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Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

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Does Government indicate Contract is Negotiable

Does the FTC or do the State Regulators indicate that the UFOC is not binding in its entirety and that many of the terms of the actual franchise agreement itself can be bargained and are negotiahle?

Bob Frankman's picture

Industry With Highest Earnings

"But Les tell me what concepts do you think are strong franchise investments?" - TIF

Les is involved in lawn care - so one would assume that is where his entrepreneur instincts thinks the higher earnings are.

From the sound of Scott Shane's blog above, might I venture to say the industry with the highest profits for entrepreneurs is:

  • IT (Computer repair, computer manufacturing, cell phone, information, etc.)

The Michael Dell and Bill Gates entrepreneurs of this world will find that a business here gives room for higher profitability. So bringing it home to a recognizable franchise model, a place to look for high earnings would be:

  • A computer repair franchise
  • Office IT Service franchise
Barbara Jorgensen's picture

First to start company are sacraficial lambs!!!!

This happened to us. Let us fail and they wanted to take it over without paying for the build-out or the equipment. We are still paying for all of that and they take over with just the lease and operating expenses. If we only had that we would of been a success. So never get in a franchise at the beginning for you will be a sacraficial lamb. Right? The company takes over the failed stores for pennies on the dollar. This is a legal scam? Right?

michael webster's picture

Ray Kroc

Yet, Mr. Kroc had to pay $5 million to the McDonald brothers in the early 60's because of his persistent violations of their license agreement.

Perhaps better counsel would have nullified that risk.

 

Michael Webster PhD LLB

Misleading Advertising Law

Nick Bibby's picture

One other request - absorb before you respond...

Guest, here we go, right out of the chute.

You make the following comment: "When you start with the premise that there is nothing wrong with government regulation, you are just applying bandaids and ignoring the deep and infected wounds of those who are injured by franchising and destroyed financially and emotionally."

Now, who suggested that there is nothing wrong with government regulations? Not me. In fact, I said exactly the opposite in my last sentence. The "government" comment was made by Mr. Blue and I doubt it was referring to my observation, but rather to a new area he has established within his site.

So, please go ahead with a reflective comment on the government if you wish as I want to change the recent decisions as well.

And just for the record, no, I don't "sell happiness", but I trust that a fair evaluation of facts and options will lead to a better state than despair. So, I do my best to examine the facts with clients, OK?  And last, if you're still not satisfied, give me a call. The number is on my website.

I have read it...And how many times can you sell a Popeyes?

But even you Bob are not out to destroy franchising, however the guest poster - Item 20 Ranter is.

The Item 20 Ranter has been asked to name 5 franchise concepts worthy of consideration and cannot seemed to choose 5 out of the thousands avaiable which of course includes AAFD accredited franchises. 

The Item 20 Ranter is a failed UPS Store franchisee who made some bad choices and has an axe to grind.

The Truth Shall Set You Free!

TIF

Barbara Jorgensen's picture

Guest how do

come up with all this?  I'm not impressed.

Staff grateful to franchisees

" with luck, happy staff MIGHT be able to return the favor" !!!!??????? are you out of your mind?
we paid big money for this franchise and now we get something in return only if we are lucky. what planet are you from?
This is extortion.

First are the sacrificial lambs. --No Government Regulation

Yes! You got it right. The ZORS contemplate in the terms of the self-serving contracts that your assets will be THEIRS and your debt will remain YOURS if you never make it to breakeven and can't service your debt.

They know that they can get third parties to make low offers on your tangible assets if you have a Home Equity Loan and that the long-term lease that means thousands of dollars of debt will induce you to give your franchised business away to a second-generation franchisee to get out from the long-term debt of the lease, and, perhaps, to save yourself from bankruptcy, etc..

If you are actually in default, the franchisor sends someone into the bank to make a small offer for the assets, and the banks uually take these small offers and collect on the collateral or the SBA guarantee, etc.....and most of the franchise agreements have co-terminus lease-franchise clauses that means that you are squeezed from all sides and have NO recourse but to fail in silence.

So sad that zors can take zees money with government help

The government is as evil as the zors. It is so sad. It's an American tragedy and we are exporting it around the world stealing even more money from unsuspecting victims who just want to feed their families.

How do we stop the great evil that is franchising? Should we outlaw or put the IFA under government supervision?

