Jon Smith Subs has 4 SBA loan defaults at a 18.2% default rate, and franchisees who have experienced losses need to understand their recovery options clearly and completely. At Lopes Law LLC, we represent franchisees in dispute recovery actions against franchisors, SBA lenders, and franchise brokers, and this guide provides a practical, step-by-step framework for evaluating and pursuing every available claim.

Dispute recovery is not about assigning blame. It is about systematically identifying every available legal avenue for recovering your investment and managing your financial exposure, including SBA loan obligations, personal guarantees, lease liabilities, and ongoing contractual commitments to the franchisor. The goal is to minimize your total financial loss and position you for the best possible outcome given the circumstances.

What Recovery Options Exist for Jon Smith Subs Franchisees?

Based on our experience representing franchisees in similar situations across multiple franchise systems, Jon Smith Subs franchisees may have the following recovery options. The specific options available depend on the facts of your case, the terms of your franchise agreement, the applicable state law, and the timeline of events.

Claims Against the Franchisor

If Jon Smith Subs made material misrepresentations in the FDD or during the sales process, franchisees may have claims for fraud, negligent misrepresentation, or violation of state franchise disclosure laws. These claims can seek recovery of the initial franchise fee, build-out costs, equipment investment, operating losses, and consequential damages including lost income from alternative employment opportunities forgone because of the franchise investment.

Common bases for franchisor claims that we evaluate in every case include providing inaccurate or misleading financial performance data in Item 19 of the FDD, failing to disclose known system problems, declining unit counts, or material litigation in Items 3 and 4, making oral earnings representations during the sales process that contradicted or exceeded the FDD disclosures, failing to provide the level of training, support, and marketing promised in the franchise agreement, engaging in unfair or deceptive practices during the franchise sales process including high-pressure tactics, and failing to update the FDD to reflect material changes in the franchise system between annual filings.

Claims Against Franchise Brokers and Consultants

If a franchise broker or consultant was involved in selling you the Jon Smith Subs franchise, they may share liability for any misrepresentations made during the sales process. Franchise brokers have a legal duty to provide accurate information and, depending on the state, may be subject to the same disclosure requirements as the franchisor. Claims against brokers can be particularly valuable for three reasons: brokers often carry errors and omissions insurance that provides a funded source of recovery, broker liability may exist even when the franchisor itself has limited assets, and broker claims may be subject to different (sometimes longer) statutes of limitation than direct franchisor claims.

SBA Loan Workout Strategies

For franchisees with SBA loan exposure, negotiating a workout is often the most immediately impactful action you can take to reduce your financial burden. SBA loan workout options include:

• Offer in Compromise (OIC): Proposing a lump-sum payment less than the full balance owed in exchange for the SBA releasing the remaining obligation. OICs are evaluated based on the borrower’s current and projected ability to pay, the value of available collateral, and whether the compromise amount exceeds what the government would likely collect through enforced collection. Successful OICs typically settle for 10% to 50% of the outstanding balance.
• Extended repayment plan: Restructuring the loan with reduced monthly payments over a longer term, which can provide immediate cash flow relief while avoiding the credit consequences of default. The SBA may agree to extend repayment over 10 to 25 years for qualifying borrowers.
• Personal guarantee release or modification: In some circumstances, it may be possible to negotiate release or modification of the personal guarantee, particularly if there are legal deficiencies in how the guarantee was executed, if the lender failed to follow SBA lending requirements, or if the guarantor’s financial circumstances make collection unlikely.
• Hardship deferment: For borrowers experiencing temporary financial hardship, the SBA may agree to defer payments for 6 to 12 months to allow the borrower to stabilize their financial situation before resuming payments.

What Is the Timeline for Franchise Dispute Recovery?

Recovery timelines vary depending on the complexity of the claims, the number of parties involved, and the resolution path chosen. Understanding realistic timelines helps you plan financially and set appropriate expectations.

• SBA loan workout: 60 to 180 days from initiation. The SBA has established procedures for reviewing workout proposals, and the timeline depends on the complexity of the situation, the responsiveness of the lender and the SBA’s loan servicing center, and whether the borrower provides complete documentation on the initial submission.
• Negotiated settlement with franchisor: 90 to 180 days. Direct negotiations with the franchisor can produce results relatively quickly, particularly when the franchisee has strong, well-documented legal claims and the franchisor wants to avoid the cost and reputational damage of formal proceedings.
• Mediation: 60 to 120 days after initiation. Mediation provides a structured negotiation environment with a neutral mediator and is often effective in franchise disputes because it allows both sides to express their positions and explore creative resolutions without the formality and cost of arbitration.
• Arbitration: 6 to 12 months. Most franchise agreements require arbitration, which is faster and less expensive than litigation but still involves formal proceedings including document exchange, witness preparation, and a hearing.
• Litigation: 12 to 24+ months. Litigation in federal or state court follows standard civil procedure timelines and is the most expensive and time-consuming resolution path, but it provides the fullest discovery rights and the possibility of jury trial.

