A group of franchisees have filed a class action lawsuit against the Seva Beauty chain of “fast casual” salons, accusing the salon chain operating inside Walmart stores and malls throughout the country, of misleading franchisees into believing they could easily earn six figures a year with minimal effort, even though most Seva franchisees allegedly lost big bucks and the chain’s business model was failing.
On July 23, attorneys Alexander Loftus and David Eisenberg filed suit in Cook County Circuit Court against Seva Beauty, based formerly in suburban Highland Park.
The action was brought on behalf of named plaintiffs Mahesh Sashital, Mark Ferguson and Michael Scott Davis. The lawsuit seeks to expand the action to include anyone who purchased a Seva franchise from January 2015 to December 2019, and who still owe monthly royalties to Seva.
Alexander Loftus
The lawsuit accuses Seva of violating Illinois’ consumer fraud and deceptive trade practices laws.
The complaint asserts Seva has allegedly set up franchisees to struggle and often fail, even as the parent company continues to collect monthly royalties of more than $30,000 from each franchisee.
According to the complaint, Seva allegedly limited the information prospective franchisees could gather about their prospective investment. According to the complaint, Seva allegedly restricted the existing franchisees with whom prospective investors could speak and glean information from. Those “exemplars,” the complaint said, were limited to franchisees who were located in areas, like the Chicago area, where the local labor pool was replete with people possessing the kinds of skills, like eyebrow threading, essential to build a successful Seva franchise.
The complaint said such skills take months to develop in trainees, and years to perfect. Seva, however, allegedly “claimed that the employees could be trained in threading very easily.”
The alleged training gap limited opportunities for success for Seva franchisees in other regions of the country, such as the “rural south and mountain west,” where fewer such skilled salon workers could be found, the complaint said. To succeed in such places, the complaint said, franchisees needed to deviate from Seva’s training processes, and at times, allegedly skirt labor laws.
According to the complaint, Seva “fraudulently omitted” from its franchisee disclosures that “stores had to open with at least one qualified threader.”
The complaint further asserted Seva allegedly misled prospective franchisees into expecting annual profits of $90,000 to $150,000 per store by their second year in business, and allegedly told prospective owners that a Seva franchise was a “turn-key business” in which it was “very common for the owner to be an absentee owner.”
“Seva knew few if any of their franchisees generated this sort of revenue and certainly not when they were paying someone to manage the stores and not training employees for months on end,” the complaint said.
Further, the complaint accused Seva of asserting franchisees would enjoy a “solid” relationship with Walmart, and could operate a Seva salon inside most any Walmart store, and the franchisees would enjoy exclusivity within each Walmart store.
However, franchisees discovered their marketing options within Walmart stores were restricted by Walmart store rules, and that other salons, often within the same Walmart store, were directly competing, offering the same services.
The complaint further alleged Seva’s relationship with Walmart “was actually falling apart and Walmart was refusing to renew leases.”
In 2018, the complaint said, Walmart stopped approving new leases with Seva and its franchisees and even terminated existing Seva leases, yet allegedly neither that information, nor any other information about the relationship between Seva and Walmart was disclosed to franchisees before they signed the franchise agreements.
According to the complaint, plaintiff Ferguson signed a franchise agreement with Seva in February 2016 and opened a Seva salon in a Walmart store in Bradenton, Fla. According to the complaint, Ferguson’s store lost more than $103,000 in its first four years of operation. In July 2020, the complaint said, Seva threatened to terminate his franchise unless he paid them rent and royalties for the months his store has been closed during the COVID-19 pandemic.
In the complaint, Sashital reported losing more than $235,000 since 2016.
And plaintiff Davis reported losing more than $207,000 since 2016.
All of the plaintiffs alleged they only became aware of Seva’s alleged misconduct as a result of reading about a $2 million deal Seva entered into in 2019 to end eight other individual claims from other franchisees leveling similar claims.
The lawsuit seeks a court order forbidding Seva from continuing with the conduct alleged within the complaint, and an order forbidding Seva from continuing to collect “any royalties or assessing penalties for non-payment of royalties.”
The complaint also seeks court orders declaring the Seva franchise agreements illegal and void, and requiring Seva to notify franchisees that its alleged statements concerning the profitability of its salons; its relationship with Walmart; and its employee training requirements and support are “false and untrue.”
The complaint also seeks attorney fees, but not money damages for the franchisees.