Two former AAMCO Transmissions Inc. franchise owners have filed a class-action lawsuit on behalf of other franchisees, claiming the company, its affiliates and corporate representatives fraudulently induced them to purchase a franchise or continue to operate a franchise.
Thirty-nine percent of AAMCO franchisees that used Small Business Association financing to open their centers are currently in default of those loans.
AAMCO is the Horshman, Pennsylvania-based franchisor of transmission and automotive repair centers. It is a subsidiary of American Driveline Systems Inc., which is owned by American Capital LTD. American Driveline Centers Inc., formerly known as Cottman Transmission Centers Inc., is an affiliate that operates corporate AAMCO outlets.
All of those parties are defendants in the case brought by Thomas W. Furlong Jr. of Maryland and Gustavo Soto of Colorado to the U.S. District Court for the Southern District of Illinois under the Rackateer Influenced and Corrupt Organization (RICO) Act.
Also mentioned are Bret Bero, principal at American Capital Ltd.; Marc Graham, former chairman of the board of directors of AAMCO and ADL; Michael Sumsky, CFO at AAMCO and secretary of AAMCO, ADL and Cottman; Brian O’Donnell, senior vice president of operations for AAMCO; Todd Leff, former CEO of AAMCO who led the merger of Cottman Transmissions and AAMCO; Brett Ponton, current president and CEO of AAMCO and American Driveline; and Mohammad “Michael” Ganjei, president of the National AAMCO Dealers Association.
The lawsuit claims a three-pronged “scheme” by AAMCO:
First, it allegedly fraudulently induces franchisees to purchase centers by intentionally misrepresenting the contractual relationship between franchisee and franchisor, and the financial prospects of the franchisee.
Second, it allegedly willfully teaches and encourages franchisees to engage in deceptive business practices for profit; it allegedly participates in “franchise churning” – profit through frequent franchisee turnover; and it allegedly charges the franchisees illegal, undisclosed and inflated fees.
Third, it allegedly conspired with Ganjei to misrepresent material information to franchisees and mislead them about the health of the system.
The conclusion of this scheme, the lawsuit claims, is an inevitable failure by franchisees who lose their entire investment while the defendants allegedly “take control of the center through use of intimidation and threats of financial ruin.”
Attorneys Jonathan E. Fortman and Benjamin J. Willmann of The Willman Law Firm LC filed case number 3:14-cv-01287-MJR-PMF on Wednesday.