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Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

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One of the Scared

In reading your post I'm not sure where I would fit. I have had one of the most horrible experiences one could have in franchising.

As far as Government Regulations, my opinion is that if the laws on the book were enforced there would be no need for new Regulations. I think its a joke.

It dosen't matter what the laws are, if not enforced, whats the point.

I also firmly believe that its the people who have been burnt that are the ones who stand the best chance to change the way franchising is viewed.

The FTC, IFA and DLA,Piper, are a tremdous power. This power can only be challenged by making our prensence known.

There are great articles being printed and reporters who get "The Truth" out there, but that is where it ends.

We have to get our act together and start lobbying and putting pressure on the elected representatives to look into what is going on.

That takes time and I'm afraid that those who have been burnt don't want to invest anymore time.

You can't talk the talk, if you have not walked the walk.

Those who continue to post that Due Dilligence will save you, are right to an extent. However, Due Dilligence is only as good as the information that the zor chooses to disclose.

The only sure thing we will ever have is enforceing the law. This would also deter repeat violations.

We have been able to get almost every Representitive in our State to endorse the upcomming Fairness Arbitration Act bill that will be introduced to Congress, by us, in 3 weeks.

I know that Tinker, also had some Legislation passed in her State.

I will forever contiue to fight with all that I have to try and level the playing field for zees.

This of course will not help my situation, but if I can help to make sure that my present does not become the future of someone I will never meet, then it will be worth the effort

Tricked by the lies and appearances out of contract!

Tricked by the promises and appearances out of contract that are all disclaimed when franchisees are brought to sign the malicious, unbargained, boilerplate contract that they believe cannot be changed or bargained because of the mandated government disclosure circular.

Tricked because franchisors don't disclose the KNOWN statistics concerning the success or failure of their first-owner franchisees to new owners. Tricked because franchisors don't have to disclose past or present unit performance statistics under disclosure laws.

Tricked because franchisees are human and believe that they have to sign the contract to access the profits and success promised outside of contract by the franchisor.

Tricked! because franchising is a gamble on which the House will not disclose the odds!

Tricked into indenture or failure and sometimes success, all of which feeds the franchisor who has tricked you into taking all of the risk while he takes your profits as royalties.

Tricked and Ufoc--ed good by Q and its friend, the FTC.

I mispelled

Scarred. So my post was moved to Government Regulations.

However I was responding to your invitation to sit down and talk

DLA Piper

Did I see that someone posted that Piper Rudnick were involved in founding the IFA? Boy that explains a lot. Could the FTC, IFA and DLA Piper, be in any more of apowerful position? No wonder things like this happen. No wonder you never hear about things like this. I can't beleive that these two were able to get this far.

With this kind of tremondous power how does the little guy stand a chance? Blue MauMau you will have to keep us posted as to what happens here. This one is under the magnifying glass right now.

RichardSolomon's picture

Government regulations is an oxymoron

Government won't get around to regulating franchise practices until after it regulates the even bigger scam called flu shots.

The same moron mentality that buys these new franchises that sell to newbies one store at a time regularly gets flu shots.

Every year the flu shots are for a strain of flu that isn't here this year. So they make next year's batch to deal with this year's flu strain. Next year there will be another strain of flu that the relevant batch won't deal with either.

Pharmaceuticals are thought to be highly regulated. The FDA is "owned" by the so called "ethical" pharmaceutical industry. The use the same technique as the franchisor community.

There is an absolute parallel between the morons who take flu shots and the morons who buy these crooked franchises. They are the same people. If I were to seek a target demographic for the sale of a bozo franchise offering, I would get the list of fools who take flu shots and sell it to them, laughing all the way to the bloody bank.--

Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Barbara Jorgensen's picture

Zee's are employees of the zor if

They can be terminated. Why don't they just tell the zee's it isn't their own business. Where is the justice in all of this? They use the zee's money to build their business and brand. Yet legally can get terminated the minute they speak out if they smell a rat. Completely one sided just like the UFOC.

So Rare that it may not even Exist

Franchise retail business opportunities do not qualify to be called investments. The FTC calls them "investments" knowing that they are a divestment of judgement of the naive "mark" who believes that government is regulating franchising in his/her interests.

"My country tis of thee?"

Juan F's picture

Tinker's Place

"And after having personally seen her building, I doubt that she was in compliance with the franchise agreement!" - FranSynergy on Tinker's Place

FranSynergy, did you really stalk the store of one of our own?? Say it isn't so.

Malicious Use of Process vs. Artful Use of Process

The Artful Use of Process in the Regulatory Scheme that governs franchising can never be proved to be malicious use of process and it is business as usual in the courts.

Dale Cantone

Heads the NASSA. don't be to worried.

Retain DLA, Piper and you will be exempt from all of the rules.

It takes some nerve to head an organization like the NASSA, when The Coffee Beanery is selling franchises to the citizens in Maryland that Cantone is supposed to be protecting.

Franpro you have more honesty in your little finger then Cantone has in his entire body. He will be forever tainted in my mind for what he has shown to be his true colors. If a two bit zor like CB can beat his butt they it did, then don't worry.

There has been a Final Order issued in Maryland for Stretch-Grow.

D&R had said that the Consent Order for CB could be unwould. They were right. The zees in the Stretch-Grow Consent Order were given recision and PRIVATE RIGHT OF ACTION.

The zor violated the Order and are now liable for anything and everything under Maryland Franchise Law.

Maryland could do this to CB as well but------------------------?
Figure it out

FranSynergy's picture

Baby Steps: Franchise Rule

Here's an article regarding New Franchise Rules from the Chicago Tribune, which I believe many BlueMaumau members and guests will find interesting.

New franchise rules called 'baby steps'
Risks and rewards better explained before buying in

By Mary Ellen Podmolik
Special to the Tribune
Published May 7, 2007

Jobless, but holding a big check from an employee buyout in 2005, Priscilla Taylor took the road traveled by thousands of downsized managers like herself: franchising.

In December, after a year of due diligence and construction, Taylor opened on West Jackson Boulevard the first Maui Wowi Hawaiian franchise in Chicago with a fixed location. She hired an attorney to help her decipher the coffee-and-smoothie company's franchise documents and talked with other franchisees. She came away with the knowledge that fixed locations didn't have a long company track record. Nevertheless, she now dons a Hawaiian shirt for work every day, having spent $34,500 for the rights to open up to three locations.

"I didn't want to go back into the corporate world," Taylor said. "It was a well-educated gamble. [Franchise] agreements, from what I understand, are clearly written in the favor of the franchiser."

New rules from the Federal Trade Commission, however, seek to correct that imbalance. The changes to the federal franchise rule, which had been in discussion for more than a decade, don't entirely correct the law's flaws, but they are baby steps in the right direction, say franchisee rights advocates.
 

READ ARTICLE

Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!

Blogging may save franchisees

It is only on sites like Blue Mau Mau where guests can speak without FEAR of retaliation from those with the power to retaliate that the Java Jo's and Cuppy's Coffee issue could be aired.

Sites like Blue Mau Mau are a threat to franchisors who have, up until recently, controlled all of the PR and advertising and hyping of their products with no oversight by government or the public. Reporters like Janet Sparks can't be everywhere all of the time and even Janet cannot print complaints from those who are fearful of identifying themselves, even to her.

The combination of facts that can be verified and comments by guests who vent that they have been cheated provides a service that is available nowhere else for franchisees.

If this is viewed as an unfair threat to franchisors' reputations, please NOTE that franchisors are free to defend themselves and to counter any negative comments with positive comments to advertise their franchise product on Blue Mau Mau.

