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Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

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Bob Frankman's picture

Freedom to Go Bankrupt

So many house buyers decied to sign Adjustable Rate Mortgages (ARMs) so that they could get lower home payments for the here and now. In pursuing their dream of owning the American home they wanted, they assumed the future would be kind to them. And now those rates have increased and those home owners are suffering.

The government has announced plans to spend our tax dollars to help bail out consumers from their bad choices.

Think of all the franchise buyers that do not read their UFOC. Do not worry about their franchise agreement. Don't worry about getting a handle on the hard numbers. Until they get into trouble.

Neil Cavuto of Fox News speaks that life is about choices and the consequences to those choices. 

What we are. What we wear. Where we live.

Our choices. Sometimes tough choices.

Nobody else's choices.

The great thing about living in a free country is we're free to be anything we want.

But we are not free to force others to accommodate anything we want.

We have every right to expect people to be decent and understanding.

Most Americans are.

We have no right to force people to pay for those choices.

Because most Americans can't.

The fact is, our wallets aren't nearly as big as our hearts.

There is no room for being cruel in this country.

But there is no money to accommodate every disparate demand in this country.

Because keep pushing the latter, and pretty soon, you won't have a country.

(Click to see video, roughly 1 minute.)

Terrible News ----More Regulatory Betrayal of Franchisees

How terrible that the IFA has influenced yet another State regulatory regime.

This is really bad news and more indication of how the regulators in this nation betray the people that they regulate to maximize profits for the special interests.

When government gets around to fixing the regulations in the financial markets, maybe they will have to look at franchising, where the unviability of units in franchise networks can be obscured from the investors in the franchise and the stockholders who invest in the franchisors? This can't be good and responsible fiscal policy.

The vision of short term profits and policies with no view as to the long-term consequences to the country and to the American people has done great harm to our country.

Rule and UFOC is RED HERRING AND LICENSE TO STEAL

The UFOC's that follow the FTC Rule are nothing more than Red Herrings that permit franchisors to disguise the actual and known true risk of the products, the business opportunities, that they sell to the public.

The appearance of government endorsement is overwhelming with an SBA Franchise Registry, VA/Vet/Fran advice and discounts, etc... The Franchisors use their SBA Registry presence as a sales tool and the government is pushing The SBA Patriot Express Loan Pilot Program to VETS and their families.

When the government, the SBA, through the SBA Franchise Registry will guarantee loans for preferred lenders at failure rates of 30%, 40%, 50%, 70%, up and down, of first-generation franchisees because the true failure rate of the original franchisees can be obscured from view of the public and the view of the government regulators and the SBA, we have messes like The Coffee Beanery, The UPS Store, Quiznos, CSC, and others to come.

Franchising needs to be regulated at least as well as securities are regulated by the SEC. If this were true, the franchisor-known statistical rate of the failure of first-generation franchisees would have to be divulged under law.

The suicides (in the USA and Austrialia and throughout the world) due to the public policy and status quo in the global economy that works together to hide the actual statistical risk of the investments in a franchised business opportunity are a stain on the "free market" principles of capitalism.

If a franchise that is being sold to the public can't stand without disproportionately sacrificing first-generation franchisees to stand up the network, that franchise should be subject to market forces. Market forces, then, would make it impossible to sell business opportunity products that were unviable and that have high failure rates to new first-generation franchisees. Entrepreneur would have to revise its criteria for hyping their Top 10, etc...

I would hope that the Senate Judicial Committee and the Congress would call experts like Richard Solomon who recently opined that 80% of the new concepts were either unviable or outright frauds. I think that Richard Solomon has indicated that successful franchises are more the exception than the rule.

Richard Solomon, Franchise Remedies.Com. atill offers one of the best deals in franchising. His $1,000 Negative Due Diligence Check might be the best money ever spent by those who are enamored with the idea of a "business of their own" and the false appearance of a "proven business plan" offered by way of a franchisor with visibility in the community.

LET THE BUYER BEWARE --of the FRANCHISOR AND OF THE GOVERNMENT REGULATORS.

ABA parties and screws down franchisees in legal crucifixion !

Looks like an opportunity to party and share NEW ideas on screwing down franchisees and protecting franchisors 150%. The ABA earns my disrespect more every day.

Topics in the Forum like "RESTORING THE STATUS QUO ANTI-RESCISSION AND RESTITUTION IN FRANCHISING" will further work to ensure that franchisors can continue to sell high-risk franchises to the public with the approval of government and with SBA guarantees. They must be looking at the Maryland Coffee Beanery Case and this injustice that was sealed in mandated arbitration and that has provided some "show boating" in a Congressional hearing on mandated arbitration .

Not only does the government, the FTC and the SBA, subsidize the franchise industry, they subsidize the member firms of the ABA. Everybody gets fat and happy except the franchisees who are misled by the Rule and the UFOC's into buying high risk franchises that look visible and safe to them because of the government UFOC. In good faith, franchisees sign the unconscionable franchise agreement that they think is unnegotiable and which protects the franchisors 100% from charges of fraudulent inducement to contract. The Contract terms are such that it is very difficult for a franchisor to breach the terms and very easy for franchisees to breach the terms. The legal trap has been set and few franchisees excape or understand the long-term implications.

Pretty disgusting! and all the big name law firms will be there and only a few names of those who are supposed to be more friendly to the franchisee, like Michael Dady and Robert Purvin. Are Michael Dady and Robert Purvin the "token" representatives of franchisees who are permitted to have "token" power in the industry to provide the appearance that franchisees have a chance?

As Richard Solomon warns ---don't be a DUMBass ---DON'T SIGN that franchise agreement without a negative consult with Richard Solomon. This is really the only hope a franchisee has ---i.e. to get expert killer due diligence before putting his/her signature to a long-term contract that can kill a franchisee financially and emotionally. NOTHING for the GOOD has happened for franchisees with the new Rule. All of Robert Purvin's suggestions in l997 to the FTC has been ignored because it is the WILL of the FTC and the ABA to stand up the franchisors ---no matter at what expense to the franchisees who are just considered food for the fires of development.

LET THE BUYER BEWARE! The Silence of the Lambs will continue and franchisees will be calculated sacrifices to seeding the fires of franchising. Franchisees will continue to invest in high-risk franchises who have demonstrated a high rate of failure of their first generation franchisees who provide the capital and the cheap labor to build the franchisor's network and profits.

