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Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

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Paul Steinberg's picture

If Grandma was a zee

Today's Wall St Journal has a piece about a 70 year old woman who took out a mortgage she couldn't afford, and when the bank said it would foreclose, she got a lawyer and the bank backed down and said it would refund all the fees.

Stories of "predatory" lenders have been in the papers every day recently, and prompted legislators to call for restrictions on lending to "sub-prime" borrowers (of all ages) who are presumed to need the protection of the government to avoid borrowing more than they can afford to pay.

An analogy to franchise relationship legislation suggests itself, and I'm curious as to whether contributors to the "Legislation & Political Activism" thread would boot Grammy to the street?

UFOC and Regulators

Are falling down on the job. Paul has the idea right. Look at Maryland and The Coffee Beanery.

You would have thought that Maryland would have at least given this zors UFOC a second look. Instead The Consent Order discloses that CB conformed to Maryland's request prior to The Show Cause. In fact the 2005 UFOC the Order is refering to, is in violation of the FTC Rule as well as State Law. That 2005 UFOC had 14 cafes terminate the system, not of those terminated cafe owners had the correct home address or telephone number disclosed. CB had the correct information because it was received in Discovery.

Due Dilliigence is only as good as the information that is disclosed. It is zors like CB that lead people to think that regulators are only collecting a pay check.

It is one thing to disclose that the FTC or any of the States have not read the UFOC and cannot gaurantee any of the disclosure.

They should continue to say that investment is very risky and there are no laws to protect you should you be defrauded.

The arbitration clauses are also almost impossilbe to get out of. There is a seperate amendment that is signed as a seperate document in Maryland that discloses all violations of the Maryland Franchise Registration and Disclosure Laws will be heard under Maryland Law in Maryland Courts. Don't believe that one either.

As a matter of in that arbitration, is was disclosed that there was an earnings claim, 3 non-disclosed third party contracts and that Kevin Shaw has a Felony Conviction for Grand Larceny, but it did not have to be disclosed. It would be nice for perspective franchises to know that Kevin is an officer of the company, who likes other peoples property a little more then he should.

Had Maryland Law applied to this case, it would be an automatic recision and restitution. So much for contracts.

Federal Arbitrators?

I don't know where that one came from, but these arbitrators are from private companies. The American Aribitration Association, ADF, JAMS are three of the big ones.

This is big business not Federal appointed people.

Why do you think that the little guy only wins 3 of of 97 times? The little guy is not a repeat customer. The big guy is the one who feeds the beast

The right Questions

Nick,

Exactly: It is discernment that is lacking. While I have great confidence in your standards of conduct based on your character, I wonder if franchising would be more sustainable if there were less experts and more numbers involved?

YOU VALUE WHAT YOU COUNT
We require an automobile driver to pass a test, have insurance and even use seat belts (in some areas). There is a registry for motor vehicles.

Every cow is tracked for mad cow disease.

v.

Funny how franchise investors are not.

Les Stewart

Dale Cantone

Gave the franchisees for Stretch-n-Grow a recision and the right of private action-2 BITES OF THE APPLE. However the story here is that the zor, Stretch-n-Grow violated The Consent Order and now Maryland has issued another Order for the violation that makes Stretch-N-Grow liable for anything that The Maryland Franchise Registration and Disclosure Laws will allow. Why is Dale Cantone sitting on his hands with CB. He turns his head the other way while CB continues to break the law but puts the brakes on this zor.

He is a man with a price tag, if you can pay the price then Maryland is open game for zors.

This zor has not sold any more franchises in Maryland, CB has

The Total investment for a Stretch-n-Grow is $22,000

The total investment for CB is $400,000 - $550,000

Who is causing more damage?

answer DALE CANTONE

No Zor will give you a fair shake!

Zors stack the deck against zees. You cannot win even with due diligence since it will not help. You should avoid franchising no matter what. It is the only way to be safe. Save yourself! Zors are out to make money.

ZEES are a Sacrificed Class

Under the corporate-government doctrine of the "greater good" ZEES are a calculated sacrifice to a good economy. From immigrant sacrifices to veteran sacrifices, the greater good will be served and destroyed franchisees, just like old soldiers, will fade away into obscurity.

Re: Item 20 Ranter continues to avoid anwering questions

go get'em dumb dumb.

grrrr....

TIFIAI

Franchisors are drowning kittens in Chicago

There are reports that prominent franchisors and their attorneys are stealing kittens from franchisees and drowning them on street corners in 55 gallon drums. These unsubstantiated reports cannot be verified and there are no witnesses or kitty cat cadavers, however since it is something that we all know a franchisor would do we are to treat it as fact.

RichardSolomon's picture

PRIVATE ACTION

It is not so in every state, but in TEXAS and some others there is a private right of action for violating the FTC franchise rule. Here's how it works. The TEXAS Deceptive Trade Practices Act provides that a violation of the FTC Rule is evidence of violation of the DTPA. The DTPA provides for treble damages if the violation is shown to be intentional, plus recovery of attorney fees. These claims can be brought in state court or, if there is jurisdiction over other claims, as pendant claims in a Federal Court action. TEXAS does not have a franchise investment act, but it has a Biz Opp Act and you can get the same result under the DTPA that you could get if there were a TEXAS franchise investment act. There is no government enforcement resource that is practically available, but that is also true where there are state franchise investment laws and true at the federal level too.  

