CORNWELL TOOLS Franchise Litigation, Franchise Violations (2014 FDD)

Cornwell Tools franchise dealer program has a rather dubious track record of franchise regulatory violations, litigation from franchisee dealers, and of suing a significant number of its own franchisees for inability to repay the company for tools it sold them and interest on the balances it extended to them.

Consent Orders were issued and fines imposed against Cornwell Tools by both Maryland and Minnesota for selling unregistered franchises in their states.

(UnhappyFranchisee.Com) In July, 2014 Cornwell Tool’s franchise attorney Robert M. Gippin (of Roderick, Linton, Belfance LLP) submitted corrections to deficiencies in its Minnesota franchise registration (Cornwell FDD Deficiencies 2014) that included required disclosures of its franchise-related litigation, which includes the following:

In 2010 and again in 2011, nine former Cornwell dealers, who seek to represent all former Cornwell dealers terminated within four years, claim the Cornwell franchise is fraudulent and violates state statutes and common law.

In 2004, twelve former Cornwell dealers alleged deceptive trade practices, violations of Ohio’s consumer sales practices act, Ohio’s business opportunity statute, fraud, fraud in the inducement, consumer fraud, negligent misrepresentation, breach of contract, and breach of fiduciary duty.

In 2005, a California couple filed a countersuit alleging breach of contract, misrepresentation, fraud and violations of the California franchise statutes by Cornwell Tools.

In 2005, a couple counterclaimed that their franchise had been wrongfully terminated by Cornwell Tools.  The couple ended up in bankruptcy.

In 2012, a Wisconsin dealer sued over the termination of his Cornwell dealer agreement.

In the preceding fiscal year, Cornwell Tools filed collection suits against 43 former Cornwell Tools franchisee dealers for their inability to pay Cornwell Tools for the tools it sold them on credit.  (See the list here:  CORNWELL TOOLS Sues Its Own Franchisees)

Cornwell Tools Sued More Than 100 of its Own Franchisees 2010-2011

That Cornwell Tools has sued 43 former franchisees who couldn’t pay their tool bills seemed extreme, so we checked to see if this was just a bad year.

Shockingly, in the Cornwell Tools 2011 Franchise Disclosure Document (FDD), the company lists more than 100 collection lawsuits it brought against its franchisee dealers in a single year.

It seems that Cornwell Tools sues a significant percentage of its franchisees each year for not being able to pay for the interest and the tools it is selling them on credit.

Cornwell Tools Franchise Litigation in 2014 FDD

ITEM 3. LITIGATION [From 2014 FDD]

 

1. Regulatory actions against Cornwell include the following matters:

In the Matter of Cornwell Quality Tools Company (Maryland Case No. 2010-0375) On November 3, 2010, Cornwell entered into a Consent Decree with the Securities Commissioner of Maryland to resolve issues arising from entering into franchise agreements in Maryland even though the renewal of Cornwell’s registration in 2008 had not been approved and thus had expired. Cornwell paid a civil penalty of $10,000.00, offered the rescission of franchises entered into after the registration expiration and has implemented procedures to reduce the risk of future violations.

In the Matter of The Cornwell Quality Tools Company (Minnesota Department of Commerce Case No. FR1400020) On August 19, 2014, a Consent Order was issued against Cornwell by the Commissioner of Commerce of Minnesota. The Order resolved issues arising from Cornwell’s offering and entering into franchise agreements in Minnesota even though the renewal of Cornwell’s registration in 2012 had not been submitted for approval and thus had expired. Cornwell paid a civil penalty of $2,000.00, offered the rescission of franchises entered into after the registration expiration and implemented procedures to reduce the risk of future violations.