No research and no statistics are made available to franchnisees on the past and present performance of franchises and no statistics are available on how many franchisees survive the long-term contracts that act as a means for franchisors to acquire the assets of franchisees in fire sales to keep their networks standing and looking visible and viable.

Franchising needs to be regulated as well as securities are regulated by the FTC but we can see that the IFA, The FTC, the SBA and the ABA will work to see that that doesn't happen. The IFA has stated that most of our Representatives in Congress are so ignorant that they don't kmow the difference between a franchisee and a franchisor and franchisees have nobody to lobby the Congress for them.

We can thank the ABA for helping the Corporatios to help themselves to maximize their profits on the backs of the franchisees who are silenced by the system and the ugly status quo of undemocratic public policy that ineffectively and dishonestly regulates franchising in the interests of the franchisors and NOT in the interests of the franchisees. The stated purpose of the FTC Rule was aborted from the beginning and franchisees should not be told that their government is protecting them, when, in fact, their government is assisting the franchisors in setting a legal trap from which few can escape when push comes to shove and the franchisee is failing.

If franchising were regulated at least as well as securities are regulated, the franchisor-known material risk factor as demonstrated by the success or failure of ex- first-generation owners of their franchisees would be disclosed under law and not obscured in the UFOC's through the artifice of Item 20. the

UFOC's for Fitness Franchises are a Licence to Steal

Just more of the same. Naive and inexperienced investors who wouldn't believe that their government would give a UFOC to a thief masquerading as a franchisor.

But, of course, these poor souls were led into signing the contract from hell, the franchise agreement, that permits the franchisors to steal with immunity and impunity under our laws.

Too bad! So Sad!

Franchising is Big Business and there are big winners

From the statistics in the article above, we see that franchising is big business that produces great profits for investors.

It is interesting to note that the acorn of the franchisee and franchisor-system empires is the labor and investment of the individual franchisee that is captured in a long-term, unilateral, unbargained franchise agreement that is honored by the courts and upheld in mandated asrbitrations under the rules of the FAA.

It is the millions of individual little business men and women who build these empires and who own the physical empires who produce the great profits for those higher in the chain. Many of these millions of little business men and women work long and hard hours for low pay and no profits under binding and unbargained contracts of adhesion to make these great profits possible.

Thanks for the statistics.

Re: United They . . .

As you know, just because an attempt fails, you don’t give up. Not if the goal is worthwhile to you. Big business fails in their efforts too. Look at the bankruptcy law that was passed two years ago. Bill Clinton vetoed it, I believe several times, while he was in office. Anything-for-big-business Bush was elected and voila! Bush signed the first time it was put on his desk. Now the credit card companies, who were the backers, are raking in more dough than ever, at the expense of lots of their customers, including families with serious medical problems.

You’ve already seen blogs or articles on Blue MauMau showing pro-franchisee state legislation. Seems pretty encouraging to me. From what you tell me, there’s no reason to feel that the situation is hopeless.

Obviously, concerted action is much more effective than individual voices here and there. But those individual voices, in large numbers, have a good chance of getting lawmakers’ serious attention. Franchisors are not more important than franchisees, who are in business too.

In this day of the Internet, it’s easier than ever to find like-minded individuals and take effective action. If you read Time’s Man of the Year (You!) story a few months ago, you know that this kind of opportunity on the Internet is less than two years old. If somebody else is willing to devote their time and efforts, and if you just do the minimum, which is communicate with your legislators when the call to action goes out, you too can have the satisfaction of seeing an improvement, maybe a big improvement.

What do you think of the AAFD? I don’t know much about them (I’m just in the beginning stages of looking into franchising). Do you? From looking at their website, (www.aafd.org), it looks like a great opportunity for a franchisee (or maybe even a wannabe franchisee) to work for improvements.

Appetizing Treats for Investors

The writer of this article indicates that franchisors are appetizing Treats for Investors.

The genesis of these treats are the millions of individual franchise owners who sign unilateral and unbargained contracts that are disclosed in government UFOC's and upheld by the courts.

We see from the statistics above that the small business person is doing his part to support big business in America.

Interesting that even ML is in the Pizza business.

Barbara Jorgensen's picture

They only think of puchasing a franchise

as a bad business choice. The truth is it is more than that. The laws give the Zor the right to lie steal and ruin this country's responsible citizen. We were not poor before this. We should have the right to bring the stories of countless zee's who have been robbed and hurt to court. They ruin us we will not be able to contribute to the nation's economy because we will not be able to buy anything. Our creditors know this because we have always had great credit until we bought a franchise. I always bought whatever we needed when we needed to. When people are ruined financially we cannot do anything but pay off the debts that contribute to the wealth zors empirel. The middle class is dissappearing.

DAGWOOD's - No FTC Enforcement

The FTC is Blind and they must just pull "enforcements" chances out of a big bag to only get around to investigating 6% of the complaints. Their cup is always out there and the IFA is always ready to fill it. I remember that Lance of Car Wash Fame says they have "selective enforcement" at the FTC just to make themselves look good ---to look like they is some oversight of franchising by the government.

True ---Due Diligence doesn't work for Average Consumer

IFA will work against Arbitration Fairness Act because the whole system is set up to get franchisee from the sales process to the signing process and then it is all over for the ZEE.

Fraudulent Inducement to Contract is NEVER arbitrated and never makes it to the courts. The FTC and the SBA apparently support the selling of franchises to the public at any degree of risk to the buyer.

When ZORS own only Paper Networks and own none of the physical Network, they have to own the ZEE lock, stock, and barrel through the terms of the binding contract that is upheld by our courts.
The UFOC paves the way to all of this ---At least you are now seeing this!

As Richard Solomon says ---an ounce of prevention is the only cure because the "pound" of cure doesn't even exist for ZEES who can't afford to fight back.

Tinker's picture

TN Legislators Run the Numbers

As Tennessee's Fair Franchise Act winds its way through the legislation, a fiscal impact analysis has been added.

Rhino Super Center

Australian Franchisees Fight Back ---Lots of Guts Downunder

Good for you Deanne de Leeuw! You tell it like it is.

