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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

Disclosure is important

I have read Professor Spencer's work , and generally am in agreement with her. I would very much doubt, however, that she would say that disclosure laws are irrelevant-- they may not be the be-all-end-all of franchise regulation, but I don't see anywhere that she said they were irrelevant.

And besides: if a franchisor tells you that it will be competing with you and that you will have to buy raw material only from a f'zor subsidiary...well, if you go ahead with your franchise purchase (as with the Quizno's folks nowadays) you can hardly complain afterward that the disclosure document was irrelevant---it was most relevant, you just chose not to read it.

Rather, Spencer makes the point that in a relational contract, it is impractical for the parties to anticipate every situation which may arise over the course of the relationship. The question then becomes: What, if anything, does society do about that? This Q becomes particularly important where the damage will impact the larger society, as in the case of franchising.

There is a "disclosure fixation" and there is a bit of cynicism on the part of the IFA and others in promoting disclosure as a means of avoiding discussion of relationship legislation. But the IFA does have a point: prospects should read their UFOC before they sign the document, and approach this as a business decision. That means if you don't like the UFOC, don't let your emotions get the better of you. Walk away.

No one needs to "rip power" out of anyone's hands. The internet is reviving the importance of reputation, and I think that you have even seen some of that effect on this very website.

Bob Frankman's picture

Blame Canada

"If I am right (about Ontario's private cause of action for franchisees and an enumerated list of mandatory disclosure of all material facts that the U.S.'s States now lack), then you can indeed 'Blame it on Canada'." - Webster

Here is Hollywood explaining Webster's reference of "Blame Canada", bringing a little culture into our rather drab, legal discussion. This Oscar Ceremony skit takes inspiration from the lofty animated television series, South Park. (Notice the skit's reference to "They killed Kenny" and the juvenile South Park way of speaking, e.g. "fart and curse".)

Didn't know I was such a fountain of knowledge when it came to culture, did you? Oh, and I think the commentators are speaking German.

There is nothing wrong with that

I personally would have no problem with a private cause of action under the FTC Act, although I can understand that this may in turn bring up concerns about clogging the docket; however Paul is correct in that most people are under the impression that the government will provide mechanisms or remedies that will appeal or otherwise cater to their timetable and sense of justice.  As it stands the FTC does not appear to be the be-all-end-all that most people desire it to be, with respect to FTC's infrequent regulatory action and infrequent Rule updates to reflect current economic or legal trends, yet most people spout the Rule as the basis for the inevitable legal success they may have against the franchisor for violations, i.e. "so-and-so franchisor violated X provision of the FTC Rule thus I will win."

I am all for better franchisor disclosure as I think it will inevitably strengthen the relationship for both franchisor and franchisee.  It would conceivably motivate franchisors to be fairer in the treatment of their franchisees.

Although I have also followed the ULCC proposals with some interest, do you have other references to US laws modifying as a result of Canadian changes?  I am not being nationalistic or sarcastic, I can honestly think of no examples and would actually be interested in such trends.

 

michael webster's picture

Rational Actors versus Real Prospective Franchisees

The due diligence model is most certainly broken, and the main culprit for franchise laws is a well known cognitive bias, known as the wason effect, after the psychologist Paul Wason.

The empirical evidence that the due diligence model is broken is well known to most franchisee advocates: by the time the prospective franchisee shows up on your door, ostensibly to review the franchise agreement and disclosure document, it is too late for rational discourse over the merits of the purchase or investment.

The prospect is invariably in love with the concept behind the franchise, wooed by an excellent, but deeply flawed sales pitch, and worse doesn't really know what the actual deal he is entering into.

The wason effect , related to confirmation bias, is the key cognitive process any due diligence scheme needs to address. 

The problem is this:

a) When presented with an abstract or unfamiliar inference of the form "if p, then q", and asked to confirm the inference, people invariably "test" it by looking for cases in which p and q are both true.   The correct logical test is to look for cases in which p is true and q false.  Looking for confirming cases tells you nothing about the rule.

b) However, the wason effect is severely curtailed if there is a clear penalty for getting the confirmation test wrong.

Here is an example of the latter.  If the rule to be tested is, No Underage Drinking, or if you are drinking, then you must be over 18. People understand that to enforce this rule we need to look for: drinkers but who are under 18.

For example, it is very typical  in a business opportunities fraud for the investor to have performed the following "due diligence": check with the local BBB, and possibly order a Dun and Bradstreet Report.

The first step is always commented on with pride by the disappointed investor. "How could I have possibly known more than the BBB?"

The investor has fallen afoul of a complex wason effect. A bad BBB report means that the company in question has reputational problems; but a silent BBB report is not a recommendation of the company. Interestingly, investors refuse to accept at face value what the BBB websites all state: "We don't recommend companies".

The FTC disclosure package for a franchise says "We haven't checked this", ie the equivalent of a silent BBB report.

