Battle brewing over pizza

“Some franchise systems are set up so that expenses exceed revenue, and if you spend more than a dollar to earn a dollar, the answer is obvious.”

The Toronto Sun
March 29, 1998

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CHEESED OFF: 3-for-1 Pizza and Wings franchisee Ali Mahmoudradeh, front, and other disgruntled owners have launched a $2.5-million lawsuit, alleging "abusive" practices.

Battle brewing over pizza
Owner says franchisees are planning a ‘palace coup’
Linda Leatherdale

As we anxiously await Ontario’s first franchise laws, another war between franchisor and franchisees has broken out.

This time it’s a group of disgruntled 3-For-1 Pizza and Wings operators, led by Ali Mahmoudzadeh, who’ve launched a $2.5 –million lawsuit, alleging they’re victims of “abusive” practices that are forcing them out of business.

But Reva Solhi, founder of 3 Pizzas 3 Wings Ltd., a chain of 90 pizza outlets in southern Ontario, claims their allegations are “completely false and untrue.”

And he points to a sworn affidavit from a former 3-For-1 Pizza and Wings franchisee from Milton, who alleges Mahmoudzadeh was trying to organize a palace coup and wrestle control of the franchises away from Solhi.

“The reason they launched their lawsuits is they wanted to start their own small chain,” claims Solhi.

On Tuesday night, after weeks of sleeping in his store for fear of the bailiff arriving, Mahmoudzadeh finally walked away, and is now worried sick about where he’ll get $5,000 to cover the rent on his store due next week.

Support his family
“The truth is we cannot afford to feed our children, let alone pay rent,” sighed Mahmoudzadeh, who with his family fled war-torn Iran in 1990 to start over in Canada.

An architect by trade, but facing a language barrier, Mahmoudzadeh delivered pizza until 1993 to support his family and raise enough cash to make his dream come true to own a pizza franchise.

After shopping around, he paid $23,000 to buy a 3-For-1 Pizza and Wings on Lawrence Ave. E.

He said he was ecstatic, and he and his wife quickly began working 17 hours a day to give their family a better life. Though he signed a contract without consulting a lawyer, he recalls he felt a certain comfort zone.

It wasn’t long before he helped start up two new stores in his territory, franchises which he claims he built, then sold at a profit.

But in five years his dream has turned into a nightmare, and he now fears he and his family face personal bankruptcy.

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“I’m 50, and I’ve lost everything.”

What Mahmoudzadeh and the other disgruntled franchisees allege in a 150-page statement of claim is misrepresentation of sales potential of stores and that they were over charged for supplies while facing fines for alleged infractions, such as not buying advertising.

In an interview, Mahmoudzadeh complained they were forced to offer deals, such as three small pizzas and six pops for $9.99, which did not cover their costs.

Another deal threw in 10 chicken wings for 99Ë, if the customer spent $15 or more.

“We bought 10 wings for $2 (exclusively from Solhi), and were forced to sell them for 99Ë,” said Ami, who alleges they were also forced to spend about $1,200 a week for flyer advertising, and if they refused they were slapped with a $500 fine. Another beef was being forced to pay $23.99 for a package of 50 medium sliced pizza boxes, which they allege cost much less.

After losing their bid to extend the injunction, the franchisees led a demonstration at Queen’s Park urging the Ontario government to pass franchise laws similar to those in Alberta and many U.S. states.

But Solhi, who in an interview said he agrees with franchise legislation, said franchise laws would not help these people.

“They have to understand franchising is team work, and they no longer wanted to be part of a team. They’re using lack of legislation in this province just to grab some media attention,” he said, adding many of his franchisees earn enough to drive luxury cars and own big homes.

Solhi’s lawyer, Peter-Paul DuVernet, hopes to strike down the franchisees’ statement of claim in court on April 3.

In Justice Coo’s judgment last Friday, it was noted, “There is ‘outside evidence’ to one degree or another supporting both positions.” But he added, “It is impossible on the substantial body of material that is before me to come to any firm conclusion as to where the rights of the matter rest.”

Coo pointed out there are “blunt allegations” that the franchisees “deliberately orchestrated a plan to drive the franchisor out of business, avoid obligations to pay proper contractually driven amounts, in some cases money clearly owed by them, and have ignored their obligations to pay rent on the premises.”

Cash-strapped
Coo also noted that some plaintiffs sought to be cross-examined on their affidavits “apparently failed to attend.”

Meanwhile, after paying hefty legal fees, the cash-strapped franchisees say they can no longer afford a lawyer.

“These kinds of complaints are not uncommon,” said John Sotos of law firm Sotos Karvanis, which specializes in franchise litigation, and who’s urging the government to pass laws with teeth to protect buyers. “Some franchise systems are set up so that expenses exceed revenue, and if you spend more than a dollar to earn a dollar, the answer is obvious.”

Richard Cunningham, president of the Canadian Franchise Association, said his group, which represents 300 member firms, also wants new laws.

Last week, Consumer and Commercial Relations Minister David Tsubouchi confirmed franchise legislation is among his top three priorities and is on the way.

“Our bill is very disclosure oriented,” Tsubouchi said. “We need upfront and full disclosure.

“We also have to ensure the buyers get a full assessment of what they’re buying, and we must urge them seek to legal advice.”


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Risks: Fear, distrust, hate and contempt, Franchisee decision, abandonment, False earnings claims, Gouging on rent and equipment, Gouging on supplies, Franchisee revolt, Canadian Franchise Association, CFA, Ministry of Consumer and Commerical Services, Ministry of Consumer and Business Services, Ministry of Government and Consumer Services, Ministry of Government Services, Ontario, Futility of taking legal action, Secret kickbacks and rebates, Sweatshops, Discrimination, Immigrants as prey, Immigrants as unacceptable ethnics, Insider betrayal, Race, Access to justice, Justice only for the rich, Protest, rally and demonstration, Churning (serial reselling), Secret kickbacks and rebates, Without conscience, Bankruptcy, Unilateral fines, Franchisor controls retail prices, Call for franchise law, Self-represented litigants, Franchisors want the minimum regulation they can get away with, Disclosure laws: 10 per cent solution, Disclosure laws: False sense of security, Appropriate franchise law, Disgruntled, Canada, 19980329 Battle brewing

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