A Calabasas-based chain of fast-food restaurants, BurgerIM, and its owner, Oren Loni, have been sued by the US FTC (Federal Trade Commission) for allegedly enticing consumers to buy franchises using false promises, pocketing tens of millions of dollars from over 1,500 individuals lured into purchasing failing franchises.
The Acting Associate Attorney General and the Federal Trade Commission has accused BurgerIM and its owner of enticing consumers to buy franchises using false promises. They also withheld vital information from franchisees. In addition, it’s alleged, the owner made false promises to people that destined most of them to fail, according to the Federal Trade Commission. Finally, it is worth noting that the FTC alleged that the BurgerIM chain and Oren Loni recruited franchisees by exaggerating the profit potential and downplaying the difficulty and challenges of successfully operating a restaurant.
Noted Franchise Attorney Harold Kestenbaum, a Partner at Spadea Law in Philadelphia stated the situation simply & succinctly and warned others by saying “My take away with this total sham is; if it sounds too good to be true, it usually is. Make sure that when you are contemplating the purchase of a franchise, you hire the right professionals and do your due diligence.”
According to the FTC, BurgerIM and owner Loni recruited many potential franchisees for a business opportunity that purportedly required almost no business experience. He also downplayed the complexities and nuances of owning and managing a burger restaurant. There is no doubt that there are numerous and expensive hurdles business owners and entrepreneurs must overcome before opening the doors to a new restaurant. These issues and complexities are known to people in the industry.
However, the lawsuit alleges that Loni and his fast-food chain exploited some franchisees’ knowledge gap. He assured that even those with no experience could own and run a successful restaurant, which is misleading.
The suit was recently filed with the US District Court of the Central District of California. BurgerIM and Loni are also alleged of falsely promising business assistance and funding to new owners and did not provide relevant disclosures in the franchise disclosure documents. While Loni’s whereabouts aren’t known, some reports claim that he has returned to Israel. Note that the company operates in fifteen US states and was projected to have about 500 restaurants by the end of 2019, according to its official website.
Director of the FTC’s Bureau of Consumer Protection, Samuel Levine, said in a statement on Tuesday that BurgerIM and its owner promised consumers, including many veterans, the American dream but only left them in a nightmare of deceit and debt.
Michael Einbinder of Einbinder & Dunn LLP in New York said “Over the last few years we have been contacted by several BurgerIM franchisees who invested hundreds of thousands of dollars in their dream to own their own business. Although the state of California is asserting claims against BurgerIM for violations of the law, and it and Oren could be legally responsible for losses suffered by franchisee/investors, with the company out of business and Oren having fled the country, it may be difficult recover for these losses. The story of this franchisor is a cautionary tale to franchise buyers. One important lesson here is that there are many professionals who work in this area, lawyers, accountant and consultants, who can give people advice on these types of investments.”
This move by the FTC is the latest action against BurgerIM. The company has been embroiled in legal battles and controversy over its operations for many years.
For example, in 2019, out of the blue, BurgerIM’s owner and whole corporate branch appeared to have mysteriously walked away from business operations and cut off support and assistance to franchisees. As a result, many restaurant operators filed for bankruptcy and had to fend for themselves.
While Loni is believed to have moved to Israel, according to reports, the company has been fined north of $4 million for its unscrupulous business practices and also ordered to refund restaurant operators their franchise fees.
Another concerning issue is that many prospective franchisees have also taken out loans from the SBA (Small Business Administration) or other commercial lenders to pay for the development of their BurgerIM restaurant.
“This is the case of rampant impropriety from a bad franchisor with seemingly bad intentions,” said Evan M. Goldman, a partner at the national law firm, Greenspoon Marder LLP. Goldman explained that “hopefully the FTC will take these types of issues seriously, weed out the ‘bad’ franchisors out there, and create meaningful reform to allow this amazing industry to grow.” In addition, Goldman’s colleague, Adam Wasch, who serves Chair of the Franchise Law group at Greenspoon Marder, previously filed suit against BurgerIM on behalf of a number of franchisees.”
This action is FTC’s first under the Franchise Rule since 2007 and shows a renewed commitment and dedication across the agency to protecting and safeguarding franchisees from illegal business practices. The Franchise Rule is designed to ensure that people considering buying a franchise have all the information that they need in order to weigh the benefits and risks of their potential investment.
The FTC has also asked a federal court in LA County to impose civil penalties. These penalties are up to $46,517 for each violation. The complaint said that as many as 1,500 potential franchisees paid BurgerIM from $50,000 to $70,000 in franchise fees.
According to the FTC, BurgerIM made tens of millions of dollars from franchise sales; however, most franchises that were sold did not open.