The Snap-On Wives

…alleging that she had been "separately and independently defrauded." Snap-on hadn't allowed Nancy to sign the original franchise agreement, so she wasn't bound by the same rules as Brian. But since Nancy had been involved in the business, taking care of the paperwork and providing most of the original investment, Marks thought she had a legitimate grievance against the company.

www.legalaffairs.org
February 12, 2005

The Snap-On Wives
When the family franchise fails, who can sue?
Brian Montopoli

WHEN NANCY CASEY'S FATHER DIED seven years ago, he left her about $35,000. Nancy's husband, Brian, was then working as an electrician, earning about $40,000 a year, and Nancy ran a day care center that brought in a few thousand more. The Caseys live in Middletown, N.J., about 15 minutes from the Jersey Shore; Jon Bon Jovi has a place just up the road, and Bruce Springsteen lives a town over in Colt's Neck. Middletown used to be a blue-collar town, until young couples from New York City started showing up in the late 1980s. Suddenly, bleary-eyed professionals were stumbling off trains each night, getting into big cars, and driving home to big houses. The Caseys were a working-class couple with wealth all around them. The inheritance gave them an opportunity to trade up.

Brian started researching franchises. Neither Nancy nor Brian had any business experience, but they figured a franchise would give them the chance to own a business and acquire the expertise to run it. The really big franchises like Dunkin' Donuts were priced out of their league, but Brian thought he had found what he needed with Snap-on Tools. Snap-on, by most accounts, makes good tools, and it didn't hurt that it was associated with one of the drag-racing teams that came to the nearby track. Brian placed a call, and he had a meeting with a Snap-on representative within a week.

The Snap-on truck is a gleaming showroom on wheels, with chrome tools lined up inside against a finished white pegboard. Brian thought the truck was "beautiful." He listened to the Snap-on representative talk about the pride that comes from being associated with Snap-on, and he rode with working dealers as they drove around making sales, taking tools they bought from Snap-on and selling them to mechanics and store owners. He was convinced. Nancy gave him the inheritance, and he gave most of it to Snap-on.

"At the beginning, you cut me, I bleed Snap-on red," Brian, a straightforward 36-year-old from Long Island, said recently. "I'd go to work in $70 Snap-on racing shirts. They sold you on the glamour." The first year went well: Brian developed relationships with folks all over Middletown, and checks started pouring in. Though he had been working for only nine months, he was named the 1998 northeast regional rookie of the year.

Snap-on makes its money selling tools to franchisees, and Brian was buying a lot of tools to sell: Over the course of his first year, he made $415,000 in purchases from the company. (In honor of his accomplishments during his first three years, Snap-on would give him three gold rings, a handful of trophies, and a trip to Las Vegas.) By the end of the first year, the Caseys were more than $10,000 over the $15,000 credit limit they say Snap-on extended to them. They also say that their branch manager told them not to worry.

In the fall of 1999, Snap-on came to Brian with an idea: Take on another franchise. He was still deeply in debt to Snap-on, largely, he says, because his managers strongly discouraged him from returning unsold tools. Snap-on has a policy of reimbursing dealers for tools they can't sell, but Brian says each return hit his managers "in the pocketbook," because it meant they lost their commission on that part of his purchase. He says the managers put pressure on him to hang on to his inventory. Though he was already working 15-hour days, he accepted the second route, thinking it might be his chance to climb out of debt.

As instructed, he bought more tools, scouted the new route, and hired someone to run it. But the new route offered far fewer customers than the first, and Brian had trouble keeping an eye on it. With each passing year, the days got longer, and the debt mounted. Brian became depressed. There were mornings, Nancy says, when she had to drag him out of bed.

Last May, Snap-on refused to ship him any more inventory. His customers had been told to come to Brian for replacement tools, as guaranteed by Snap-on's official warranty, and they did. But Snap-on's policy is not to ship tools (replacements or otherwise) to a franchisee if he crosses his credit limit. According to the Caseys, most franchisees far exceed their limits; when Snap-on cut them off, the Caseys say they owed the company roughly $180,000. Brian couldn't get tools, so he started ducking his customers. When he did visit stores, his clients berated him. They didn't care why he was having trouble; they just wanted their tools. One of Brian's best customers threatened to throw him out of his store.

