FIESTA INSURANCE Accused of Franchise Fraud

Fiesta Insurance franchise owners Jehad Modalala and Lillian Alvayed (JTS Group, LLC) have filed suit against Fiesta Insurance Franchise Corp. alleging franchise fraud.

JTS Group own and operate the Fiesta Auto Insurance Center franchise at 3759 W. 26th Street, Chicago, Illinois (Store # IL001).

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Court:  UNITED STATES DISTRICT COURT, NORTHERN DISTRICT OF ILLINOIS, EASTERN DIVISION

Plaintiff:  JTS Group, LLC (Jehad Modalala, Lillian Alvayed)

Defendant:  Fiesta Insurance Franchise Corp.

Plaintiff Attorney:  Carmen D. Caruso, CARMEN D. CARUSO LAW FIRM

Case: 1:12-cv-05480

Full Complaint:  Fiesta Insurance Franchise Complaint

Defendant: Fiesta Insurance Franchise Corp.

Excerpts From JTS Group, LLC v. Fiesta Insurance Franchise Corp.

Count I:  Claim for Rescission Based On Defendant’s Violation of Section 5 of the Illinois Franchise Disclosure Act

Section 5 of the Illinois Franchise Disclosure Act (“IFDA”), entitled “prohibited practices,” provides that it is unlawful to sell franchises in the State of Illinois without providing a disclosure statement as provided in the Act. ((815 ILCS

705/5(1) and (2)).

The FDD must inform prospective franchisees of numerous categories of information that as a matter of law are deemed to be material to the prospective franchisee’s investment decision. Without limitation, the FDD must include an accurate disclosure of all fees that the franchisor intends to charge the franchisee over the course of the franchise relationship.

Defendant provided Plaintiff with an FDD, but the FDD was incomplete and misleading in that it failed to disclose all of the fees that the Defendant intended to charge the Plaintiff. As a consequence, Defendant violated

Section 5 of the Illinois Franchise Disclosure Act.

Pursuant to Section 26 of the Illinois Franchise Disclosure Act, (815 ILCS 705/26), the Plaintiff is entitled to rescission of the parties’ franchise agreement (Exhibit A) hereto. Rescission shall include:
a. The return to Plaintiff of all monies paid by Plaintiff to Defendant.

b. A judicial declaration that the franchise relationship created by the franchise agreement is rescinded and that, therefore, the Defendant is not entitled to enforce any provisions of the franchise agreement

against the Plaintiff.

c. Payment of all of the Plaintiff’s reasonable costs and attorneys’ fees as provided in Section 26 of the Illinois Franchise Disclosure Act.

Count II:  Fraud in Violation of the IFDA

…Section 6 of the IFDA prohibits fraud in the franchise sales process (815 ILCS 705/6).

…Defendant’s failure to disclose all of its fees was part of a scheme to defraud the Plaintiff, in violation of Section 6 of the IFDA.

After the Plaintiff began operating its franchise the Defendant began to charge various fees that had not been disclosed.

Defendant’s violation of Section VI of the IFDA entitles the Plaintiff to rescission as alleged in paragraph 11.

In addition, Defendant’s fraudulent conduct warrants the imposition of punitive damages in an amount sufficient to punish the Defendant and to deter other franchisors from like misconduct.
Count III:  Common Law Fraud

”Defendant’s failure to disclose all of its fees was part of a scheme to defraud the Plaintiff.

”After the Plaintiff began operating its franchise the Defendant began to charge various fees that had not been disclosed.

”Defendant’s fraud entitles the Plaintiff to rescission as alleged in paragraph 11.

”In addition, Defendant’s fraudulent conduct warrants the imposition of punitive damages in an amount sufficient to punish the Defendant and to deter other franchisors from like misconduct.
Count IV:  Alternative Claim For Breach of Contract

”After the Plaintiff began operating its franchise the Defendant began to charge various fees that had not been agreed to.

”In the event the franchise agreement is not rescinded for any one or more of the reasons that have been alleged above, the Defendant is in breach of the franchise agreement, and the Plaintiff is entitled to such damages that will be

proven at trial.

“In addition, the Plaintiff is entitled to a judicial declaration that the Defendant’s breaches were sufficiently material to excuse the Plaintiff from any further performance under the franchise agreement.

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