Please note that Sona, The UPS Store, Quiznos, Cold Stone Creamery, and most of the others who have come under fire on Blue Mau Mau are on the SBA Registry and eligible for "quickie" loans supported by the American taxpayers. Please note that the SBA Default List is only available on Blue Mau Mau and that the states of The United States continue to license the sale of franchise products with very high failure rates of first-generation franchisees.

Please note that it is time to think about a franchisee tea party.

What makes you think the regulators read the UFOC's

What makes you think the Regulators read the UFOC's? They are just a license for the franchisor to do business in the State and not much more. The States want the jobs and the business and the revenue in taxes, etc.. from the ZORS and the ZEES and they only look at the UFOC's when there are complaints that the laws of the State have been broken.

Les Stewart's picture

Is ALL Growth "good" Growth?

The most common cited economic measure is GDP (Gross Domestic Product).

Many of the BMM posters seem to believe the following: all growth is good. Period. End of story.

Some of us disagree with this approach because the GDP calculator has no subtraction button.

Take crime, for example.

Most people consider crime to be a bad thing and an even worse thing when it increases. Not the GDP data processors. When crime goes up, that's good news for the security and self-defense industries. And it adds to the GDP.

Divorce? I think there's general consensus that divorce, in most cases, is a bad thing - except for divorce lawyers and Realtors. Divorce brings in the bucks for the legal services and housing markets, which adds to the GDP. You get the picture.

Doctors have a word for unlimited malignant growth. It's called cancer.

Therefore: If crime, divorce and cancer increases, the GDP goes up.

In franchising, personal life savings re-distributed into a corporate treasury (even when there is very, very little intrinsic value in the transfer vehicle) is counted as a gain, simply because economists haven't learned to subtract.

Article quoted: The Prophet Motive, Cape Cod Times, April 2002.

Your newly created inability to support your retirement is unrecognized but nevertheless very real.

Discussion: see Parable of the Broken Window and Genuine Progress Indicator

Les Stewart, MBA :: industry analyst
www.cafo.net :: FranchiseFool :: the Wise say No

More on Condones

" . . . one has to assume that government knows what it is doing."

You know that old saying about the word assume. Are you talking about the Canadian government or the American government?

In either case, if you are convinced there's an abuse that needs to be righted, write your government representatives and point out the problem. Make a concrete proposal that makes sense and try to rally others to the rightness of your cause. Right now, statements like the one above are not particularly helpful. Pointing out that something is broken that needs to be fixed is. Feeling that your representatives are in cahoots with big business and that we are impotent is not going to get us far. Big business bands together. So can franchisees. And guess who has more votes?

Are you trying to bring down the $1 trillion franchise industry or do you genuinely want to help franchisees?

Implied Threat by DD

Odd behavior by DD if this wasn't meant to be a threat.

Obviously, DD would and should know that only the Franchise World, and not all of them, have heard of this lawsuit, and their customers haven't heard of the lawsuit and even if they did, they wouldn't boycott DD unless they were people of brown color who were asked to do so by civil rights leaders. Why, then, do they create more publicity about this matter with this Memorandum that is an implied threat.

Since franchisors always work to blur the identity of the franchisor and the franchisee because they know that the public doesn't understand that the franchisor has no ownership in the physical units that wear the brand name, they use the terms of the adhesory franchise agreement to silence their franchisees by always pointing out that it is the franchisees' best interests not to damage the brand name because they damage their own asset. And, if they damage their own asset, they are damaging the brand name, etc.. and this could be grounds for termination.

But does DD use the terms of the contract and the threat of criminal prosecution of their franchisees to gain the advantage of getting the franchisee's business for nothing or much less than the business is worth. If this were true, this would be malicious no matter what the color of the skin of the franchisee. Wouldn't it?

Bakers Delight Lies and Maybe Cobb's robs!

Thank you Deanne de Leeuw for your posting which will serve as a warning to those in Canada and the United States. You used the "C" word that often gets blogs tagged as spam on Blue Mau Mau. This is a problem in the UK as well and the UK recently decided not to govern franchising because they didn't want to be in the position of lulling British citizens into a false sense of security like the US Government has done with its SBA Franchise Registry and the FTC Rule and the UFOC's.

I read about your horrible experience with Bakers Delight and am happy that you did get some attention from your legislature and an impassioned plea from the floor for investigation of Bakers Delight. Remember, however, that franchisors in the global economy have a strong lobby with governments and prevent any effective regulation because they tell governments that franchising can't stand up to any actual disclosure of the true risk involved in the purchase of the franchises. The franchisors know and could easily and inexpensively disclose the success or failure rate of past first-owners to new prospective first owners of franchises but they are allowed to obscure the true rates under current laws.

The self-serving contracts that franchisees believe are standard and uniform under the law, and that franchisees believe are NOT negotiable protect the franchisors in the courts. Franchisees are brought to sign these contracts because they believe that they are not negotiable. Franchisees sign these contracts based upon the visibility of a franchisor like Bakers Delight and believe that the franchisor intends to deal with them in good faith because they are making a good faith investment and taking all of the risk. They have no idea that "bad faith" is calculated in the terms of the contract agreement and that these terms concerning termination and lease defaults are a premeditation of the acquisition of your business in fire sales.

It may be that governments turn a blind eye to what is going on in franchising and justify the sacrifice of franchisees to the stimulation of the local economies. Did the millions that you lost stimulate the Australian economy? Did anyone lose but you?

You can see that under American Regulation and Canadian Regulation, Cobbs will now be operating in the United States and Canada under UFOC's that will permit them to sell their franchises at almost any degree of risk to new prospects who may lose all that they have while Cobbs is trying to grow their networks.

I know as you investigate franchising that you will realize that this is a world-wide, somewhat new method of gathering operating capital in which corporate franchisors can maximize their profits while transferring the risk of the so-called proven venture to the franchisees. Because the franchisors do not share in the losses of their franchisee's businesses, and because they can acquire these businesses at fire sales, they often grow their networks disproportionately on the backs of innocent first-owners who lose everything. Those who lose everything are silenced in failure and in the courts and the franchnisors know this and count on this great inbalance in power to continue their ugly practices.

If franchisors were required to disclose the success or failure rate of the "proven" franchises that they are selling to the public, at least this ugly practice of churning would be exposed to the public and it would be difficult for abusive franchisors to sell their products to innocents.

Please keep us posted. We lost a great deal of money in a The UPS Store Franchise and they use the same practices as Bakers Delight and the franchisor is part of a huge and highly respected American Corporation, i.e. UPS who decided to buy and use a franchisor to maximize their corporate profits. Quiznos is another big American franchisor who did damage both here and in Australia but who has operated with immunity under our laws, but out of business in Australia. We have had suicides in this country but our Press has little interest in them and the IFA has the greater influence with the Press and the Media and the Acamdemic Researchers who produce research that continues to protect the franchisors at the expense of sacrificed franchisees. The franchisee voices are weak and you can be proud that you are noticed in your country and have had good media attention.

It is good that we can talk to each other. Maybe the Internet, that the Corporations are working to take over, will help franchisees but you realize that even Blue Mau Mau works to serve the franchisors and doesn't want to irritate the government or the franchisors or consultants, brokers, and attorneys who want to sell on Blue Mau Mau. You understand that there has been no effective regulation of franchising anyplace in the world because apparently the International franchisors have convinced governments that franchising is only durable as a business model because the true risk doesn't have to be disclosed to the buyer of the franchise, and because contract law protects franchisors in the courts, and because franchisors are permitted to "C" with immunity and impunity under the law.

