A proposed class action alleges Seva Beauty, LLC and its head of operations represented to potential franchisees that the Seva Beauty franchise of fast-casual spas is a “no-lose investment opportunity” when, in truth, the business model is a “no-win” for nearly all who buy in.
Filed in Cook County, Illinois Circuit Court, the 25-page lawsuit alleges Seva has misled franchisees by intentionally concealing the financial specifics behind the failure of the “vast majority” of Seva stores, and providing proposed class members with only “limited financial information” gleaned from just a handful of the company’s most profitable stores.
Further, Seva has falsely informed franchisees that the stores would turn a profit in as little as one to three months and misled the parties as to the nature of its relationship with Walmart, in whose stores Seva primarily operates, the case says.
All told, Seva, which offers eyebrow shaping, “facial threading” and other services, has wrongfully acquired upward of $12 million from franchisees while “hiding behind a byzantine and expansive structure of arbitration agreements” that have allowed the franchisor to continue its “fraudulent scheme” even after settling a number of fraud claims in arbitration, the lawsuit alleges. Meanwhile, franchisees such as the three plaintiffs continue to be charged exorbitant monthly royalties based on Seva’s deceptive representations, according to the case.
“Sadly,” the complaint reads, “Seva’s victims continue to incur franchise fees and the harms multiply each day as Defendants continue to profit on their lies through the pandemic.”
The plaintiffs allege that the stores touted as successful franchise examples in Seva’s sales pitches did not comply with either Seva’s rules or government employment regulations. While shielding potential investors from talking with existing franchisees, Seva allegedly represented that it would be just as easy for franchisees to find employees nationwide as it was for the chain’s successful stores in the Chicago area, where the suit says there existed a “ready pool” of immigrant laborers who were already familiar with the eyebrow threading techniques used by Seva.
“Seva knew the exemplar stores were uniquely suited to have adequate labor and the same would not be true nationwide,” the complaint reads. “Despite this knowledge, Seva lied to Plaintiffs and the class during their Discovery Day visits to Chicago and promised they would be able to easily hire and train staff even in the rural south and mountain west.”
Moreover, Seva’s example franchisees rely on “artificial and illegal” labor cost savings earned by skirting labor laws, the lawsuit claims. As an example, the case alleges the defendants’ exemplar franchisees would often run three nearby stores and have one “part-time” employee put in 20 hours at each store during a given week, thereby allowing the franchisee to avoid providing the benefits and overtime wages to which a full-time employee is entitled.
“Seva was aware of these fraudulent practices and nonetheless promised Plaintiffs and the class that they would have the same success while following the law,” the case alleges.
The complaint further argues Seva misleadingly hyped in its sales pitches one “exceptional” franchisee as a purported example of what potential investors could expect. According to the case, however, the franchisee had not only nearly 20 years of experience before joining Seva but also his own unique training model not taught by the defendant that exploits workers in economically depressed areas. Per the lawsuit, prospective employees are charged $900 for threading training led by the franchisee’s wife using her own techniques and then work at a Seva store for an unpaid training stint that can last up to three months before they’re deemed ready to work independently for pay.
Investors, the suit contests, are not told by Seva that the example franchisee is a “complete outlier” and that this level of employee training, coupled with exploitation of free labor, is necessary for a successful franchise.
“Certainly if franchisees were told they would need to convince people to pay the franchisee for months of full time training before earning a low-wage position in order to succeed, hundreds of franchisees would not have paid the exceptional franchisee fees,” the case avers.
In contrast, Seva offers only one hour of video instruction for threading training and falsely claims that the skill can be taught “very easily,” per the suit.
The lawsuit further alleges Seva has misrepresented stores’ profitability, claiming falsely that franchisees, even absentee owners, can turn a profit in as little as one to three months and could “easily earn” as much as $150,000 in the second year. In truth, the case claims, Seva knew that “few if any” of its franchisees generate any profit at all and can only be profitable if the owner serves as a manager without any additional compensation.
Lastly, the lawsuit claims Seva has represented that the franchise’s affiliation with Walmart—inside of whose retail spaces most Seva stores are located—was solid when “the relationship was actually falling apart.” Though the defendants told investors that “everything was fine with Walmart” the retailer was refusing to renew leases and eventually cut ties with Seva in 2018, according to the complaint. The case claims that “the only thing of value” Seva sold was “a ticket into Walmart,” which the defendants’ allegedly lost “years ago.”
The plaintiffs, who each purchased a Seva franchise based on the defendants’ allegedly false representations, claim Seva has continued to charge royalties while franchisees have been shut down during the COVID-19 pandemic, offering only a discounted royalty for those who sign an “unconscionable general release.” At no time did Seva disclose its fraudulent representations to the plaintiffs, who first became aware of such when the company settled eight similar claims in 2019 for over $2 million, the complaint says.
In a statement to Law360, an attorney for the plaintiffs said the suit is looking for a declaration from the court that Seva broke the law.
“This is an all too common fraud claim,” the attorney stated, “but what is amazing here is that Seva just keeps on pushing even after paying millions to settle some cases and has the temerity to only discount royalties if franchisees give up their rights to sue for the fraud that got them into this mess.”
The plaintiffs seek to represent anyone who purchased a Seva franchise between January 1, 2015 and December 31, 2019 and currently owes monthly royalties to the company.
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