I didn't get Do Diligence's endorsement!

Oh the horrors of my despair!

michael webster's picture

Blame Canada II

Paul;

It is my impression that the FTC Staff would actually welcome a change in the law which would allow a private cause of action to be attached to the FTC Rule.  In my opinion, this would have been a useful legislative change.  The FTC is hamstrung by their budget with respect to enforcing the FTC Franchise Rule for anything for than simple Biz Op frauds.

But I don't disagree with your observation that the current state of American law will not give rise to a private cause of action a breach of the Franchise Rule.  Only in Canda, pity.

Bubba;

The "annexation" of Ontario by the FTC Rule is a unique legal experience.  I can think of no other statute which has been transported from either Canada or the US to the other country.  I think that the FTC staff opinions will have considerable weight in Ontario.   I also think that the how Ontario treats the AAFD Standards viz section 3 of the Franchise Disclosure Act -good faith and reasonable commercial standards- may well prove important for both franchisees and the AAFD.

Bob;

Thanks for the video!  Great catch.

Michael Webster PhD LLB
Misleading Advertising Law

Barbara Jorgensen's picture

I bet you

she has many people's endorsement. Look at all the LAWSUITS! Are you in denial of what's going on in the world?

Don Dwyer

I would like to know if you have any information on Don Dwyers past investments? This would be very beneficial to me and others.

Really need to be able to find the cold hard facts.

FranSynergy's picture

Bankers ... NOT!

GUEST .... They have no responsibility for "due diligence on behalf of protecting their customers and their stockholders"  NOR SHOULD THEY!

Bankers have a responsibility to evaluate - Credit, Character, and Collateral. If you want your bankers opinion on your 'Business Plan' he will probably give it to you.  In fact your banker may require that you have a business plan (He'll proabably given to you even if you don't want it).

As a Franchise Candidate, BY ALL MEANS you want to listen to the advice of your Banker, your Attorney, your Accountant, and your Franchise Consultant. Ultimately you must take their advice, and their opinions and make a decision.

If we allow Bankers, Attorneys, and Accountants (a conservative lot by nature) to make our business decisions --- we will all soon be once again living in the DARK AGES!!  All innovation will be lost!

If we listened to our intellect, we'd never have a love affair. We'd never have a friendship. We'd never go into business, because we'd be too cynical. Well, that's nonsense. You've got to jump off cliffs all the time and build your wings on the way down.                                ~ Annie Dillard

There is no security on earth.  Only Opportunity.  ~ Douglas McArthur

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

Barbara Jorgensen's picture

I bet you no one

in the world has studied the UFOC like Carman. Not even you!

Z your mischaracterizations, illogic and unrestrained bias

are over-the-top. You have vendettas against The UPS Store and franchisors that has consumed your very being. You have zero credibility, offer nothing of substance to improve franchising and I think you only wish to assuage your own guilt and shame derived from your personal failure. Please get help!

Banks and Due Diligence and ZEES

Did the bank fail in its due diligence obligations to the borrower? Why would Grandma's age have anything to do with it?

Apparently, the bank failed in its "due diligence" by qualifying her for the loan --- or they wouldn't have backed down.

Zees are often ruined because they take the estimates of the frnchisor re start-up costs and capital needed to get to break even. If break-even doesn't occur within the estimate, the Zee has to borrow more and has even more debt to service --or if the ZEE can't borrow more, they have to fail and close their doors or sell their assets for practically nothing to get out from their personal guarantee on the lease.

But, of course the Franchisors always cover their A's in the franchise agreements concerning capital, etc... and there is really no protection for the ZEE. The bank doesn't care, obviously, because they have the the personal guarantee on the house and the savings based on the original borrowing and they aren't going to lose any money.

Is this about age discrimination, Paul, or about the bank's failure to do "due diligence"? What are we talking asbout here?

Nick Bibby's picture

Les, I believe that some things should be left to us to decide

My problem, Les, is that I've had it up to here with regulations. While I understand that most states license certain professions, and that the FDA stamps meat for public consumption, I really resent the idea that a business investor has to be hand-held by the government. My true feeling is this: if one is so naive as to not engage a lawyer, an accountant, and so on, when buying a business, then they somehow deserve the outcome. If a person cannot read a website, meet people and then conduct a modicum of due diligence, then how can they put the blame on others? (Oh, well I guess we have enough politicians to show us the way.)