Richard Solomon
www.FranchiseRemedies.com

Why are you so interesting in who I am. Sending the Goons

TIF ---you never offer anything substantive to the discussions and just attack me and want to know who I am? Do you want to know who I am so that you can silence me.

Why don't you refute my rantings with your ZOR propaganda? I realize it is hard to refute the truth without resorting to lies and I do respect your integrity.

If you really sell franchises, why don't you get out here and push some of your brands that have low failure rate of first-generation franchisees and that produce profits, instead of franchises that are just a lousy job and a three or four or five year journey into failure.

Due Diligence

Richard you have to agree that any killer DD is only as good as the Disclosure you have to work with.

THIS IS A BIG PROBLEM

The really bad zors are not disclosing what is required. Or they disclose just enough to get by. They disclose in Item 20 only those that they want you to call.

Those zee's who have left the sysytem that they don't want you talking to, are still being disclosed as up and running.

Yes, and someone's court records were published to intimidate!

Absolutely, this was a form of stalking a poster but we must accept the apology and explanation of Fran Synergy who wears a big shoe size that sometime ends up in his mouth.
We never did find out who was responsible for publishing the court records of one of our esteemed posters, or what they thought were court records pertaining to Paul Steinberg, to discredit him. .
Did Mr. Blue Mau Mau ever discover who was responsible for this act and assault on the Blue Mau Mau site?

Juan F's picture

Spying On Those You Do Not Agree With

"Innocent discovery of fact"?? "Better left known (by you) than stated"??

Why do you have to visit Tinker to discover fact?

I do not mean to turn on you but your words are spooky. You and Tinker argue frequently online. Then you put effort into finding out who and where Tinker works, then drive over to Tinker's state to see the store.

FranSynergy, this is according to your own explanation. Strange things are coming from your posts today. I suggest take a moment to rest.

And I hope you are not planning a trip to Canada any time soon.

Juan F's picture

No Barriers

Those are pretty scary posts meant to intimidate Kathy Sierra and stop her blog. Succeeded too. Sad.

I think Mr. Blue said he automatically deletes any hints of a threat on the site, and something about the rights of anonymous posters being very low on the totem pole.

What about your blog? Your point-of-view can be controversial. What do you do to guard against online threats and intimidation? I see no barriers preventing this from happening on FranchiseFool.

what a punk

Tinker:

Dale stands revealed: he is a punk.

FuwaFuwaUsagi

Z-rube

The answer remains the same. ENFORCE THE LAWS. Look at CB and Maryland and if you still don't know the answer then go talk to a franchise attorney. There has to be a punishment for breaking the same laws over and over again. One more time, Why was CB so comfortable registering the first UFOC after entering into The Consent Order? Rigulators don't read every UFOC that is registered but you would think this would have been a no brainer. Maryland is told the UFOC is in violation of The Order and CB amends the UFOC. SURPRISE it's still in violation. FIGURE IT OUT

Barbara Jorgensen's picture

I voted today

For the Fairness Arbitration Rights act. It looks good. It looks like it's going to pass. By the way I never got your message or email.

Item 20 Ranter still can't name even 5 good franchise concepts!

When will you be honest enough to recommend 5 franchise concepts that are worthy of at least consideration by prospective franchisees and prove you are not a vitriolic anti-franchising fanatic?

The Truth Shall Set You Free!

TIF

Mr Tactics says "Stop the Insanity" - please!

This is a pretty incredible post - I think it sums up the issue for many prospective new franchise owners. The note in question states:

"The attorney I talked to last week wanted $1,500.00 just to review it! I thought most of the agreements were pretty much the same. I like Submarina and I like their system. The franchisees say they are happys. #1500.00 to read a contract seems crazy."

1. This is from a person preparing to invest/spend tens of thousands to open a franchise, sign personal gaurantees for many times that sum, and can't see there way clear to invest $1500+ to a competent franchise attorney. This is exactly the type of person that always complains the loudest when everything goes south. By the way - go get a an experienced franchise accountant to do some basic financial projections for you as well. have them show you cah flow projections, a return on onvestment analysis and five year projections before you plop down your life savings.
2. I can't believe that anyone is looking to open ANOTHER sandwich shop. You would think the fact there are already more than 25,000 Subways, 5000 Quiznos and a few thousand other sundry and assorted brands all selling essentially the same product would be enough! Never mind the fact that you probably could not have picked a weaker brand to invest in.
3. Go open a lemonade stand, something, anything that won't wipe out your life savings if/when things don't go exactly as planned. Get some basic business common sense under your belt first. Work your way up the food chain and learn the lessons you apprently need to learn while the mistakes won't kill you.
Please take this advice to heart. Otherwise just send me the money. I will send it to a worthy charity. In the end you will still be out the cash, but it will be quick and painless, and the world will be a better place for it.