What is a Franchise platform?

If you are saying that America introduced franchising and franchise practices to Australia and other countries, I agree.

But, we, perhaps, introduced an exploitive and immoral business practice that can be improved upon. It is obvious that under our regulatory policy, our government has assisted the franchisors in their abuses because they have not required the franchisors to disclose past performance statistics on the franchises that are sold to the public. Our government has assisted the franchisors in obscuring the risk of the investment and the government UFOC is not an efficient disclosure document but rather a red herring that obscures the risk and protects the franchisors 100% from any charges of fraudulent inducement to contract once the franchisee puts his/her signature to the contract.

What was the intention of the Congress in their original enabling language that resulted in the fTC Rule and the UFOC's? The malice that is evident and possible under the current status quo of the law and franchising cannot be overstated.

The American regulatory policy has condoned and made possible the selling of very high-risk franchises to an unsuspecting public and even government even offers guaranteed loans on very high-risk franchises that are offered to the public in support of regulatory policy.

Australia is to be congratulated for trying to study and improve the franchise as a business model that does not depend on the exploitation of cheap labor and cheap capital of middle class citizens who are tricked into signing killer contracts through the alliance of government and the franchisors who rationaslize the abuse and exploitation of franchisses, and legal traps, as being good for business and, therefore, good for the general public.

Item 19 ----Constructive Earnings Claim Constructive Fraud?

Thank you Michael Webster for your comments.

Does your last paragraph indicate that Rescission for ommissions and misrepresentations in UFOC's under the State laws is not considered a criminal event, and only an administrative action by the AG of the State for the civil wrong of non-compliance with the UFOC. Do the State Franchise Laws that provide a private right of action for franchisees render misrepresentation and ommissions in the UFOC's or the contracts NOT to be criminal fraud but rather a tort under the State Franchise Statutes for which damages can be claimed if the damages are found to be proximate to the misrepresentations and ommissions?

And now we have the ALE at FTC level. The article I read said that Maryland had an ALE program as well. Does this mean that the Federal Government and the State governments (with ALE programs) will have the power to determine that ommissions or misrepresentations in the UFOC can be cured outside of Rescission, and outside of the view of the general public through the use of a "school" plea bargain?

The article I read in Google said that there had been 14 ALE actions at the time of the writing but these actions were not a public record. We understand the state UFOC's permit the franchisors to sell their business opportunities at almost any degree of failure, i.e. 30%, 40%, 60%, 70% and this is not as violation of either state or Federal law unless there is an ommission or misrepresentation in the UFOC or a violation of the Rule.

It looks like the FTC has moved to further protect the franchisors and make it almost impossible for franchisees to recover under State franchise laws.

If the arbiters can find that Rescissions that have dealt with ommissions and misrepresentations are not proximate to the damages of the franchises, as in the Coffee Beanery Case, what would prevent a judge (or a jury?) from finding that the ommissions in the UFOC weren't proximate to the damages suffered by the franchisees. That is, do they use the franchisees lack of complete due diligence investigation with the Item 20 references as a mechanism to defeat any claim of the franchisee that they were fraudulently induced to contract because the risk was hidden? Are franchisees being set up so that they can never claim that they were fraudulently induced into a contract and that the actual risk of the investment was hidden from them? Is this because there is public policy to legally obscure the actual statistical risk of the investment under the Rule and the UFOC, Item 20, from the naive and inexperienced who do not pay many hundreds of dollars for professional due diligence to discover the vehicles for fraud that are on the SBA Franchise Registry? Have there been any cases to date where franchises have recovered under State franchise statutes or are these statutes primarily used as a vehicle to negotiate out-of-court settlements?

Les Stewart's picture

Kurt Vonnegut died yesterday

I had forgotten how many times I read his books in high school and how they had shocked me into the semblance of thought.

A great, great American original passed away yesterday.

Still and all, why bother? Here's my answer. Many people need desperately to receive this message:

I feel and think much as you do, care about many of the things you care about, although most people do not care about them. You are not alone.

Les Stewart, MBA :: industry analyst
www.cafo.net :: FranchiseFool :: the Wise say No

FTC Conspircay -----The Red Herring of the Rule/UFOC--The DEAL

Gee! Michael! You know that I came to the same conclusions that were indicated in the quote from Professor Spencer (see previous post with quote) that apparently came out of something Paul Steinberg produced in a paper he wrote that was published by Penn State Law Journal in 2004, i.e. Beguilng Heresy: Regulating the Franchise Relationship. I haven't had any luck finding this on line. Could you or Paul help me?

I have been researching for months and months to find something that would confirm my belief, based on good circumstantial evidence, that Item 20 was a DEAL that was struck by the FTC with the Regulators in the late 70's. I couldn't believe my eyes when I read the quote in this very excellent presentation of Professor Spencer to the Third Meeting of the European Network on the Economics of the Firm (ENEF) GREDEG, CNRS and University of Nice Sophia Antipolis, 7-9 Septemer
2006. It was a "catch" for me!

I understand that the status quo of FTC Regulation and the Rule is not a secret in the legal profession and not a secret from the franchisors, and only a secret as far as the "marks" are concerned. The RULE and the UFOC's and the status quo enables predator franchisors to have their way with their franchisees and to move from concept to concept (like Mr. Amos) because they are using the cheap labor and the capital of others who place their faith in appearances and their government. Franchising really needs to be regulated at least as well as securities are regulated by the SEC in the interests of democracy.

I understand that the secret is kept from the franchisees and the general public because if the sun were to shine on the pratices involved, it might be hard to sell franchises to the public without disclosing past and present performance statistics.

I understand the concept of the "greater good" and the necessity to protect the economies of free democratic republics but I don't buy that it is necessary to return to the days of "human sacrifice" to serve the God of Capitalism.

How can I or anyone prove that it was a DEAL when government legalized the DEAL? I fight windmills with the hope that the TRUTH will be product for some media outlet and that some investigative reporter will have the guts and the integrity and the ability to tell the truth about franchising to The American People.

Reputational Concerns and Internet Freedom --Trouble for ZORS

I'm sure that the predator ZORS would love to be able to silence free speech of those who use the Internet to expose the exploitation and downright stealing of some franchisors. The only reason that franchising has grown in the US and World economies is that the dirty little secret of the RISK and churning and turning and pumping and dumping has been hidden from the general public and new buyers of franchises.

It is only because of the nature of the franchise agreement and the status quo of the law that silences those who fail in franchising that the hype and selling of franchises as a business of your own has been so easy for the franchisors. They reap the harvest of the good faith of millions of good citizens who are just looking for a job and income to support their families. A franchise is not a business of your own and is just an investment in a business opportunity that is actually a wasting asset if the ZEE does not have the option and the ability to renew the contract.

Heretofore, the voices of the victims have been silenced but now NEW Internet voioces in all of the countries of the WORLD are out there and the ZORS are trying to figure out how to silence these voices. Blue Mau Mau is a Site that permits negative review of franchising and they haven't yet figured out how to close it down.

Someone in Australia should start another website such as Undelightful Baker's Delite Lies! I'm sure that they will be successful in closing down this Website because government is all about protecting brands and trademarks.

Franchising is the biggest thing since slavery in terms of capturing cheap labor as well as cheap venture capital on which franchisors can grow their paper empires.