I know that some will argue that franchisors (IFA) and lobbyists may have given the upper hand to that side, but in all fairness, the SEC has its regs in place too, but it's my problem if the stocks I buy tank. Anyway, I tend to accept my errors and not call my Senator's office if an IRA goes backward. 

In the same way, I think I have the right to decide if I'm going to wear a seatbelt, but the police don't agree and will gladly give me a ticket if they catch me. So, I wear it now and accept that I don't live in a free country anymore. I fought for it to be free - but I lost. The insurance lobbyists got their way for their clients and there is nothing I can do about it. So, my bottom line is that I lean toward freedom and independence and I really try to accept responsibility for my errors, but I don’t get to run anything except my own life, and even that has its limitations (imposed by both me and my Big Brother).

Simply put: for me, less is more.

Nick Bibby is a franchise consultant and principal of the Bibby Group.

FranSynergy's picture

Grandma is Out!!!

I would guess that there is more to the story than what is here.  Either the bank had some issue which it could not defend, or choose to avoid the potential negative press.  I doubt it’s the negative press issue; otherwise they’d be opening the door for anyone to not pay their debts.

Sub-Prime doesn’t mean STUPID, it doesn’t mean that they can’t read, it doesn’t mean that they can’t enter into binding agreements.  Sub-Prime borrowers already pay more interest to off-set the additional risk taken by the lender.  Do we now prevent them from being able to obtain traditional lending?  Force them to go to alternative lending sources with even higher interest rates.  Force them perhaps to go to legal or illegal loan sharks?  Do we class them right out of auto ownership, home ownership?

Banks are already heavily regulated.  Banks do not make money by making bad loans.   We do not need the government telling the market who is and isn’t a qualified borrower.  I believe that the banks can figure this one out on their own.  My grandfather always said, ‘It’s very expensive to be poor’.  When you think about how expensive it is to pay for a bounced check, maintenance cost on an old car, late fees, rent-to-own, credit card interest, etc…  If you want to see the rich get richer, and the poor get poorer, if you want to see generational welfare, if you want to see the housing market crash, make it where sub-prime borrowers have no options.

I hate to say it, but if Grandma was of sound mind at the time she borrowed the money she should be out on the street.  In short time people might begin to understand that they should not borrow what they can not re-pay.  They should not invest more than they can afford to lose.  It may sound cold and callused, but it’s life.  If it were my grandma, she could always come and live with me.

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

Wow we should all chip in and send you a check...

You are absolutely right what was Maryland tinking Lucy?

Yes of course arbitrators take care of franchisor clients...

at the expense of franchisees that's why franchisors are all rethinking their arbitration clauses in favor of the courts!

Les Stewart's picture

Lender Due Diligence: Canada

Financial institutions are heavily regulated for very good historical reasons: they are credence good providers. Credence goods and services, by their nature, can be more easily used against little old ladies (less sophisticated citizens).

Doctors, auto mechanics, lawyers, franchisors, consultants and others are also credence good providers.

Lender Due Diligence: Canada
Many franchises are financed via a guaranteed loan program similar, in some ways, to the SBA's 7a. loans.

1. Bank Act, 1991, c. 46, s.158
Every officer has a duty of care to their clients to act honestly…care, diligence and skill that a reasonably prudent person would exercise in comparable circumstances.

2. Canada Small Business Financing Act, 1998, c. 36, s.16 1(a)
"a lender who knowingly makes any false statement or misrepresentation in an application, report or other document or wilfully furnishes any false or misleading information…(a) an indictable offence and liable to a fine not exceeding $500,000 or to imprisonment for a term not exceeding five years.

3. Canada Small Business Financing Regulations, s.8
Specific lender DUE DILIGENCE REQUIREMENTS require the lender make a guaranteed loans using the same criteria as if it were not guaranteed. They must also make sure that all other financial obligations of the borrower, are taken into consideration.

No loan pushing allowed.