But the dumb franchisee, having been presented with a confidential disclosure document several weeks before closing, having no clue about how to check the representations, inferences, or rules in the document, looks only for evidence which confirms his initial wrong and incomplete views. 

Confirmation bias or the wason effect is deeply ingrained behavior, which if ignored by law makers will result in a due diligence scheme that cannot deliver the necessary market for reputation.

(If this was an academic piece, I would say more about why I think that both Les and Paul are wrong about due diligence and markets for reputation.  In short, I don't think that there is any evidence that franchisees have an imbalance of information, and I think that Paul is not sufficiently attentive to the institutional demands of bound rationality.)

"Persuading someone that his judgment turns on a misperception that he cannot see, and that neutral third parties cannot see, will be vastly more difficult than pointing out a logical slip which becomes undeniable once it is pointed out.", Howard Margolis on the Wason Puzzle.

Michael Webster PhD LLB

Misleading Advertising Law

Paul Steinberg's picture

Open to suggestions, eh?

A good case can be made for permitting a private right of action under the Franchise Rule. But given that the law currently does not so provide, these franchisees that focus only on the Rule do themselves a disservice.

At best, they fail to pursue common law and state law claims. At worst, they bring a frivolous suit in federal court which promptly gets tossed out by the judge.

I name no names, but as you may know, some law firms tell zees to fork over a hefty retainer so that they can bring suit on behalf of franchisees against the franchisor, alleging Franchise Rule violations. Not only are they wasting the zees money, but such decisions wind up being seen (incorrectly) as victories for the zors when in fact they are simple dismissals on grounds of standing and not addressing the underlying actions of the franchisor/franchisee relationship.

I had someone come to me a while back and he wanted to bring such a suit in the SDNY; I told him that unless we could make a sound argument for such a cause of action, he might as well buy some lottery tickets in lieu of the retainer. I did some brief research and couldn't come up with anything plausible. The zee told me that another attorney told him to bring the suit even though it would be dismissed since it would pressure the zor to cough up money; to me that borders on unethical and arguably sanctionable conduct--if the attorney were to actually admit to this in front of a judge, he well might be sanctioned, and properly so.

If anyone can come up with a claim under the Franchise Rule which has a chance of surviving a summary judgment motion, I am all ears and open to suggestions... even from Canadians, eh?

Paul Steinberg's picture

David French wipes floor

Guest writes: I think Paul Steinberg is wrong! The inexperienced potential franchisee doesn't understand the implications of the "no reliance" clauses and relies on the visibility of the franchise in the FDD and the community, and the knowledge that all of these "standing" brand units have signed the same franchise agreement.

Umm... did you bother to read our Penn State L.R. article?

Those are the same points we made, sourced to empirical data and case law from around the world.

Assuming, arguendo, the facts to be true: What do we do about it?

You may not want to hear this, but jurists, legislators, and voters all engage in weighing the costs versus benefits of government intervention. Unfortunately we see too little of that on BMM, not to mention in Washington.

That's why David French wipes the floor with zees: at best, zees whine to their Congressman like he's their Momma (& most never contact their Congressman), so when IFA is on the hill with their bogus stats and PAC money, the franchisors appear as the (wealthy) voice of reason.

The IFA doesn't win because they have a better lobbying effort, they win because franchisees have no lobbying effort. Whose fault is that?

 

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

Howard R. Morrill's picture

Agree and disagree

I'll agree that an "inexperienced potential franchisee doesn't understand the implications of the 'no reliance' clauses and relies on the visibility of the franchise in the FDD and the community, and the knowledge that all of these 'standing' brand units have signed the same franchise agreement".

I'll agree "that the [extremely] naive franchisee depends upon the integrity of their government and relies on their government to protect them."

I'll comment that being naive and depending on government can both have adverse consequences--but if you're here, you know that already.

I'll disagree that this was some big conspiracy.  It's more a case of some well intended legislation/regulation being turned on its head.  That happens a lot.

I do think there is sometimes hope for those who signed BS merger clauses and disclaimers.  Those are really just waivers/releases which are prohibitted by the anti-waiver language of the franchise laws of some states.

Hard to Get Up after you have Died by Hanging out with Wrong ZOR

ZORS are not in business to make money for ZEES. This is a myth. They prefer that you make money but it is not necessary to their survival. They count on the fact that the financially dead ZEES will not be able to mount a good offense because they won't be able to afford an attorney, or to lobby their government.

RichardSolomon's picture

That is absolutely correct

The ABA hs no regulatory interest in franchising whatsoever. It's offices are not even interested in advising about franchise investment beyond mere window dressing.

Richard Solomon, FranchiseRemedies.com,  has 44 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School

Ariel ----from Item 20 guy

Thanks, Ariel! If I have saved just one person from a bad investment or enabled one person to find a good investment in a good franchise opportunity, all of my posting is worthwhile.

