MATCO TOOLS: Unhappy Franchisee Launches RoboCall Campaign

Martin Luther King said “Our lives begin to end the day we become silent about things that matter.”

Unhappy Matco Tools franchisee Debbie Solko honored Reverend King’s birthday yesterday by letting freedom (and hundreds of telephones) ring.

Ms. Solko launched the first in a campaign of automated phone calls  promoting awareness and participation of her nascent Matco Tools Distributor’s Association to current and former Matco Tools franchise owners.

Franchisee Protests Go Robo

The Sunday evening “robo-call” was the latest in a multi-prong, grassroots informational campaign by Ms. Solko (aka Lady Matco) and a vocal group of current and former Matco franchisees who complain that Matco Tools uses predatory and fraudulent business practices to recruit trusting franchisees, provide them with an inadequate customer base, and force them into make excessive inventory purchases they neither need nor can afford.

Franchisees complain that Matco Tools then terminates the struggling franchise owner, then resells the franchise to start the cycle all over again.  (See MATCO TOOLS Franchise Complaints)

Debbie “Lady Matco” Solko’s message promotes several ways franchisees can take action, from learning more (by visiting UnhappyFranchisee.com), to joining the Matco Tools Franchisee Association (at LadyMatco.com) to attending their rally in Las Vegas at the end of February.

In the message, franchisee Solko states:

Stand by for a special announcement concerning Matco Tools.

For too long, Matco has unfairly treated its distributors.  But with the formation of the Matco Tools Franchisee Association, all that is changing.

Please log on to www.LadyMatco.com and join.  Simply enter your confidential contact information to receive regular updates and newsletters via email.

Learn about the latest lawsuits filed on your behalf at www.UnhappyFranchisee.com.

Join us in Las Vegas to protest Tool Expo and all the scams Matco uses to get you to buy more tools than you need or your cash flow can afford.

This is the year to get rid of the threat of termination based upon the use of the illegal National Purchase Average.

It’s also the year we make Matco live up to all of their contractual obligations, including giving us 325 tool-buying customers.

We’ve already had an effect on the recruiting efforts.  Just Google “Matco” and see the impact for yourself.

We have everything to gain and nothing to lose.

From Lady Matco and the entire Matco Franchisee Association Team, see you in Vegas!

Click here LISTEN to the Matco Franchisee Association Automated Message.

Matco Tools Franchise Posts & Discussions

MATCO TOOLS Franchise Complaints  June 8, 2011 (3000+ comments)

MATCO TOOLS: Franchisee Alleges Franchise Fraud (Video)  January 4, 2012

MATCO TOOLS: Lady Matco Speaks Out (Video)  January 1, 2012

MATCO TOOLS Franchise Defenders Speak Out December 7, 2011 (Comments defending Matco invited)

MATCO TOOLS Distributor Franchise December 7, 2011 (Overview with links)

MATCO TOOLS Franchise Report Alleges Distributor Churning  November 29, 2011

MATCO TOOLS 2011 Franchise Disclosure Document (FDD) & Other Resources  November 22, 2011

MATCO TOOLS Class Action Lawsuit, “Secret” Sales Projections  November 22, 2011

FRANCHISE LAWSUIT Alleges Matco Tools Scam, TD Bank Fraud  November 15, 2011

Failure Rates of the 10 Most Popular Franchises  April 26, 2010

 

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To contact the author and site admin, email UnhappyFranchisee[at]gmail.com

 

MAC TOOLS Lawsuit Documents: DEE C. WALTER v. MAC TOOLS, INC.

Complaint & Jury Demand in the lawsuit DEE C. WALTER v. MAC TOOLS, INC., a Division of STANLEY : BLACK & DECKER, INC., Case 3:11-cv-01997, filed December 23, 2011 in Connecticut District Court, is posted in its entirety, including exhibits, below:

UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF CONNECTICUT

__________________________________________

DEE C. WALTER

Plaintiff,

v.