2. Litigation against Cornwell includes the following matters:

David Bachrach, et al. v. The Cornwell Quality Tools Company, Case No. 2010 01 0543 in the Court of Common Pleas of Summit County, Ohio, was filed on January 27, 2010. The Complaint was brought by eight former Cornwell dealers as individuals and as claimed representatives of the putative class of all former Cornwell dealers terminated within four years of the filing of the Complaint. The Complaint alleges various theories under which the Cornwell franchise is said to be fraudulent and violates Ohio statutes and common law. It seeks ordinary and punitive damages, not specified above the jurisdictional minimum of $25,000, but which can reasonably be estimated to be extensive, if the plaintiffs are successful. The Court of Common Pleas ruled on June 6, 2010, that the case was not subject to arbitration. Cornwell appealed that ruling to the Court of Appeals for the Ninth District of Ohio, Case No. 25444, which reversed in Cornwell’s favor on May 25, 2011. The Ohio Supreme Court declined jurisdiction of the matter on October 5, 2011. The Common Pleas Court accordingly entered a stay of the matter on October 24, 2011. Certain issues concerning arbitration are currently pending before the Courts, as set forth below. Cornwell intends to contest the allegations very vigorously, including but not limited to the class action claims and the attempt to bring the action outside arbitration.

David Bachrach, et al. v. The Cornwell Quality Tools Company, Case No. 11 114 Y 01759 11 in the American Arbitration Association, was filed on October 21, 2011. The Demand was brought by nine former Cornwell dealers as individuals and as claimed representatives of the putative class of all former Cornwell dealers terminated within four years of the filing of the Complaint in the Common Pleas case reported above, or subsequently. The Demand is substantively the same as the Complaint in the parallel matter described above. Cornwell intends to contest the allegations very vigorously, including but not limited to the attempt to assert the claims on behalf of a class. No hearings are scheduled. On April 10, 2012, the arbitration panel issued a clause construction award, finding that these claims can proceed in class arbitration, if a class should be certified. Cornwell brought a counterclaim in the Common Pleas Court case reported above on May 15, 2012, seeking to overturn the award. The Court vacated the preliminary injunction against class arbitration that it had issued and dismissed Cornwell’s counterclaim on October 11, 2013. Cornwell timely appealed to the Ohio Ninth District Court of Appeals on October 16, 2013, where the matter remains pending.

The Court of Appeals denied Cornwell’s motion for an injunction pending appeal on January 21, 2014. A status conference call was held with the arbitrators on April 10, 2014, to discuss if and how the matter should proceed.

David K. English. James B. Taylor, Philip J. Mack. Matthew R. Zimmerman. John E. Vassar. Vincent G. Zipparro, Mark McFee. Leonard Nedza, Kevin Lenerville, Richard Armstrong, Mark Johnson and Ron Brown v. Cornwell Quality Tools Company, (Case No. CV 2004-07-4058 in the Court of Common Pleas of Summit County, Ohio) On July 22, 2004, David K. English, a former dealer and special representative of Cornwell, filed the referenced complaint against the Company seeking unstated ordinary and punitive damages, attorney fees, costs and other relief, alleging deceptive trade practices, violations of Ohio’s consumer sales practices act, Ohio’s business opportunity statute, fraud, fraud in the inducement, consumer fraud, negligent misrepresentation, breach of contract, breach of fiduciary duty and for declaratory judgment that the arbitration provisions of his agreements with Cornwell are unenforceable. The other plaintiffs, all former dealers as well in Ohio and Illinois, subsequently joined the action, alleging the same claims. Cornwell filed motions to stay the proceedings pending arbitration, as to each of the plaintiffs. The Company’s motions were granted by the trial court on March 8, 2005. The plaintiffs appealed the order granting the motions, but the order was affirmed in favor of the Company by the Court of Appeals for the Ninth Appellate District, on December 30, 2005, Case No. 22578. The plaintiffs filed a discretionary appeal to the Ohio Supreme Court on February 9, 2006, Case No. 2006-0303, which appeal was dismissed on April 26, 2006.