Now, you will have to watch your back because they will come after you. The special interests who gain from the status quo of franchising will resist any change. Hopefully, you will be able to rally the support of the Australian people through continuing media coverage, etc...but, don't forget! the big money owns the media as well in most countries and when push comes to shove, human nature is such that people always support what they conceive to be in their own interests, even if it is not right, honest, and ethical and hurts innocents. Unfortunately, when the nature of mankind is incorporated, it often produces great evil in the world because individuals involved in the process separate their personal integrity and value system from the corporate process.

This is not just an Australian problem ---this is an American and Canadian, and UK crisis --and the globalists in franchising intend to bring franchising to the entire world.

Remember! out of the American scandals of the 70's in franchising, the American people were told that they were being given protection under the FTC Rule and the Rule turned out to be TOTAL protection for the franchisors to sell their proven plans at any degree of risk of failure to the American public and with immunity and impunity under our laws for fraudulent inducement.

The Careful but misleading Rhetoric of the Business Media

The careful rhetoric of the business reporters supports the myths without telling outright lies. It is obvious that this NY Times Article was just "product" to spin the readers and to protect franchising. How could business reporters do otherwise when they know that the FTC policy is supported by the IFA and the status quo of business in the country. The writer covered himself by warning that franchising was risky and it was a nice plug for Nick and Ed.

Just like the regulators, business reporters tell you that it is risky but as long as nobody knows how risky franchising may be to first-owner franchisees, and as long as no research is produced, and as long as the franchisors can keep this information to themselves, and not share it with new prospects, or the business media, it is business as usual and they don't rock the boat. Who really knows who these 800,000 franchises are and how many of them are original owners, or second and third generation owners, none of whom have never made any real profits and are indentured for the term of their contracts?

I commend Forbes.Com who told more truth than I have seen anywhere else when they published 10 Reasons NOT to buy a franchise. It was so refreshing to see the truth in print from a respected business magazine, but I have always had great respect for Steve Forbes who tells the truth to the American people.

Nick Bibby's picture

If it’s BULL SCAT, please explain why

  Actually, (and I’m not gearing up to fight someone else’s battle, but) Solomon has cast out, for free, the best pearls and treatise on “prospective and existing franchisee self-defense/attack strategies” that you'll find. In fact, his defense warning #1 should be on every label affixed to cans of disclosure document soup. Namely, “It’s you, Jack, who’ll be running the business, and because of that, you ought to get yourself into the mental driver’s seat before you spend your money; this isn’t a passive investment.” That is a huge chunk of beef because most of us (innocent and well seasoned alike) tend to see the FTC and SEC in the same line of work. They’re not. 

Now, if I’ve misinterpreted your statement, Guest, or if you were directing “bull scat” to another issue, then sorry about that. But, if you are actually saying that the advice is lousy, I'd like to see you back it up.

Item 20 DEAL supported by IFA-FTC-SBA-FTC-Congress

Just think how hard it must have been for government to regulate franchising without requiring the ZORS to disclose the actual and real failure rate of the first-generation franchisees who would finance and labor and build the physical units that would then rent and wear the brand names.

Almost everyone says Item 20 is confusing and many say the charts are not useful and not terribly helpful but I'm sure a lot of thought went into the design of Item 20 to permit the ZORS to obscure both the failure and the success rate and to provide deniability for the government.

The government of course will say that it has met its obligation to require the ZORS to provide essential information to the ZEES that can be used to assess the risk while helping the ZORS to hide the risk and to hide churning.

Ugly public policy and the long standing status quo of the DEAl made between the regulated and the regulators.

Franchise Rule Changes no Help for Franchisees

In reading the 133 page Franchise Rule notice of changes, we see that this is nothing more than protection of the status quo and Item 20 deal that continues to permit the hiding of the failure or success of first-generation owners in the Transfer columns of Item 20. The only kind of churning recognized by the FTC is that in which the franchisor reacquires a unit and resells it. The FTC must know that many networks use and encourage third parties to acquire their failing stores in squeezed fire-sale- asset- purchase agreements to avoid disclosing these stores as terminations or failures.

The broker changes and the Inrernet and electronic rules will mean that it is "open season" on franchisees who will continue to believe that the government UFOC's are intended to give them information on which they can access the risk of the investment.

The Rule and the UFOC's continue to act as a red herring to divert the attention of the buyer of a franchise from the material risk of the purchase as demonstrated by the success or the failure or previous owner operators of the franchise. This information is known to the franchisors and franchisors should be required to disclose this information under the law to accomplish the purpose of the Rule as stated by the FTC.

The FTC and the IFA continue their betrayal of franchisees with ineffective regulation that permits networks to stand up and grow their visibility disproportionately on the backs of their failed first-generation franchisees.

Item 20 Rant and SEC regulation

As quoted:

'Our PHD on this site has suggested that this could be accomplished easily and inexpensively by listing the purchase price and the sale price of all transfers and acquisitions in Item 20 columns. This would then present a clear picture of the viability of the network and the risk of the investment.'

Since I don't know one guest from another, I'm assuming that you are the same guest that stated its an invasion of privacy to list people's names and phone numbers in the UFOC.  What is that above?  If you sold your store for $1,000,000, would you want everyone is the system to know this?  What if you are still in the system and you sell one of your stores, do you really want everyone else to know how much you made off of it?  You assume that people would want to disclose this information.  I don't know if they would or not, but I probably wouldn't. 

If you really want people to know if a system is viable enough, the government should require all systems to show a earnings claim based on a compilation (not an audit) of all stores sales and operating expenses (no debt service included or owner's compensation for passive owners).  If a franchisee doesn't submit the information they would then be fined.  If a franchisor omits an earnings claim or doesn't include all stores in their compilation then they are fined.  Will this be costly, yes, but it would give everyone the information that they would need.  The question is would people understand it, some would not.  

Would franchisees want to share this information with zors, some no, because they don't report all of the sales.  Having been on the zor side, probably about 50-60% of the financial statements we got from zees didn't agree to the sales they reported on their sales reports.  Some were higher, some were lower.  I left prior to doing any audits of their sales reports to financial statements.   

 

More on your SEC Regulation

From the SEC website:

Purpose of Registration

A primary means of accomplishing these goals is the disclosure of important financial information through the registration of securities. This information enables investors, not the government, to make informed judgments about whether to purchase a company's securities. While the SEC requires that the information provided be accurate, it does not guarantee it. Investors who purchase securities and suffer losses have important recovery rights if they can prove that there was incomplete or inaccurate disclosure of important information.