4. On the Actual Loan Registration Form
The Lending Officer must sign the following:

Lender's Acknowledgement
I, responsible officer of the lender, certify that:

a. to the best of my knowledge, the information contained herein is complete and accurate;
b. the loan was approved in accordance with the due diligence requirements of the Canada Small Business Financing Regulations;
c. the loan complies with all the eligibility requirements of the Canada Small Business Financing Act and Regulations;

Conclusions
1. There is extensive statutory lender due diligence required.

2. It would be up to the victim of predatory franchise lending to prove this situation. I have seen many investors who were "lucky" if they achieved 50% of their anticipated government guaranteed-underwritten franchise opportunity.

If extremely well-educated and legally-obligated  banking professionals can miss by such a wide margin, what chance does Mr and Mrs Smith have?

Les Stewart, MBA
Industry Investment Analyst
FranchiseFool.com :: the Wise learn to say No

Fairness Arbitration Act is THREAT to franchisors

I think you have to accept the fact that the Industry of Franchising will fight this attempt to give franchisees the option to address the courts.

Mandated arbitration, that keeps franchisees from the courts and that does not arbitrate violations of the Rule or the UFOC aa fraud in law protects franchisors from charges of fraudulent inducement and saves their networks.

It is obvious that D&R were misled because they weren't provided information in Item 20 of the UFOC by way of references who had failed with the Cafe Concept. D&R had no way of finding out that the CB Cafe was a failed concept insofar as its performance record was concerned.

The State of Maryland treated it as a substantive "administrative?" violation of their UFOC and negotiated a rescission that favored the CB and would not have saved R&D from bankruptcy but did keep CB in business --even in Maryland.

Both the Maryland AG and the Courts and the Arbitrators ignored the fact that the CB Cafe is a failed concept that should be pulled from the market. No steps have been taken to remove CB from the SBA Registry.

What does this tell you. You are a victim of Regulatory Policy that favors the ZORS and their systems and you are a calculated sacrifice to the fires of development in the economy. The FTC and the IFA are very comfortable in bed and the law surrounding franchising is the warm blanket that keeps them safe and comfortable in their union.

RichardSolomon's picture

You don't know what you're talking about

Mr. Cantone isn't Tony Soprano. He doesn't have the power that you suggest. He is as bound by policy and procedure from above as any other government official.

Since you obviously haven't the slightest idea how state agencies operate and what they are there to do, you ought to consider targeting your comments to something you may know about.

Franchisees who complain to state agencies are supposed to have their own representation, the quality of which is up to them to determine. Mr. Cantone is not your lawyer and does not represent your private interests, The public interest is not the same as your private interests.

Mr. Cantone also can't come in here and tell you what you ought to be told, so I'm telling you. You have no idea what you are saying and you sound like a complete bozo. 

Richard Solomon
www.FranchiseRemedies.com

UFOC's are just a Red Herring to Protect Franchisors

The introduction to the UFOC by the FTC should read:

TO PROTECT YOUR FRANCHISOR, WE'VE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS INFORMATION. ............

You were tricked into buying a franchise with a very high failure rate and very high risk of ever succeeding but the law surrounding franchising allows franchisors to sell pigs and dogs with immunity and impunity. The SBA will guarantee loans at any high rate of failure and it is possible to obscure the real failure statistics in the Item 20 columns. If you had known that this Cafe Concept hardly ever, if ever, succeeded, you, of course, wouldn't have sunk $500,000 into this business and signed the long term lease required by the Coffee Beanery.

Unfortunately, our government appears to support this kind of malice.

The arbiter chose to treat the violations of the Maryland UFOC as mere technical violations of the UFOC. But, we see that Coffee Beanery wasn't sent to Maryland's ALE school and that Coffee Beanery did offer to pay a couple of hundred dollars for the Rescission offers so these were substantive violations of Maryland law.

You deserve answers and you were robbed. It is my belief that it is federal policy to protect the franchisors and to allow them to sell their product at any degree of risk to the unsuspecting public.

Only the Congress of the United States can help you ---if they will!

michael webster's picture

Deemed Reliance

Does the Texas Act contain a "deemed reliance" clause?  Or do you have to prove reliance? 

Michael Webster PhD LLB
Misleading Advertising Law

Time to tell the Truth Item 20 Ranter...

Why should anyone believe or value anything you have to say?

When will you come clean? At one point in you posting history you claimed to be a churned failed UPS Store franchisee and then you subsequently changed your story.  

The Truth shall set you free.