A good investment in a franchise from my viewpoint involves one in which there is profit as well as a job for the owner with a market-equivalent salary for the hours required to operate the franchise, A good investment in a franchise is a franchise whose first-generation franchisees generally make it for the full term of the ten or fifteen year contract, or who provide profits early enough in the game that the franchise can be sold at a profit.

A good investment is a RARE opportunity and can only be found through a search with seasoned and honest franchise attorneys who has no conflicts of interest with brokers or advisors, etc... The UFOC offers no protection for prospective investors and instead provides cover for the franchisors to sell their franchises with very high failure rates to the public.

The SBA Franchise Registry has registered many franchises that have high risks of failure for first generation franchisees that do not show up in the SBA Loan Default statistics and this misleads the public and the banks.

I am happy that you took a good look at franchising and decided to stay in your job. Were you, by chance, eligible for a PATRIOT EXPRESS LOAN from the SBA?

Bubba Logic on SBA

Thanks for indicating that the "SBA neither approves the viability of the franchise system nor does regiatration provide any real legitimacy to the franchise system."  

 You make my point for me and we notice the "faint" disclaimer of the SBA.  But!  you will admit that the franchisors use their SBA Franchise Registry Status in the sales process at the shows and on the Internet  to imply that the government is endorsing the franchise.  

You will admit that most normally intelligent people believe that their  government would not be in the position of guaranteeing loans on franchises with demonstrated high rates of failure.    

Fran Data manages the SBA Franchise Registry for the government and sells Snap Shots of franchise systems to the general public,  to include consumer franchisees.    FranData uses the private SBA Franchise Default List to prepare Risk profiles but FranData,  like the State Regulators and the FTC,  has deniability concerning the failures of franchises that are obscured in the transfer columns of the UFOC.   The FranData snapshots that are sold to the public are misleading, if unintentional,  because they identify "terminations" as "cancellations" and they don't mention "transfers" and incorporate "transfers into the total units standing in the systems.    

You indicate that "The SBA likely has little interaction with regulatory policy for franchising...."  and, of course,  the SBA and Fran Data can protect their position, because it is the FTC,  and not the SBA,  who permjts the franchisors to sell their franchises at any degree of risk to an unsuspecting public.  

You can't be so naive, Bubba,  that you really believe that the FTC and the SBA policy are not coordinated,  and that they "fulfill a purpose, nothing more, nothing less,"  independent of one another.   Do you really believe the SBA Patriot Loan Initiative just dropped out of the sky with no coordination with the Congress and the FTC?      

Pure crap with no basis in fact...

Item 20 Ranter - Don't you ever tire of posting the same tired old anti-franchising rhetoric. 

The Truth Shall Set You Free!

TIF

michael webster's picture

Material Change and Time for Due Diligence

Les;

I would insist on a period of 6 months minimum due diligence.  It should be a learning procees; it is not like buy a security which you can dispose of it in liquid market.

Under the FTC Rule updates to the FFD are:

"The Rule sets forth three updating requirements. First, the information contained in a basic disclosure document must be current as of the close of the franchisor's most recent fiscal year. After the close of each fiscal year, the franchisor must prepare a revised disclosure document within 90 days. 16 C.F.R. § 436.1(a)(22).

Second, a franchisor must also update its disclosures to reflect any material changes. Any such update must be prepared within a reasonable time after the close of each fiscal year quarter. A franchisor, however, need not prepare an entirely new disclosure document each time such a material change occurs. Rather, a franchisor may place any new disclosures in an attachment to the basic disclosure document. Id.

Third, the Rule contains specific updating requirements if a franchisor makes earnings representations. In addition to the above noted updating requirements, a franchisor must notify prospective franchisees of any material changes in the information contained in its attached earnings claim document prior to entering into the franchise relationship. 16 C.F.R. § 436.1(d). See Final Interpretive Guides, 44 Fed. Reg. 49966, 49970 (August 24, 1979). For franchisors using the UFOC format, Item 19 is the functional equivalent of an earnings claim document."

This is why I am not verly bothered by TIF's response to the hypothetical problem: I will get the relevant information in the next quarter if it is material.  Probably work out the same in Ontario.

But it does show you, indirectly, the length of time that the disclosure laws expect you to take in researching your purchase - at least 3 months. 

Now the problem with an empty 19 is much more problematic. 

Michael Webster PhD LLB
Franchise News

Franchise is NOT A BUSINESS OF YOUR OWN

The ZORS use this LIE of a business of your own to enslave you. They really believe and know that "a sucker is born every moment" and that you are there to have your capital and cheap labor sucked up to build the physical units that WEAR a brand name.

Please continue to post Due Diligence and to try to fully understand what happened to you and why! Read 10 Reasons NOT to buy a franchise that was published by Forbes.Com. (a NOLO Article) and understand that you are just leasing a business opportunity in which the franchisor gets to USE you and if you are lucky, you might survive to break even and you might earn a ROI.

