Franchisees Sue Subway Sandwich Chain

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Franchisees Sue Subway Sandwich Chain

Franchisees have sued the Subway sandwich chain, claiming that a new franchise agreement will threaten control of a $500 million advertising trust fund, the Associated Press reported.

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 in Connecticut, seeks to prevent Subway from breaking terms of a trust agreement between the two parties. The lawsuit 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 said is a change in policy, according to the Associated Press report.

"The hard work and financial capital of franchisees are no small part of Subway's success. Franchisees are owed the right to control their own assets, as promised when the Trust Agreement was signed," the trust said in a statement.

"As an entrepreneur himself, Fred recognized the importance of empowering the small-business owners of Subway franchises with control over advertising and marketing programs. 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," the statement continued.

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 said a new franchise agreement introduced by DeLuca on 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 operates 26,017 restaurants in 84 countries.