NY BAGEL CAFÉ & DELI Franchise Complaints include unlawful and fraudulent franchise sales representations, a misleading, fraudulent, and incomplete Franchise Disclosure Document, and false and deceptive oral and written communications designed to trick prospective franchisees to buy a doomed, non-viable franchise.
(UnhappyFranchisee.Com) In researching the NY Bagel Café & Deli franchise opportunity for our recent post (NY BAGEL CAFÉ Franchise: How Many Have Closed?) we discovered that the NJ-based franchisor, founded by Joe Smith, could have a franchise failure rate higher than 75%.
That could mean that fewer than 1 in 4 franchise owners who invest $112,500 to $194,500 or more end up owning a viable NY Bagel Café & Deli through the term of the franchise agreement.
Why do such a high percentage of NY Bagel Café & Deli franchises close or otherwise leave the system?
The lawsuit brought by West Chester, PA franchisees Gordon Cunningham and Christine Mason against N.Y. Bagel Enterprises, Inc., Joseph Smith, and franchise salesman Dennis Mason (aka Keith Samuels) alleges that the franchise was sold to them using unlawful and deceptive earnings representations, understated cost estimates, and unlawful disclosure documents that created distorted and unrealistic expectations.
The franchisee lawsuit alleges that promised services were not provided to the franchisees, and that food costs are more than double what was represented to them.
The allegations made in the lawsuit (which was settled out of court) are summarized below.
Are you familiar with the NY Bagel Café & Deli franchise opportunity, founder Joe Smith, or franchise salesman Dennis Mason (aka “Ken Mason,” “Keith Samuels”)? Please share your opinion or experience with a comment below.
NY Bagel Café & Deli Allegedly Misrepresented Sales
The FTC Franchise Rule requires that if financial performance representations are to be made at all, they must be included in Item 19 of the Franchise Disclosure Document (FDD), along with required information about the representations.
The PA franchisees allege that salesman Dennis Mason violated the FTC Franchise Rule by telling them multiple times that “NY Bagel franchised stores were earning $10 ,000 to $15,000 per week in revenue,” and referred to sales projections of $1300 to $1500 per day as “low.”
According to the lawsuit, the franchisees’ stores only generated $4200 – $4900 per week in revenue – less than 1/3 of what Mason allegedly tole them they could expect.
NY Bagel Café & Deli Allegedly Misrepresented Costs
The lawsuit alleges that “NY Bagel also provided documents to Cunningham indicating that food costs would be roughly 30 percent of the suggested retail price.”
In fact, “Instead of being 30 percent of the suggested retail price, food costs were roughly 65 to 70 percent of the suggested retail price. This cut into Plaintiffs’ margin significantly and Plaintiffs would not have purchased the franchise knowing food costs would be so high.”
The lawsuit also alleges that NY Bagel understated the cost of building out the store and purchasing equipment by around 50%. Franchisees spent $108,000 on buildout and $55,000 on equipment.
NY Bagel Café & Deli Allegedly Withheld Required Information
The Federal Trade Commission requires franchisors to disclose 23 categories of information to prospective franchisees to help them make more informed decisions regarding the franchise purchase.
According to the franchisees’ lawsuit, NY Bagel Café & Deli provided a Franchise Disclosure Document (FDD) that contained false and misleading information, and that left out key disclosures to keep franchisees from making a fully informed decision.
For example, the suit alleges that the NY Bagel FDD didn’t disclose that franchise salesman Dennis Mason was sued for fraud and deceptive franchise sales tactics, nor that the same company (Java’s Brewin) was fined for selling unregistered franchises in Connecticut.
The suit alleges that NY Bagel Café gave the franchisees an FDD that did not have the required charts that indicate the number of franchises that have closed or been transferred in the past.
The suit alleges that the franchisees’ did not receive the required contact information that would enable them to contact current and former franchisees to learn of their experiences.
The suit also alleges that the document obligated the franchisor to provide support and assistance that the NY Bagel Café franchisees never received.
NY Bagel Café & Deli Franchisees Allegedly Lost Nearly $400,000
At the time of the lawsuit, the NY Bagel Café & Deli franchise owners were on the line for $380,000:
Plaintiffs made substantial investments in building out the location and properly equipping it. In total , Plaintiffs have invested and lost roughly $230,000 in the business and Cunningham has taken on personal lease obligations of which roughly $150,000 remain.
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