I left a message for you on the "Managerial Option" offered by your ZOR on the Forum Government Regulation and Political Activism. Did you read it?

The Soloution to Disclosure

Okay! If I buy Les Stewart's for "privately-run and publicly-supported expert software systems (i.e. reputation decision making models)that will deliver improvements to the disclosure process, how does this come about?

The government, the SBA, has FranData to support the existing ineffective disclosure mechanism and they can afford to contract with FranData. The snapshots provided by FranData that do not take into consideration the past or present performasnce data of the individual franchise units presents an incomplete and inaccurate picture to the potential buyer of the franchise. It is obvious that FranData is in business to push franchising and the Franchise Registry.

The artifice of imprecise Item 20 makes it possible to present this false snapshot to potential buyers of franchises. Always, the possibility of "inventive" and "innovative" statistics produces the appearance of truth but the lie lives to do its work because the whole truth is not disclosed.

The arrogance of Item 20 of the UFOC that pretends to give potential buyers the information that they need to do their due diligence is not understood by the naive potential franchisee who trusts his government. Why shouldn't the franchisor be required to disclose the known statistics concerning past and present unit performance of the franchises that are being sold to the public? Obviously, franchisors are protected when this disclosure is made by current and ex-franchisees and not by the seller of the franchise.

We all know that past performance doesn't necessarily predict future performance but it is all we have to determine the odds of success or failure and why should potential franchisees be deprived of this information?

Franchising creates profits for ZORS and lousy jobs

Retail franchising creates great profits for franchisors and those who invest in franchisors and really lousy part-time jobs for the American people.

This is how they sell this coverup of the risk in the franchise industry to the government but this is really a disservice to the American people. Franchising jobs are not good jobs with a future.

Government and the IFA really have guts to use the franchise job statistics to protect the current regulatory policy. Someone should go to jail.

Unfair Censorship of Do Diligence and Item 20 Ranter

Mr. Blue Mau Mau permits the comments of Do Diligence to remain in Article Comments and removes my comments to Government Regulation and Political Activism.

It is true that a franchise is NOT A BUSINESS OF YOUR OWN and this is pointed out in the Wikipedia Article for Franchising with citations ---and there is also mention of the Ten Reasons Not to Buy a Franchise with citations.

This is unfair censorship of the thread. Blue Mau Mau exists to promote franchising and to obscure the truth, just like the FTC and the UFOC????

Apparently, Mr. Blue Mau Mau wants someone to respond to Due Diligence with comments that it is his fault and that he contributed to the mess he is in because he didn't do his due diligence.

Staff Grateful to Franchisees

Guest wrote, "they maybe one of he best places to work for but its all at the expense of he franchisees"

Then the Dwyer Group staff should be thankful to its franchisees for helping make Dwyer one of the best places to work for in Texas.

With luck, happy staff might be able to return the favor.

20yearzee's picture

It's always better to know the ugly side going in....

Guest Says:It was only after the failure and the dealing with the hard and mean and dishonest (but legal?) tactics of the ZOR that I started to research franchising. Our ZOR has a famous and well respected brand name and I just couldn't believe that their ugly behavior toward us was part of American Business.

I understand this, because I was a franchisee for many years that never looked at my franchise agreement again after I signed it.  It went into a file drawer.

When trouble strikes, the agreement comes out of the drawer and every word is scrutinized by you and probably your lawyer.

The reason I like to write in this space is for future zees.  I want them to know what is going to happen GOING IN and not when they have to pull the contract out of the file cabinet and give it to the attorney.

Ugliness in the buisness world is not limited to franchisors. When things go bad, bankers, landlords, and others that you thought were allies can quickly turn in to adversaries.

Once you are no longer a member of the zor's royalty paying group, it has no reason to be nice, and every reason to take advantage of the leverage it has in the agreement.

I agree that it is shocking what the zor can, and will do when this happens.

I just hope that wanna-be franchisees ask what could happen if things go wrong BEFORE they sign on the dotted line.

Paul Steinberg's picture

Sorry, but

...only deal locally.

But if you drop me a line thru BMM (use the link at the bottom of the post or click on my profile and use that link) or direct (PaulSteinberg@nysbar.com) I'd be happy to drop out a copy of our article which discusses many of the things to be careful of when buying a franchise.

In terms of fees, it depends on your local market. But what you were quoted is not really out of line for a flat fee. If you have found someone who knows what they are doing, it's not bad.

The problem is that a lot of attorneys don't take the time to become aware of aspects of contract and commercial law which are peculiar to franchising, and no matter how cheap they bill the advice is not worth it. Also, don't neglect matters such as lien searches, tax authority notifications, and the like. I have seen a depressing number of attorneys who don't bother to do basic legal work common to any business transaction.