MAC TOOLS, INC., a Division of STANLEY : BLACK & DECKER, INC.,

Defendant

__________________________________________

COMPLAINT AND JURY DEMAND

Plaintiff Dee C. Walter (“Plaintiff”), by and through his attorneys, Marks & Klein, LLP, for his Complaint as against Defendant Mac Tools, Inc., (“Mac” or “Mac Tools”), a division of Stanley Black & Decker, Inc., (“Stanley Black & Decker”) (collectively “Defendant”), allege and aver as follows:
NATURE OF THIS ACTION

1. This lawsuit arises from Defendant‟s willful failure to properly compensate Plaintiff, who is a former Mac Tools distributor, for certain warranty and repair work that Defendant requires all Mac Tools distributors to perform, in violation of the Fair Labor Standards Act 29 U.S.C. § 201 et. seq. (“FLSA”).

2. While Defendants have historically purported to sell “distributorships”, not franchises, Plaintiff did indeed purchase a franchise as defined by state and federal law.

3. Defendants have violated Federal Trade Commission (FTC) Rule 436, which requires a franchisor, such as Defendant, to provide a prospective investor/franchisee with 23

2. Items of information that is critically necessary for Plaintiff, or other potential franchisees, to fully evaluate the nature of the business investment being contemplated.

4. With regard to state-specific laws, Defendant violated Connecticut law, particularly the Connecticut Unfair Trade Practices Act (“CUTPA”), by, among other things, failing to provide Plaintiff the necessary Uniform Franchise Offering Circular (“UFOC”), before Plaintiff purchased his Mac Tool Distributorship, which in reality is a franchise.

Furthermore, since Plaintiff purchased a Mac Tools franchise, as opposed to a distributorship, Defendants also violated the Minnesota Franchise Act, by improperly terminating Plaintiff‟s franchise and not allowing him the necessary time to cure any alleged “defaults” Defendants allege Plaintiff had pursuant to his franchise agreement with Defendant.

5. As a result of Defendants‟ foregoing violations of state and federal law, Plaintiff seeks compensatory, punitive, statutory, and treble damages, as well as attorneys‟ fees and costs from Defendant.

Complaint & Jury Demand [pdf format]:
DEE C. WALTER v. MAC TOOLS, INC., Complaint

Exhibits:
DEE C. WALTER v. MAC TOOLS, INC., Complaint Exhibits

ARE YOU FAMILIAR WITH THE MAC TOOLS FRANCHISE OPPORTUNITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

To contact the author or site admin, email UnhappyFranchisee[at]gmail.com.

More on MAC TOOLS:

MAC TOOLS Lawsuit Alleges Fraud, Labor Violations  December 24, 2011

Is MAC TOOLS Stanley Black & Decker Selling Illegal Franchises?  December 23, 2011

MAC TOOLS Guilty of Franchise Fraud?  November 7, 2011

MAC TOOLS Lawsuit Alleges Fraud, Labor Violations

According to a lawsuit filed by Marks & Klein, LLP, Stanley Black & Decker-owned Mac Tools tricks individuals into becoming Mac Tools distributors/franchisees, then forces them to perform repairs, process returns, and become repo men on a regular basis for no compensation.

In doing so, Mac Tools violates the Fair Labor Standards Act (FLSA) and the Minnesota Fair Labor Standards Act (MFLSA), according to the lawsuit.

The complaint, filed on behalf of Dee C. Walter, a Minnesota Mac Tools distributor of 39 years, also alleges that Mac Tools fails to comply with federal and state franchise laws.

Mac Tools has maintained that its opportunity is a “distributorship” and not a franchise.

[See Is MAC TOOLS Stanley Black & Decker Selling Illegal Franchises?]

[See  MAC TOOLS Guilty of Franchise Fraud?]

“MAC dictates… with an iron fist.”

Mac Tools markets its mobile tool distributor/franchise opportunity with an emphasis on the freedom and autonomy Mac Tools provides.

But the lawsuit filed by franchise attorney Jerry Marks tells a different story.

“Mac captures its ‘distributors’ with false promises, then dominates, controls, and exploits them,” the suit alleges.

“Mac aggressively dominates and controls the methods, details, and day-to-day business activities of the distributors to the detriment of the distributors and for the sole and exclusive purpose of inflating Mac’s sales and profits….”

