Former franchise owners file RICO class action against AAMCO

By Legal News Line | Nov 21, 2014

EAST ST. LOUIS, Ill. (Legal Newsline) - Two former AAMCO Transmissions Inc. franchise owners recently 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.

AAMCO is a Horshman, Pa.-based franchisor of transmission and automotive repair centers. It and American Driveline Systems, American Capital LTD and American Driveline Centers are defendants in the case, which was brought by Thomas W. Furlong Jr. of Maryland and Gustavo Soto of Colorado in U.S. District Court for the Southern District of Illinois under the Racketeer Influenced and Corrupt Organization (RICO) Act.

The Nov. 19 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 fellow defendant Michael 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.”

Thirty-nine percent of AAMCO franchisees that used Small Business Association financing to open their centers are currently in default of those loans, the suit claims.

Other defendants include Bret Bero, the principal at American Capital Ltd.; Marc Graham, the former chairman of the board of directors of AAMCO and ADL; Michael Sumsky, the CFO at AAMCO and secretary of AAMCO, ADL and Cottman; Brian O’Donnell, the senior vice president of operations for AAMCO; Todd Leff, the former CEO of AAMCO who led the merger of Cottman Transmissions and AAMCO; and Brett Ponton, the current president and CEO of AAMCO and American Driveline. Ganjei is the president of the National AAMCO Dealers Association.

Attorneys Jonathan E. Fortman Florissant, Mo. and Benjamin J. Willmann of Clayton, Mo., are representing the plaintiffs.

U.S. District Court for the Southern District of Illinois case number 3:14-cv-01287.

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