This is another reason why I'm not a big fan of hiring an attorney outside of your local area. If you are in my area, I can tell you about various state and local law as well as some of the "street smarts" which I have gained from experience. But if I were doing a deal in Chicago I would not be as valuable to you, and might even miss items which a local attorney would automatically attend to.

I really do think that if you go thru sites such as BMM and FranchisePundit and read our article, you will get a good idea of the questions to ask as you read through the UFOC and Franchise Agreement. It is not a substitute for good legal advice, but when you speak with an attorney you will be able to have a productive conversation. Best of all... its free.

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

Amen and Goodnight and Farewell to Kurt

Who told it like it is better than almost anybody.

Noise, yes you are right!

It is simply noise.  

The Truth Shall Set You Free!

TIF

Bob, not necessarily true? How about a lie...

The Item 20 Ranter is so stupid he doesn't understand the top ten list is made up of franchisees that have built hundreds of units. 

The Truth Shall Set You Free!

TIF

20yearzee's picture

Yes, but franchisee agreements are all very similar in many ways

Guest Says: "Additionally, the ZORS expertly word and manipulate the wording in the franchise agreements to disguise the hard and mean consequences of failure and this is a kind of constructive fraud in itself that complements the constructive fraud of offering the disclsure document and the contract as a package."

I have read many UFOC's in my time (though none in the past year or so), but the language in them is very much the same with regard to what happens if you are in default, or do not pay the francishor what you agree to pay in the contract.

While the wanna-be zee may not have any experience with this language, it is very similar in most franchise contracts.  Even a non-franchise specialist attorney should be able to figure out what happens if you fail.  Based on this, all zors under your scenario are engaging in this wording.

If a potential franchisee came to me and asked me to review the contract, I could point out very quickly the things the zor would likely do if the zee's business failed. Any lawyer worth his salt should at least be able to detemine THAT part.

Furthermore, if you go to the bookstore, or look on Amazon.com, you will find plenty of books in layman's terms that tell you what to watch out for in signing a franchise agreement.

I do not disagree with you that salespeople in zor offices oversell their concepts to new franchisees, nor do I disagree that the contracts should be written in plain, understandable 5th grade language.

Short of that, though, there is a lot of material out there for a potential franchisee to study, if they only will

And, as I always say, to get the true story - you visit the unhappy zees as well as the happy ones and past ones if you can find them.

Barbara Jorgensen's picture

TIF

Have you ever failed at anything? There is no shame in failing- just learning lessons.

michael webster's picture

Franchise Language

Guest writes: "All the attorneys who post on this site indicate that you can't get killer due diligence from a general attorney, and you need a specialist to help you with due diligence on the investment, etc.. and, of course, the due diligence with the specialist is expensive. This, of course, discourages deep due diligence with specialists and many prospective ZEES buy franchises based on the visibility of the brand in their view and in the UFOC and believe that the franchise agreement is a boilerplate contract as disclosed in the UFOC and why should they pay for due diligence if the contract can't be negotiated anyway."

You are buying a $400,000 house, say 30 years ago.

Do  you know what your legal fees would have been?

Well, because it has hard to search title, and there was real legal skill involved, your closing costs were 4- 6k.

Now, with title insurance searching title is simple: costs are down to 700-800 dollars.

Franchising is like home buying 30 years ago: there is no good reputation market so the cost of transaction is high.

Michael Webster PhD LLB

Franchise News

Bull Scat, YES on one thing, but NO on everything else.

First, where's your foundation? What does available due diligence assistance or a government warning have to do with the fact that most buyers choose to heed neither? We are well on our way to total dependence and entitlements, but we haven’t reached the point of “highchairs and forced feeding" … yet.

Second, you provide only a piece of the warning. “TO PROTECT YOU…” is the opening, but why don’t you quote the whole statement. It reads this way:

=====
“To protect you, we've required your franchisor to give you this information. We haven't checked it and don't know if it's correct. It should help you make up your mind. Study it carefully. While it includes some information about your contract, don't rely on it alone to understand your contract. Read all of your contract carefully. Buying a franchise is a complicated investment. Take your time to decide. If possible, show your contract and this information to an advisor like a lawyer or an accountant. If you find anything you think may be wrong or anything important that's been left out, you should let us know about it. It may be against the law.

There may also be laws on franchising in your state. Ask your state agencies about them.”

=====

Sounds like a call to do some homework. Doesn’t it read that way to you?

Third, who cares if it turns out to BE “a non-negotiable contract”? No one is twisting the buyer’s arm to buy except the buyer, and the point is NOT whether the deal is non-negotiable, it about the buyer's obligation to “understand” it. Hence, the disclaimer says “if possible, show your contract and this information to an advisor like a lawyer or an accountant”. "If possible" sounds to me like: "Do you know how to Google 'franchise attorney'?"

Fourth, salesmen and advertising are not limited to franchising. “As Seen On TV” is big business, and even the “do not call” order is expiring, so we are easily lulled into the absurd, we need to hurry up and renew our place on the list before we are forced to buy from those telemarketers.