 

So, the SEC doesn't read the company's filings prior to them being publicized either, just like the FTC doesn't read a UFOC.

Just give up

That is what Richard would have all of you do. Just give up.

After all a zee does not stand a chance right?

Well if give up you will remain what you are. A VICTIM

I refuse to be a victim for anyone. I refuse to be fleeced without yelling BLOODY MURDER while the fleecing takes place.

You better believe that the IFA has taken to heart that zees are becoming more and more outraged by what is going on.

Keep screaming and make sure you get to your State Representitives and scream at them while you're at it.

Make sure this time someone hears you. Change takes place with money for those who have to pay for it.

Change also happens when the mases get together and refuse to be silenced by money and power. There are more of us then there are the people with the money. You are the one who votes for these people make sure they are working for you.

As long as people continue to become beaten down because the fight might be tough, then you will never be heard.

Any thing worth having also comes at a price

Barbara Jorgensen's picture

If people have a fair trial in court!

Since people don't understand the legal aspects of many contracts- and I understand many of the zee's in our franchise had lawyers review their UFOC's and got bad advice. We did. As far as due diligence I know of many that did a good job of dd. They still signed. dd does not work for the average person. (Let me remind you that zee's are not average people they are hard industrous working people.) The zors have their lawyers working over time to make sure they are covered in all areas. This Fairness Arbitration Act would let the zee's go into court and tell them their stories. Many lies will be revealed. Let me remind you that the zee's all over the country have very similar stories if not the same. If thousands of people had similar stories it is obvious who is misrepresenting here. Zor's are afraid the jury would be on the zee's side because they are afraid their lies would catch up with them. It is my understanding that in contract law if there is any misrepresentation, puffing, or disclosures not disclosed that would affect a person's decision to sign terminates the contract. In our case all we have to do is reverse their disclosures to us then we would get the truth. People have a right to speak out especially when they have been swindled. UFO is one sided and Due Dilegence doesn't always work because what if you are the first wave of a zee. There is little or nothing out there to work with. They tell you it is your business- the truth it isn't. They tell you we want you to succeed- truth is they don't want you to succeed. If you do they will figure a way to make you not succeed by putting a store next to yours to get you to go out of business. They said our market is the baby boomers- the truth their market is the baby boomers. Their in the market of selling franchises and not seeing you succeed. Just turn around their lies and you will get the truth. It would only be fair to go before a jury and tell all our sad stories. Arbitration we will always loose. That is why the zors are agaisnt this new law. Bad zors better clean up their act. There are so many angry zees out there. The public is getting informed and the word is getting out do not trust zors. Our only hope is this new law will pass. When they say we will waive our rights to a court case it should be a red flag that they are lying. There would not be any reason to put that there in the UFOC unless they have something to hide.

Original constructive fraud protect franchisors

I'm sure that Richard is right. It is the constructive fraud of the UFOC's and the Unilateral Contract that are a package and snake oil that leads franchisees to sign these contracts of adhesion ---because, of course, they believe that they are unnegotiable and a take it or leave it proposition if the prospective franchisee wants to go into business with the brand name and get rich.

Neither the attorneys, nor the government, disabuse prospective franchisess of this misunderstanding.
Except, of course, Richard Solomon will not let you sign one of these killer contracts without warning you.

The franchisees are shown a beautiful picture of a franchise network and lured with profits, etc.., all of which are disclaimned in a government offering circular that ignores any actual known risk statistics of the offering, and immunizes the franchisors from lawsuits. Once the franchisee's signature is put to the contract, the franchisors are home free in arbitration and in the courts. Rescissions for violations of the UFOC are merely to provide the appearance that government is interested or cares about about violations of the Rule. Lots of show business tactics in regulation and the law.

The judges can protect their innocence by strictly enforcing contract law in the courts.

The rules of the game are rigged.

Quiznos has License to Steal from franchisees

Quiznos has license to steal because of unbargained government UFOC-contract that is protected by the strict interpretation of contract law by the courts.

Look at the big picture and then understand what Bob Baber understood. The deck is stacked neatly and it is all LEGAL.
Maybe immoral and unfair but legal.

Baseball

As I was watching the baseball game last night freezing my a** off, it made me wonder why in the hell does major league baseball start their season so early?  i guess it's because it generates more revenue for itself and it's teams, while making the fans in the stand miserable. 

Oh, wait, i just realized that this was an article of Quizno's, and I'm way off-topic.  Oh well, I'll go ahead and post it anyways, since there are plenty of other off-topic comments on this page.

 

Franchisees Can't Fire the CEO

CEO's are hired to ensure the survival of the franchiSOR and to maximize the profits of the franchisors, who are sometimes looking to being acquired by Private Equity investors or to going public!

Only when the franchisees pose a threat to the franchisors goals do they have any influence whatsoever.

The whole power structure of franchising is constructed under binding contract to render franchisees impotent and to keep them separated from each other to prevent any kind of collective bargaining. The franchisee builds and owns and owes debt on the physical network that wears the brand name but the franchisor absolutely controls both the tangible and the intangible assets under the contract to the franchisor's advantage at all times in the long-term contractual relationship.

Richard Solomon has suggested that collective bargaining would be possible if franchisees in troubled networks talked through tough attorneys who guided tough associations and that this should be done from the beginning of the relationship in the network and not late in the game when the damage to the franchisees has been accomplished and franchisees are held hostage at breakeven, as demonstrared in Quiznos and The UPS Store.

Richard further stresses ALWAYS that NEGATIVE investigation up front is the best way to approach franchising and that it is always best not to buy into a bad situation no matter how pretty it may look on the outside.

Still think his $1,000 negative due diligence consult is the best deal in town. Why deal with a consultant or a broker who will have a conflict of interest and if you do, don't you have to do your due diligence on the Consultant and the Broker, etc,? That's why Richard's deal is the best around. Also, there have been a lot of sorry franchisees who took contracts to general attorneys who are not qualified to vet or to know or understand the risk involved and who will read the contract for a few hundred dollars and further confuse the franchisees.

You have to remember that the consultant and the broker or the seller is protected by the UFOC and the franchise agreement from any misrepresentations made in the sales process. An attorney, however, will give you what you pay for. If you are looking for negatives about a franchise you are convinced is the answer to your life problems, you will get NEGATIVES if there are negatives to be found from Richard Solomon, Paul Steinberg, or Michael Webster, all fine attorneys who post on Blue Mau Mau.