20yearzee's picture

Yes and No

The zor is never going to admit fault, because the minute it does, the suits will come flooding in from every other zee.

The due diligence process does not seem a relevant subject when things go well in a franchise.  It is only when they go bad that the UFOC is dragged out of the desk drawer and scrutinized for failures to disclose, etc.

Zors have thousands of excuses they can use - the economy is bad, there is new competition, gas prices are too high, and, yes, they will tell you that you are a bad businessman and/or franchise operator.

When things do go bad, you find out that you agreed to: 1)not operate a business similar to that of your franchisor, 2)assigned your location (and phone numbers, etc) to the franchisor, 3) and you may be responsible for the zor's future loss of royalty income, as well as any borrowed money, personal investment you made, etc.

I think what attorneys and franchise "consultants" need to focus on  is what happens if things go bad in the business.  There is already a lot of focus on the front end on "dreams", so let's also focus on the reality of franchise "nightmares".

Franchisees in trouble seem to complain that they "did not know this, or did not know that", but there is a lot of literature out there, including this blog, that warns them of the consequences of a franchise failure. Just a trip to Barnes and Noble's business book section can be an eye-opener - you'll find lots of titles on things to look out for in buying franchises.

I don't personally think the government can ever do enough in a dated disclosure agreement to protect franchisees.  Hiring experienced attorneys that know the system, and the downsides of the system can give you the knowlege you need to assess the high cost of a franchise failure.

Remember that, short of true fraud and misrepresentation by a franchisor (which are hard to pin down in a court), there are many other reasons franchises fail - and the franchisor can use this myriad of statistics to show that it was not at fault in your demise.

The only way to mitigate the damages of a possible failure after you sign the agreement is to negotiate the future as much as possible as a part of the agreement .  This has to be done before you sign and hand over the check.

Those of you that are already in, and miserable, do have my empathy and my understanding. 

CB Arbitration

Thank you for your support. We have no unrealistic view of what will happen with the appeal.

When you have had every Constitutional Right stolen from you, every lttle peice of justice is all you have left. I guess there are not many who understand what it is like to wake up one day and realize that your rights have been stolen, ignored, sold and denied.

If we had one shread of doubt about our belief that we have been sold down the river we would be able to let it go.

We amended the FA to agree that MFRDL would govern the FA. Judge Duggan would not even consider MFRDL, he sent our case to arbitration for the arbitrator to decide. An arbitration contract is like any other contract, and an arbitrator does not get to decide what parts of the contract will be followed.

I sometimes think that there are no more people left who believe that Justice will be served. This appeal is the only thing close to a court room we will see, and at least I will be able to say it made it that far. We will not win this appeal, but in my search for Justice its the only place we have left.

I can't impress upon people enough that the legal system is for sale and only works for those who can afford to pay for it.

Our State Regulator did more harm to us then good. I would not advise anyone to look for any kind of help from the FTC or thier State Regulators. If you think you have a problem with your FA get the best attorney that money can buy.

I had always thought that passing new laws for the FTC Rule and UFOC were just mental masturbation. If the laws that are on the books were enforced there would not be a problem.

Every chance that zees have been given to help them selves has been ignored and that will never bring about change.

Its a shame that people like me and you can't get the word out. Once you know about BMM you are already in the system. Attorneys like Richard S. are not known until you have already bought your franchise. 99% of the people who buy a franchise have an attorney look at the UFOC, they don't realize that the attorney needs to be a FRANCHISE ATTORNEY.

The public has no idea that buying a franchise is a bigger risk then investing on Wall Street

michael webster's picture

Why Prospects are Morons

Guest writes: "The attorney I talked to last week wanted $1,500.00 just to review it! I thought most of the agreements were pretty much the same."

You are a business moron, probably a nice person.  But a moron, nonetheless. 

First, a review of the contract is not reading back to you the contract. Minimally it involves a review of what you think the deal is, what you are relying upon and whether the differences are so large that you should get out of the deal.  Second, even if you are not entitled to a UFOC, you need to review it to get the relevant information out of it.  And there are about eight other steps.  By all means, please risk 500k because "you like their system and the franchisees say they are happy"

Paul shouldn't do the work for less than $4,000. Canadian. 

Michael Webster PhD LLB
Franchise News

When TiF starts to tell the truth - Moved

The discussion thread about government regulation of franchising has been moved here to our forum area.

This area is meant for comments on the article - Quiznos legal counsel. Comments under blogs are meant to (1) engage the writer of the article to expound or (2) to make comments about the narrow topic of the article.

In contrast, the discussion forums are meant to engage the community at large on broad topics.

Mr. Blue MauMau
Community Moderator

When TiF starts to tell the truth, Item 20 - Moved

This comment about government regulation of franchising has been moved here.

Mr. Blue MauMau
Community Moderator

Barbara Jorgensen's picture

You just don't understand!!!

