Tisha Thompson, Rick Yarborough
The News4 I-Team has learned some AAMCO franchise shop owners have filed a class action lawsuit against the company, accusing it of fraud, unfair fees and pushing them to financial ruin.
The News4 I-Team was the first to take you "Under the Hood," inside AAMCO repair shops, over the summer. We exposed questionable work, dozens of complaints and even shop owners who said, they, too, were misled by the company.
Now some shop owners are taking action, revealing the world of auto repair that, they say, customers don’t get to see.
After retiring from a 30-year career, Tom Furlong spent hundreds of thousands of his own money to open up an AAMCO franchise shop in Elkton, Md. He had no experience in auto repair. But he said AAMCO wanted him to invest, promising to provide all the training and support he would need to succeed.
"'We'll be with you every step of the way.' And that to this day haunts me," Furlong told the News4 I-Team.
Furlong said training consisted mainly of memorizing a telephone script to use with customers. It’s the same line-by-line dialogue first obtained by the News4 I-Team in August from other shop owners who said its main goal was to separate customers from their cars and convince them to let AAMCO work on their transmission. "I never wasted five weeks of my time more than I did in that training," said Furlong.
AAMCO told the News4 I-Team it "has a robust franchisee initial training program that has been developed and refined over 50 years. We believe that our training program is superior to that of any other franchise system in the automotive repair market."
But Furlong said the script didn't work. Two years later he said he was forced to close after he struggled to pay AAMCO's 7.5 percent royalties and a weekly $845 advertising fee. According to Furlong, "Support is next to nothing."
Instead of helping him turn things around, Furlong said, AAMCO threatened him with legal action if he closed. But he said the company offered to take control of the business and "resell his franchise to another investor." In all, Furlong said, “I would say I lost probably $520,000."
Furlong is just one of several former and current AAMCO shop owners named in a new class action lawsuit against the company. The lawsuit claims AAMCO "fraudulently induced" the shop owners.
This is a class action brought by franchisees of the AAMCO franchise system (hereinafter referred to as "AAMCO") arising from the illegal business scheme of AAMCO and its web of affiliated entities and individuals who control and operate AAMCO (collectively, all the Defendants). Through this scheme, Defendants fraudulently induced Plaintiffs and the Class to purchase a franchise and/or continue to operate their franchise, and thereafter exploited their control and economic power in order to extract exorbitant and unjustifiable payments and expenditures from their franchisees. As a result, Defendants reap grossly inflated sales and profits, creating an illusion of corporate growth and business prosperity while causing substantial, permanent, irreparable financial harm to the franchisees.
It claims AAMCO "concealed the fact that the company was unable to support the system."
At the same time, AAMCO was inducing Plaintiffs and other to invest in its franchise system, it concealed the fact that the company was unable to support the system and in order to be successful in the system the franchisees must deceive the consumer.
The suit also says AAMCO profited by "charging illegal, undisclosed inflated fees."
AAMCO’s illegal scheme consists of two primary components. First, AAMCO engages in a policy of fraudulently and deceptively inducing franchisees to purchase AAMCO franchises by intentionally misrepresenting the true nature of the contractual relationship as well as the financial prospects for the franchisee and their likelihood of success. Second, AAMCO further takes advantage of its franchisees through other illegal, deceptive and fraudulent means, including but not limited to its willful practice of: (a) teaching and encouraging franchisees to engage in fraudulent and deceptive business practices in order to reap profits (b)deceptively churning franchise locations between the franchisees, and (c) charging illegal, undisclosed, inflated fees/charges to the franchisees in order to reduce the franchisees’ income and increase the Defendants’ profits.
It says AAMCO also profited by selling struggling shops to new owners.
AAMCO then uses Take Over Specialists, also known as “Floaters,” 1099 independent contractors hired by the franchisor, to go to the struggling franchise location and increase sales revenues so that the franchise location can be sold to another new franchisee. The Floater operates the location strictly by the script given to him by AAMCO. The script involved using fraudulent methods to increase sales revenues. The Floater was compensated by AAMCO and also given an incentive bonus of 10% of the sale price if he could turn it around so it could be sold.
Attorney Jon Fortman told the News4 I-Team, "These people are losing everything. A lot of them have lost houses. They've gone through bankruptcy."
Fortman said he filed the lawsuit after talking with hundreds of AAMCO shop owners around the country. "To put someone in that position and then turn around make these demands when they're going broke, that they need to pay all these additional fees is absolute extortion."
In an email to the News4 I-Team, a company spokesman said, "AAMCO believes the claims set forth in the complaint are without merit and intends to defend the matter vigorously." AAMCO previously provided us statements from two successful Maryland shops, one saying, "I believe that I have achieved many of my own goals through my own effort and by abiding by the processes of AAMCO."
But another shop owner named in the class action lawsuit told us struggling businesses don’t get the support they need and said, "You're punished if you ask for help."
Tim Montileone currently owns three shops in the St. Louis area. He said he joined the lawsuit because he wants AAMCO to fix its broken business plan. "What I have found in my two years is that AAMCO is more interested in how they can profit off the franchisees than they are in helping the franchises make a profit," said Montileone.
Montileone said AAMCO sold him a shop that had already failed after the previous owner lost at least $400,000. That owner, who didn’t want us to use his name, said about the company, "They were more interested in flipping those franchises rather than supporting the franchisee." He said, "I'm going to be working as long as I can, as hard as I can to recover."
For all three of these businessmen, it’s been a hard lesson, they said. They are now hoping to get their day in court against a company they say promised them a road map to success, but ended up driving them into financial ruin. According to Furlong, "If you haven't been in the car business, you have no business buying this dream."
To read the entire class action lawsuit, click here.
To watch the News4 I-Team’s original AAMCO investigation, click here.