But, Richard Solomon is the only attorney who has priced his negative assessment and this is the genius of his offer. His long experience and background in franchising gives him special instincts that he brings to negative investigation of franchise offerings. He has been very generous to the franchisee community in FranWhacking bad franchisors as a Blue Mau Mau community service. I don't know Mr. Solomon and only know him through his postings on Blue Mau Mau and his many tutorials that I have found on Google that have been so helpful to me in my quest to learn the truth about the DEAl made between the FTC and the IFA that is demonstrated in the UFOC's that serve to protect frnchisors from accusations of fraudulent disclosure.

ABA LETS THE AMERICAN PEOPLE DOWN

The ABA has really let the American people down. Why? They have permitted our justice system to get out of balance. If an Association of Attorneys can't work for the people and work only for the big-money interests in this country, what will happen to our democracy.

Is this because the administration in power has tried to kill off the trial attorneys and paint them as the bad guys who make the cost of business in this country so expensive because they defend INDIVIDUAL rights. Is the ABA controlled by money and the big law firms who defend the big American Corporations that can pay the really big bucks for representation to protect and always maximize their profits.

Now we are told that our courts favor business ---even our highest courts ---and is this why the trial attorneys are out of favor?

Our leaders haven't worked against preventing malpractice, they have only worked to brain wash the American people into thinking that malpractice awards are what is wrong with medicine. Have you seen that terrible ads that has been run lately on television? Couldn't society work toward co-insuring surgical procedures so that when mistakes are made by doctors and hospitals, the victims of these mistakes can be fairly compensated, and the mistakes can be admitted.

Instead, we have a system where mistakes are covered up and bad doctors are allowed to practice and the government wants to remove the rights of individuals by keeping the trial lawyers out of the courts and capping awards.

Most of these huge jury awards are reversed on Appeal but you don't read about this in the paper. And these huge awards from juries are because of the "criminal" behaviour of the defendants who engaged in this behavior for "money".

Shouldn't the ABA be out there engaging the American people in a discussion about these problems or is the ABA happy with the status quo ---on both sides of the fence.

It is very difficult to win malpractice awards because you have to have expert witnesses to address the courts and generally if there is a mistake, etc.. it is covered up in the charts and the hospital records, etc.. Doctors who are in medicine because they love it also love the money and they protect bad doctors in their own specialties to keep their own malpractice premiums down. The State Healing Arts Boards that are supposed to discipline Doctors are owned by the Doctors in the sense that it is Doctors who have to assist with the investigations.

If it weren't for trial lawyers who take cases on contingency, the little person who is injured wouldn't have a chance and the Doctors would become even more careless and less critical of fellow doctors that they know shouldn't be practicing. Now, the Doctors and the Hospitals both work for the insurance companies who have the really big bucks and they will fight like hell to protect their profits and Dale and others like him will help them.

The ads are already out there that appeal to the selfishness of human nature. "Don't vote for National Health Insurance Coverage ----it will destroy our system and YOU will get LESS for your insurance dollars" ---We see they already have the ads about state insurance for the children of the poor under state programs, etc.. to defend their selfish position during the elections. The hell with the parents of the poor children ---who cares about the poor anyway. It's their fault that they can't get decent jobs that provide health insurance --like at WalMart or KMart or Sears or Sonic or McDonald's or Burger King, or Subway, or The UPS Store, or Quiznos, or Coffee Beanery, or Applebees, or Denny's.
But, we shouldn't worry, franchising is going to solve the problem for the people and this generation of veterans who are defending capitalism, freedom and democracy in Iraq and those other places the SBA expects to see "the protracted war on terror."

Competent due diligence to avoid fraud!

Good article, Richard.   But,  you write this knowing, yourself, and knowing that the government knows,  that franchisee prospects, themselves,  cannot and do not perform  competent due diligence with the information required to be disclosed to the franchisee under law.  While they should immediately hire a competent and killer due diligence attorney before they even think about signing contracts and leases,   experience teaches us that prospective franchisees are not doing this.  Doesn't it?   Experience teaches us that the appearance of government protection and endorsement and the VISIBILITY of the brand  lulls prospects into a false sense of security   Even the Minister of Industry of The United Kingdom knows this.    

Even if the franchisee were to talk to every current and ex-franchisee reference that is provided in the disclosure document,  this means nothing regardless of what is said by the references.   The only value of Item 20 references are that they "might" prevent a prospect from signing  the agreement.  But, the reality is that ex-franchisees can and are silenced and that current franchisees and ex-franchisees have no legal dutry to vouch for the franchisor.   Item 20 is an artifice and it is the franchisor who should clearly disclose the material  P&L statistics and success and failure rates of the individual units who compose their networks to those new prospective franchisees.       

 It is obvious that once the franchise agreement is signed,  franchisors are home free and franchisees  will never be made whole because even when there are ommissions (fraud)  in the UFOC that indicate that the "risk" has been hidden and the franchisee has been damaged by hiding the risk (Consider the Coffee Beanery)  the damages can be found to be proximate to the failure of the franchisee to discover the risk in the due diligence process and/ or to the misrepresentations of the franchisees referenced  in Item 20,  and not to any misrepresentations made by the franchisor concerning "risk"  --- whether or not  the franchisor  is in compliance with disclosure law.       

I am not an attorney but the "construtive fraud" of "disclosure" and the "airtight adhesive franchise agreement" may be "legal" but it is certainly immoral and unethical regulatory policy that the courts uphold under the premise that the signed contract and the sanctity of the terms protect bad faith practices by franchisors who knowingly sell franchises with a high risk of failure of first-generation franchise investors to the public ----because they can under  the regulatory policy of the FTC and SBA guidelines.            .    

Apparently,  it is never fraud for a franchisor to sell a franchise at any degree of risk under FTC regulatory policy and SBA rules.  But,  what, then,  is the purpose of FTC oversight and the Rule?   What constitutes a bad franchisor who should be kept out of the market?                          

Do you, Richard,  believe that it is good fiscal policy for the FTC to license franchisors to sell franchises at any demonstrated degree of risk and for the SBA to guarantee loans on franchises at any degree of risk?   If franchisors were required to disclose the success statistics of their invididual units,  would this disclosure result in competition between franchisors of the same or similar concepts?   Would such competition work to serve the public,  to include franchisees, because those franchisors with bad performance statistics of first owners would find it hard to compete with those who could advertise good performance statistics for their first owners?  