The average person does not have the capcity to understand legal documents. It is so dry and you fall asleep. The UFOC is very big. I read parts of it but insisted our lawyer read it. It wasn't cheap either. I guess you have to do due diligence on lawyers too. If we had to do due diligence on everything and we should. Our lives would be doing nothing but due diligence. I agree in buying into a franchise due diligence is absolute must. I wish I had someone like you to read our UFOC. Or Solomon. I am sure you would be a better choice. I called 30 lawyers and finally someone directed me to a franchise lawyer that is well known in Bellevue, Wa. I plan to do my due diligence on him too. He is so busy with so many cases. So he must be good. My real estate lawyer said busy lawyers are good. I plan on carrying it further. But I can't let him know what I'm doing because he is so confident. (Arrogant also!) I don't want to get him mad. DD will always be in my mind. I managed to live 53 years with no need of a lawyer. I consider myself blessed.

Multiple Truths and Multiple Versions of the Truths

We go to the courts and to arbitration in franchising to sort out the truth and he who has the most convincing version of the truth and who has case law or public policy in his corner wins with his version of the truth ---that may not be the truth at all. It may be that often the law is not about the truth but about the law and public policy.

There are, of course, multiple versions of the truth in practice and truth can always be improved on with new facts that support the truth if these new facts can be discovered.

The truth is powerful in that if all of the facts bearing on the truth are uncovered, the truth speaks for itself.

If you don't like my version of the truth, get your version out here TIF.

I am not a failed UPS Franchisee or a failed Quiznos franchisee but I am close to someone who did fail and I enjoy exercising my first amendment rights on Blue Mau Mau.

My mission is to INFORM AND WARN and to make my government better. "Ask not what your country can do for you, ask what you can do for your country."

Action, Not Condoning

Definitely if too many people have the attitude of "nothing can be done compared to the might of almighty business," and keep silent, you're right, our voice counts for nothing. Not only franchisees, but Americans in general (I don't presume to speak for Canadians) are going to be ignored as voiceless. However, we still have a Constitution and we still are a country of elected officials. If they don't know what we think, we can't expect them to do our research for us and then act on that, can we? It would be understandable that our lawmakers think there's not much of a problem, wouldn’t it?

As for the few not making a difference, a recent example is the immigration issue. Just this week the opinions of the American public, gathering steam through TV shows (Lou Dobbs) and Internet sites (started by the few), has been shown to have had a major influence on Congress. Big business does not appear to be getting what it wants in this case.

There are, I'm sure, many other examples. And, for an inspiring example of a mere voice or two righting an institutionalized wrong, see the current movie, Amazing Grace. It shows an historical change, in this case through British parliament, in spite of the very strong opposition of big business. When I saw the movie, the audience clapped at the end. The decision (abolishing slavery in England), I believe, had a big influence on America 50 years or so later, when we were fighting the Civil War. The South might have won had Britain and Europe still had slavery. This is not a Civil War forum, so I won’t go into the reasons.

With the event of the Internet, and communities like Blue MauMau, where people can log on and find out what's happening among franchisees, there's an excellent chance of making a difference.

Franchising has parts that are broken, it’s up to franchisees to spearhead the movement to fix them. This is not something that one can reasonably expect government to take the initiative on without urging on by the people concerned. Sure, a lot of people don’t participate, for one reason or another (too busy working?), but that does’t mean everyone should give up and, especially, it doesn’t mean that nothing can be done.

As Shakespeare so well wrote,
“Thrice is he armed that hath his quarrel just,
And he but naked, though locked up in steel,
Whose conscience with injustice is corrupted"

Reference List Item 20 UFOC

In the old guide on Franchising put out by the Federal Government, re current and ormer franchisees, they indicated: "Be aware that some franchisors may give you a separate reference list of selected franchisees to contact. Be careful, those on the list may be individuals who are paid by the Zor to give a good opinion of the company."

Does this advice indicate that the government is aware that this can happen and that it is not in any way or manner against the law to do this? Doesn't this warning indicate that the government is aware that Item 20 information and references are an imperfect method to investigate the "risk" involved in purchasing the franchise, and, also, that they are aware that Item 20 presents an imprecise, incomplete, and misleading view of the failure and success of the business plan that the government indicates that it is regulating to protect the consumer.

Will the new Item 20 requiements make a difference? Although, references who have signed confidentiality agreements will be disclosed in the UFOC and will still be silenced, will it be possible that those who haven't signed confidentiality agreements will be paid to give good references ----and this is not against the law?

TIF: an oxyMORON

Again, making an assumption this person is his nemesis, the Item 20 Rantor, and continuing his hard-on for this individual. Didn't I tell you if your hard-on lasted more than 3 hours, go see a doctor? Better get going!

The FTC, operating on a shoe-string budget vs.the zealous lobbying efforts by the franchise industry - it's simply no contest.

And maybe, I'M the dreaded Item 20 Rantor, or maybe not - we'll let your hard-on decide.

Material Facts? Failure Rate a Material Fact?