Sorry, but I find no substance in your rant, so I ask you to reconsider.

But, with all of this said (and I’m not going to respond again unless there is a substantive rebuttal), I do agree with you that the “non-disclosure – Item 2” decision is lousy because it reverses a major “disclosure” designed to HELP US in our due diligence process.

I am not a believer in big government at all, but short of this last decision, I think franchise disclosure is good and the present system provides a great basis for decision-making.

Good luck, and sorry if you got burned in the past. You can help others now, if you are so inclined.

Barbara Jorgensen's picture

Are you TIF?

I miss your comments on here.

This Carman charactor must be quite angry at franchising!

This person seems to hijack every thread and convert to a discussion about Item 20 & 19 with an FTC conspiracy.

What franchise did Carman own and what happened and why are we being punished by his ridiculous postings?

Re: Re: The Dwyer Group Named Among Best Companies to Work for i

Don Dwyer started this franchise businees in Waco. he was just a cheap, sleezy, glorified salesman that would sell his family for a buck. And the management team in Dwyer should go to jail for what they have done to the ZEEs over the years.

Don't Harp; Moving Forward Is Therapeutic

Business owners will overwhelmingly fail. But don't get down on yourself. Another great quote:

"The best cure for depression is time and activity. Most of us come out of depression with time. Activity - doing a course, going on a trip, painting the house, anything - helps.

Since men, after failure, usually get more in touch with the feminine or `feeling' side of their nature - the anima, as Jung calls it, it might be a good idea to go in for TM, Reiki or Pranic Healing. Women, on the other hand, tend to tune into the male or animus part of their psyche after a failure. Courses on leadership, assertiveness, sales training, etc would be appropriate and make it easier to come out of depression with a purpose and a plan for the future."

Dale Cantone and Adminsitrative Action

Is what I'm seeing on all of the the Consent and Show Cause Orders on The Md. AG Web

I have also noticed that R&D are the only ones that had to waive the private right of action.

It was suggested that the feds would reject "two bites of the apple"
That is not true. The FTC has allowed the States that require registration to preempt the FTC Rule.

While there is more then enough blame for what has happened to D&R to go around, the big question is why did Maryland let CB off the hook?

This is not about what the attorney did wrong. That is a different story.

This is about a State Regulator who happens to be the head of NASAA, who caved, for a small unknown like CB

What is going on? Dale Cantone owes answers to a lot of people. Why would someone of his reputation, risk that for CB?

R&D got screwed. Plain and simple. I have been looking at the Maryland AG web for the last week, and sure enough, no other Consent Order asks for the waiver of private rights.

While I agree that it is not the job of the State or Federal government to watch over people who choose to invest in a franchise, the disclosure in all UFOC's encourage people to contact the State and FTC if they find there is a problem. They go on to tell people of the laws and what protection is provided by the different state agencies if a law has been violated.

My point? Don't let your mouth write checks that your butt can't cash. That may be the reason why so many posters are criticial of the government agencies.

It is nothing more then a scam that is bigger then that by the zors, in tricking the public into thinking that someone is really paying attention to what the hell is going on.

So don't be so hard on people who are down on the government for letting them down. They have every right to be furious. Thier tax dollars pay the salaries of those, whose job it is to enforce the law.

There is no need for new regulation in franchising, just new regulators who are not afraid to enforce the law.

Everyone should want BARGAINED contracts to be enforcible

Franchise Agreements are not freely bargained contracts. The government UFOC presents the franchisor's contract as UNIFORM and STANDARD. Government regulatory policy as established by the RULE of the FTC enables the franchisors to trick franchisees into signing these unconscionable and unilateral contracts that give the franchisors a license to steal.

The prospective franchisees believe that all franchisees stand in the same legal relationship to the franchnisor, as represented by the UFOC-Contract terms. They don't bargain these contracts because they don't understand that they can be bargained (doubtful)! The only way they can get at those "profits" promised by the franchisor who will "award" them a franchise is to sign the unilateral contract.

I'm sure the courts are aware of the constructive fraud produced by the sales process that involves a combination of government disclosure of a unilateral contract together with the contract that, when signed, protects the franchisor 100% from anything that is said or done outside of contract.

When the three branches of government get together to stack the deck, the outcome is certain. "Oh, what a tangled web we weave, when first we practice to deceive."

We need some truth in franchising! TIF should put his truth where the sun don't shine!

Contracts And Quiznos

In most cases I do - but a decision by a buyer to sign a contract with a group of no-account, immoral, lyin', thievin' scum shouldn't necessarily be just a lesson for the rest of us. Contract law isn't supposed to be used to take advantage, to "legally" steal with no penalty. It has evolved that way because "smart guys" like the Schadens decided to use it that way. At one time in the past a handshake was all it took for both sides in an agreement to get a square deal. It's because of scum like Q that it takes a battery of lawyers on both sides to get a fair agreement.