I agree that the only solution is DUE DILIGENCE but since we can't clone you and Paul Steinberg and Michael Webster and Robert Purvin and since the government only warns that they haven't read the disclosure document,  which is "cover" for the franchisor, anyway!  are you satisfied that  the sacrifice of tens of thousands of franchisees who won't do killer due diligence on defective disclosure works to serve the greater good for the public?  or the Franchisors and the ABA and the FTC and the SBA?                 

               

sued

My husband and I started the fiasco with Java Jo'z right before the "asset acquisition" and were lied to from beginning to end. We since have lost our store and are being sued by our creditors. We have always had stellar credit and are now worried about our future. Robert "Morg" Morgan told me that he "prayed on it" and I should quit my job as a teacher and all would be fine. Well I am still unemployed and without our store. We had great reviews in the community but could simply not overcome the hole that their lies put us in. We have a second mortgage on our house and that does not count the $229,000 that we owe on our business loan. Our attorney told us that we have a 6 figure case but will not take us on without a 25K retainer. Cuppy's has sapped us. We were one of the first cafes and they learned all of their lessons on our back. Lessons like changing the sign for the cafes while we didn't have proper signage for almost 4 months. Please anyone who is considering anything to do with these people run screaming. You will be left with nothing and no recourse. DO NOT ASSUME BECAUSE YOU ARE HONEST HARDWORKING PEOPLE THAT THEY ARE!! BUYER BE VERY AWARE! My husband and I want nothing extra, just to be made whole again and that will never happen because we do not have the resources they do. It is not about fairness, it is about what is right and they are so wrong!!

Judges honor my signed Legal Contract

Of course they do. We understand that contracts must be honored because they hold up our economy and the health of the economy of our nation is vital and crucial to our national security.

If Judges did not honor the written terms of contract, the whole financial structure of the nation would colapse. Our markets would be harmed, etc. and we would be vulnerable to our enemies. We understand that regulatory policy is developed to encourage investment in the economy and that the judges must hold up the binding contracts that suppot regulatory policy and our economy.

We also understand that the FTC through the Rule and the UFOC (the Deal) combined with the adhesory contract has permitted franchisors to legally sell duds to the public without making the franchisors disclose the duds to prospective new buyers of the franchise. Apparently, under our current regulatory scheme, it is even legal for the SBA to guarantee loans on these duds for the lenders.

We just recently understand that Franchisors are part of the "paper market" and that their "virtual network empires" are built on the promises of their franchisees in the adhesory contracts. It is every franchisor's dream to become big enough and successful enough that he can go public or draw the interest of some private equity investment group. What the franchisors have to sell are their airtight adhesory contracts that are upheld by the courts ---their paper --- and their Brand name and the profits earned from the brand name. There is no physical empire! The franchisor has no investment in the physical units that wear the brand name. The value of the network is the portfolio of signed adhesory contracts that are honored by the courts and that can be perpetuated into future growth of the network and profits for the franchisor, and those who invest in the franchisor.

But, can an industry that is built on deceiving first generation franchisees as to the known risk of the investment, as demonstrated by the success or failure of the first-generation owners who provide the capital and the cheap labor to build the physical units, deceive the public forever? Can the malice of the contracts and the sacrifice of innocents to this immoral and unethical regulatory scheme be justified or rationalized as policy that serves the public good?

Can't we do better? Wouldn't franchising survive if the failure/success rate (past performance statistics) were disclosed to prospective franchisees before these airtight contracts were signed. The premise of "informed consent" is violated by the DEAL the FTC has made with the IFA and the combination of the UFOC and the contract of adhesion is a kind of constructive fraud that works against consumers of franchises in our nation today.

Disclosing the cost of failure -Quiznos-UPS Lawsuits

The cost of failure is not clearly disclosed in the UFOC's. The new franchisee who is sure of his/her success never thinks in terms of failure in the process of purchasing a franchise to solve the problem of producing income.

Everyone involved with the sale, to include the regulators and the AFD and the AAFD know this to be the truth and yet the FTC Rule and the UFOC's are designed to hide not only the failure rate of the franchised business plans but also to hide the true cost of failure to the franchisee.

This government subsidy of franchising is undemocratic but the victims for the most part are hidden from view and their voice is weak and unheard by those who might work for change in the Congress.

This is the way of things! When public policy has been developed by special interest groups and supported by government and under law, even if this public policy is undemocratic, unfair, and unjust, it is hard to change the status quo. (Think of slavery, child labor, women's rights, collective bargaining, etc.. and the time it took to change the laws)

A big Quiznos or UPS scandal would go a long way to get the attention of the Congress and the State Legislatures but any true "scandal" that could possibly effect any change in the regulations and laws concerning franchising would probably be settled through "confidential" agreements that hide corporate misdeeds from juries and from the public.

This, also, is the way of things! In the meantime, all we can do is try to spread the word.

No Honest Research ----No Disclosure of Performance

You sound like a nice guy, Nick, but when there is no honest research out there concerning franchiSEE survival and only skewed research and PR confirming franchisor success, etc., and no real disclosure of the actual risk to the franchisee in terms of past performance statistics of the franchisor's first generation investors, how do franchisees have a chance?

Business publication have indicated that prospective franchisees rarely, if ever, read the UFOC and believe that the UFOC represents an unnegotiable standard contract offered by the franchisor. The UFOC acts as a red herring to divert the attention of the prospective franchisee from the material risk factor that is represented by the success or lack of success of first-generation investors. Item 20 is an ineffective and inefficient vehicle on which to perform due diligence and just an artifice that permits the FTC to meet a low threshhold of requiring franchisors to disclose material information concerning risk to inexperienced investors who are looking for a job.

Unfortunately, prospective buyers trust their government and wouldn't believe that they have been set up as marks for all of those hungry franchisors out there. They wouldn't believe that honest franchisors would suck them into ten-year contractual traps while KNOWING that very few of their franchisees make it through the full contractual term. The long-term contracts premeditate and assure that the franchisors can acquire the assets of franchisees in failure for almost nothing, and that the franchisees will be silenced in fsilure when their assets are acquired by third parties for pennies on the dollar.

