Franchisees Sue Matco Tools and TD Bank Alleging Loan Fraud Scheme

The plaintiffs allege that Matco Tools and TD Bank “in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.” According to the plaintiffs, the “scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern” because the “bank knew if the loans failed, the loans would ultimately be repaid by the United States taxpayers through the SBA guaranteed loan program.”

http://franchiselawblog.net
December 8, 2011

Franchisees Sue Matco Tools and TD Bank Alleging Loan Fraud Scheme
Shane D. Gosdis

I am a little behind on this post, but better late than never.

On November 14, 2011, two Matco franchisees filed a class action lawsuit against Matco Tools and TD Bank in the United States District Court for the District of New Jersey. The plaintiffs are a father and son duo who each owned a Matco Tools franchise. The plaintiffs allege that Matco Tools and TD Bank “in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.” According to the plaintiffs, the “scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern” because the “bank knew if the loans failed, the loans would ultimately be repaid by the United States taxpayers through the SBA guaranteed loan program.”

According to the complaint, David Villano, Jr. wanted to become a Matco Tools franchisee like his father David Villano. Villano Jr. did not have the money to purchase the franchise and, thus, needed to borrow $103,000 for the franchise fee, the purchase price of a Matco truck and inventory, and operating capital. Matco directed Villano Jr. to TD Bank for the purpose of obtaining an SBA loan. Villano Sr. agreed to guaranty the loan on behalf of Villano Jr. The plaintiffs allege that Matco Tools provided TD Bank with an “inflated and fraudulently-premised three year income projection” to convince TD Bank to make the loan. The plaintiffs allege that Matco Tools never disclosed the three year projection to Villano Jr. The plaintiffs further allege that Matco Tools has a practice of submitting inflated and fraudulent income projections to Matco to secure financing for Matco Tools franchisees. In addition, the plaintiffs further claim that that both Matco Tools and TD Bank were aware of a report by the SBA’s office of Inspector General which allegedly shows that Matco Tools franchisees have a failure rate of “over 37.3%,” which Matco Tools and TD Bank they failed to disclose to the plaintiffs.

According to the plaintiffs, Matco Tools’ use of the undisclosed income projections violated Item 19 of the FTC Franchise Rule. Plaintiffs’ complaint asserts causes of action for fraud and civil conspiracy, violation of the New Jersey Consumer Fraud Act, and violation of the New York Deceptive Acts and Practices Act.

On December 5, 2011, the District Court entered an order granting the parties’ Stipulation for Extension of Time, extending until January 16, 2012 the deadline for defendants to respond to the complaint. You can see a copy of the complaint here.

Representing the putative class: Gerald Allen Marks Louis Tambaro of Marks & Klein, LLP

Representing Matco and TD Bank: Michael James Lyon and Ryan E. Borneman of Duane Morris LLP

Villano et al., v. TD Bank, et al., in the United States District Court for the District of New Jersey, Case No. 3:11-cv-06714.

http://franchiselawblog.net/?p=221


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