Law Suit: Wives of Former Snap-on Tool Dealers Claim Company Fraud Causes Losses

-'Snap-on Wives Club' formed-

NEW BRUNSWICK, N.J., Jan. 13 -- In what is believed to be first action of its kind, lawsuits were filed today against Snap-on Tools, Inc. on behalf of wives of former New Jersey and New York Snap-on franchised tool dealers, alleging they were harmed by the company's "false, fraudulent and misleading representations" that not only led to the collapse of their husbands' franchises, but also resulted in the loss of the wives' own money and family savings.

The four plaintiffs commenced the legal actions in the New Jersey Superior Court in New Brunswick, claiming that they were the victims of franchise fraud. A similar lawsuit was filed in Texas by four wives on December 30, 2003 against Snap-on's Dallas branch.

"To the best of our knowledge, this is the first time that spouses who are not directly involved in a franchise have sued a franchisor," said Susan P. Kezios, President of the American Franchisee Association. "All too often, Snap-on franchisees and others have big post-sale problems that started in the pre-sale process. These franchisees believed in the American dream of entrepreneurship, and ended up being victimized."

Snap-on manufactures automotive repair tools such as wrenches and screwdrivers. They are purchased by dealers, from Snap-on, and are resold to mechanics, door-to-door.

In the actions against the Edison, N.J.-based Greater New York branch of Snap-on, the plaintiffs include Nancy Casey, Middletown, N.J., wife of former Snap-on dealer Brian Casey; Maritza Franco, Scotch Plains, N.J., wife of former dealer Francisco Franco; Abbye Goldwasser, wife of former Staten Island, N.Y. dealer Jeff Goldwasser; and Jane Catrini, Centereach, N.Y., wife of former dealer Richard Catrini. Collectively, the four plaintiffs lost initial investments exceeding $150,000 and owe Snap-on over $715,000.

Mr. Casey, for example, was Snap-on's 'Rookie Dealer of the Year' in 1998 and led the chain's Greater New York Area Branch in sales in 1999. "In early 2000, he was sold a second franchise in violation of Federal Trade Commission Regulations and Snap-on's own lending policies, leading to the failure of both franchise routes. Consequently, he and his wife lost their $40,000 investment and now owe Snap-on $257,000," said Gerald A. Marks, the Red Bank, N.J. attorney for the former dealers and their wives.

"The wives are taking this action because they have been financially injured and emotionally damaged," Mr. Marks continued. "Their spouses' rights have been restricted by an arbitration clause in the franchise agreement that imposes limits on the husband's ability to prove their case. This new legal approach being applied today bypasses the limitations and restrictions of arbitration, and lets the wives bring their suits in court, before a jury, rather than a business-oriented arbitrator. These suits will expose Snap-on to hundreds of new cases, which the company had hoped to prevent through the arbitration provisions in its contracts."

The wives are being victimized twice, charged Mr. Marks. "Once by franchise fraud where they lose their own savings, and a second time by unfair arbitration clauses buried in Snap-on's franchise contracts that strip their dealer-husbands' right to go to court to get back the money that was unfairly taken from them," he said. "The actions of Snap-on Tools are a prime example of this double disadvantage that causes families to lose their life's savings as well as the ability to effectively fight back. The economic challenges facing Snap-on franchisees are underscored by very high dealer losses and turnover in its network. Through our discovery process, we learned that in the company's Eastern Region in 2002 alone, dealers sustained $2.9 million in losses. Further, a high turnover rate caused 387 dealers to leave the business during the 2000-2002 period, being replaced by only 377 new dealers."

Mr. Marks said over a dozen women have formed WASO (Wives Against Snap- on), a nationwide organization that is seeking to unite the spouses of all former Snap-on dealers who have been financially and emotionally damaged by the company. WASO has established a web site, www.snap-onfranchisefraud.com., that tells each of their stories. The web site provides contact information for other Snap-on spouses across the nation who wish to join the lawsuits, and also provides detailed information to former dealers regarding their rights against Snap-on.

In support of their claim of franchise fraud, the plaintiffs will rely on the testimony and affidavits of many former Snap-on sales managers, including Richard Lenahan, who stated that the company engages in multiple fraudulent practices, such as:

   (1) "Income representations that falsely advise potential dealers that
       all Snap-on tool routes or 'List of Calls' are similar and have the
       same profit potential;
   (2) Assigning dealers an inadequate customer base ('List of Calls'), that
       is insufficient to support the dealer's purchases, overhead, debt and
       personal expenses; and
   (3) Extending excessive amounts of credit to dealers, inducing them to
       purchase more tools than they can resell to their customer base,
       ultimately causing them to go out of business.

Mr. Lenahan added that, "Snap-on's economic incentive to knowingly place dealers in inadequate territories stems from the fact that the company profits when the dealer buys his inventory from it. In the small, territories, costs are exceedingly high and the dealer typically fails. To further complicate matters, Snap-on managers have a conflict of interest since they are paid a commission on what a dealer purchases, and not on his profits, if any."

Mr. Marks noted that arbitration clauses such as Snap-on's act as a barrier, preventing franchisees from obtaining a full and fair hearing. "When you don't have the same rights in arbitration as you do in court, you will be at a severe disadvantage. Your wife and your family will bear the loss," he said. "This novel case is attempting to eliminate the tyranny of arbitration and the way it is sometimes used against unsuspecting franchisees."