We seem to have nobody on this site who is willing to recommend five franchises as good investment vehicles.

Maybe you can change this and recommend five franchises that are good investments today based on their past performance and future variables?

I am especially interested in good recommendations because of the Patriot Loan Express Initiative that has made veterans and their families targets of the franchise industry.

Bob Frankman's picture

Lawyers Want No Risk

"Most Attorney's are all about mitigating risk.  Attorney's have less risk by saying NO, than by saying 'It looks good to me'.... " - FranSynergy

How true this is. No lawyer was ever fired for saying, "you may want to reconsider doing this."

An entrepreneur between two lawyers is like a fish between two cats.

Re: CumBaYa!

Marketing to the Sheep and advertising will get you everywhere. The Fast Food restaurants and their advertising to both kids and parents and their "perks" for families and their published menu that permit families to know how much the bill is going to be, etc... ensure that we "sheep" are more comfortable in the franchised fast food restaurants than in the independents who may not even take our credit card or our check???

Because so many women are working and because "eating out" and "take-out" has become the great American entertainment-pastime for families and for the business community as well, fast food franchising remains popular but increasingly overcrowed in American Communities and the ROI is not what it used to be, in my opinion. If we have a recession, of course, or worse, American familes will have to eat potatoes, and oatmeal, and bread, and skim milk, and worms at home and start community gardens.

The franchisors are loath to give territory protection and the risk for franchisees is greater now than ever. When franchisors can churn and turn and encroach at will under the law and only the franchisees fail, they will continue to turn and churn and encroach to ensure their visibility and their profits.

It took a long time to turn our wonderful country into a "service" economy and it may be that we will not survive as a "service" economy without great pain and political struggle in this country. That's what happens when short term profits and short-term views, and low ethics and low morals allow our legislatures to allow the corporations to destroy American jobs and American futures for the vision of global capitalism and global secular Republics who will feed the profits of the global corporations.

While this may raise the standard of living in some countries, it appears that Global Capitalism will mean a lowering of the standard of living for middle class Americans.

My opinion! Too bad! So Sad! If Franchising is what the government is depending on for jobs, the writing is on the wall. These are PT jobs with no benefits and no future for most employees. These are lousy jobs with long hours for most franchise owners with no future.

Increased regulation stymies bullies

Bullies hate frustration. Frustration forces them to change tactics. Abusive franchisors are emboldened by a market whose forces encourage their abusive tactics. Appropo of this week, NE Patriots coach Bill Bellichick is fond of saying: "It is what it is."

When a state passes franchisee protective legislation, franchising flourishes. The most recent case in point is Rhode Island. Franchise penetration is incredible and dozens of new franchises opened after the law was passed. The sky didn't fall and franchisors have done the opposite of rioll up the carpets and leave town. THAT is market driven regulation. Franchisors that want to make money go where the money is and they play fair where the law requires it. If there is no money there, they don't go. That is the only reason they don't franchise.

Learning ---and Retrospect about Due Diligence

We can be hopeful that sites like Blue Mau Mau will get the word out and that franchising will become "clean" in the future when the past and present performance statistics of the original individual unit owners are required to be disclosed under law to new buyers. But, the franchisors will fight against this and the FTC will not fight the franchisors.

Franchising has grown in our economy since the government regulated franchising in the late 70's because, of course, it is the trust that the franchisee has in government who has not required the franchisor to DISCLOSE the known risk of the investment that induces the franchisee to sign the "take it or leave it" contract of adhesion.

Forty years ago they were writing about "fraud" in the industry and franchising is increasingly a greater part of our national economy and fraud is increasing as well. If the FTC only investigates 6% of the complaints and runs a rehab school for franchisors and continues to ineffectively regulate franchising, franchisees will continue to be premeditated sacrifices ---logs on the fires of development in the economy.

It is because the government does not require the franchisor to disclose the risk to the new buyer of the franchise as indicated by the success/failure of first-owners of the franchise that it is possible for franchisors to perpetuate their networks on the backs of the original investors in the franchise. The original buyer bears the costs of build-out and startup and, often, in failure his assets and his debt that he is still servicing goes on to ensure that the second generation franchisee, who got the business for almost nothing, survives to feed the franchisor and perpetuate the visibility of the network.

Private right of action

Bubba we have in Maryland a private right of action in our Franchise Law. However, our private right of action was considered to be this forced arbitration which took place in Michigan.

strong federal legislation

Dear TIF:

The government mandates drunken driving laws, speed limits on our roads and seat belt use on our planes. I submit we are all the better for this slight intrusion on our privacy and added expense.

I (and many others) would like to see something like Representative Howard Coble's (NC) unsuccessful try at some strong federal legislation a few years back as to the z'or / z'ee relationship.

Failing that reality, pure punishment for abusive z'ors would be acceptable.

Franchise Regulation in the UK Debated in May

Do a Google Search http://publications.parliment.uk ---on 22 May 2007 there was an interesting debate between the Minister for Industry (Margaret Hodge) and others concerning the regulation of franchising in the UK. This apparently was the second debate.

I notice Minister Hodges says that the government cannot possibly insure against business failure but she does appear to say it must be plain that there is no government sanctioning of franchising that could mislead.

Our cousins across the ocean are jusr a search away from us on GOOGLE, the library of the people of the world. Of course, the franchisors are right in there with their great influence and money to try to have their way with the legislators.

We can watch and see if the "money of the global economy" all works together to influence governments to regulate in the interests of money while sacrificing individuals to the perils of ineffective regulation.

I think Margaret Hodge wants to do the right thing both for business and for the individual British Citizen and these debates are for the purpose of discovering the right thing to do.

Surviving Failure Rates ----Wow! Look at those figures

Wow! This author says that "Three fourths of all businesses fail in the first year. Of the remaining less than half make it through the second year." Can this be true?

If these statistics are correct, why would anyone in their right mind buy a franchise with a ten-year or fifteen-year term? It must be that franchises have no idea of the high failure rate of the franchised business plans that they buy. It must be that the franchisors are counting on surviving the long term contracts through the churning of discounted units of first-generation franchisees who have borne the startup costs.

It would appear that the really smart and informed frasnchisees should buy only highly discounted franchised business in which they will have low investment and risk and nobody should buy a new franchise and build a unit for the franchisor upon which to wear the brand name.

Thanks for putting the article out here!