In sharp contrast to the freedom promised in Mac Tools franchise ads, the suit states “Mac dictates every minute of a distributor’s day with an “iron fist.”

“…warranty repairman for no compensation”

According to the suit, Plaintiff Dee C. Walter would have never signed up with Mac Tools if they had disclosed that he’d have to do 10-15 hours of work per week without compensation:

This lawsuit arises from Defendant’s willful failure to properly compensate Plaintiff, who is a former Mac Tools distributor, for certain warranty and repair work that Defendant requires all Mac Tools distributors to perform, in violation of the Fair Labor Standards Act 29 U.S.C. § 201 et. seq. (“FLSA”)…

A significant requirement that the Distributor Agreement, as well as the preceding “Disclosure Document” failed to disclose was the fact that distributors would have to perform certain repair and warranty work on broken tools purchased by Mac customers….

Mac and Stanley willfully failed to disclose any of the repair work that a distributor must perform in both the Disclosure Agreement and the Distributor Agreement. Instead of properly disclosing this additional, material and significant obligation to Plaintiff and other distributors prior to their entry into the various agreements, Mac and Stanley instead thrust these obligations on unsuspecting distributors after they have already entered into the system.

Had these burdensome obligations originally been disclosed by Defendants, plaintiff would not have entered into the various agreements and the Mac franchise system….

Mac’s failure to disclose the numerous hours of warranty repair work that a distributor would have to perform each week, and Stanley failure to pay distributors a statutory mandated wage for the services performed constitutes an intentional fraud by omission and a violation of the Fair Labor Standards Act (FLSA).

The suit alleges that Mac Tools put an unfair burden on the longtime distributor:

Specifically, Mac required Plaintiff to repair or replace any broken items a customer may have had that were under warranty…

By way of example, Plaintiff was required to replace “stripped gears” in the heads of ratchet wrenches or replace defective tool chest drawer rails. Mac failed to compensate Plaintiff for the time he spent repairing this equipment…

Furthermore, Mac required Plaintiff to spend countless hours throughout each week packaging and returning broken warranty tools such as air guns, electronic diagnostic equipment, and floor jacks, without compensating Plaintiff for his time.

Additionally, Plaintiff incurred significant expenses in the hundreds of dollars on shipping charges returning warranty items to Mac, without Mac ever reimbursing Plaintiff…

Mac also required Plaintiff to spend countless hours per week repossessing equipment that Mac customers purchased directly from Mac, but could no longer afford to pay for. …

Plaintiff consistently spent between ten (10) and fifteen (15) hours a week performing these unpaid job requirements for Mac.”

For violations of the Fair Labor Standards Act (FSLA) and the Minnesota Fair Labor Standards Act (MFSLA), the Plaintiff is seeking “unpaid wages, liquidated damages, attorneys’ fees and costs of suit, prejudgement interest, and declaratory judgements that Plaintiff was acting as employees of Mac while performing any repair or warranty work entitling them to unpaid wages under the FSLA [and MFSLA].”

ARE YOU FAMILIAR WITH THE MAC TOOLS DISTRIBUTORSHIP OPPORTUNITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

To contact the author or site admin, email UnhappyFranchisee[at]gmail.com.

Is MAC TOOLS Stanley Black & Decker Selling Illegal Franchises?

Law Firm Marks & Klein LLP, of Red Bank, NJ, has fired another salvo at MAC TOOLS, INC., a Division of Stanley: Black & Decker, Inc., with a lawsuit filed today in the United States District Court for the District of Connecticut (Case 3:11-cv-01997 Walter v. Mac Tools, Inc.).

The lawsuit was filed by Marks & Klein on behalf of Dee C. Walter, a Mac Tools distributor in Minnesota.

The lawsuit alleges that while the business opportunity is marketed by Mac Tools as a “distributorship,” it meets the state and federal legal definitions of a “franchise.”

In selling a franchise to Mr. Walter without providing the information, disclosures and review time required in the sale of a franchise, the suit contends that Mac Tools violated Federal Trade Commission (FTC) Rule 436.

