How does the litigation involving City Wide (Item 3) potentially affect the value of the franchise and the franchisee's investment (Item 7)?
City_Wide Franchise · 2025 FDDAnswer from 2025 FDD Document
1, in Minneapolis, Minnesota.
ITEM 3 LITIGATION
Dauntless Enterprises, Inc. and Kenneth Ayers v. City Wide Franchise Company, Inc. (United States District Court for the District of Kansas, Case No. 2:23-cv-02273, filed June 16, 2023). Dauntless Enterprises, Inc., a CITY WIDE franchisee ("Dauntless"), and Kenneth Ayers, its owner ("Ayers"), filed this suit against CITY WIDE seeking a preliminary injunction in connection with the expiration of Dauntless' franchise agreement. Plaintiffs alleged that Dauntless satisfied each of the renewal conditions set forth in the franchise agreement with CITY WIDE and was therefore entitled to a 10-year renewal term of the franchise agreement. CITY WIDE disagreed that Dauntless satisfied all renewal conditions (although CITY WIDE had agreed provide a step-up renewal if Dauntless met certain financial and operational milestones). In their Complaint, plaintiffs alleged breach of contract against CITY WIDE and further sought to enjoin CITY WIDE from: (i) refusing to renew Dauntless' franchise agreement and (ii) terminating the franchise agreement upon the expiration of the initial 15-year term on June 19, 2023, pending a final ruling on plaintiffs' claims in arbitration. CITY WIDE opposed plaintiff's motion for preliminary injunction. On or around June 22, 2023, Dauntless and Ayers filed a demand for arbitration alleging breach of contract and breach of the covenant of good faith and fair dealing, seeking to require CITY WIDE to specifically perform the franchise agreement by entering into a new franchise agreement for a 10-year term. The parties settled all claims on July 7, 2023. Under a definitive settlement agreement dated July 28, 2023, the parties extended the initial term of the franchise agreement through December 31, 2026 (the "2026 Calendar Year") and provided Dauntless with the option to obtain a successor term from January 1, 2027, through April 3, 2033, if Dauntless satisfies certain renewal conditions. The renewal conditions vary depending on the amount of Gross Sales that Dauntless will achieve in the 2026 Calendar Year. Pursuant to the settlement agreement, Dauntless also agreed to retain at least four sales executives throughout the term of the franchise agreement, including any successor term. On August 1, 2023, the arbitration and federal court case were both dismissed with prejudice.
Other than the action described above, no litigation is required to be disclosed in this ITEM.
ITEM 4 BANKRUPTCY
No bankruptcies are required to be disclosed in this ITEM.
ITEM 5 INITIAL FEES
Initial Fees
Upon your execution of the Franchise Agreement, you must pay to CITY WIDE the initial franchise fee ("Initial Franchise Fee") of $70,000 for the right to operate one CITY WIDE franchise. The Initial Franchise Fee is imposed uniformly on all franchisees (including franchisees who purchase existing territories). You must also pay an initial training fee ("Initial Training Fee") in the amount of $7,500.
To honor those men and women who have served in the U.S. military, the Veterans Transition Franchise Initiative, known as "VetFran," was developed to help those individuals' transition to civilian life.
What This Means (2025 FDD)
According to City Wide's 2025 Franchise Disclosure Document, Item 3 details litigation involving City Wide that could potentially impact a franchisee's investment. Specifically, the case Dauntless Enterprises, Inc. and Kenneth Ayers v. City Wide Franchise Company, Inc., filed on June 16, 2023, involved a dispute over the renewal of a franchise agreement. While this particular case was settled on July 7, 2023, with an agreement to extend the franchise term through December 31, 2026, and a potential successor term, it highlights the possibility of disagreements and legal disputes arising between City Wide and its franchisees. These disputes can lead to legal costs, time investment in resolving the issues, and uncertainty about the future of the franchise agreement. This could affect the value of the franchise if operational issues arise.
Although the litigation was settled, the fact that a franchisee found it necessary to sue City Wide over a renewal agreement suggests potential areas of conflict within the franchise system. Prospective franchisees should carefully review the terms and conditions of the franchise agreement, especially those related to renewal, to understand their rights and obligations. Understanding these terms can help mitigate potential future disputes and protect their investment. Additionally, prospective franchisees should inquire about the conditions required to extend the initial term of the franchise agreement.
Item 7 outlines the estimated initial investment for a City Wide franchise. While Item 7 does not directly address the impact of litigation, the notes section does advise potential franchisees to review the estimates carefully with a business advisor before making any decisions to purchase the franchised business. This review should include an assessment of the potential risks associated with litigation, as highlighted in Item 3, and how these risks could affect the overall financial performance and value of the franchise. Prospective franchisees should consider consulting with legal counsel to fully understand the implications of Item 3 and how it might impact their investment in a City Wide franchise.