Dozens of franchise owners across the country are suing Bedford-based Unleashed Brands, the youth-oriented holding company that sold a majority stake after a record year of growth.
Between lawsuits and legislative testimony, the franchise owners accuse Unleashed Brands of downplaying the work needed to run youth-oriented businesses, pushing inexperienced entrepreneurs to run multiple concepts and changing company terms.
The legal setback puts the homegrown holding company on the defensive as it fights back against national media attention and a political spotlight in at least one state capital on legislation to expand protections for franchise owners.
Michael Browning Jr., Unleashed’s founder and CEO, declined to be interviewed Dallas Morning News. He has not responded to four more emails since then.
However, he told trade publication Franchise Times that “the vast majority” of Unleashed’s 1,300 franchise owners experience the benefits that a parent company provides. His company also aggressively pushed back on news stories from Franchise Times and New York Times by posting lengthy “debunkings” on the site.
In one of the lawsuits, 54 franchise owners are seeking $75 million in damages for claims they were misled about the necessary investment they had to make.
Dissatisfied franchise owners
The backlash against Unleashed, which is now mainly owned by the private equity company Seidler Equity Partners, started in January then New York Times published a report on a legal battle involving a former Little Gym owner in Maryland.
Franchisee Tiffany Cianci, 41, is being sued by Unleashed after she said she refused to sign the company’s new demands that increased fees and established new operating rules, some expanding rights. Unleashed alleged that she “refused to pay the required royalties and advertising fees”, resulting in the termination of her franchise in May 2022.
“I’m out of money at this point,” Cianci shared The news. “I am fighting for my life and my family’s future. There is a very good chance that I will go bankrupt at the end of all this and will lose everything. But they can’t take my vote.”
Little Gym International was the second franchise purchased by Browning’s company in November 2021. The fitness franchise business with nearly 400 locations targets children ages 4 months to 12 years. According to Unleashed Brands, the chain’s revenue had risen 55% year-over-year as of November 2022.
The complaint against Cianci was filed in Arizona, where Little Gym is headquartered. Since then, the battle between Cianci and Unleashed has continued in arbitration in Arizona, where the damages are limited and the proceedings are sealed.
But she went before the Arizona legislature on Feb. 14 to testify in favor of a bill that would create more protections for the state’s franchisees.
Cianci claims her lawsuit has not been reported to other potential franchise owners in disclosure documents because she is locked into a sealed arbitration agreement. Franchise disclosure documents serve as the primary source of information defined by federal regulation and provided to all potential franchise candidates at a specific point in the decision-making process, according to FRANdata. FRANdata is a franchise-focused research and consulting firm.
“No matter what happens in my arbitration, no matter how egregious their behavior has been, no matter how unethical their behavior has been, no matter how much they’ve tried to destroy my life, no one will ever be allowed to find out or they will have grounds to sue me again,” Cianci said The news. – That’s why no one finds out.
Her friends and colleagues have started a GoFundMe page to help her pay legal fees.
Unleashed Brand’s “rejected” version of Cianci’s story i New York Times described it as a “Biased, incomplete and slanted history of The Little Gym International and Unleashed Brands despite providing evidence to the contrary.”
Charlie Stadtlander, Director of External Communications for New York Times, said the publication is behind the story.
“The story you refer to was deeply reported and thoroughly fact-checked, and we stand unreservedly behind its publication,” Stadtlander said. “Our reporters were in extensive contact with Unleashed Brands for the story, and their comments are reflected in the text.”
The company also “debunked” one Franchise Times‘ story published in February, claiming it was “a biased, slanted and inaccurate article that mischaracterizes the Unleashed Brands platform based on speaking to only a ‘handful’ of our 1,300 franchisee locations.”
The “rejected” releases go as far as to use a red crayon-like font to pull apart individual quotes or phrases in the stories and then list reasons why the firm believes it is untrue.
Unleashed went on a shopping spree of youth-oriented brands after Michael Browning launched the Urban Air Adventure Park in 2011 by opening his first trampoline park in Southlake.
In 2014, he began franchising the Urban Air experience, hoping people would buy into the opportunity to own a business. They did. This eventually resulted in the building of a kid-friendly brand empire, starting with Snapology in July 2021. Snapology offers programs and workshops that engage children ages 1 to 14 in hands-on, interactive activities.
In December 2021, Unleashed Brands acquired Premier Martial Arts, a martial arts school series with programs for children and adults.
A year later, 54 martial arts franchise owners sued over what they said was the company’s promise of a “semi-absentee” model — one where they could run a franchise using just 10 hours a week and with a skeleton staff of one full. – full-time employee and one part-time employee. Those owners included Fort Worth’s Cale Bearden and his wife Aimee.
“To me personally, it’s past the point of being repaired,” Bearden said. “In my opinion, I’m past the point where it’s a situation where they can do something. They haven’t shown any willingness to give any help anyway, so it doesn’t matter.”
According to the lawsuit, the Beardens say they lost over $145,000 opening and operating their first martial arts franchise and raised nearly $300,000 in loans to buy and develop it. They have signed two leases that total over $950,000.
In a court filing in the case, Stephen Polozola, the company’s chief legal officer, was quoted as telling another franchisee: “If you keep pushing this, I’ll make sure your grandchildren are bankrupt.”
Polozola said in another email the news, that the claim that the comments were ever made by him was “100% false,” and he said he clarified that later in a sworn statement in court.
The lawsuits have not deterred Unleashed’s growth. The company said it opened 160 new locations and signed 127 new leases across the country, bringing the total number of open and in-development locations to over 1,300. The company reported that it saw a 23% increase in 2022, approaching $1 billion in system-wide revenues.
House Bill 2404 in Arizona would strengthen the laws governing franchise businesses by clarifying the process for terminating a franchise.
Kat Tidd, a franchise attorney from Dallas, said franchising is regulated at the national level through the Federal Trade Commission, although some states also have requirements.
But the FTC does not maintain a national database of disclosure documents that provide prospective franchisees with detailed information, such as financials and risks. The states may require these documents.
The FTC published a release last week requesting comments on franchise agreements and franchisor business practices, including how franchisors can exercise control over franchisees and their workers.
“Amid growing concern about unfair and deceptive practices in the franchise industry, the FTC hopes to hear from a wide range of stakeholders about how the franchise relationship works, and how it doesn’t,” said Samuel Levine, director of the FTC’s Bureau of Consumer Protection. “This cross-agency effort will inform our policy and enforcement efforts as we work to ensure a fair marketplace for franchisees.”
The public will have 60 days to submit comments online at Regulations.gov. Once submitted, comments will be posted on the website.
The FTC does not comment on specific companies or conduct, but a spokesperson said The FTC’s chairman, Lina Khan, has “prioritized taking an interagency approach to protect franchisees, workers and consumers from unfair and deceptive practices and unfair methods of competition.”
“One aim of this request for information is to increase the commission’s understanding of how franchisors exercise control over franchisees and their workers,” the spokesperson said. “Staff hope that the information and comments submitted will increase their understanding of the issues facing franchisees. Armed with this knowledge, the FTC will continue to evaluate how and whether it should use its existing authority to address these issues.”
To hold a franchisor liable in Texas, franchise owners must engage in expensive lawsuits, which are rarely successful, Tidd said.
“Texas does not have a franchise-specific regulation,” Tidd said. “There are laws that apply and may provide some protection to franchisees, but it’s pretty minimal.”