The suit also contends that the illegal sale of a franchise to Mr. Walter (as well as Mac Tools’ subsequent termination of said franchise) violates state-specific laws, including the Connecticut Unfair Trade Practices Act (“CUTPA”) and the Minnesota Franchise Act.

According to the suit, the lawsuit arose out of Mac Tools “willful failure to properly compensate” Mr. Walters for warranty and repair work required of all Mac Tools distributors.  Requiring services to be performed without compensation, as Mac Tools does, is a violation of the Fair Labor Standards Act 29 U.S.C. § 201 et. seq. (“FLSA”) the suit contends.

“As a result of Defendants ‘foregoing violations of state and federal law, Plaintiff seeks compensatory, punitive, statutory, and treble damages, as well as attorneys’ fees and costs from Defendant.

The Mac Tools Caution Flag is Out

The allegations that Mac Tools and Stanley Black & Decker are selling what amounts to an illegal franchise could have far-reaching consequences.

There are currently Mac Tools distributors in all 50 states.  If the allegations are proved correct, each distributor could claim they were sold an illegal franchise.

In October, 2011, a A federal judge has cleared the way for Marks & Klein, on behalf of the spouse of a former Mac Tools distributor, to proceed with fraud claims against the Mac Tools division of Stanley Black & Decker, Inc. in a New Jersey state court.  (Read MAC TOOLS Guilty of Franchise Fraud?)

In that suit, Marks & Klein contends that Mac Tools violated FTC (Federal Trade Commission) regulations by selling plaintiff Ms. Elba Maria Ceballo  and her husband a tool sales route as a “distributorship” when, in fact, it was an undisclosed “franchise.”

ARE YOU FAMILIAR WITH THE MAC TOOLS DISTRIBUTORSHIP OPPORTUNITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

To contact the author or site admin, email UnhappyFranchisee[at]gmail.com.

MATCO TOOLS Franchise Report Alleges Distributor Churning

UnhappyFranchisee.com has received a report alleging that Matco Tools, a division of Danaher Corporation (NYSE: DHR), is actively engaged in what’s known as “franchise churning.”  “Churning” is a form of franchise fraud wherein a franchisor sells franchises it knows (or should know) are doomed to fail, collects payments, then resells the same franchise once the previous franchisee fails.

UnhappyFranchisee.com has recently received numerous complaints from failed and struggling Matco Tools franchised distributors (See MATCO TOOLS Franchise Complaints) who claim they were unfairly terminated or allowed to fail by the mobile tools company.

The report is based on data reported in the 2011 Matco Franchise Disclosure Document (FDD) (MATCO TOOLS 2011 Franchise Disclosure Document), and was compiled by an analyst at the law firm of Marks & Klein, LLC of Red Bank, NJ.

Marks & Klein has an active class action lawsuit filed against Matco Tools and TD Bank on behalf of Matco franchisees (See:  FRANCHISE LAWSUIT Alleges Matco Tools Scam, TD Bank Fraud, MATCO TOOLS Class Action Lawsuit, “Secret” Sales Projections), and has also sued Matco competitors Snap-on Tools and MAC Tools for franchise fraud.

The Marks & Klein report on Matco Tools comes to some disturbing conclusions, and alleges that a “fundamental failure of its franchise system is taking place,” yet “MATCO Tools has, nonetheless, continued to offer and sell Distributorships despite the pattern of early failure.”

“The information contained in the Disclosure Document paints a picture of failure on large scale, year after year, with MATCO seeking to replace Distributors whose tenure in its system is woefully short, and doing so within the calendar year in which a distributor fails,” the report alleges.  “The conduct evidenced by the FDD demonstrates a pattern of churning.”

The Marks & Klein report on Matco Tools is reproduced in its entirety below, or can be read as a Word document here.

*   *   *   *   *

[Beginning of Report]

November 28, 2011

MATCO Tools 2011 FDD:

Analysis of Information contained in Item 20 Tables

We have reviewed the data contained in MATCO Tools franchise Disclosure Document issued March 11, 2011 (the “FDD”). The FDD provides information about the franchise system during calendar years 2008, 2009, and 2010.

In Item 20 of the Disclosure Document, MATCO discloses information which suggests a fundamental failure of its franchise system is taking place.