Work Hard in the Beginning

What we've read here is that most entrepreneurs will fail. One of the major contributors to their failure is because of they're laziness up front.

Failure is not the only punishment for laziness; there is also the success of others. - Jules Renard

You make no sense guest

You state: 

'Are you sure you aren't a paid agent of those who want to prevent new purchasers of franchises from knowing the true and actual statistical risk of success or failure as reflected by the SUCCESS or FAILURE of first generation franchisees?

Under SEC rules, these statistics would have to be disclosed.'

Since you've done all of this research on the SEC, can you point me to the SEC filing for McDonalds, Burger King, Panera, etc. that shows the Success or Failure of first generation franchisees.  They do live by SEC rules.

No worries Item 20 Ranter...I can help you!

 Item 20 Ranter posts - "Why aren't you and TIF out here recommending the Dwyer Group Franchises as an example of highly successful vehicles for investment for our veterans under the Patriot Express Loan Initiative. You have the opportunity to disprove all of my statements but you always want to indicate to the readers that it would be impossible for franchisors to disclose the failure and success rate of their first-generation franchisees.

This worries me!"

I think veterans have the same capability and responsibility as the rest of the public to make their own choices and to perform due diligence. I personally don't have anything positive or negative to say about the Dwyer Group concepts.

And once again I ask you where are your qualifications for opining on the evils of franchising and were you or were you not a failed franchisee of The UPS Store?

The Truth shall set you free, I promise!

TIF

SEC Itself Suing Big Retailer

I see in today's news that the SEC is suing Saks Inc., a large retailer with access to legions of lawyers, for reporting inflated earnings for various years. Not shareholders.

Do you think that the FTC will take on major franchisers for misstatements in their disclosure documents?

Mr. Blue MauMau's picture

Government Regulation is a Forum Discussion

jd makes a good point. Sorry to break up the party here but postings related to the issue of government regulation will be moved in a few minutes.

Comments under a news story should be about the news story -- in this case, Northern Illinois District Court's ruling on Quiznos. There's a lot of meat in the attachment and in the story to discuss. Besides, we already have a long-standing forum on government regulation, which is meant for debate and discussion on the topic. Some of our posters already know that but choose to ignore protocol and so the whole thread is now being moved.

Sorry. 

Mr. Blue MauMau
Community Umpire

Love at First Site

Not rape. Not by any definition.

The prospective franchisee rushed to bed despite the surgeon general's warnings of the dangers of unprotected sex.

Barbara Jorgensen's picture

One thing I have learned on BMM:

Is when you go into business never never go into it with a 110% attitude that you are going to be successful. Always prepare for the worse. Most fail. So it would be wise to prepare for the worse. No one goes into business to fail. Yet from the beginning I believe we were set up to fail. Why was the build out twice as much? Why was everything more than they said it would be. A perfect bait and switch scenario. They made their money up front. People asked our zor to put things in writing. Their answer was it is against government regulations. Hog Wash!!! Run away from people or zors that will not put anything in writing. They are after your money and never cared about you. When they look at you they see dollar signs. Run away from them and go ahead and call them crooks. That is a red flag and you can just tell them what they are. Stay away from franchises until the laws change. Nothing should be as one sided as the UFOC. It is all about greed. I can't wait to see justice prevail.

What did the Rhode Island franchise do for franchisees?

The law from my understanding is very similar to the Wisconsin relationship law that has resulted in a hundred or more lawsuits. Furthermore the Rhode Island law may be unconstitional. 

I will tell you that franchisors may start charging higher fees in states that cost more to do business in,  simply not do business in that state and/or run only company units in those states.

The Truth Shall Set You Free!

TIF

Franchisees Are Indeed Entrepreneurs

Some with hidden agendas are trying to demean franchisees. Owners of business franchises most certainly are entrepreneurs. The dictionary tells us it is so.

entrepreneur - noun. someone who organizes a business venture and assumes the risk for it.

Entrepreneurs should be scared of the risks in starting a business. Failure rates are astronomical. So prepare. One has to try.

"Ah, but a man's reach should exceed his grasp - or what's a heaven for?" - Robert Browning

Entrepreneurs are Beautiful! Scam is kind of like

It hasn't been hard for the IFA and Entrepreneur and the FTC to convince those people who are looking for a job and income to believe that they are "Entrepreneurs,"

It's kind of like all those crooks who sell those courses to be a model. They tell you are beautiful and that you have the "right stuff" and that they have the "right stuff" to help you to sell yourself and be a model and make money.

The government's (FTC) weak disclaimers are no excuse for their failure to require franchisors to disclose the true risk of investments in the franchises that are being sold to the public.

It took them ten years to do nothing for the franchisees. The new RULE is just more of the same and the franchisors are still not required to disclose the known success or failure rate of their first generation franchisees who provide the capital and labor to build the units that wear the brand names.

