1. Franchise Disputes | Background and Client’s Request for Legal Help
The client visited our New York office after realizing that the franchisor had misrepresented the uniqueness, profitability, and operational structure of the proposed franchise model.
The franchisor had claimed that the restaurant used proprietary recipes and a proven system capable of generating high revenues.
Relying on these statements, the client paid an initial franchise fee and additional funds to purchase equipment.
However, weeks after payment, the client discovered that the franchisor had no proprietary formulas and provided only store bought ingredients.
The franchisor also failed to provide any written disclosure document, registration materials, revenue data, or operational manuals typically required in legitimate franchise offerings.
Recognizing that these issues aligned with common patterns in franchise disputes, the client sought legal advice on rescinding the agreement, asserting fraud claims, and recovering all amounts paid.
Client’s Experience Showing Indicators of Franchise Fraud
During our initial fact finding process, several issues emerged:
· The franchisor made oral assurances of “exclusive recipes” and “guaranteed profits.”
· No Franchise Disclosure Document (FDD) or equivalent pre sale disclosure was provided.
· No written contract specifying rights, obligations, territory, training, or operational requirements was executed.
· The franchisor accepted payment despite lacking any franchise registration or legal authorization to sell franchises.
These red flags aligned with characteristic indicators of franchise disputes in New York involving unregistered, undisclosed, or deceptive franchise solicitations.
2. Franchise Disputes | Applicable Law and Legal Framework
Although federal law, such as the FTC Franchise Rule, requires franchisors to provide an FDD 14 days before signing any agreement or accepting money, New York is also a franchise registration state.
Under New York’s franchise laws, franchisors must register their franchise offering with the state and comply with strict disclosure obligations before engaging in any sales activities.
A failure to comply may give rise to:
· Fraud or misrepresentation claims
· Statutory violations for selling an unregistered franchise
· Rescission rights
· Refund of all franchise fees and related expenses
· Civil liability and damages
Violation of Disclosure and Registration Rules
In this case, the franchisor accepted payments without providing any disclosures or registration materials.
New York’s franchise rules require a franchisor to:
· Register its franchise offering before soliciting franchisees,
· Provide complete and accurate disclosure documents,
· Refrain from making false earnings claims or unsubstantiated promises,
· Avoid omissions of material facts that influence a prospective franchisee’s decision.
The defendant violated each of these principles, strengthening the franchise disputes claim.
Material Misrepresentation and Fraud Claims
The franchisor knowingly misrepresented critical information, including the existence of proprietary recipes and guaranteed profitability. Under New York fraud principles, a plaintiff must show:
① A material misrepresentation of fact,
② Knowledge of falsity,
③ Intent to induce reliance,
④ Reasonable reliance by the plaintiff, and
⑤ Resulting damages.
Here, each element was clearly satisfied. The franchisor’s conduct was not merely negligent it was intentional deception to secure payment.
3. Franchise Disputes | Strategic Legal Response and Case Handling
After completing the factual and legal assessment, our firm recommended pursuing claims for rescission, restitution, and damages based on:
· Fraudulent inducement,
· Violation of franchise registration and disclosure rules,
· Unjust enrichment, and
· Breach of implied contractual obligations.
We assisted the client by gathering documents, payment records, text messages, and verbal statements sufficient to establish fraudulent conduct and statutory violations.
Demand Strategy and Pre Litigation Approach
Before initiating formal litigation, our firm prepared a detailed legal demand letter citing:
· Failure to comply with New York’s franchise registration requirements,
· Fraudulent misrepresentations made prior to payment,
· Violation of disclosure rules under the FTC Franchise Rule,
· The client’s right to rescind the transaction and obtain a refund.
We also emphasized that the franchisor’s conduct exposed them to potential civil penalties and liability for treble damages should litigation proceed.
This approach placed significant pressure on the defendant to resolve the matter voluntarily, avoiding the risks associated with full litigation.
4. Franchise Disputes | Resolution and Refund of Franchise Fee
Following our legal intervention, the franchisor acknowledged the inaccuracies in its prior statements and agreed to refund the client’s franchise fee and related payments.
The dispute was resolved without litigation, saving the client time, expense, and additional emotional stress.
This outcome demonstrates the importance of:
· Early legal involvement,
· Understanding disclosure obligations, and
· Structuring a strong factual and legal foundation for franchise disputes.
Key Lessons for Future Franchisees
In New York, individuals considering franchise opportunities should:
· Request all pre sale disclosures in writing,
· Verify franchise registration status with the state,
· Be cautious of “too good to be true” verbal promises,
· Avoid paying any money without reviewing an FDD,
· Seek legal advice before signing or transferring funds.
Our firm’s New York franchise disputes team remains equipped to advise clients facing deception, misrepresentation, or improper franchise solicitation practices.
21 Nov, 2025