For the three year period beginning January 1, 2008, and ending December 31, 2010, MATCO presents the following results:

During the three year period from 1/1/08 to 12/31/10, seven hundred fifteen (715) Distributors, forty nine percent (49%) of the total number of MATCO Tools Distributorships open at any time during the period, left the MATCO system.

[Click chart to enlarge]

Of that 715, only fifty (50) transferred their MATCO Tools business to third party franchisees. Of the remaining six hundred and sixty five (665) Distributors who left the MATCO Tools system, five hundred thirty one (531) closed their Distributorships, and one hundred thirty four (134) had their distributorships terminated. If a MATCO Tools distributor desired to exit the system during this three year period, and hoped to sell its business through a MATCO approved transfer, that franchisee had less than a seven percent (7%) chance of success. Statistically speaking, such a low success rate indicates that the MATCO Tools businesses run by distributors who were leaving the MATCO system were so unprofitable as to be unmarketable.

MATCO Tools has, nonetheless, continued to offer and sell Distributorships despite the pattern of early failure. In fact, during the three year period from 1/1/08 to 12/31/10, six hundred sixty six (666) new Distributors came into the MATCO Tools system, six hundred sixteen (616) opening new MATCO Tools businesses, and fifty (50) new Distributors as Transferees.

In 2008, MATCO discloses that 213 Distributorships opened for business, 42 were terminated, and 200 ceased operations. Only seven Non-Renewals occurred, none of which is included in this analysis.

In 2009, MATCO discloses that 215 Distributorships opened for business, 41 were terminated, and 152 ceased operations. Only three Non-Renewals occurred, none of which is included in this analysis.

In 2010, MATCO discloses that 188 Distributorships opened, 51 were terminated, and 179 ceased operations. Only two Non-Renewals occurred, neither of which is included in this analysis.

The information contained in the Disclosure Document paints a picture of failure on large scale, year after year, with MATCO seeking to replace Distributors whose tenure in its system is woefully short, and doing so within the calendar year in which a distributor fails: not a single signed but not opened Franchise Agreement is disclosed in Table 5. In fact, the number of closed Distributorships disclosed in Table 3 closely tracks the number of projected Openings in Table 5, in several cases, matching exactly (by way of example only, in Arizona and Alaska, the number of projected openings equals the number of closures disclosed in Table 3 during the period). The conduct evidenced by the FDD demonstrates a pattern of churning.

The actual operating results of a MATCO Tools Distributor may be worse that the picture presented by the FDD because Item 20 Tables, prepared in accordance with the FTC Rule and NASAA Disclosure Guidelines, only include the last event in time for each Distributorship, be it a termination, a closure, or a transfer, which artificially lowers the number of terminations, closures, or transfers reflected in the FDD and as a result, analyzed.

[End of Report]

*     *     *     *     *

ARE YOU FAMILIAR WITH THE MATCO TOOLS FRANCHISE DISTRIBUTOR OPPORTUNITY?  WHAT DO YOU THINK?  SHARE A COMMENT BELOW.

Contact post author or site admin at UnhappyFranchisee[at]gmail.com.  Corporate clarifications and/or rebuttals invited.

MATCO TOOLS 2011 Franchise Disclosure Document (FDD) & Other Resources

Matco Tools distributor program has become a hotly debated subject on UnhappyFranchisee.com.

This post is meant to provide significant reference material and important documents for the ongoing Matco Tools franchise distributorship debate.

A blog post on MATCO TOOLS Franchise Complaints set off a lively debate between Matco distributors.

One point of contention is the high default rate reported on SBA loans.  According to CNN, even among the franchises with the greatest number of loan defaults, Matco Tools is the riskiest:  Failure Rates of the 10 Most Popular Franchises.

Further heating up the debate is a class action lawsuit filed against Matco Tools & TD Bank alleging they conspired to defraud the SBA and new Matco distributors into entering high-risk loans that were likely to fail.  Read about the lawsuit here:

FRANCHISE LAWSUIT Alleges Matco Tools Scam, TD Bank Fraud

MATCO TOOLS Class Action Lawsuit, “Secret” Sales Projections

Why are some Matco Tools distributors adamant that the Matco distributor program is fair while others insist that the Matco System is rigged for them to fail?