I don't understand! Iw this why the FTC comes down hard on those who can't back up earnings claims and who make false success statements. Is this a subject that is just not going to be talked about in the UFOC's? Is the failure to address the material risk of purchasing the franchise as demonstrated by the success or the failure rate of first-generation frasnchisees essential to the DURABILITY of the Franchising in the economy?

Does the FTC believe that the risk must be obscured from new buyers in the market place because if the true risk were known, this would inhibit investment in franchising, and adversely affect the economy?

Your comparison to traffic laws is ridiculous...

Okay I get it you want your pound of flesh!

You want to punish "fat cat" franchisors. Well the majority of franchisors are small businesses and you will stifle innovation, development and freedom if you have your way or the Coble way.

We will all (franchisors, franchisees and consumers) pay a price for overreaching government intervention/instrusion.

The Truth Shall Set You Free!

TIF

fairness Arbitration Act

Is a start. This Bill if passed, will allow the choice of arbitration or court. There will be no more MANDATORY arbitrations. I believe that we all should be able to choose. It is a Constitutional Right.

I also believe that it will help in Franchising, because there will be no secrets. The playing field will be more level. Who authors the FA? That is the person who puts the mandatory arbitration clauses in the FA.

As far as the Government being responsible for our investments and changing or adding to the laws and regulations in franchising, I stand behind what I have said. Enforce the laws on the books.

IN Due Diligence you have an opportunity to call and speak to present and terminated zees. If you asd questions in a non threating way you will get the information you need.
The questions should be asked along the line of:

Tell me 3 things that you like about this franchise?

If you could change 3 things, what would they be?

The problem we had and the problem most people have, is that the failure to disclose what is already required is what needs to be enforced.

We called terminated and present zees. There were only 2 who really were not happy.
Not one present or terminated zee was identified as to the concept they choose.

Not one terminated zee was a cafe owner.
If you read the Show Cause or Consent Order you would know that. The entire case was all about the failure to disclose what is already required by law. The fact that Maryland waived the right of private action killed us. This zor knew that the arbitration outcome would favor them.

Read the arbitrators award. She clearly discloses that there was an earnings claim, 3 non-disclosed contracts, failure to disclose a Felony Conviction for Grand Larceny by Kevin Shaw, and then went on to disclose that Maryland was wrong and CB complied with the law.

Think about that. The disclosure laws violated were FTC, Maryland and Michigan requirements. This is the kind of thing that continues to encourage zors to sell flawed or failed caoncepts.

Maryland Franchise Law does not require proof of damages. We would have been happy with a full recision. This arbitrator clearly thinks that if you get shot and you don't, then there was no law broken.

What ever it is you want the FTC or the State Regulators to pass in the way of requirements for Item 20, will, like I said, only be as good as what the zor discloses.

As to my understanding of the UFOC, I had no problem with signing the FA and being comfortable with the information I was provided. It was the information not provided that lead to where we are now.

Arbitration is only the first step in trying to make a difference. The next step will be putting pressure on the FTC and State regulators to enforce the law. Had we not been denied our right of private action, CB would think twice about failing to disclose required information, going forward. Because there was no consequence for the violations CB continues to break Maryland Law. We are calling our State Regulator on this, and continue to apply pressure until CB is stopped. Illinois should set an example of what can happen when a zor fails to comply with the law.

I said in my post that we are the best prospects in making changes needed to make sure that everyone regulator from the Federal to State level is enforcing the laws. It is not going to be an easy job, but if you are serious about making a difference then this is your opportunity.

You have to understand Item 20 could be required just as you dictate, and the zor who is out there selling failed concepts, will continue to violate the Item 20 disclosure requirements. CB opened a brand new cafe in Maryland in August of this year. There was not even a UFOC given to the owner. Why? Maryland has encouraged fraud by letting them off the hook.

Is Crapola a new kind of margerine or BS?

I am very serious about helping existing and future franchisees and if crapola will do it, I'm for spreading it. It is because I am a very responsible person and do feel I am my brother and my sister's keeper that I try to spread the word.
I am trying to put the blame where the blame belongs. I want my country and my government to nourish deocratic principles and do the right thing.
If this interfers with your sales pitches ----I'm not at all sorry.

Item 20 Ranter rants the same rant once again...

What have you done to further your Item 20 cause other than be an armchair antagonist spewing vitriolic anti-franchise rhetoric? 

The Truth Shall Set You Free!

TIF

Correction At least as well as "regulated by the SEC"

Last paragraph above corrected to read "as well as securities are regulated by the SEC" -----Sorry about that!

Another absurd rant brought to you by the Item 20 Ranter

The bottom line is that franchise agreements are contracts and before person signs one they should understand it and perform sufficient due diligence in advance.

The Truth shall set you free!

TIF

P.S. Franchising is regulated as well as stocks are regulated, however regulation is not the answer, caveat emptor is the answer.

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