Deferred good faith ----Franchise Disclosure Laws

I think Australia is trying to find a compromise to protect the Australian people but they face the same problems with influence and the concept of the "greater good" that all nations face in dealing with franchising and its place in their economies.

If the premise upon which all regulation or rules and laws are based is that franchising CANNOT stand up to honest pre-sale disclosure of the known statistics of past and present performance of the franchise, we have just more of the same.

Governments will produce wordy resolutions and rules, etc.. to present the appearance of trying to solve the problem of "good faith" in the relationship, but if governments do not act in good faith and require franchisors to fully disclose their past and present performance statistics, this is all just "show business."

Unless governments act in good faith, there is no hope for franchisees to be informed when they make their good faith investments of their lives and their worldly goods in the purchase of a franchise.

"You can't make a silk purse out of a sow's ear" and American Franchise Regulation is a sow's ear, ugly and unworthy of immitation in other free countries, like Australia. Remember! America brought Quiznos to Australia.

Good that TSFA won't fold and will fight injustice QUIZNOS

It is good to read that the TSFA won't fold and will continue their fight for justice in a rigged system. I'm sure Bob Baber is looking down from wherever he is (that special room for franchisees in heaven) and cheering TSFA to fight on for justice.

Quiznos unilateral contracts are not bargained contracts and regulatory policy as formulated by the FTC with the IFA has encouraged the use of legal process to deny justice to those prospective franchisees who are brought to believe that the franchise agreements cannot be bargained and who sign these contracts in good faith based on the promises stated outside of contract. The GOVERNMENT UFOC's permit the franchisors to disclaim all of the promises made outside of contract in the signed contract and the signed contract becomes a legal trap from which there is no escape ----that then protects the franchisors 100% in the courts from claims of misrepresentations or fraudulent inducement to contract.

This "artful" use of due process of law should be looked at by the Congress, the Regulators, and the Courts. While schemes may be legal, democracies should not be involved in the endorsement of immoral and ugly public policy that has been passed into law by special interests.

Remember! It was perfectly legal to kill the Jews in Germany and the German judges upheld the rule of law.

Franchisee Termination Options

Conduct by the franchisor that ammounts to termination?

When ZORS sell you an unviable franchise and you complain about it and then they threaten you with termination and audit you and generally make your life miserable, you have few options.

When you can no longer bear the monthly negative cash flow and decide it is time to quit, and you notify them that you have to terminate, they want to get your assets for nothing and are hoping, if they want your business, that you will default and they can send someone to the bank to make as small offer for the tangible assets and then they will take over your store and leave you with the debt, and threaten you with liquidated damages if you won't cooperate in the takeover of your business.

If they can't get your store this way, they will send a third party, who will offer to buy your assets, to deal with your Landlord and if you try to terminate because of your great losses, the coterminus lease default term in the contract gives the third party agent of the ZOR the ACES in dealing with the Landlord when the Landlord UNDERSTANDS that the ZOR is NOT going to assume the Lease. Both the Landlord and the ZOR comes down on the ZEE and he is willing to give his assets away for nothing to get out from under the personal guarantee on the lease ---and the ZOR can threaten the ZEE with liquidated damages unless he cooperates with the agent new ZEE in a managerial relationship, etc.. until the new ZEE is granted a franchise ---if he wants the store. In the meantime, the failed ZEE remains responsible for the lease and all of his personal guarantees.

They disguise this management practice in the language of the UFOC from new buyers of the Franchise and from Landlords, as well, I assume. Why would any Landlord agree to co=terminus default terms if he knew that the ZOR never assumes the lease and that his third-party agent can't and won't assume the lease until he has a franchise agreement in hand. The Landlord, therefore, has to cooperate with the ZOR and the agent of the ZOR because he, of course, wants a tennant.

Most ZEES do not understand that this practice in termination is not disclosed and that the terms regarding termination are misleading and confusing by intention. When you notify a franchisor that you are terminating because of losses, etc... and you try to cooperate with de-idenification, etc.. of the brand,etc.. and continue to pay on the lease with the hope that you may be able to sell your assets to someone who can use them (because you can't because of the non-compete) they still want to control your store and threaten to tear it to pieces in the de-identification process because you have "abandoned" the business and it is THEIRS, and you owe them liquidated damages according to the contract.

Under the terms of these exploitive franchise agreements, you are dedicating your assets to the Franchisor and these assets are THEIRS one way or the other if you fail. This is not clearly disclosed and should be under the law, in my opinion. These bad faith practices apparently are legal under contract law.

Censorship --Internet Freedom of Speech ---Austrialia

How gratifying to know that the WARNINGS from the victims have impacted new sales of Bakers Delite and other franchisors.

There is no doubt that the Internet and sites like Baker's Delight Lies and Blue Mau Mau will impact the reputations of bad franchisors who will find it harder to sell their franchises.

The healthy and good franchisors will not want any coverage on Blue Mau Mau except by happy and satisfied ZEES who will sing the praises of their ZOR. The Internet is the new Due Diligence Tool of the weaker party, the franchisee?????

I agree ----maybe the warnings and the reputational concerns will bring new practices and better laws to franchising!

And then there are the healthy

Franchisors in Australia such as Bakers Delight, Midas and Lenards Chicken cannot sell a franchise and they complain like hell about bad media and negative website content. Well, they provided the content and the people to do it.

If those in other networks that suffer similarly want to achieve the same for their franchisor then they have to make the effort to get the media and create the web content. It isn't rocket science but it does take effort and determination.

While all of those rotten franchisors bleet about their terrible situation then they should have thought about their victims. Now they can think about all those franchises that never get a mention because they are healthy and produce a win/win.

Going after rogue franchisors isn't all about payback either. It is about warning and protecting others and using their behaviour to get better law and better protection. Payback is just the fun part.

Ray

Bakers Delight wants to censor free speech on Internet

The franchisor community across the world has been able to use Press Releases and Internet Hype to sell dogs and pigs to an unsuspecting public with the permission of governments.

Since government-corporate alliances haven't YET been able to permit the highest bidders to control the Internet and prevent free speech, franchisors like BL have to use any means they can find to silent the voices of those they have cheated. It is because they can always sell franchises out the front door while selling discounted franchises out the back door, or stealing the assets, that they survive and grow to pay taxes to government and to provide job numbers for government PR.

Perhaps, when franchisees fully understand that franchising has become so DURABLE because it is a means of capturing cheap labor and capital for the franchisor who can grow on the flesh of franchisees who are canibalized and silenced in the failujre and loss of all they have, government will stand up to eliominate exploitive practices and outright thievery as is practiced today in farnchising.

But, remember Deanne! Always, when there is talk of Recession, franchising grows, and government will not do ANYTHING that prevents stimulation of the economy. Remember! In all the time that franchisees are struggling to get to break even, they are feeding the economy, and even in failure, generally, their assets continue to feed and stimulate the economy.

Unfortunately, all across the free World, governments have forgotten that their constituents have to have jobs and a means of making a living ---but the "global economy" has changed the game for the multi-national Corporations who are only interested in the maximization of profits. Governments depend on "franchising" to make the job numbers look better and they turn a blind eye to the practices and rationalize that "the end justifies the means."

Maybe we will have a COBS ROBS website in the US and Canada ----if the Australian voices are silenced. Good Luck to you, cousin!

ISoldIt qualifies for UFOC

The ISold It debacle demonstrates federal and state regulatory policy wherein the UFOC is merely a license for the franchisor to operate in the state, and not much more.

It is obvious that neither the Federal nor the State governments are interested in the very high failure rate of ISold It who continues to be licensed by the States.