Michael! Is the Failure Rate of the franchised business plan that is "knowable" to the franchisor. because of the provisions in the contracts that mandate that ZORS must approve the transfer-sale of a franchise and appove the distress asset-purchase agreement between the buyer and the seller, a material fact under Canadian Law?
I really hope that our country gets a superplus FTC Rule ---a private cause of action, an enumerated list of mandatory disclosures, and a basket clause requiring the disclosure of all material facts.
I also hope that both of our countries will disclose the material and important fact of the failure or the success rate of the franchised business plan.

Barbara Jorgensen's picture

Throw out the UFOC!!!

Amen to that!! Get rid of the crooks too. Yes lawyer or some representation is a must!!

Sacrifice of Individual Rights to Public Policy--PATRIOT LOAN

All of these pro-franchisor people who make their living in the industry are really frightened that the REAL RISK of a frnchise purchase might be revealed to the public if franchising is regulated as well as Securities are regulated by the SEC.

They don't care that our government who puts our troops at risk to protect foreign policy that protects our liberties, to include capitalism, will NOW put our troops at risk to further the interests of franchising and the public policy of obscuring the real and true risks of purchasing a franchised business opportunity.

They certainly want no discussion about the failure of both the federal and state governments to require franchisors to disclose the real and true risk of the franchise they are selling to the public to either the government or the buyers of the franchises.

They lean on the "due diligence" issue while both they and the government know that many investors trust in the appearance of government oversight and will not do killer due diligence to discover the actual failure and success rate of the franchised business plan.

The government offers the list of refere4nces as a "due diligence tool" to hide their failure to make the franchisors disclose the true and actual risk of the investment.

Ugly public policy.

Paul Steinberg's picture

Toporoff's point

We have discussed why the FTC has not exercised its Section 5 authority, and much as I hate to say it, Mr. Toporoff had a point some years ago when the GAO was doing those reports on the FTC's enforcement activities.

Indeed, if one of the prongs is harm "not reasonably avoided" by the negatively-affected party, then the rise of the Internet and fora such as BlueMauMau would suggest less need for Section 5 enforcement.

FranSynergy's picture

Wrong Article

WRONG Article!  The quote which you reference came from "Death by Government Protection" and not The Onion.  Nevertheless, can it now be assumed that you are in support of LESS governmental regulation?

I do not want nor do I need the government to protect me from me.  It IS NOT indefensible to oppose governmental regulation of or interference in commerce beyond the minimum necessary for a free-enterprise system to operate according to its own economic laws.

Please now join me in supporting the traditional American belief in individual rights and responsibilities that have led to the creation of the wealthiest nation in the history of the planet.   

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

agreed

>>We would be better served to revoke the FTC Act and just leave people to fend for themselves - as that is exactly where people are anyway. --<<

But the zors would hate that. They like it the way it is, zees lulled into taking a leap of faith because the guvment wouldn't let anyone take advantage of them.

If they knew they were on their own, they might do a lot more due diligence and less agreements would be signed.

Dirty Little Secrets of Franchising ----Transfer of Liability

This would be a best seller if people like Richard Solomon would really tell all of the dirty little secrets of franchising.

But, they are hidden by agreement under public policy and an attorney would be committing suicide if he revealed them in a book unless he was thinking about moving to the UK and opening a Pub.

I guess Richard is telling Debby and Richard that even if you sign contracts that were fraudulently induced, if you can't prove this under federal law governing franchising and the franchise agreements, you are just a sacrificial lamb and to "get lost" until you win your case.

Let's change the subject and talk about the dirty little secret of the franchisors transferring liability to you for the operation of your "own" business, that they absolutely control because they control your assets for the term of the contract in success and failure. It is a myth that you will own a business of "your own" because you are owned by your brand corporation franchisor when the franchisor controls your tangible assets in both success and failure "till death do you part" ----and the death of the first-generation franchisees so often contributes to the continuing life of the franchisor in "managed churning."

Let's talk about the liability issues of the franchisees who not only bear all of the risk of building a unit to WEAR the brand name but who also bear all of the risks of operating the business under the proven business plan that was branded.

Look at the Sona! They get a slap on thw wrist for selling a flawed concept to the franchisees because they were just incompetent and negligent and the franchisees are stuck with the liability when they are sued by their customers.

Look at UPS. They were smarter than FedEx or beat them to it and decided that rather than have a division of UPS that would operate The UPS Store, it would be much cheaper and more profitable for them to get MBE as cheaply as possible and then transfer all the costs of overhead and liability to the franchisees who would work harder and cheaper anyway because of the lure of profits. I'm sure that they were aware of liability of the shipping of pornography and hazardous waste through the mails when they made their decision to buy MBE and transfer this liability to franchisees.

As Paul Steinberg said, why would any corporations who could franchise operations invest in their own divisions if they could get it done by using the venture capital and labor of franchisees?

Tongue in Cheek! Why doesn't FedEx sue UPS for unfair competition ----i.e. looking around for a deal on a shipping-mail-package franchise that they could get CHEAP and then cutting a deal where they cut FedEx and the other Shippers out of the pie while stiffing the unsuspecting buyers of The UPS Store and the older owners of the MBE Stores with a lousy and flawed business plan, and then competing with them as well.

