April 05, 2006
Bell Curve
A group of 79 independent franchise owners filed a lawsuit against Bell Canada over Bell’s alleged refusal to let the franchisees transfer their stores to an income trust. Canadian income trusts are business entities that buy assets, including various businesses that generate cash flow from operations or royalties. In late 2004, Owen Mitchell approached the franchisees, who operate Bell boutiques in Quebec and Ontario, about purchasing their stores to create an income trust. Bell objected to the deal at first, but then grew interested and even considered rolling corporate-owned boutiques into the income trust. Bell engaged in negotiations with the franchisees and Mitchell’s group throughout 2005. In January 2006, however, Bell allegedly told the franchisees that it wouldn’t participate or consent to them doing so.
The franchisees claim that their contracts with Bell stipulate that the company will not unreasonably withhold consent to the sale of their stores. As to the unreasonableness, the franchisees argue that the income trust conversion represented a major business opportunity that Bell had squandered in “a reprehensible and unprofessional manner.” The franchisees seek $135 million in damages- the difference between their anticipated earnings from the sale to the income trust and what Bell pays to purchase stores.
Bell allegedly ordered at least five franchisees to withdraw from the lawsuit or face reversal of Bell’s previous approval to expand or relocate their business. Bell spokesman Paola Pasquini said it did not use threatening language with the franchisees but agreed that Bell’s approach was to tell them: “We offer a choice: grow with Bell or remain in litigation.”