Franchises can be a great opportunity for a business to branch out and expand while limiting their risks, but only if the contract is fair to both parties. Any time anyone signs a contract, they should read it carefully and have a qualified attorney look it over or they could find themselves bound to abide by terms they never meant to agree to.
Contracts exist in order to hold both parties accountable and make sure everyone does what they said they would do. They also provide guidelines for how to break up the business in the event one or more parties want to leave.
When going into business with family, it can be tempting to trust that they’ll do what they say they’ll do, but that’s actually a really bad idea. Business disputes and familial disputes can get very messy and even more so when they’re combined, as in the recent dispute over the cheesesteak restaurant, Tony Luke’s.
Anthony “Tony Luke” Lucidonio Sr. founded the restaurant in 1992 in Philadelphia and has since opened several more locations. In 2007, his son, Anthony “Tony” Lucidonio Jr., recommended his father and brother, Nicholas Lucidonio, become franchisors with Tony Jr. as the franchisee. The agreement allowed Tony Jr. to use the Tony Luke name in exchange for franchise fees and 15% royalties.
Now Tony Sr. and Nicholas have filed a lawsuit against Tony Jr. for allegedly breaching the franchise contract. The lawsuit claims Tony Jr. owes $3 million in royalties for his franchising venture, but Tony Jr. says they don’t have any real claims.
Instead, Tony Jr. claims the Tony Luke brand enjoyed massive growth as a direct result of his franchise system. He claims that by being the face of the brand and using his public relations savvy, he helped make the Tony Luke brand famous.
Part of the agreement included Tony Sr. and Nicholas providing Tony Jr. with food and spices in order to assure quality and consistency throughout the brand, but Tony Sr. and Nicholas stopped providing food and spices as a result of a family quarrel last year. The quarrel was resolved, but Tony Jr. chose not to continue the food preparation and spice agreement.
After that, Tony Sr. said he started receiving complaints relating to the quality of the franchises. According to the lawsuit, Nicholas and Tony Sr. had intended to end their contracts with the franchises and stop using the Tony Luke name, but continue to serve the same food.
What Nicholas and Tony Sr. were not aware of was a non-compete clause contained in their contracts with their franchisees. Under the terms of the contract, they could drop the Tony Luke name, but to continue to serve the food it had been selling since the 1990s would breach the non-compete clause of the franchise agreement.
Tony Sr. and Nicholas said they didn’t even really read the franchise contract before signing it because they trusted Tony Jr. Now they may have to pay for their lack of diligence.
The following lists some of the key factors to consider as you face business dispute or shareholder dispute litigation:
• Business Litigation Goals. It is important to consider what you hope to accomplish through business dispute litigation. It is important to consider the ideal end result as you evaluate your options and litigation strategies. Unfortunately, the ideal end results often gets lost in the highly-charged emotions of litigation so it is important to set out your litigation goals at the outset and remind yourself of your optimal resolution through the partnership litigation process. Understanding your goals will also help you evaluate potential settlement offers.
• Litigation Strategy. It is important to know where you want to go so that you can then develop a litigation strategy, a legal map of sorts, on how you plan to reach your end goal. A business litigation strategy should be developed in close collaboration with your business litigation lawyer. At DiTommaso-Lubin, our knowledgeable Illinois business lawsuit attorneys can help you analyze complex legal issues, such as potential violations of fiduciary duties, alleged breach of contracts, available accounting information, and civil procedure requirements, in order to develop the appropriate business litigation game plan.
• Expense of Litigation. There are several factors that affect the cost of business litigation, but you will want to consider the potential legal expenses associated with partnership litigation so that you can evaluate your business litigation options.
At DiTommaso-Lubin, our Chicago business dispute lawyers with offices near Lombard and Sugar Grove focus on providing clients with sound business law advice and protecting our clients’ interests when they find themselves facing business litigation. (877) 990-4990 or (630) 333-0000.