One point of difference seems to be that the rules are different for distributors with older agreements.  For that reason, we are posting the Matco Tools Franchise Disclosure Documents (FDD) for 2010 and 2011.  These are the versions Matco Tools filed with the state of Minnesota to meet its franchise disclosure laws:

MATCO TOOLS 2011 FRANCHISE DISCLOSURE DOCUMENT

MATCO TOOLS 2010 FRANCHISE DISCLOSURE DOCUMENT

Matco Tools distributors who had joined prior to October, 1992 were eligible for a special Charter Agreement.  Some have contended that those with the oldest agreements have the most lenient terms and greater chance of success than those who sign today.  The Charter Agreement Q&A’s were posted on the Matco Distributor Association Facebook page:

MATCO TOOLS Charter Agreement Q&A Part 1 (click to enlarge)

 

 

 

 

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MATCO TOOLS Charter Agreement Q&A Part 2 (click to enlarge)

 

 

 

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Relevant Links:

Debbie Solko’s Lady Matco distributor site

Matco Tools Distributor Association Facebook Page

Matco Tools Corporate Website

Matco Tools Franchise Sales Site

Do you have any relevant resource documents that we can post?  If so, feel free to email them to UnhappyFranchisee[at]gmail.com.

ARE YOU FAMILIAR WITH THE MATCO TOOLS DISTRIBUTORSHIP? SHARE A COMMENT BELOW.

Contact the author or site admin at UnhappyFranchisee[at]gmail.com.

MATCO TOOLS Class Action Lawsuit, “Secret” Sales Projections

A class action lawsuit against Matco Tools and TD Bank alleges that the tool company franchisor and the bank engaged in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.

Here is a copy of the complaint brought by Marks & Klein, LLP, of Red Bank, New Jersey:

MATCO TOOLS TD BANK CLASS ACTION LAWSUIT

The lawsuit alleges that Matco and TD Bank conspired to make loans using secret three-year income projections, in violation of FTC franchise disclosure regulations. Specifically, it claims Matco would deliver the secret three-year income projections to TD Bank with a letter, instructing bank officials not to disclose the projections to loan applicants.

The bank would then use the income projections to qualify the loans for SBA financing. But Matco kept the projections secret because it knew of the high rate of failure among its franchisees and feared the lackluster projections would be used by failed franchisees filing suit.

UnhappyFranchisee.com has received a copy of the alleged secret three-year income projections Matco is said to have provided to TD Bank but did not furnish to prospective Matco Distributors.  Click here for the alleged three year projections.

MATCO TOOLS ALLEGED SALES PROJECTIONS

The lawsuit further states that Matco, TD Bank and other unscrupulous SBA lenders preyed upon unsophisticated borrowers because of their perception that the lender would not make the loan unless it believed the Matco franchise was an acceptable business opportunity.

According to the lawsuit, TD Bank profited through its collection of loan origination fees as well as interest on the loan principal, which it collected from borrowers while these improper loans were current. When the loans would ultimately fail, TD bank and other lenders would pass along the loss to the American taxpayer, as SBA loans are 90 percent guaranteed by taxpayers, according to the FDIC.

Matco, as the franchisor, would likewise profit from the sale of a new franchise and having its franchised distributors sell tool products for two to three years in a designated route, before ultimately failing and being replaced by a new franchisee.

“Matco and TD had the ability to perpetuate this scheme because of a self-serving lending culture that was more than happy to originate and collect fees and pass along the risk of loss to its customers and taxpayers, even if the law was being violated,” said Louis Tambaro, Esq., another member of Marks & Klein. “By bringing this lawsuit as a national class action, we look forward to exposing the dark underbelly of a destructive lending culture.”

Representatives of Matco Tools, TD Bank or others are invited to submit clarification, opposing opinions or rebuttals for publication.  Contact the site ADMIN at UnhappyFranchisee[at]gmail.com.

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ARE YOU FAMILIAR WITH THE MATCO TOOLS DISTRIBUTORSHIP?  SHARE A COMMENT BELOW.

