honoluluadvertiser.com

Sponsored by:

Comment, blog & share photos

Log in | Become a member
The Honolulu Advertiser
Posted on: Wednesday, June 28, 2006

Subway sued by franchise owners

By Stephen Singer
Associated Press

HARTFORD, Conn. — Franchisees have filed suit against the Subway sandwich chain, claiming that a new franchise agreement will threaten control of a $500 million advertising trust fund.

The Subway Franchisee Advertising Fund Trust, acting on behalf of more than 10,000 franchisees worldwide, said the lawsuit, which was filed in Ansonia-Milford Superior Court, seeks to prevent Subway from breaking terms of a trust agreement between the two parties. The lawsuit, filed Monday, names Doctor's Associates Inc., the franchisor of Subway restaurants.

At issue is a fund controlled by franchisees to advertise Subway sandwiches and other products.

In a statement, the advertising trust fund praised Subway founder Fred DeLuca for initially approving the trust fund arrangement. But it criticized Subway officials for what it says is a change in policy.

"As an entrepreneur himself, Fred recognized the importance of empowering the small-business owners of Subway franchises with control over advertising and marketing programs," the trust said in a statement. "Unfortunately, for reasons that are not clear, Fred has now decided he wants to change this proven formula and unilaterally assume control — 16 years after his original agreement with franchisees. At a time of record sales and growth, we do not know why Fred would want to do this now."

Kevin Kane, a spokesman for Subway, would not comment on the specifics of the dispute.

"We are still hopeful we can come to an amicable resolution," he said.

The advertising trust says a new franchise agreement introduced by DeLuca April 1 allows Subway "at any time it chooses" to redirect franchisee advertising contributions away from the trust to a separate entity established by Subway.

Terms in the new franchise agreement conflict with the 1990 agreement that established the advertising trust, it said.

The trust is asking the court to bar Subway from including the new terms in its revised franchise agreement and require Subway to comply with commitments it made in the 1990 trust agreement.

Subway, which is privately held, reported sales of more than $9 billion in 2005. It has 26,017 restaurants in 84 countries.