What Damages Can Jon Smith Subs Franchisees Recover?

Depending on the specific facts of your case, the applicable law, and the resolution path, recoverable damages may include the following categories:

• Initial investment recovery: The franchise fee, build-out costs, equipment purchases, inventory, working capital, and all other capital expenditures made in connection with the franchise. This amount is typically well-documented through financial records and should be quantified precisely.
• Operating losses: Net losses incurred during the operation of the franchise, including losses attributable to inadequate franchisor support, misrepresented financial performance, territory encroachment, or other franchisor misconduct.
• Consequential damages: Additional losses flowing from the franchise failure, including lease termination costs and remaining lease obligations (often the largest single consequential damage item), employee separation costs including severance and unemployment claims, loan interest and prepayment penalties, professional fees including accounting, legal, and consulting costs, and moving and storage costs.
• Lost opportunity costs: The income the franchisee would have earned in alternative employment or business ventures during the time invested in the failed franchise. This is calculated based on the franchisee’s pre-franchise earnings history and industry salary data.
• Attorneys’ fees: Available under some state franchise laws, consumer protection statutes, and some franchise agreements. Fee recovery can make the economics of pursuing smaller claims significantly more favorable.
• Punitive damages: In cases involving intentional fraud, deliberate concealment of material facts, or willful misconduct, punitive damages may be available. Punitive damages are designed to punish the wrongdoer and deter similar conduct, and they can significantly increase the total recovery.

How Does the FTC Franchise Rule Apply to Recovery Claims?

The FTC Franchise Rule (16 C.F.R. Part 436) does not create a private right of action, meaning franchisees cannot sue directly under the FTC Rule. However, violations of the FTC Rule are highly relevant to state law claims because most state franchise laws incorporate FTC Rule disclosure requirements by reference, FTC Rule violations constitute evidence of deceptive trade practices under state consumer protection statutes that do provide private rights of action, the FTC’s enforcement actions, staff advisory opinions, and guidance documents provide persuasive authority in state court proceedings, and a pattern of FTC Rule violations across multiple franchisees can support class-wide claims.

At Lopes Law LLC, we analyze FTC Rule compliance in every dispute recovery case because even when it does not provide a direct cause of action, it strengthens the franchisee’s state law claims and settlement negotiating position. For comprehensive information on FDD requirements and disclosure standards, see our guide on what to expect from an FDD review.

What Steps Should Jon Smith Subs Franchisees Take Right Now?

If you have experienced financial losses with a Jon Smith Subs franchise, take these steps immediately to protect your legal rights and maximize your recovery options:

1. Preserve all documents: Do not delete any emails, text messages, financial records, or correspondence related to your franchise. These documents are essential evidence for any legal claim.
2. Review your statute of limitations: Many franchise claims are subject to statutes of limitation ranging from one to four years. The clock may be running on your claims right now. Contact a franchise attorney promptly to ensure your claims are preserved.
3. Do not sign anything from the franchisor without legal review: Franchisors sometimes ask departing franchisees to sign releases, mutual termination agreements, or settlement documents that waive legal claims. Never sign these documents without having them reviewed by your own franchise attorney.
4. Assess your SBA loan status: If you have an SBA loan, determine whether it is current, delinquent, or in default. Each status has different implications for your workout options and negotiating leverage.
5. Contact a franchise attorney: At Lopes Law LLC, we offer a $3,500 flat-fee Franchise Dispute Review that provides a complete assessment of your recovery options. We also offer a free 20-minute initial consultation to discuss your situation before you commit to any engagement.

At Lopes Law LLC, we represent franchisees nationally and have experience with QSR franchise disputes. Our flat-fee structure means you know the cost upfront, and our free initial consultation allows you to discuss your situation before making any decisions about legal representation.

Frequently Asked Questions

Reach out, we are friendly. Call now for a free consultation at (267) 777-9117 or schedule your free 20-minute consultation online.

Last updated: March 12, 2026