Quiznos faces new wave of franchisee lawsuits

A royalty rebate program designed to help Quiznos franchise owners is scheduled to come to an end next week, leaving some franchisees concerned that restaurant closures will accelerate as a result.

The move comes at a time of fomenting franchisee discontent, as the chain struggles to grow again domestically under new management after years of dwindling unit counts. Last year, Quiznos avoided bankruptcy with a debt-for-equity swap that shifted ownership to hedge fund Avenue Capital Group.

Meanwhile, the Denver-based sandwich chain is also facing a new wave of lawsuits filed by franchisees alleging fraud and misdealing tied to the franchisee supply system — an issue that has repeatedly come up in court battles in recent years.

At least 10 lawsuits were filed in Colorado state court in December, with similar complaints saying the Denver-based franchisor stole “hundreds of millions of dollars” from franchisees using “hidden markups” on food and supplies that franchisees were contractually obligated to buy.

Among the litigants are former members of the Quiznos Franchisee Association, or QzFA, board, offering evidence of discord even among restaurant operators who were working closely with management to revive the beleaguered brand last year. The QzFA has an entirely new eight-member board and president after the previous board resigned suddenly late last year.

Terry Thomas, the new president of the Quiznos Franchisee Association, or QzFA, declined to comment on the leadership change or the pending franchisee litigation. “Lawsuits have been going on for years at Quiznos for one reason or another,” he said. “I’m sure every franchisor has the same issues from time to time.”

The company’s decision to end the rebate program, however, was very disappointing, said Thomas, who owns one restaurant near Joplin, Mo. The final payment on the rebate program is scheduled for March 17.

Under the program, franchisees could earn a 4-percent rebate on food costs if they met certain metrics, like keeping restaurants clean and offering friendly, fast service. Based on weekly sales, the rebate was capped at a certain level, but it helped some franchisees stay in business, he said.

Losing the rebate “will definitely have an impact on franchisees and on some being able to survive,” said Thomas.