Tower Cleaning Systems, Inc., which has commercial janitorial cleaning franchisees in 11 primarily east-coast states, has agreed to pay $50,000 to settle Federal Trade Commission charges that it made inflated earnings claims to potential franchisees, and kept from them information that could have helped them determine that the earnings were overstated. Tower offers 11 different franchise investment packages, ranging in price from $4,000 to $33,600, depending on the volume of cleaning contract business it arranges for franchisees. The FTC alleged that many franchisees did not make the promised monthly incomes of $500 to $10,000 and, contrary to its contracts, in numerous instances Tower refused to refund their fees or deposits.
An FTC brochure titled “A Consumer Guide to Buying a Franchise” states that franchisors must be able to back up on paper any earnings claims they make, and suggests to investors that speaking with current and former franchisees “is probably the most reliable way to verify the franchisor’s claims.” In this case, the FTC alleged, Tower did not substantiate its earnings claims and in numerous instances gave potential investors incomplete or inaccurate information about current and former franchisees. Ultimately, the FTC charged, Tower’s earnings claims turned out to be false in many instances.
Tower is based in Wayne, Pennsylvania. It was established in 1988 as Metro Building Maintenance, and began offering franchises in 1990 after changing its name to Tower Cleaning Systems, Inc. The FTC complaint in the case also names Tower president, David A. Gansky.
The FTC complaint in this case charges that Tower’s false earnings claims violate the FTC Act. In addition, according to the complaint, the defendants violated the FTC’s Franchise Rule, which requires franchise sellers to give potential buyers detailed information about the business, its officers, and its current and former franchisees. The FTC charged that Tower and Gansky violated the rule by, in many instances, failing to provide this basic information either at all, or within 10 days prior to the sale as required by the rule. In addition, they failed to provide complete and accurate information about the number and percentage of franchisees that had been terminated or had gone out of business in the prior fiscal year, and their names and addresses, the FTC charged. The rule also requires franchisors who elect to make earnings claims to have a reasonable basis for the claims and to provide franchisees with a document backing them up. The FTC also charged Tower and Gansky with violating this provision. Moreover, when franchisees did not achieve the promised earnings and asked for refunds pursuant to their contracts, the defendants in many instances refused to make those refunds, according to the complaint.
The proposed consent decree Tower and Gansky have signed to settle the FTC charges would require them to pay $40,000 of the redress amount within 10 days after the judge approves the settlement, and the other $10,000 within six months. The payments are secured, the FTC said. If it is not practicable to use the money for consumer refunds, they will be deposited into the U.S. Treasury.
The consent decree also would prohibit these defendants, in connection with future efforts to market the commercial janitorial service or any other franchise, from misrepresenting the sales volume, income or profits of franchisees and from violating the Franchise Rule. The settlement also contains various reporting and recordkeeping requirements designed to assist the FTC in monitoring their compliance.
The Commission vote to file the complaint and proposed consent decree in court was 5-0. They were filed this morning in U.S. District Court for the Eastern District of Pennsylvania, in Philadelphia. The consent requires the judge’s approval to become binding.
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.
Copies of the consumer buying guide and the complaint and proposed consent decree in this case 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. 932 3217)
(Civil Action No. 96 58 44)