On October 6, 2006, Mr. English commenced the referenced arbitration (American Arbitration Association, Richard McQuade, Arbitrator, Case No. 53 114 Y 00651 06) setting out the same claims that were made in the Court of Common Pleas. The Company responded, denying all liability. The matter was tried on January 22-24, 2008, in Cleveland, Ohio. On February 13, 2008, an award was issued by the arbitrator in Cornwell’s favor, dismissing the claims made by Mr. English and charging the costs of the arbitration evenly between the parties. On March 21, 2008, the Summit County Court of Common Pleas in Case No. CV-2004-07-4058, confirmed the award into a judgment against Mr. English. The Court approved the award, and dismissed all of Mr. English’s claims with prejudice. The parties subsequently entered into an out-of-court settlement agreement that included a lump sum monetary payment to Cornwell.

None of the other plaintiffs have commenced arbitration proceedings. The Company intends to contest such claims vigorously.

Cornwell Quality Tools Company v. Michael A. and Debbie Petric, American Arbitration Association Case (No. 53 118 00868 05) The Company commenced arbitration proceedings against Michael and Debbie Petric on December 1, 2005, seeking recovery of money due and owing. Counterclaims were made by the Petrics, broadly alleging breach of contract, misrepresentation, fraud and violations of the California statutes pertaining to franchises. A settlement agreement, including a dismissal of the counterclaims with prejudice, without any payment by the Company, was made on January 15, 2007. An arbitration award granting recovery to the Company and dismissing the counterclaims with prejudice was issued on February 19, 2007.

Cornwell Quality Tools Company v. Justin Gray, American Arbitration Association Case (No. 53 118 00800 06) and Chancery Court of Tipton County, Tennessee (No. 26012) The Company commenced arbitration proceedings against Justin Gray on December 15, 2006, seeking recovery of money due and owing. Mr. Gray did not file a Counterclaim in the arbitration proceeding. The arbitration hearing was set for May 9, 2008.

On April 25, 2008, Mr. Gray filed an action for declaratory judgment and request for an injunction to stay the arbitration proceedings in the Chancery Court of Tipton County. The parties entered into an out-of-court settlement agreement on May 23, 2008. Under the agreement, Cornwell paid nothing and received a lump sum monetary payment from Mr. Gray. All proceedings were dismissed with prejudice.

Cornwell Quality Tools Company v. Barnes, American Arbitration Association Case No. 53 114 E 00759 10, was filed by Cornwell against Geoffrey L. and Michelle R. Barnes on September 9, 2010, seeking recovery of amounts owed on account. Mr. and Mrs. Barnes counterclaimed on October 18, 2010, seeking damages of $75,000.00 for wrongful termination. The matter was held in abeyance because of Mr. Barnes’ health issues and then was terminated by the AAA on October 5, 2012, when neither party paid the additional fees required to continue the matter. Mr. and Mrs. Barnes subsequently sought bankruptcy protection. Cornwell intends to contest the counterclaim very vigorously, if it is ever revived.

Salzgeber v. Cornwell Tools, Taylor Countv. Wisconsin Circuit Court Case No. 12SC351, was filed by Nicholas A. Salzgeber on September 7, 2012, seeking recovery of damages of $15, 000.00 arising from allegations concerning the termination of his dealership and the replevin of secured collateral by Cornwell. By agreement of the parties, the matter was stayed for arbitration. Cornwell then commenced American Arbitration Association Case No. 53 114 E 00406 12, seeking to recover damages from Mr. Salzgeber on his account and for attorney fees arising from the replevin. Mr. Salzgeber failed to counterclaim in the arbitration to assert the allegations he had made in his lawsuit and the time for doing so has passed. A hearing was held in the arbitration on March 8, 2013, resulting in an award for Cornwell. Cornwell intends to contest Mr. Salzgeber’s allegations very vigorously, if they are presented in any forum.

Also read:

CORNWELL TOOLS Sues Its Own Franchisees

CORNWELL TOOLS Franchise is a Scam Claims Franchisee

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