I guess this is why the UFOC-California-ISoldIt had to disclose in their new UFOC that it wasn't a proven plan.

FranSynergy's picture

Death by Government

Here's an exerpt from a November 2003 Article in The Onion that truly exemplifies what a SAD SOCIETY we have become.  The headline read:

AMERICANS DEMAND INCREASED
GOVERNMENTAL PROTECTION FROM SELVES

Alarmed by the unhealthy choices they make every day, more and more Americans are calling on the government to enact legislation that will protect them from their own behavior.

"The government is finally starting to take some responsibility for the effect my behavior has on others," said New York City resident Alec Haverchuk, 44, who is prohibited by law from smoking in restaurants and bars. "But we have a long way to go. I can still light up on city streets and in the privacy of my own home. I mean, legislators acknowledge that my cigarette smoke could give others cancer, but don't they care about me, too?"

"It's not just about Americans eating too many fries or cracking their skulls open when they fall off their bicycles," said Los Angeles resident Rebecca Burnie, 26. "It's a financial issue, too. I spend all my money on trendy clothes and a nightlife that I can't afford. I'm $23,000 in debt, but the credit-card companies keep letting me spend. It's obscene that the government allows those companies to allow me to do this to myself. Why do I pay my taxes?"

Read more - If your stomach can stand it!

Now here's a little exerpt from a column written for the Foundation for Economoic Education by Sheldon Richman, editor of Ideas on Liberty.  The colomun was written in 2000 and titled:

DEATH BY GOVERNMENT PROTECTION

As Thomas Sowell says, in our world there are no solutions, only tradeoffs. Keep that in mind as we consider the state alternative to market-based consumer protection. Advocates of government regulation assume it is costless: not that there are no money expenses, but that nothing important is traded away when the state displaces the market as the protector of consumers. Yet economists over the last 40 years have documented the costs of government protection. Most dramatic is the literature about the Food and Drug Administration. We now know that government protection kills by delaying the availability of life-saving drugs. Further, thanks to economists of the Public Choice school, we know that bureaucrats, despite the best intentions, confront incentives that are adverse to the interests of consumers. An FDA official who delays a valuable drug because any post-approval mishap would bring him bad publicity is not serving the “public interest.” (See Daniel Klein, “Economists Against the FDA,” Ideas on Liberty, September 2000.)

What is true for the FDA is true for the NHTSA, the agency whose airbag and fuel-efficiency mandates and obfuscation have demonstrably cost lives. This agency’s advocates want a bigger budget, more personnel, tougher standards, and more authority to recall tires. But those things are not costless. As Robert Levy of the Cato Institute points out, NHTSA bureaucrats would have an incentive to prematurely recall tires: if they don’t recall them and someone dies (for whatever reason) in a car equipped with them, they’ll have congressmen and reporters breathing down their necks. But if they recall the tires, no one would ever know if anyone would have been killed had the recall not occurred. Face it: there is no perfectly safe tire.

Another cost of a more active bureaucracy would be the inevitable delays and added expense of new tire technologies that didn’t meet the government’s standards. Just as the FDA keeps life-saving medicines off the market for long periods (even when they are being used successfully in Europe), the NHTSA could keep revolutionary tires off the road. They might have saved lives, but no one would know and no bureaucrat would be held responsible.

The promise of government protection carries an even greater cost: the consumer vigilance forgone owing to the false sense of security the promise of government protection induces. The government cannot actually deliver on that promise—medical licensing has not eliminated quacks—but it’s the promise that counts. Since people generally believe the government looks out for them, they develop an unarticulated frame of mind summed up by the words: “they couldn’t sell that if it was dangerous.” A false sense of security is worse than no security at all. It sets people up to be victimized.

If the government stopped regulating—and everyone knew it—the buying public’s vigilance would grow. People would seek out information. Entrepreneurs would respond. Insurance companies would assume a larger role. Private consumer advocacy would expand. Lives would be saved.

Read More to fully understand just how GOVERNMENT REGULATION eats away at our finances and errodes our Freedom of: Life, Liberty and the Pursuit of Happiness! 

Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com

Juan F's picture

Two Different Countries

"I can't imagine that this would be something that is present in Canada and not present in the United States." - Guest

That's not necessarily the case. The two countries are not exactly the same. Canada has a European style VAT tax. We don't. Canada has socialized medicine. We don't. Canada allows legalized pot. We do not. It is part of the commonwealth. Much more independent, we shunned such ties some 200 years ago. And Canada does not have a history of its college students shooting 30 or so classmates. Students up there shoot fewer college kids.

Different places. What is a social problem in one country is not necessarily in the other.

I doubt if franchising is the same in both countries.

Proliferation of Pain Post Moved

This comment has been moved here.

Barbara Jorgensen's picture

Zee's need represention!!!

Y'ou just don't get it!! Like when buying a house a real estate agent represents their clients. They have a fiduciary duty to represent their client and have their best interest at hand at all times. There is no such thing in the franchise world. You can go to a lawyer and if that lawyer is not doing their job right like ours did you are sol. That lawyer should of advised us to go to a franchise lawyer. Did he? No. If you never bought a franchise how would you know. I understand why many people do not understand the UFOC. Just like many do not understand real estate contracts that is why they hire an agent. I still believe hiring an agent to buy a franchise is one solution. Someone who can explain the franchise world and contracts.. We need representation that will be liable to help with dd and doing the research for their client. Many of the franchise sales reps are like used car salesmen. Often time it is a hard sell. I tend to stay away from this type of sell people. I believe it takes a professional to read the contracts and explain exactly what it means. Most people do not have the capacity to understand contracts let alone read it. That is why we had a lawyer read it. I know even in our club only one couple read the contract for joining our club. I had to be responsible and explain the key points of the contract. It was only two pages. As the salesperson I felt responsible to explain it to them. Why is it franchises don't feel the same responsibilty? Reason: They just want you to sign.

Darwin's Solution

Wven those who read the UFOC do not SURVIVE a Rule that was designed with a stated purpose as quoted below that has not been accomplished. If the purpose of the rule were accomplished, due diligence with killer attorneys would not be necessary. The FTC should have added "by providing them and their killer franchise attorneys with information essential.........."

"The Rule is designed to enable pottential franchisees to protect themselves before investing by providing them with information essential to an assessment of the potential risks and benefits, to meaningful comparisons with other investments, and to further investigation of the frasnchise opportunity."

How does the UFOC or the FDD in any substantial way satisfy the stated purpose of the Rule, as stated by the FTC? It is the Rule that permits the ZORS to go forth and multiply on the flesh of innocents, and is this an ugly truth of capitalism?

Paul Steinberg's picture

Solution

I agree, but what is your solution to people who dont read the UFOC?

Paul Steinberg's picture

Franchise regulation overview

The webmaster set up this portion of the board for discussion of Legislative and Political issues; these are topics which seem to be spilling into unrelated forums and article discussions. To help out, I would put out a brief overview of current regulation. I do so from a US perspective, and invite others to bring to this Forum their respective nation's perspective.

Franchise legislation per se does not appear until around 50 years ago, but it is rooted in a shift in American jurisprudence dating back around the turn of the last century.

In the aftermath of the Civil War, expansion of the railroads and urban manufacturing led to a shift in US law. There were quite a number of injuries and deaths caused by the new economy, coupled with concern over the ability of powerful individuals and corporations to affect the economy. This led to the development of such things as antitrust laws, labor laws, and other examples of remedial and propylactic regulation which are relevant to a discussion of modern franchise law, and the legal framework within which the franchise industry operates.

