Sonitrol franchisees sue The Stanley Works

Claim failure to live up to franchise bargain
Thursday, November 5, 2009

SAN FRANCISCO—The Sonitrol National Dealers Association has filed a lawsuit in California state court here, asking a judge to force Stanley Works to live up to certain longstanding agreements between the Sonitrol Corporation, which it bought last year, and its network of franchisees. Among the many complaints registered by the franchisees is that Sonitrol/Stanley is no longer providing the franchisees with a unique product, that it has gutted the national accounts program, that it is competing directly with the franchisees, and that it is degrading the Sonitrol brand as a whole.

“Stanley is not operating as a franchisor,” said Doug Curtiss, CEO of a Sonitrol franchise based in the Hartford, Conn.-area, and the official spokesman for the SNDA. “Our world has changed dramatically.”

The latest move in the lawsuit, technically a “motion for summary adjudication,” was filed in late September, though the lawsuit originated in December 2008. The suit’s next step will be determined following the results of a Nov. 19 case management conference. The SNDA expects that the judge will then rule on the case.

The Stanley Works has declined comment on the case, saying it does not comment on ongoing litigation, but has said that it is committed to supporting the Sonitrol franchises.

However, Curtiss said the franchisees, who as a whole represent roughly $13 million in RMR, became concerned not long after The Stanley Works purchased the Sonitrol Corporation.

“Stanley took a very different tack,” Curtiss said, than, for example, ADT did when it bought Sonitrol as part of Automated Security Holdings in 1997. “ADT did the right thing,” Curtiss said. “They kept the Sonitrol brand separate and distinct, with separate offices and sales people,” before selling Sonitrol to private equity investors in 2004.

Stanley, on the other hand, immediately integrated Sonitrol with its Stanley Convergent Security Solutions business—“they absorbed the Sonitrol offices,” Curtiss said—and cross-trained all of its sales force, as part of its “good, better, best” or “best fit” line of offerings, whereby customers could have alarms that were unverified, were verified with the Sonitrol audio verification product, or were video verified.

The result, said Curtiss, is that the Sonitrol product is now just one of many things the sales people can offer, and it’s not the cheapest. Thus, he said, “sales in the national account arena, where we do get business reports and we see numbers, have dropped off to near zero.” Specifically, the numbers supplied to the Sonitrol franchisees show a drop in monthly installation revenue of more than 90 percent on national accounts, something Curtiss said can’t be explained by the economy. Further, claims the lawsuit, the Sonitrol franchisees have no power to stop the national accounts slide because Stanley “has taken the unsupported position that it has the exclusive right to administer national accounts.”

The SNDA seeks a declaration that they are free to secure national accounts themselves.

Nor, claim the franchisees, are they safe in their own territories. “We’ve had instances almost weekly of their sales people in our territories, working on leads that we’re paying royalties to get,” said Curtiss. “It happens over and over again. The fabric of the franchise network, that we bought into and built and that we pay royalties to maintain, has broken down.”

Most important to Curtiss, however, is that the very product that Sonitrol built its reputation on, the audio verification system that has led to Sonitrol’s many celebrated apprehensions, is no longer unique to Sonitrol.

As the lawsuit puts it, “Selling Sonitrol’s signature product through Stanley, a major competitor, is essentially the nail in the coffin of the uniqueness of the Sonitrol brand.” The lawsuit demands “that Stanley must support the Sonitrol brand and provide unique Sonitrol products to its franchisees that are not sold through its Stanley CSS stores.”

As the lawsuit notes, the franchise agreement itself explicitly states, “Do not display or otherwise associate the Sonitrol trademark with another trademark.”

The lawsuit further says that, should Stanley not live up to its inherited franchise agreement, the Sonitrol franchises should have relief from the non-compete agreement that is part of the franchise agreement. “It’s our contention,” said Curtiss, “that if there is really no longer a franchise system ... we are forced to go elsewhere.”

As you would expect from someone who founded a Sonitrol franchise in 1972 and has been an evangelist for the Sonitrol solution, Curtiss said he wishes it had never come to this. “Initially, when Stanley bought Sonitrol, we were extremely hopeful that we would have a partner that, in Tony Byerly’s words, would mainstream audio. But when they started talking about rolling us up, that’s not a good day.”

While Stanley executives in the past have denied an intent to roll up the franchises, in an Oct. 21 earnings call, The Stanley Works CEO John Lundgren characterized the situation this way: “At this stage, we would regard Sonitrol and HSM as fully integrated, and functioning as a very cohesive unit under [Stanley CSS president] Brett Bontrager’s and [CSS North America president] Tony Byerly’s direction ... We’re maintaining or gaining share with national accounts and Tony’s team is doing a nice job with some of the smaller businesses, rolling them up and gaining share at the local level.”

This, to Curtiss and the rest of the SNDA, doesn’t sound like a franchisor looking to support its franchisees. “When I saw the quote about Stanley rolling up the franchises,” said Curtiss, “I thought, ‘Well we’re bigger than they are, why don’t we roll them up.’”