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Judge Approves Snap-on Tools' $125M Settlement With FranchiseesBy KEVIN MCVEIGH, ESQ., Andrews Publications Staff WriterA federal judge in New Jersey has approved a $125 million settlement between Snap-on Tools Co. and its current and former dealers, ending a three-year legal battle. U.S. District Judge Dennis M. Cavanaugh of the District of New Jersey approved the deal, which resolves a series of class-action lawsuits brought by the franchise dealers, who accused the tool company of using fraudulent and deceptive business practices to inflate sales and profit figures while exploiting franchisees. Wisconsin-based Snap-on manufactures tools and related equipment. The company sells its products through approximately 3,200 current franchises and has about 2,900 former dealers. Beginning in 2003 several franchisees filed a series of class-action lawsuits in the District of New Jersey and other courts against Snap-on, Snap-on Inc. and Snap-on Credit LLC, the company's financing arm. The plaintiffs alleged Snap-on targeted unsophisticated investors to become franchisees and then forced them to make minimum weekly merchandise purchases even though the end-user market was far too small to support the supply of tools. Thus, Snap-on's franchise system effectively created an artificial market for its tool products, according to the plaintiffs. The scheme allegedly forced the franchisees, who bought much of the products on credit, to incur about $61.6 million in debt, and many failed. The lawsuits raised claims for, among other things, violations of the Racketeer Influenced and Corrupt Organizations Act, Fair Labor Standards Act, New Jersey Franchise Practices Act, and New Jersey Consumer Fraud Act. Judge Cavanaugh approved the settlement Oct. 27, under which $25 million will be split among current and former franchisees from Jan. 1, 1998, through April 18, 2006, and the class attorneys. Each named plaintiff will receive up to $50,000 in incentives for efforts spent representing the class. Additionally, Snap-on agreed to forgive the $61.6 million debt and correct all negative credit reports stemming from it. The company also agreed to modify its franchise model by reducing the required investment for initial inventory, provide credits for franchisees to purchase laptop computers and other necessary technological equipment, increase access to financing for franchisees suspended from the company's credit program, and improve initial training for new franchisees. The cost for these changes is estimated at $40 million. Counsel for the class plaintiffs reportedly will split $13 million in attorney fees. Judge Cavanaugh found that the proposed class of current and former dealers met the federal criteria for class-action status. He then dismissed the objections of the "notably small" number of dealers who opposed the settlement, finding it fair, adequate, reasonable, proper and in the best interests of class members. DeSantis et al. v. Snap-on Tools Co. et al., No. 06 CV 02231, 2006 WL 3068584 (D.N.J. Oct. 27, 2006). Franchise & Distribution Litigation Reporter Volume 04, Issue 03 11/27/2006 FindLaw, a Thomson Reuters business. All Rights Reserved. |