As discussed previously , the early 1900's saw the development of a more urban society which necessarily freed opportunistic actors from the constraints of pre-industrial societies where everyone knew each other and where social pressure made reputational risk a serious factor pressuring people (and companies) to behave. People change gradually, and so even today much behavior that served us well is not compatible with modern law and economics; this has been referred to as "time-shifted rationality " and is closely related to such concepts as "heuristics" (our internal paradigm for quickly processing complex information; the science behind your 'gut reaction') "bounded rationality" (which says that human heuristics limit the "rational economic actor" model which underlies much modern American law) and "kin selection" as a formerly adaptive behavior now exploited by modern franchise salespeople.

(I know, some are starting to snooze...but  this is common sense and it really does give a solid framework for an analysis of the merits and demerits of franchise regulation.)

To some extent, one can see in the Quizno's and Cuppy's / Java Jo'z cases that the wheel has come about full circle. For many years, franchisors were not concerned about reputational damage, because in our mobile modern society, there was always a new (often immigrant) franchisee who had not heard of the f'zors reputation. The very idea of the Internet as a "community" is part of what has enabled f'zees to begin to make reputational damage a constraint on abusive f'zors.

Automobile sales was one of the first areas in which franchising was used. Auto dealers tended to be upper income and influential members of their communities, and so when the franchisors got aggressive, the auto dealers were able to get the first federal franchise legislation passed in 1956. That law remains on the books today, and it is worth reading the law's definition of 'good faith' .

Three years later, franchisors led by Dunkin' Donuts founder Rosenberg formed the IFA in Chicago (it subsequently moved to D.C.) and despite significant abuses in the franchise industry, f'zors were successful in forestalling federal legislation until the Franchise Rule took effect in 1979 (plain-language overview of Rule here ). The notable exception was petroleum franchisors: those of you old enough to remember the 70's know how unpopular Big Oil was, and in 1978 the Congress passed legislation protecting gas station franchisees .

Most states do not have franchise-specific legislation, although they may have law of more general applicability and if you have a complaint you can contact your state regulator ; however you should be aware that most regulators regard franchise contracts as being between sophisticated business parties and although the same office normally regulates complaints about other investments such as stocks, the law is quite more protective in the latter case than for f'zees.

In the 1960's the negative media attention caused many prospects to not buy a franchise, and many f'zees of the 70's and 80's were immigrants; this is especially true in segments such as roadside hotels and QSRs. By the 90's, the franchise industry began to look to retirees, laid-off middle-management, and in recent years to young people and to persons leaving the military.

Although the LaFalce and Coble-Conyers legislation failed to pass Congress in the 1990's, as the franchise industry becomes a more central part of the economy there has been concern as to negative externalities caused by the industry: at root, franchising is a method of purchasing capital and labor. As early as the 1990's, analogies were being drawn to regulation of labor and capital markets, and those analogies have continued to be made. That, and the increasing number of franchisees who are middle-class voters, has led to recent interest in regulation of the franchise industry at the state level .

Interesting that statistics of industry or sector

I find it interesting that under the proposed new business opportunity rule, the FTC will not allow the use of industry statistics. unless the statistics are representative of the opportunity.

But, will the FTC make franchisors disclose the actual ZOR-known statistics regarding the success or failure of first-generation owners who provide the capital and labor to build the new units that wear the brand name.

Will the FTC be taking comments on this new business opportunity rule?

How come nobody on Blue Mau Mau wants to talk about
the Alternative Law Enforcement Program of the FTC and the difference between a technical flaw where the ZOr (or his attorney) goes to school, and a fraudulent flaw in the UFOC that misrepresents the contract. It would be interesting to have some examples of "technical" oversights that would be eligible for "school" and oversights that constitute fraud under State laws.

"Souped Up" and NOW "In the Soup"

Franchise Pundit warned but they lined up to try to "prove" this unproven concept.

It is almost impossible for the naive and inexperienced "entrepreneur" to overcome the hype and PR, and the appearance that a franchise is a proven turn-key operation, and that only morons fail.

Prospective franchisees don't realize that franchisors are happy to take your money when their concept might have an unknown failure rate of first-generation franchisees trying to prove their "proven" plan. Franchisors can only afford to try to prove their franchised business opportunities because they are using other people's venture capital and cheap (unregulated) labor. If they used their own capital and paid for labor, they could only grow slowly as the business chain proved itself. Franchising invites overseeding with untested seeds, some of which may germinate and some of which may not. Failed franchisees are expendable and considered "bad seeds."

Prospective buyers don't understand that a concept may be proven to work only 50%, 60%, 70% of the time more or less (short term-long term) and that the real success and failure rate, the odds for a new investor, is obscured from view and the "proven" concept can continue to be sold until there is an implosion and the franchisor fails or until the franchisor stands with profits.

Yeganeh lose yer money!

Always --wisdom and hard truth from Richard Solomon

Although Richard sometimes calls me a moron and has great contempt for franchisees who haven't done killer due diligence and who whine on Blue Mau Mau, he has been my teacher. It was his essays and tutorials on franchising that first enlightened me ---along with Les Stewart's "Franchise Fool."

Richard doesn't engage in politically correct bull shit and always cuts right to the heart of things. His $1,000 negative consult on a franchise is the best deal in franchising today. If you accentuate the positive in franchising and eliminate the negative, you often end up a dead duck. Richard always emphasizes the truth that it is better to use an ounce of prevention because the pound of cure is going to leave you with a bad scar and a lot of shit even if you win the cure from the franchisor.

I, too, like John Edwards and Elizabeth, both attorneys, whom I think want the power of the Presidency to do good for the American people ---even those people who don't take showers or change their socks everyday. I see my hero, Ralph Nader, has filed suit against the Democratic National Committee and John Kerry and John Edwards. My idea, as an independent who has voted for Perot and Nader, of the ideal ticket would be Edwards-Nader who might bring some really strong reform to a government out of control and that has been run for the benefit of the large corporations with the help of both the Republicans and the Democrats.

The Press and the Media, of course, don't give Edwards any play because they have other plans. Is is really the corporate media who decide who will be the candidates and who brainwash the public. The business of the Republican Bitch who attacked John Edwards and CNN's and other networks unfair coverage of the haircut indicated to me that the Republicans don't want to face an excellent candidate like John Edwards. They would rather work with racial prejudice and gender prejudice to ensure they win the next election. Apparently, the Republican detectives and the media couldn't find anything with which to smear John Edwards so they decided they would pick on his hair. These people who steal millions of dollars from the people legally know that John Edwards is a very wealthy man who can't be bought and they tried to present him to the public, the middle-class American voters, as a rich lightweight who shouldn't be taken seriously.

All of this media coverage of elections, etc.. and Polls should be outlawed and we should view our candidates only in public debates that are paid for and sponsored by the people. We need clean elections and clean government to sustain our great democracy.

My county 'tis of thee!

Franarchists Unite!!!

If we unite into a Pan-Franchise Association we can break the franchisor domination over the US and the world.

Under Franarchists Manifesto we can:

1. punish franchisors by witholding royalties and ad fund payments
2. sell unapproved products to prevent global warning
3. market carbon neutrality
4. over pay our under-paid workers
6. buy only organic ingredients
6. provide free food and services to the homeless
7. elect Dennis Kucinich president

Join me at www.franarchist.org

Distraction and Reaction Quiznos

The mantra of the franchisors has always been to prevent collective bargaining or negotiations of any kind. Keep the franchisees silent and DIVIDED and impotent and in their place. Franchisors must deal one-on-one with their franchisees. FAC's that are controlled by the franchisors are offered as the solution to conflict and to success for the franchisee, while always primarily protecting the franchisors bottom line.