I sense Richard Solomon's contempt for anyone who would be stupid enough to buy a franchise to begin with and we notice that he only thought about becoming a franchisor with his beloved "Muldoon's" but he couldn't bear the thought of his "one of a kind" saloon becoming a Ruby Tuesday's and he, of course, would have been really tough on his franchisees and he doesn't need the money anyway!

No one is interested in FTC Progam concerning Franchising

Why is no one interested? It doesn't seem odd to you that the FTC goes to such ends to prohibit misleading statements concerning success or earnings and yet they don't require the franchisors to disclose the KNOWN statisticsl risk of the investment as demonstrated by the failure or success of first-generation franchisees.

This ZOR-Known statistic is the only means of determining the material risk of the investment but the FTC permits ZORS to obscure the failure rate of the original first owners in the transfer columns of the UFOC

It doesn't seem odd to you that this new program of the FTC, the ALE, that is kind of a traffic court for franchisors who fudge in the UFOC's came into being in 2003--and for what purpose? All government programs have a purpose, even if it isn't the stated purpose provided to the public.

Maybe I could write to Janet Sparks and she could find out more about this program. Apparently, the names of the franchisors who go to ALE school are not public information so it isn't like an arrest, or anything.

Too late to contact the FTC because comment period is closed and all of this is in place and I don't want to endanger myself or my family who have already been injured enough by the "system." We have ample proof in recent years that "whistle blowers" are punished by government and we even have legislation to try to stop this punishment of whistle blowers but the legislation is weak because The Congress doesn't want to encourage whisle blowers.

There was a victory for truth today in that AG Gonzales resigned. I don't think he is a bad man but a good Attorney General should be independent and play ball only with the law and not be a team player who works to win for his political team.

how could that possibly be true?

BMM provides in an invaluable service in shedding light upon an industry that has a vested interest in keeping potential investors uninformed or worse yet under the illusion they are informed. I know of what i speak as i am one of PT Barnum's follies.

The only negative outcome of maintaining a site such as BMM as that it attracts vultures such as yourself (as one can only assume given the obvious agenda of your posts despite your best efforts to not reveal where you yourself stand in the industry) to further obfuscate that which is and should be self-evident after browsing this site for five minutes.

yours is an early post for a sunday morning. couldn't sleep last night? i wonder why...

You are not alone! D&R ---NO ARBITRATION FAIRNESS

Why don't you write to Michael Moore who is doing another documentary on Corporate Greed and the Law and Government, I believe.

Maybe this would help the Arbitration Fairness Act to get out of Committee. Who knows! You could try. Paul Bland needs some help to publicize how arbitration is used to deny people their constituional rights.

I think, also, the banks are going to take a better look at franchisors and what they are selling. The banks haven't been doing any due diligence on the franchisor when they let you use your home equity account for a business loan because the collateral of the house protected them, but now, with the sub-prime scandal, I think things are going to be different and the banks will look at both the ZOR and the ZEE very carefully.

Maybe there will be competition for franchisees by those franchisors who are selling the same or a similar concepts and they will have to disclose how successful their first owner franchisees are to new buyers. And, only those franchisors who are successful with their first-owner investors will survive!

We have to keep fighting for justice!

FTC Act, Section 5 ---and Rule Enforcement failure

In looking in from the outrside,  the lay person believes that Section 5 of the FTC Act would prevent the practices and constructive fraud that has  been legalized under the 1979 FTC Rule governing the disclosure of "essential" information to prospective franchisees upon which ZEES  can assess the risk of the investment in a franchised "proven" retail business franchise.   Obviously,  the FTC themselves aborted the purpose of the rule as stated by the FTC and knowingly permits franchisors to use their SBA Franchise Registry Status and Press Releases to sell unviable products to the public.                 

Apparently,  the confusion or lack of a definite  description in the law of the relationship that exists between the franchisor and the franchisee provides the opportunity within the law  to treat franchisees differently and  less fairly than "consumers'  or "employees"  or "partners."   Franchisees are governed under the law of the unilateral contract that is not bargained and that permits franchisors to devise long-term contracts in which the franchisors have the discretion to deal with their franchisees in bad faith to maximize profits  ---and to  be excused by the courts because of the terms of the contract.   

The courts appear to indicate that their first duty is to faithfully interpret the actual terms of the contract to which both parties have put their signatures,  and to cooperate with the regulatory policy established by The Congress and the FTC.   The courts overlook the constructive fraud of the FDD and the FA, which, together, induces  franchisees to sign the unilateral and exploitive contracts because prospective franchisees  believe this is the only way they can enjoy the opportunity for profits and success  that have been  promised outside of the contract.   The courts apparently don't understand that franchisees, on the whole,  are not sophisticated business people but rather unsophisticated marks who are more often looking for a means to support themselves in   the "new" economy that exists within  the "global" economy.          