Contact the author or site admin at UnhappyFranchisee[at]gmail.com.

Also read: MATCO TOOLS Franchise Complaints.

FRANCHISE LAWSUIT Alleges Matco Tools Scam, TD Bank Fraud

FRANCHISE LAWSUIT Alleges Matco Tools Scam, TD Bank Fraud

Matco Tools & TD Bank worked together to scam Matco franchise owners, the Small Business Administration (SBA) and American taxpayers, according to a class action franchise lawsuit filed by Marks & Klein, LLP of Red Bank, N.J. yesterday.

The press release issued by Marks & Klein, LLP is included below.

UnhappyFranchisee.com intends to follow this case and other allegations against Matco as they unfold.

If you are familiar with the Matco Tools franchise or distributorship programs, please share your insights or opinions with a comment below.

Representatives of Matco Tools, TD Bank or others are invited to submit clarification, opposing opinions or rebuttals for publication.  Contact the site ADMIN at UnhappyFranchisee[at]gmail.com.

Also read:  MATCO TOOLS Franchise Complaints.

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Marks & Klein franchise lawsuit press release:

Father & Son File Lawsuit Against Matco Tools and TD Bank

Class Action Lawsuit Claims the Tool Company and Bank Engaged in Widespread SBA Loan Fraud

TRENTON  – A father and son – David Villano, Jr. and David Villano III, through their attorneys, Marks & Klein, LLP of Red Bank, N.J., today filed a class action lawsuit against TD Bank and Matco Tools, Inc. alleging the tool company franchisor and the bank engaged in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.

The scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern. The bank knew if the loans failed, the loans would ultimately be repaid by United States taxpayers through the SBA guaranteed loan program. Data from the SBA shows that from 2000 to 2010, Matco Tools’ SBA loans had a staggering 37.3 percent failure rate.

“It is most unfortunate that SBA loans, which are designed to assist aspiring entrepreneurs to finance a new business venture and benefit the economy could, as alleged in this case, be used for such deceitful purposes,” said Gerald A. (Jerry) Marks, Esq., lead plaintiff counsel.

“Many individuals like the Villanos have unknowingly been exploited,” Marks said. “We are seeking treble damages to discourage this sort of conduct from happening again in the future. United States taxpayers have unwittingly been `bailing out’ lenders like TD for years on defaulted loans that should never have been made in the first place.”

The lawsuit alleges that Matco and TD conspired to make loans using secret three-year income projections, in violation of FTC franchise disclosure regulations. Specifically, Matco would deliver the secret three-year income projections to TD Bank with a letter, instructing bank officials not to disclose the projections to loan applicants.

The bank would then use the income projections to qualify the loans for SBA financing. But Matco kept the projections secret because it knew of the high rate of failure among its franchisees and feared the lackluster projections would be used by failed franchisees filing suit.

The lawsuit further states that Matco, TD Bank and other unscrupulous SBA lenders preyed upon the Villanos and other unsophisticated borrowers because of their perception that the lender would not make the loan unless it believed the Matco franchise was an acceptable business opportunity.

According to the lawsuit, TD Bank profited through its collection of loan origination fees as well as interest on the loan principal, which it collected from borrowers while these improper loans were current. When the loans would ultimately fail, TD bank and other lenders would pass along the loss to the American taxpayer, as SBA loans are 90 percent guaranteed by taxpayers, according to the FDIC.

Matco, as the franchisor, would likewise profit from the sale of a new franchise and having its franchised distributors sell tool products for two to three years in a designated route, before ultimately failing and being replaced by a new franchisee.

“Matco and TD had the ability to perpetuate this scheme because of a self-serving lending culture that was more than happy to originate and collect fees and pass along the risk of loss to its customers and taxpayers, even if the law was being violated,” said Louis Tambaro, Esq., another member of Marks & Klein. “By bringing this lawsuit as a national class action, we look forward to exposing the dark underbelly of a destructive lending culture.”

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Contact the author or site admin at UnhappyFranchisee[at]gmail.com.

MAC TOOLS Guilty of Franchise Fraud?