When franchisors can be successful when their franchisees are operating their businesses at a loss, or breakeven, or at a profit, they are in no hurry to solve problems. While Quiznos has no investment and no ownership of these individual stores, they know that they OWN that individual franchisee lock, stock, and barrel through the terms of the franchise asgreement as long as they can keep their franchisees DIVIDED and out of class actions.

The franchisor is primarily concerned with his profitasbility and will only worry about the actual profitability of his franchisees if this starts to impact his profitability. Quiznos is a good example of this and their effort to contain matters while they spread into the international markets.

Quiznos and The UPS Store and Cold Stone Creamery and others know that those franchisees teetering at break even will continue to stand in place because they have to stand and service their debt or lose everything. Those who fail will fail into bankruptcy and silence and won't have the funds to support law suits.

Attorneys do not take franchisee lawsuits on contingency terms when they look at the status quo of the law and franchising. Quiznos can always depend on their sales units to sell new franchises to replace those who have failed and sell 99% discounted units to those franchisees who want to be multiple-store owners.

Our good attorney notes that Class Actions are generally not allowed and takes comfort in the status quo of the law that generally favors the view of the franchisor because it is the franchisor network that feeds the economy, and not the individual franchisee. The view of "the greater good" in public policy and the law works against the interests of the individual franchisee who is the source of venture capital and labor for the franchisor to build his network.

The lawsuits are just a distraction for Quiznos and the other predator ZORS and they know that only a few from the total franchisee community can afford to support law suits and that time, financial resources, and the status quo is on their side. This is their view of "fairness." This is the same organization who was willing to destroy the franchisees who dared to memoralize Bob Baber and who still will not speak to the TSFA.

Too bad, so Sad! The big swindlers are always in style and are permitted by government to sell unviable products to the public because the big swindlers contribute to the economy and are in bed with the FTC.

PURPOSE of Blue Mau Mau

Richard's purpose is to WARN and ADVISE that you have only the one chance to protect yourself -----and that is BEFORE you sign a franchise agreement. 

I wonder, however, how much influence Blue Mau Mau can have when the industry as a whole is using the Internet and Business Media to recruit directly from the Internet.    The FTC and the SBA appear to allow the franchisors to use their SBA Registry Status to imply government endorsement of franchises that appear on the SBA Registry.  The SBA, through FranData,  advises that you can get ON the Registry even before you complete your FDD because they read and approve the Contract, i.e. the franchise agreement, to determine eligibility for SBA Franchise Registry status.  (This makes sense because the SBA is not interested in the success or failure rate of the franchisees and apparently doesn't track Item 20 failures)      

The FTC prohibits false advertising and advertisements on the Internet but doesn't prohibit the use of the PRESS RELEASE as a means of advertising franchises as long as the franchisors DON'T talk statistically  about the success rate or failure rate of the franchises they are selling to the public. The new FTC Rule appears to premeditate the use of the Internet to sell franchises and has declared OPEN SEASON on prospective franchisees.  Unfortunately,  prospects do believe what they see in Print and especially in Press Releases that are picked up in the local media.   (Apparently, Entrepreneur offers a special PR Service to their franchisors)  

It appears to me that Blue Mau Mau and Richard Solomon will have only small influence in preventing the great wave of investment in high-risk and unviable franchises that will continue to  be sold to the public over the Internet.   

The constructive fraud of the combination of the FDD and the boiler-plate franchise contract will continue to protect the franchisors against charges of fraudulent inducement,  and the franchisees will continue to be sacrifices to the economy under FTC regulatory policy.      

Unfortunately,  Richard Solomon's influence and Blue Mau Mau's influence  will be just a drop in the bucket and those franchisors  who recruit from the Internet and who use Entrepreneur and other Business Media ( such media who get their financial support from the franchisors) will continue to rule the day.  

Blue Mau Mau is perhaps  "token"  representation of those "few" franchisees who have gotten to Blue Mau Mau too late to be saved and too late to warn and save others.   But,  we are thankful to Blue Mau Mau for its policy of allowing free expression to franchisees and ex-franchisees.    

      

Paul Steinberg's picture

Franchisee Remedies

Bubba Sparky wrote: While there may be no private cause of action under 15 USC 41 et seq, you can individually, or even collectively, sue the franchisor for violations under both state and federal law, just not under the above stated laws. However, your case may become problematic if your cause of action is predicated in whole or in part by something controlled by 15 USC 41 et seq.

Guest responded that he remained confused, so a brief recap (which I have moved to a more on-point thread); my law school professors would wince at the following (and grade accordingly!), but it is a workable explanation:

  1. To bring a suit, you must have "standing." This means that you are a proper Plaintiff.
  2. Just because a law is violated does not mean that you can bring suit. For example, if someone punches you there has been a civil wrong (a tort action for assault) and a criminal wrong (a criminal action for assault). You cannot bring a criminal case, since you do not have "standing"; this is why the criminal case would be captioned "People of the State of X against Joe Criminal". It is the "sovereign" (i.e., the government) which brings the case in the name of the "People". You don't see criminal cases as "John Victim v. Joe Criminal" because John Victim lacks standing to bring the action. Similarly, you can't sue because your friend was a victim of a civil wrong since you lack standing; your friend who was harmed must bring the suit himself.
  3. Some federal laws provide for a "private right of action" which means that a private citizen can sue when the law is broken. The federal franchise rule does not provide for a private right of action, only the sovereign (i.e., the Federal Trade Commission) can bring suit when the Franchise Rule is violated. (Note: automobile and petroleum franchises have different sets of laws with different remedies, we are discussing here all other franchises)
  4. Other laws (both state and federal) may provide for a private right of action against the franchisor. And there may be "common law" claims against the franchisor.
  5. In the US, there are 2 sources of law: Statutes (the written laws passed by the legislature) and Common Law (theoretically, custom of the area which has been "found" by a judge and expressed in a judicial opinion).

What Bubba is saying is that there's more than one way to skin a cat, and this odd fixation that people have on the Franchise Rule as the be-all-end-all is too narrow a view.

I would downplay assertions of remediation via a class action: suing as a class is far more easily said than done, and some franchisors use an ADR clause coupled with a bar on class actions, as we have discussed previously on this board.

 

Don Sniegowski's picture

Blue MauMau's Mission

Regarding the remark posted beneath this post, there is no need to guess on the purpose of Blue MauMau. It has been spelled out:

"Blue MauMau unleashes social media tools to inform franchise investors." - Blue MauMau's Mission Statement

Our readers are involved in an act of creation - whether it be a first time single unit investor or a seasoned multi-unit investor. Stopping someone from making a bad investment or discussing regulatory weaknesses is important but ultimately unsatisfactory. Know what I mean?

Let me explain. Years ago the founder and CEO of my publishing group wanted me to look into starting a new high-tech trade journal. He and I believed in due-diligence. After considerable research, I whacked the idea he had in mind. After explaining why it was a bad idea, he thanked me but he looked very dissatisfied. The founder of the company had a dream to go into high-tech. Fortunate for me, I valued my career so I had an alternative business opportunity for me to launch and lead.

Warning is important. But franchise investors want to know where to invest, not just where the investment is bad or where government is failing to serve them. 

Z-Rube Chuckle

Got a chuckle out of your “Z-Rube Makes Record Donations . . .” post, Guest (under the “Curves Sues Franchisees . . . “ article).