We see the federal policy as manifested in the Coffee Beanery Case in which the State of Maryland demonstrated that they are not interested in the viability of the franchise that is being sold to the public and  only interested in whether or not the franchisor is compliant with the State UFOC/FDD disclosure mandates.    The Federal Court in Michigan deemed the Maryland Rescission to be only  an administrative action and not fraud,  even though The Coffee Beanery agreed to the Rescission and the franchisees of the CB in Maryland were destroyed financially  in the process of negotiating the rescission.      If substantive violations of the Rule and the state FDD's are to be treated only as Administrative Actions by the States,  what is the purpose of the anti-fraud statutes passed by the state legislatures?   What is the purpose of the Rule,  if not to prevent unviable franchises to be sold to  unsuspecting  prospective franchisees?        

Now,  our attorneys on Blue Mau Mau  are suggesting that Blue Mau Mau can counter the premeditated and ongoing sacrifice of prospective franchisees to the fires of development in the economy.   Now,  with the event of the new Rule, the constructive  fraud will be  exaberated by the use of the Internet to sell franchises based upon the appearance of government endorsement of franchises who are invited to list themselves on the SBA Franchise Registry on the basis of the approval of the SBA of their contracts only,  and not based upon their disclosures mandated  under the Rule or the FDD.   Items 19 and 20 of the FDD will continue to be a subsidy of the franchise industry that permits them to obscure the risk of the investments in the franchises they are selling to the public.    The "due diligence" excuse that the FTC uses to excuse themselves from Section 5 enforcement of the FTC Act in franchise matters is not defensible and Mr. Toporoff(?) resides  comfortably in the pocket of the IFA in the long-standing immoral and unethical status quo of the regulation of franchising.                          

It is difficult for the naive and inexperienced outsiders (now our Veterans and retired military and their families)  who are invited to be entrepreneurs to understand that their government has developed regulatory policy that permits the franchisors to sell their products at any degree of risk to the buyers!   It is difficult for the inexperienced target to comprehend that an agency of their government,  the SBA,  will guarantee loans for franchises that have demonstrated a very high degree of risk for first-owners, i.e. first-generation franchisees.   

Richard Solomon and Paul Steinberg talk about the affect that the Internet may have in alerting prospective franchisees to the dangers of the franchise relationship and to the necessity to do deep and killer due diligence on all franchise opportunities.    But,  in my research on the Internet,   I find that most of the "hype" about franchising is undistrubed and not regulated and that those who find the Blue Mau Mau site are just lucky and "few and far in between"  in the total picture.                

Re: Why are you so bitter?

"you have no objectivity whatsoever."

talk about the pot calling the kettle black. you have the biggest axe to grind of anyone on these forums. try talking in facts instead of rhetoric and perhaps you'd be given more respect here...

Coffee Beanery Case

While I have never understood the mentality of thinking that a very limited Rescission from a State Regulator and then a zee suing is two bites of the apple, I can tell you that what happened in Md. does not come close to one bite, let alone two.

R&D have not intended for anyone on BMM to consider sharing thier story as whining or crying. Anyone reading this story and most of all Franchise Attorneys, should be able to read this case and understand the need for Reform.

Read up and understand this case:
1. R&D had an attorney over a year before Cantone gets involved.
2. R&D are the only zees in Md. who file a complaint with the AG
3. There are only 2 cafes in the entire State of Md.
4. Cantone has been the force behind the "2" bite theroy. He has given testimony before Congress in the hopes of Congressional backing for "2" bites.
5. The second cafe owner in Md. goes to Cantone to file a complaint and asks "Do you think I should get an attorney?"
Canotnes answer: "No because you will benefit from what wver Maryland does."
6.The second cafe owner takes that advise, right or wrong for being that trusting of his State Officials, and is now close to bakrupcty for unpaid rent, which he is still responsible for.
7. Cantone for the first time decides that anyone who takes THE DEATH WARRANT RECISSION, will have to waive the right of private action. Knowing Cantone, that should be a red flag.
8. R&D have an arbitrator appointed in August of 2005, even though they had not seen an arbitrator list for selection until November of 2005.
9. This is the first even for the AAA
10. Have you ever had an arbitrators list for selection along with all the bio's, but no Disclosure?
11. R&D were denied every request for an explation from the AAA about the selection or the Disclosure that was not given to anyone until 1/2006.
The Disclosure received on 1/2006 was dated correctly, except for the accountant. That Date Was 2/15/2005. A full year in advance
12. The Arbitrator lied
13. The arbitrator Discloses that the attorney defending CB had appeared before her before. HMM, remember that disclosure dated a year in advance? Connection?
14. Many letters from R&D's attorney demanding more information concerning this Disclosure as of this day, are ignored
15. THE OUTRAGEOUS DECISION.
16. The FA and the Arbitration Agreement had been amended by both sides that violations of MFRDL would be excluded from arbitration.

This is not a case about feeling bad for a zee who has lost everything. They have alot of Company. They are only 1 of more then 100 in the CB System

This is a case that should make every attorney in the DD Business worry about the outcome one of thier clients may have.

This is not Justice. This is in itself the biggest violation of the entire case.

