Franchisee 101: Bad to the Bone

Lewitt Hackman

A group of franchisees sued OsteoStrong, a franchisor of bone density improvement centers. They claimed omissions in the FDD about bankruptcies and lawsuits, and misrepresentations of patent rights to equipment and OsteoStrong’s relationship with motivational speaker Tony Robbins. Some representations concerned use of loading equipment, known as the “Spectrum equipment” package. OsteoStrong claimed its equipment increases bone density, prevents osteoporosis, and is able to diagnose, cure, mitigate, treat or prevent medical diseases.

The franchisee group claimed OsteoStrong exposed them to civil and criminal liability by requiring use of marketing material that claimed the equipment was a medical device. They claimed the equipment was not reviewed or approved as a medical device by the government. They sought an injunction to stop OsteoStrong from representing that the Spectrum equipment or franchise system can diagnose, treat, or cure any medical condition, and from making claims like “reversing Osteoporosis,” “reversing type 2 Diabetes,” or that the equipment was safe. They claimed that without injunctive relief they were in the untenable position of breaking the law or breaching franchise agreement provisions requiring them to operate in compliance with all laws and regulations, including for sales and marketing.

The trial court denied the preliminary injunction, on the ground the franchisees failed to show irreparable harm. The Hobson’s choice of abiding by the franchise agreement and breaking the law, or obeying the law but losing their businesses, was insufficient to show irreparable harm. The court was persuaded that the franchisor never received an FDA complaint and the franchisees presented no evidence of injuries or complaints from clients, or of being threatened with civil or administrative action.

The court was not convinced that irreparable harm was likely to occur, but merely that harm was possible. The franchisees’ record of ongoing operations prior to bringing the action may have affected the court’s analysis. Some franchisees claimed they relied on FDDs as far back as 2013. It behooves franchisees considering whether to seek injunctive relief against a franchisor to balance the cost and high stakes of the motion, along with the likelihood of a “no harm, no foul” determination.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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