I’m moving this comment to the Government Regulation forum since this comment is not about Curves.

Z-Rube, you have got to be the most unconvincing person whose path I have crossed. You post day-in, day-out, several times a day on the same subject, that there needs to be legislation to disclose failure rates to franchisees.I take it you're unemployed. You may be posting on other subjects also, but frankly, I am so tired of reading the same old rehash from you that I just quit reading once I realize it’s from you because I know from past experience that you have nothing of interest to say.

Where were you when the different states were recently considering pro-franchisee legislation? Did you take your message to those state legislators where it would have done some good? Did you come up with some concrete examples of how we could make a difference on a subject that you say is important to to us? Did you try to rally us?

No. You didn’t even seem to notice that legislation significant to franchisees was in the discussion phase, even though there was plenty of notice on this site.

By the way, don’t expect people to rally around someone who is only known as “Guest.” Would you be interested in hearing the thoughts of someone running for President or state office (that is, someone who advocates political action) who was known as “Guest”?

Z-Rube, even though franchising is near and dear to my heart, and I am a take-action person politically and otherwise, you have not given me even a twinge of wanting to take action on something you wrote. You’ve convinced no one that I can see. So why do you persist? You are simply a major irritant who gets no respect because you appear to have only a vague idea of what you’re talking about. The more you write, the less respect you get.

If you want to make a difference, may I suggest you read Lou Dobbs’ book, “War on the Middle Class,” or look at some of the very good documentaries, such as “The Corporation”? Dobbs and the makers of “The Corporation” are very persuasive because they come up with facts to back up things that strongly impact people. That makes them very interesting too, and people feel it’s worth taking the time to listen to them. They’ve persuaded plenty of people and that has resulted in action and made a difference.

When you’ve got something to say, you’ll find a lot of people listening. Until then, it would be greatly be appreciated if you’d just go away.

When TiF starts to tell the truth

When you, TIF, stop defending the status quo wherein big networks can sell unviable franchise products to the public, and start telling more truth yourself, I'm sure you won't find my comments bitter.

I always separate the predator franchisors from the ordinary franchisors but the fact remains that the FA's together with the UFOC's permit predators to sell unviable products and grow their networks on the flesh of innocent franchisees who are just a cheap source of capital and labor for the predator.

Just look at the Coffee Beanery Mess and you see the federal policy. The IFA and the FTC are in bed together and the Arbitration Industry joins them in a "French Connection" and the franchisees are toast.

If you don't like my truth. put your own truth out here to refute my truth instead of always attacking me.

If Franchising can stand on its own merrits and the true risk of the investment is disclosed in statistical terms to new investors, I am not against franchising.

When the true risk is disclosed and the buyer signs the contract, this is informed consent. You and others in franchising are "enablers" of this ugly status quo and this is why we have the mess of Quiznos, The UPS Store, CSC, The Coffee Beanery and who knows how many others who are eligible for "quickie loans" on the SBA Franchise Registry.

Clean up the act TIF and get off my back.

UFocked with your UFOC! And Corporate Communication!

Now you got it! Corporate Communication together with the presentation of the GOVERNMENT UFOC and the boilerplate contract you signed makes it possible for the ZOR to lie and deceive with immunity and impunity under the law, until death do you part.

ABA Forum on Franchising

If 85% of the attendees at this annual event are attorneys who work for franchisors,  we can be sure that they are there to protect the franchisors and to ensure that their "market" will not be adversely affected by any changes in the law that would interfer with the "status quo" and government regulatory policy that protects the franchisors.   

 The ABA works in its own interests and the interests of the franchisors and the ABA and the government regulators  are essentially the same.  Not even the ABA will deny that they are in the pocket of "big business" - and the IFA - and big business in franchising is now a global affair.  

The  ABA does have some token representation from the franchisee side who are permitted to speak for the franchisees ---but, of course,  talk is cheap and for ten years there has been no change in regulatory policy and no changes in the law to benefit franchisees who,  under the law,  are premeditated sacrifices to the franchisor systems.   

But,  I imagine the food and drink is good and everybody enjoys seeing each other and the status quo remains protected for the special interests.    As long as franchisors are 100% protected from presale misinformation and outright lies by adhesory contracts that inexperienced "marks" believe they have to sign, because of the government UFOC's or the FDD's,  to get the promised rewards,  it will be business as usual and the consumer franchisees in good faith will continue to play  with a deck of cards that is stacked against them.    

The sharks will continue to eat the little fish with immunity and impunity under our laws and the ABA will prepare for next year's Forum on franchising.   This is all in keeping with the ugly and immoral regulatory policy established by the FTC and upheld by the ABA.   

I think Shakespeare had it right!   And,  of course,  it is the "business" lawyers and the most "political" of the attorneys who make it to the bench in our nation   

Paul Steinberg's picture

DD, you are...

...near and dear to me, but have you learned nothing on BMM?

They have no responsibility to be honest about the state of their company or disclose material facts of any sort.

No, there is a prescribed format for disclosure of material facts. It is called a UFOC (soon to be FDD). If you didn't get one, seek rescission.

Why is it franchisees have no protection?

Apart from the Franchise Rule, some states have disclosure laws and some have relationship laws. Also there may be common-law on point. And that's why you should read the UFOC and after you have read it, go and discuss that with a lawyer who deals with commercial transactions (preferably one with some franchise expertise).

zor has no responsibilty when they sell a franchise to be honest and upfront about anything

Again, if you believe the disclosure document was not accurate then you may have recourse. But you have not shown that your disclosure document was not proper.

When someone looks into a franchise they have to take notes of everything the sales person discloses. Make sure you get everything in writing.

Yes, but let's be a bit more specific. Most well-drafted contracts are going to have a Merger/Integration clause. If the drafter knows what they are doing, they will also have a "no reliance" clause to forestall claims of fraud in the inducement, in which case your notes and the eyewitness testimony of the Pope himself will not even be admitted into court.

These are matters discussed previously on Blue MauMau, and ones which you should have discussed with your attorney.

As you know, I am not a fan of the abuse that goes on with merger clauses but there is a reason why they exist and the courts do enforce them (Indeed, one of the problems with arbitration is that the tribunal not bound by evidentiary law may admit parol evidence and negate all that careful drafting).

And the plain language of a "no reliance" clause should cause anyone reading it to have concern if in fact there was reliance on something not in the contract. You don't need a professional license to exercise common sense.

 

Paul Steinberg
Franchisee Attorney, New York City, Ph: 212-529-5400

Kemp Coady thinks $28,000,000 was lost by families in Sona

Again,  I congratulate Kemp Coady on his posting and his courage in relating how so many wealthy and educated  professionals were cheated by the SonaMedSpa franchisor.   It is not just the little fish who lose $300,000  to $500,000,  but also those more sophisticated and experienced consumers who are taken in by the appearance of government endorsement of franchising and the image of the IFA.     

 In reading his comments again,  I see that he agrees that franchising needs to be regulated as well as securities are regulated by the SEC.   He points out that this would stop some of the fraud that now exists in franchising.   

I imagine Kemp Coady is shocked,  as I am,  that SonaMedSpa is on the SBA Franchise Registry and eligible for SBA guaranteed loans.  This indicates to me, of course, that it is FTC policy to encourage the sale of franchises at any degree of risk and, therefore,  the SBA loan policy and FranData,  who administers the SBA Registry for the government,  cooperate to implement regulatory policy.    

Would Mr. Coady agree?      

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