"This is devastating to guys who come from working-class backgrounds, guys who are extremely masculine-oriented," said Gerald Marks, a 59-year-old attorney in Red Bank, N.J., who has been litigating Snap-on cases for over a decade. "They want to be the breadwinner, to go from worker to entrepreneur. It's very painful to face this and admit to the fact that it's a huge failure." Brian had a hard time telling his three kids—Shannon, 7, Jillian, 5, and Evan, 2—that he would no longer be working for Snap-on. "For a long time, my kids identified me with Snap-on," Brian said. Today, the kids boo whenever they see a Snap-on truck on the road. "They just know the company didn't treat Daddy right," Brian said.

SNAP-ON COUNTERS that Marks is trying to make a living exploiting its former dealers. "It is unfortunate that Mr. Marks is once again targeting our company in what we believe is nothing more than an attempt to drum up business and create a cottage industry for himself," the company said in a written statement. "Snap-on believes the claims made in Mr. Marks's complaints are without merit and intends to defend against them vigorously." Since the early '90s, Marks has represented some 350 Snap-on clients.

Marks, however, says he's got a legitimate case, particularly when it comes to the Caseys. When Brian and Nancy decided to bring a legal action against Snap-on two years ago, Marks told them that Brian's agreement with the company severely limited the rights he had in arbitration. Seeing no easy solution, the Caseys considered filing for bankruptcy, which might have meant losing their house. But Marks had what he thought was a better idea: Bring a lawsuit not on Brian's behalf but on Nancy's, alleging that she had been "separately and independently defrauded." Snap-on hadn't allowed Nancy to sign the original franchise agreement, so she wasn't bound by the same rules as Brian. But since Nancy had been involved in the business, taking care of the paperwork and providing most of the original investment, Marks thought she had a legitimate grievance against the company.

Others are skeptical about this view. "It's a novel and creative theory, but I don't think it's going to pan out," said Joseph Schumacher, a partner at Wiggin & Dana who specializes in franchise law. "The wife is trying to make an end run around a contractual agreement, and she isn't a party to it. She may have a suit against her husband, but I don't think Marks's argument has much, if any, legal merit to it."

Snap-on, in its written statement, accused Marks of trying to discredit the company. "Snap-on is aware of instances where Mr. Marks has made either misleading, or simply false, statements to the press about the company's practices." For legal reasons, the company said, it could not elaborate. When told Snap-on claimed he had made false statements about the company, Marks said, "There's absolutely no truth to that."

There are skeptics among the Caseys' peers in the business as well. Gene Speroni, who has sold tools for Snap-on for 11 years in nearby Point Pleasant Beach, said the Caseys shouldn't be blaming the company. "Snap-on's always been there for me when I needed help," he said. "They treat you like a person. They're absolutely up front with you—they don't sugarcoat it. I feel like if you go to work every week, and do your job, you'll make money." Speroni—who goes by "Snaperoni" with his customers—says people need to learn "to just take responsibility for their losses."

Marks, for his part, thinks he's onto something. He is now representing 10 Snap-on wives—four in Texas, five in New Jersey, and one in Florida. He has helped organize Wives Against Snap-on, a support group with a decidedly anti-Snap-on bent. On its website, the group has posted the testimonials of Snap-on wives ("What A Nightmare: How My Husband and I Lost $50,000 and Became Indebted to Snap-on for $330,000 in Two Years!" reads the heading of one) and photographs of its members, most of whom are depicted holding a 1994 book by a San Diego attorney entitled Franchise Fraud.

Earlier this year, Marks led a group of franchisees and wives to Manhattan for the 2004 New York City Kick Off, an annual event sponsored by Snap-on.'(The company holds similar events around the country to "kick off" the new year.)'Marks's group wore shirts depicting a screw, followed by the words "by Snap-on." It's not yet clear whether their grievances will be heard in court. In the meantime, feeling betrayed by the company that they trusted with their savings, the Caseys and a handful of Snap-on families like them have decided to put their trust in Jerry Marks.


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Risks: Able to finance and sell negative cash flow franchise on crooked appraisals, Liar Loans, Spouse can sue for losses also, Bankruptcy, Award-winning franchisees, Trade payable debt used to dominate, Short- or forced-shipping, Company man, Must arbitrate disputes, cannot litigate, Churning (serial reselling), United States, 20050212 The Snap

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