Mac Tools calls its distributorship business opportunity a “Journey Worth Your Lifetime.”  The spouse of a former Mac Tools distributor has another term for it:  “Illegal franchise.”

Elba Maria Ceballo claims that Mac Tools knowingly misclassifies its distributorship program as a “business opportunity,” and, in doing so, fails to comply with federal franchising laws.

Mac Tools Distributorship:  A Journey Worth Your Lifetime?

According to the Mac Tools website:

“Being a Mac Tools Distributor is a life-changing opportunity and commitment.

“We believe it is a Journey Worth Your Lifetime. It gives you the freedom and responsibility to go as far and as high as your abilities and hard work take you.

“You are on the road and master of your own fate.

“Yet you are part of a company and community with an esteemed heritage, innovative strategies for growth and one that is completely dedicated to your own personal success.”

…OR Illegal Franchise?

A recent press release by the plaintiff’s law firm Marks & Klein, LLP provides an overview of the complaint:

“Wife of Mac Tools Franchisee Permitted to Proceed With Fraud Claims in N.J. State Court

“NEWARK, N.J., Oct. 12, 2011 /PRNewswire via COMTEX/ — A federal judge has cleared the way for the spouse of a former Mac Tools distributor to proceed with fraud claims against the division of Stanley Black & Decker, Inc. /quotes/zigman/590745/quotes/nls/swk SWK +0.69% in a New Jersey state court.

“The Hon. Mary Cooper of the United States District Court for the District of New Jersey issued an Order and written opinion on Oct. 5 granting the motion of Elba Maria Ceballo, the wife of a former Mac Tools distributor, to remand her lawsuit back to New Jersey Superior Court, Middlesex County (Ceballo v. Mac Tools, Inc. et al, 3:11-cv-04634-MLC-DEA). Ms. Ceballo’s lawsuit charged that Mac Tools violated FTC (Federal Trade Commission) regulations by selling her and her husband a tool sales route as a “distributorship” when, in fact, it was an undisclosed “franchise.”

“’FTC regulations provide important protections to individuals and families who invest in small route sales and other franchised businesses,’ said Ms. Ceballo’s attorney, Gerald Marks of Red Bank, NJ-based Marks & Klein, LLP. ‘One of the major protections is the requirement that the seller of a franchise provide a buyer with a Franchise Disclosure Document (FDD) that contains over 22 items of information, including the names of all current and former franchisees so that the prospective purchaser can contact them to determine if they feel they believe the business investment is worthwhile.’

“Ms. Ceballo, a resident of Perth Amboy, NJ, contends that although she was entitled to receive an FDD, one was not provided because Mac Tools fraudulently mislabeled its business as an ‘independent distributorship.’

“After the lawsuit’s original filing in State Court, Mac Tools removed the case to federal court, arguing that Ms. Ceballo only named a district manager of Mac as a defendant to keep the case in state court and avoid federal jurisdiction. Marks & Klein immediately moved to remand the case back to state court, arguing that Ms. Ceballo had independent, factually specific fraud claims against the district manager and that the federal court did not have jurisdiction.

“’Despite Mac’s protestations that our client named the district manager solely to manipulate jurisdiction, the Court rejected Mac’s arguments and agreed that Ms. Ceballo had asserted valid claims against all of the named parties,’ said lead counsel Marks, who has represented tool dealers in various franchise and distributorship systems for the past 20 years. ‘We are extremely pleased with the Court’s decision to properly remand this case to State Court, where it belongs. Mac’s suggestion that its district manager employee was named solely to defeat federal court jurisdiction was a red herring and a futile attempt to avoid what may become a class action.’

“Louis D. Tambaro, another member of Marks & Klein, added: ‘We are excited for the opportunity to try our claims on the merits before a New Jersey state jury of Ms. Ceballo’s peers. Unfortunately, we have had to contend with Mac Tool’s efforts to throw up procedural roadblocks; however, those delay tactics were handily defeated and will similarly not be tolerated in the future. “’

“’We expect Mac to make additional efforts to stall the case,’ Mr. Tambaro continued, ‘but are confident that the case will be rightly and favorably decided by a Middlesex County jury.’

SOURCE Marks & Klein, LLP

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