TDS Enterprises, Inc. and two of its top officers have tricked consumers into entering contracts for online franchise opportunities without providing disclosures required under New York’s Franchise Sales Act, a proposed class action alleges.
The lawsuit explains TDS, which operates as My Business Venture, sells to customers a web-based franchise system whereby individuals can pay to operate an eCommerce digital storefront—which includes website hosting and services, custom logos, training, access to over 14,000 products to sell, inventory and support services, and shipment of products—for a specified period of time.
The suit, which describes the defendant as “a mini-[A]mazon for individual business owners,” alleges My Business Venture essentially operates as a franchisor despite having failed to register as such or providing legally required disclosures to those who enter into contracts with the company.
The plaintiff says she was harmed by the defendants’ disclosure failures in that she lost at least $7,500 in fees. Since its founding in the 1990s, My Business Venture has made millions at the expense of franchisees, the complaint alleges.
According to the lawsuit, My Business Venture markets to individuals looking for home-based franchise opportunities through sites such as franchisedirect.com, franchise.com, entrepreneur.com, and franchiseopportunities.com, as well as at franchise expos throughout the country. The plaintiff says MBV was recommended to her by one of the individual defendants, who touted it as a “great business opportunity” that was an immediately ready, “functionable” turnkey business.
Upon entering into a purchase agreement with My Business Venture for an initial sum of a few thousand dollars, consumers are given a “turnkey” website created by MBV through which thousands of products—including electronics, toys, gifts, novelties, and jewelry—are offered for sale, the case says. Per the complaint, all MBV franchisee websites sell the same products “using the same quoted language,” with the company maintaining control of which items are listed on the site.
“Thus, Plaintiff’s website (http://eandkwondergoods.com/) is nearly-identical to each and every other website created by MBV, as acknowledged in their marketing materials, including their ‘demo’ websites,” the complaint reads.
According to the lawsuit, MBV’s business model mirrors that of a franchisor/franchisee relationship. The case includes the following description given by MBV’s CEO on “The Franchise Radio Academy” podcast:
“Typically our investment levels are between four to eight thousand dollars, so it’s not very expense, and that includes your training, website, logo, social media, 24/7 support of anything. Basically, once that’s up and running we load your site up with about 15,000 products. We maintain the site for you, so that if inventory goes out we take it off the site, and if inventory goes on, it goes on the site. You control your pricing. We help you market your site.”
The lawsuit notes the Federal Trade Commission regulates the sale of franchises through the Franchise Rule, which requires that prior to selling a franchise, a franchisor must provide each prospective buyer with a franchise disclosure document containing material background information, the costs of entering into business, the legal obligations of both parties, statistics of franchised and company-owned outlets, and audited financial information.
Further, the New York Franchise Sales Act (NYFSA) supplements the federal Franchise Rule in that it requires franchisors to register an offering prospectus with the New York Department of Law, Bureau of Investor Protection and Securities, and provide such to prospective franchisees prior to a sale, the case adds.
According to the suit, the purchase agreement signed by the plaintiff and proposed class members is a franchise as defined in the NYFSA because the plaintiff, in exchange for a fee, was granted the right to sell goods or services under a marketing plan or system “prescribed in substantial part” by MBV.
Despite selling franchises to the plaintiff and proposed class members, MBV has intentionally failed to furnish any prospective or current franchisee with a franchise disclosure document or offering prospectus as required under New York law, the case alleges.
“These failures are willful and material,” the complaint argues, “as MBV is well-versed in the franchise world, advertises on franchise-related websites, and is fully familiar with the obligations under the NYFSA.”
The lawsuit looks to cover anyone who entered into a contract with MBV between August 11, 2017 and August 10, 2020 in which they were granted the right to engage in the business of offering, selling, or distributing goods under MBV’s marketing plan or system and were required to pay, directly or indirectly, a fee.
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