business address of any affiliates that offer fran-
`chises in any line of business (Item 1) (16 C.F.R. § 436.5(a)(1));
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`c) the prior business experience of any affiliates that offer any franchises in
`any line of business (Item 1) (16 C.F.R. § 436.5(a)(7));
`d) the name and position of the franchisor’s directors, trustees, general part-
`ners, principal officers, and any other individuals who will have manage-
`ment responsibility relating to the sale or operation of the franchises
`(Item 2) (16 C.F.R. § 436.5(b));
`e) any conditions under which the initial fees are refundable (Item 5)
`(16 C.F.R. § 436.5(e));
`f) information regarding the revenue the franchisor received from required
`purchases or leases by franchisees (Item 8) (16 C.F.R. § 436.5(h)(6)); and
`g) the telephone numbers of each current franchisee’s outlets, and the name,
`city and state, and current business telephone number or, if unknown, the
`last known home telephone number of every franchisee who voluntarily
`or involuntarily ceased to do business under the franchise agreement dur-
`ing the most recently completed fiscal year or who has not communicated
`with the franchisor within 10 weeks of the disclosure document issuance
`date (Item 20) (16 C.F.R. § 436.5(t)(4)-(5)).
`56. Therefore, Defendants have violated subpart C, 16 C.F.R. §§ 436.3,
`436.5, and subpart D, 16 C.F.R. § 436.6, of the Franchise Rule with the knowledge
`required by Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A).
`COUNT III
`Dissemination of Financial Performance Representations Not Included in FDD
`57. Paragraphs 1-56 are incorporated as if set forth herein.
`58. Section 436.9(c) of the Franchise Rule, 16 C.F.R. § 436.9(c), requires
`a franchisor to include any and all financial performance representations in Item 19
`of the franchisor’s FDD.
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`59.
`In connection with the offering for sale and sale of franchises, as
`“franchise” is defined in section 436.1(h) of the Franchise Rule, Defendants dis-
`seminated financial performance representations to prospective franchisees while
`failing to include those representations in Item 19 of Defendant BIMGUSA’s FDD
`and failing to provide the other information and statements as required by Section
`436.9(c) of the Franchise Rule.
`60. Therefore, Defendants have violated section 436.9(c) of the Franchise
`Rule, 16 C.F.R. § 436.9(c) and Section 5(a) of the FTC Act with the knowledge re-
`quired by Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A).
`COUNT IV
`Claims or Representations that Contradict a Required Disclosure
`61. Paragraphs 1-60 are incorporated as if set forth herein.
`62. Section 436.9(a) of the Franchise Rule, 16 C.F.R. § 436.9(a), prohibits
`a franchisor from making any claim or representation orally, visually, or in writing
`that contradicts the information required to be disclosed by the Franchise Rule.
`63.
`In connection with the offering for sale and sale of franchises, as
`“franchise” is defined in Section 436.1(h) of the Franchise Rule, Defendants made
`numerous representations contradicting disclosures made in their FDD, including
`but not limited to making representations to prospective or existing franchisees:
`a)
`that they could obtain refunds, in certain circumstances, of their fran-
`chise fees;
`b) regarding the financial performance of already-open franchise locations
`and the income (gross and net) that prospective franchisees could expect
`to make; and
`c) regarding Defendants’ obligations to provide assistance in identifying a
`location, obtaining financing, constructing, and remodeling the franchise
`premises.
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`64. Therefore, Defendants have violated Section 436.9(a) of the Franchise
`Rule, 16 C.F.R. § 436.9(a), and Section 5(a) of the FTC Act with the knowledge
`required by Section 5(m)(1)(A) of the FTC Act, 15 U.S.C. § 45(m)(1)(A).
`CONSUMER INJURY
`65. Consumers have suffered or will suffer substantial monetary loss as a
`result of Defendants’ violation of the Franchise Rule and the FTC Act. Absent in-
`junctive relief by the Court, Defendants are likely to continue to injure consumers
`and harm the public interest in the offer and sale of franchises.
`PRAYER FOR RELIEF
`WHEREFORE, Plaintiff requests that the Court:
`A. Enter a permanent injunction to prevent future violations of the FTC
`Act and Franchise Rule by Defendants;
`B. Award monetary and other equitable relief within the Court’s power to
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`grant;
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`C. Award Plaintiff monetary civil penalties from each Defendant for
`every violation of the Franchise Rule; and
`D. Award any additional relief as the Court determines to be just and
`proper.
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`DEMAND FOR JURY TRIAL
`Plaintiff hereby demands a trial by jury of all issues so triable pursuant to
`Rule 38 of the Federal Rules of Civil Procedure.
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`Dated: February 7, 2022
`
`
`FOR FEDERAL TRADE
`COMMISSION:
`
`Christine M. Todaro
`Christopher E. Brown
`Attorneys
`Federal Trade Commission
`Washington, DC 20580
`202-326-3711 (Todaro)
`202-326-2825 (Brown)
`202-326- 3395 (fax)
`ctodaro@ftc.gov
`cbrown3@ftc.gov
`
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`Respectfully submitted,
`
`FOR PLAINTIFF
`THE UNITED STATES OF AMERICA:
`
`BRIAN M. BOYNTON
`Acting Assistant Attorney General
`Civil Division
`
`ARUN G. RAO
`Deputy Assistant Attorney General
`
`GUSTAV W. EYLER
`Director
`Consumer Protection Branch
`
`LISA K. HSIAO
`Assistant Director
`
`By: /s/ Marcus P. Smith
`Marcus P. Smith
`Trial Attorney
`Consumer Protection Branch
`U.S.