Government regulations have nothing to do with franchising?

In the topic posted by Nick, he indicates he is willing to talk about the new rule for "sellers of franchises" and how does one talk about franchising without talking about the lack of effective retgulation that makes franchising such a bad choice for so many franchisees?

How can you have an inviting "Round Table" when you start with the premise that there is nothing wrong with government regulation?
When you start with the premise that there is nothing wrong with government regulation, you are just applying bandaids and ignoring the deep and infected wounds of those who are injured by franchising and destroyed financially and emotionally.

What is Nick selling? Happiness?

Item 20 Ranter continues to avoid anwering questions

What is your background in franchising that qualifies your experience?

Were you or were you not a failed UPS Store franchisee?

The Truth shall set you free.

TIF 

Piper Rudnick

Piper Rudnick was respected, as well as Marbury & Wolfe. DLA is one big sausage factory, of which franchise practice is just one of many sources of revenue.

Summary: The Limits of Disclosure and Beyond

Correct me, please if I am misstating the important dialogue (TIF * 20ish) and Michael's commentary:

1. TIF is behaving rationally: entirely within the law and representing his shareholders' interests in a highly professional.

2. The potential franchisee is getting an accurate view but perhaps with only (maybe 10%?), of the photograph being visible.

3. The solution seems to be to reveal more via "more" or "better" due diligence (advisers, talking to ees, etc). If we work harder, we will solve many of the problems.

Time and Opportunism
The Rub is: When we add TIME (ie. one party can change the risk profile via opportunism)...

* ...doesn't that defeat ALL the gains made by improving pre-sale investigations? Aren't we only re-allocating future problems?

It seems to me that all roads lead back to in-relationship overreaching.

Doing "more" type of same style of disclosing is the definition of insanity (eg. doing the same thing over and over again while expecting a different result), isn't it?

I think we can do smarter work than that.

REPUTATION: Rewarding Sustainable Behavior
Behavior is caused, in this life (mostly). If you want "better" (higher quality, sustainable) action, reward the best and ignore the rest.

If you want to KEEP high quality, report back to the source of capital accurately, quickly and afford ably.

The present situation penalizes (lowers ROI) the best operators like TIF while allowing the other offerings to have an economically "unjustified" higher return.

The Solution?
I believe privately-run but publicly-supported expert software systems (ie. reputation, decision making models) can best deliver these quality improvements.

The government and financial institutions have a smaller but important role to play. They should insist on measurement tools and certificates of legal advice or no contract exists.

This capability needs a good home and needs to be taken care of by a party that has a longer term perspective and a level of widespread credibility.

Sustainability is the only issue: More information does not trump confusion.

Les Stewart

Those who influence the writing of the Regulation ---DLA Piper

It is so obvious that lobbying and the lobbyists have taken over our government and the law as well and that the American people are stupid marks.

Our children, who are the product of better times and who have lived in better times are educated by the special interests through public education to trust government and to believe that we are a government "of the people, for the people, and by the people" and to believe in the "rule of law" that will protect the people.

One of the teenagers in our big family said that one of his teachers said that the Jews were persecuted because they charged high interest on money and the Christians couldn't charge interest because it was against their religion. ====I couldn't believe this but I didn't want to start something on the front deck and I just told him, I didn't think that his teacher was right or that this was true, and let it go.

It is hard to know the good guys and the bad guys these days and the corporations own most of media and we get it from both the left and the right and we only get the truth from people like Ralph Nader and Ross Perot who know that only a third party that works for the good of the people of this country can save Americans from the great threat of Global Capitalism and the greedy multi-national Corporations who intend to maximize their profits in the global economy by exploiting the masses.

Government can regulate to protect corporate profits and can NOT regulate to protect corporate profits. The CELL PHONE industry is self regulated and does its own safety research. Our children as young as ten (and they are working on eight-year-olds) have cell phones in their ears many hours of the day, seven daya a week. If brain cancer becomes epidemic in 20 years or so, will they blame it on faulty research? Will the settlement of these suits that claim that brain cancer was caused by the constant use of cell phones contribute to the premature death of many of our beloved children. Will the profits over those 20 years justify the premature deaths?

Barbara Jorgensen's picture

I Agree!

It was too late for us. I appreciate you letting me get on here and write about our bad experience. If it saves one person from financial suicide it was worth the time.

Lessons learned from Quiznos-Bray Lawsuit

This comment has been moved here.

Bankruptcy --Rescission ---and the Coffee Beanery Case MD

The Coffee Beanery injustice possible under Maryland law and the federal regulatory policy demonstrates that Corporate Power. who have Fifth Amendment Rights, can use the tool of rescission to escape full restitution to those who have been injured by the fraud of misrepresentation in the process of selling a franchise.

Apparently, a long lost Supreme Court Case "Fong Foo" protects corporations against double jeopardy and this is why the rescission that is negotiated by the State for substantive violations of the UFOC is the only bite out of the ZOR apple permitted by government. ZORS can't be punished twice by the State for the same offense. It appears, however, that the State wants to preserve its right to punish the ZOR in order to preserve the ZOR.

However, increasingly, individuals with little power are being subjected to government-corporate-judicial alliances that do subject citizens to double jeopardy for the same offense.

The quest for justice in the CB Case is not a disparate demand that should be ignored. Economic justice in democracy is a goal of our democracy that stands on the premise that its government is of the people, by the people, and for the people.

FranSynergy's picture

Juan

Juan:

No Stalking Here!  Just an innocent discovery of fact, which in hindsight was better left known than stated!

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

Zees and Regulation

DD it is going to take more then just you and me and BMM to get the word out. By the time you enter BMM you are already in the system.

Our case should have been open and shut, instead our State Regulator helped CB more then us. In fact they hurt us. Even though the UFOC warns that the information has not been reviewed and it is up to the zee to review it and then notify your regulator if you suspect that a law has been violated, it proved to be a benefit for CB for us to trust Maryland. CB had inside information from Maryland as to what kind of information we had and that we had not agreed to arbitration. All of this worked against us.

RichardSolomon's picture

PUNCHING PEOPLE - A CIVIL WRONG?

Geez! Paul. Since when is punching folks wrong? Where do you live, anyway? How about the long standing common law doctrine "He needed to be punched"! Don't tell us you aint never punched nobody. 

Richard Solomon
www.FranchiseRemedies.com

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