Tutor Time Child Care Systems, Inc., a nationwide franchisor of day-care centers, has agreed to pay a $220,000 civil penalty to settle Federal Trade Commission charges that it has overstated the earnings potential of franchise owners, the length of time it takes to open a center, and other important facts about owning a Tutor Time franchise. The FTC also charged Tutor Time with failing to give potential franchisees certain key pre-purchase information about the franchise required by the FTC’s Franchise Rule, including information about the litigation history of its key officers and their prior franchise experience, and about factors that might delay opening of a Tutor Time day care center. In addition to requiring the civil penalty, the FTC order would prohibit the defendants from making similar misrepresentations, require them to comply with the Franchise Rule, and bar them from imposing gag orders that prohibit their former franchisees from talking about their experiences with the company.
Tutor Time has sold more than 200 franchises in at least 21 states and had reported 1994 sales of approximately $3 million. It is a wholly-owned subsidiary of Florida Academic Enterprises, Inc., which itself is a subsidiary of Lifecare Investments, Inc. They all share the same address in Fort Lauderdale, Florida. Also named in the FTC’s complaint detailing the charges in this case are Michael Weissman and Richard Weissman, owners and officers of the corporate defendants.
According to the complaint, the Tutor Time defendants advertise their day-care franchises at business opportunity shows and in newspapers throughout the United States. Franchisees pay an initial fee of at least $27,000, plus additional fees for site development, and for furniture and toys. The total cost of a Tutor Time franchise is at least $150,000. Tutor Time allegedly told franchisees that their centers would be operating within 18 months of paying the initial fee, when that was not the case. Tutor Time’s promises that franchisees could earn at least $100,000 a year also were false, the FTC charged, as were claims that Tutor Time would help franchisees locate their center in the geographic area they chose. These misrepresentations constitute violations of the FTC Act.
The FTC also alleged violations of the Franchise Rule, a pre-purchase disclosure rule for franchisees. According to the complaint, Tutor Time failed to state in its basic disclosure document the prior business dealings of the defendants, as well as the fact that one of the defendants was subject to a restrictive order resulting from an earlier law-enforcement action. Tutor Time also made earnings claims, but allegedly did not have a reasonable basis for the claims. Moreover, the FTC charged, Tutor Time failed to provide potential franchisees with a document that laid out the substantiation for its earnings claims, as required by the Franchise Rule.
Under the proposed consent decree to settle the FTC charges, which requires the court’s approval to become binding, the Tutor Time defendants would pay the $220,000 civil penalty over 18 months and would be required to comply with the Franchise Rule in the future. In addition, the defendants would be prohibited from misrepresenting franchisees’ earnings potential, or the timeframe for operation and likely location of their franchises. The decree also includes a provision that would bar the defendants for five years from imposing a gag order that forbids former franchisees from talking about their experiences with consumers who are thinking about purchasing a franchise from the defendants.
The proposed consent decree also contains various reporting and recordkeeping provisions designed to assist the FTC in monitoring the defendants’ compliance. It requires the court’s approval to become binding.
The complaint and proposed consent decree were filed on July 22 in the U.S. District Court for the Northern District of California, in San Francisco, at the FTC’s request by the Department of Justice. The Commission vote to authorize filing was 5-0. The FTC’s San Francisco Regional Office handled this matter.
NOTE: This consent decree is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent decrees have the force of law when signed by the judge.
The FTC has published a free brochure for consumers considering buying a franchise. The brochure is titled “Franchises and Business Opportunities,” and offers information about the Franchise Rule and questions potential franchisees might want to ask. Copies of the brochure, complaint and proposed consent decree are available from the FTC’s Public Reference Branch, Room 130, 6th Street and Pennsylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710. FTC news releases and other materials also are available on the Internet at the FTC’s World Wide Web site at: http://www.ftc.gov
(FTC File No. 942 3307)
(Civil Action No. not available at press time.)