On Monday, the United States filed a complaint in the Central District of California against Burgerim Group USA, Inc., Burgerim Group, Inc. and Oren Loni alleging violation of the Federal Trade Commission Act.
The suit was accompanied by a press release.
According to the complaint, Burgerim Group USA, Inc. is a California corporation and Burgerim Group, Inc. is Delaware corporation and both advertise, market, distribute and sell Burgerim burger restaurant franchises to consumers throughout the United States. The complaint further states that Oren Loni is the Chief Executive Officer of Burgerim Group USA, Inc. and Burgerim Group, Inc.
The complaint alleges that opening a Burgerim franchise requires a substantial investment of time and money and required a franchise fee between $50,000 and $70,000. Further, the complaint states the defendants targeted military veterans by offering a $10,000 to $15,000 discount off the franchise fee and offered discount incentives to veterans and other consumers alike to open multiple Burgerim franchise locations.
The complaint alleges that, in exchange for the franchise fee, the defendants provided franchisees the right to establish and operate a Burgerim restaurant, but the fee does not include other costs of opening or operating the franchise which is estimated to cost more than $60,000. Additionally, the complaint alleges that the franchisees who paid the defendants came from different backgrounds and business experiences with many having no prior experience running a restaurant.
The United States alleges that the defendants attempted to persuade potential franchisees by touting the franchise as a “business in a box” while glossing over the risk associated with the hefty investment and purporting to offer refunds in the event the franchisee could not open the restaurant. The complaint states that the defendants sold more than 1,500 Burgerim franchises, but the overwhelming majority of Burgerim franchisees never got their businesses started and, in many cases, the defendants did not honor their promise to provide refunds.
The complaint alleges that through the sale and advertising of the Burgerim franchises the defendants made misrepresentations and failed to provide material information required by the Franchise Rule which requires a franchisor to provide prospective franchisees with a basic Franchise Disclosure Document. The complaint argues that the defendants’ unlawful activities have harmed people across the country and many franchisees find themselves crushed by substantial debt or ruined credit due to their misrepresentations and broken promises.
In addition to the present suit, the complaint states the Maryland Attorney General’s office, the Washington Department of Financial Institutions and Indiana’s Secretary of State each issued orders against BIMGUSA that prohibit it from selling franchises. Further, the complaint states that in February 2021, the Commissioner of Financial Protection and Innovation for the State of California issued a citation and cease and desist order against the defendants for their violation of California law.
The United States brings four causes of action against the defendants including violation of the Federal Trade Commision Act and the Franchise Rule disclosure requirements, Dissemination of financial performance representations not included in the Franchise Disclosure Document and claims or representations that contradict a required disclosure. For these causes of action, the plaintiff seeks a permanent injunction to prevent future violations of the FTC Act and Franchise Rule and monetary civil penalties.