All the laws were ignored and broken. You may not like R&D, but you should like even less the miscarriage of Justice that has unfolded before all of you.

I think they are courage and I respect them for continuing to demand that Justice Prevail.

Anyone of you who think that your Destiny may bring you before our Judicial System, better take a long hard look at what can happen.

Remember this was The Coffee Beanery for God's sake
How many innocent people have suffered this kind of "Justice" At Least R&D are strong enough to go and continue to screm:

HELL NO WE WON'T GO

Paul's historical perspective does not endorse your position

Please don't make Steinberg's post about you.

Bad decisions

So good to again have comment from Les Stewart, MBA, of Franchise Fool.
Les is the only poster who deals with the concept of franchising and its inherent evils that become even more inherently evil when there is an imbalance of information.
His common sense solution, i.e. "let the investor have the complete picture before they sign up" will probably be attacked by the same person who speaks to me or Les about Paul Steinberg's position. I have always understood Paul Steinberg's position and I think his objective comments and his citations on the law, etc.. are always self-explanatory and more for the purpose of educating readers about franchising than arguing his position.
Maybe someone needs a "time out" again!

Paul Steinberg's picture

Lets not chuck the whole model

Les writes that the Rational Actor model is "overly simplistic".

I agree, but I would also suggest that:

  1. The Rational Actor model remains a good starting point.
  2. What is seemingly "irrational" behavior is often quite rational if you understand the reason for the behavior; that is, for example, what "time-shifted rationality" is all about.
  3. I do try to point out to prospective zees what biases may be affecting their decision, and let them decide how to factor that in to their franchise purchase.

Les writes:It is the imbalance of information that is the source of most opportunistic behavior in the first place. Let the investor have the complete picture before they sign up.

This is sometimes true, but in my experience most UFOCs out there today do effectively tell the prospect that once they sign on the dotted line, the f'zor will have control over pretty much every aspect of their business, and can even compete directly with the f'zee. Even the issue of post-relationship obligations (non-competes, "liquidated damages", etc) is disclosed in most of the UFOCs drafted by the competent zor-side law firms.

People have the information. They chose to ignore it.

That may in fact be a rational choice (that's a whole nother topic), and I do agree with Les that better information sharing is critical. I would add the corollary that the manner of presentation in the UFOC could be improved to better highlight the risk factors--I can count on one hand with 4 fingers to spare the number of f'zee clients I have who actually read their UFOC cover-to-cover; if f'zors can do a snazzy PowerPoint at a sales seminar, that same use of presentation skill can be brought to UFOC drafting, and the law should encourage that.

On Les' statement on private law, I am puzzled. For the most part, US law does permit zors & zees to contract around what little franchise legislation exists. Many f'zee advocates assert that the ability to contract around statute is a big reason for overreaching in the first place, so perhaps I am mis-understanding Les.

you go first.

remember that question has been in your court now for months and you refuse to answer. why should Mr. Stewart succumb to a litmus test that you yourself won't take?

you know the answer, i know the answer, and we go round and round again. TIF, i think it's that time to sell the glass van down by the river, too many stones to throw down there on the riverbed...

sleep tight.

ZEES and Ineffective Regulation --- Coffee Beanery

D&R!

Think about it this way. The state UFOC must be in compliance with the FTC regulatory policy that was established by the FTC Rule in 1976 for the purpose, the FTC said, of making frnnchisors disclose ESSENTIAL (not Material) information on which the potential buyer, the ZEE, could assess the risk and rewards of the investment. In my opinion, the Rule was just an artifice produced to protect the franchisors from lawsuits for fraudulent inducement to contract and misrepresentation of the contract, etc. and the risk. Once a franchisee does due diligence on Item 20 AND signs the boilerplate contract, the subject of hiding or misrepresenting the risk of the investment is moot.

The FTC Rule DID NOT PROVIDE A PRIVATE RIGHT OF ACTION to those franchisees who would be injured by a franchisor who violated the terms of disclosure under the Rule. It was not the intention of the FTC to do this because they knew that such a private right of action for violation of the Rule would endanger Franchisor Networks. It is the franchisor networks who feed the economy and not the individual franchisee.

While the FTC set a "standard of care" for franchisors, they did not intend that franchisors would compensate franchisees who were injured when the standard of care was violated, and they didn't intend that Section 5 of the FTC Act would be brought into play and be used against franchisors.

The Little FTC Acts of the States appear to work against, or go beyond, regulatory policy as established by the FTC who has the authority under law to set regulatory policy.

As I told you before, I think your "case" posed a threat to the FTC regulatory policy and you had to be disposed of to protect federal regulatory policy.

Think about this!

Carman the Item 20 Ranter is Right!

Paul is an idiot and most often wrong.

I am swayed by Carman's eloquent and sage argument and for the sake of democracy, citizens and American business I hope the government crushes these franchisorconquistadores once and for all and makes it safe to franchise.

Additionally I do not want to hear any crap from the likes of Solomon or Webster two equally inept miscreant merchants of the fallacy of due diligence.

baci mi culo bambino!

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