TIF 

Not Funny when Franchisees Drown in Debt and can''t feed their

Not funny when franchisees drown in debt and kill themselves like Bob Baber did and others who have been destroyed by their good faith in big American brands. If the head of the FTC could feel all of the pain that has been suffered by failed franchisees, he/she (haven't looked yet) would not survive this pain and would be in Hell or Heaven, or wherever, because the pain would kill him and all of those around him in his big, bureaucratic palace of the people.

Your cute and clever way with words doesn't disguise the truth and doesn't disguise that you are one of those who believe that Capitalism cannot co-exist with democracy and freedom ---if the true risk of franchising is disclosed under the law.

Are you suggesting that the failure rate of first-generation franchisees is not an essential and a material fact that should be disclosed under law to new prospective first-generation franchisees before the contract is signed.

Are you suggesting that is okay for government to permit the failure rate to be obscured under regulation and that the lack of due diligence with a $4,000 or $5,000 attorney who might or might not point out to you that the transfers were failures and that the franchise was a high risk investment is
OKAY. Franchising is lucrative for attorneys as well and many attorneys have a conflict of interest between their need to eat and pay their mortgages and your need to KNOW, that works to the disadvantage of franchisees who due their diligence with general attorneys, and with some specialist attorneys, as well.

I'm Okay but I don't think you are Okay! Better do a little "due diligence" on your character, my friend!

RichardSolomon's picture

Freedom From Adulthood

Claiming on the one hand that you are a financially and otherwise responsible and experienced grown up who should be allowed to bind himself to agreements that he signs, and on the other hand that you are but a bumbling imbecile who should be allowed to escape his legal obligations for want of understanding brought on at least in part by your own stupidity/incompetence/sloth/stinginess might seem a tad inconsistent. However, I recognize that in certain circles inconsistency is the bugaboo of the small mind.

The FranWad constituency should get up money to bribe legislators to enact an "I am not smarter than a 5th grader" excuse that will allow everyone, not just minorities who refuse to educate themselves and their children, to void all legal obligations upon declaring in public that "I am not smarter than a 5th grader". There is already something like that to give people who make big mistakes a second chance. It's called the Federal Bankruptcy Act. But you obviously want something you can invoke that will also get you your money back. For that kind of special interest legislation you will have to do what all the other fixers have to do - come up with beaucoup bribe money. 

Take the money to the men's room at the Minneapolis Airport and give it to one of the Congressmen you will find there in the second stall from the right. But be careful, as that stall is now a tourist attraction and people are taking pictures nearby. Don't give the money to the person in stall number three, as that person is a cop.

Richard Solomon
www.FranchiseRemedies.com

Eric, Is that you from MBE

Eric,
Is that you from MBE in San Diego?

I understand the difference ---Dale Cantone needs to explain

The difference with the CB Rescission that DLA Piper negotiated with the State of Maryland is that it indicated that if you accepted the Rescission, you gave up your right to private action in Maryland Law and the other rescissions don't indicate this. I believe this needs to be explained but obviously, this is the only way that DLA Piper would agree to pay anything at all to the franchisees. The State would have had to take them to court, etc.. and apparently, this is not State policy.

You didn't accept the rescission because you thought you would have a private right of action under Maryland law, and/or that CB would offer to settle with you before arbitration. You indicate that Dale Cantone encouraged you to send in your arbitration fee and it may be that he thought that CB would offer to settle with you and didn't realize that the Maryland Rescission would be completely ignored by the arbiter.

Dale Cantone is subject to policy decisions and it is federal policy not to provide two bites out of the apple, in my opinion.

I understand that you would be angry with Dale Cantone and I do think all of this needs an explanation. But, if the truth is awkward and difficult to explain, I'm sure that they will just wait until you and your attorney go away!

You have to understand that Maryland may have allowed CB to amend their UFOC in Maryland and that they don't care if you bought a failed "proven" franchised business opportunity. They only care that CB is in compliance with the Rule and the Maryland UFOC. If they are not and are still selling franchises, this is a fire and not just smoke!

I wish you good luck in getting to the truth.

UK Debate on Franchising --May 22, 2007 -- US Deal

It appears that the UK is not presently regulating franchising. There has, however, been some interest in regulating franchising caused by franchisee complaints to their elected officials in the UK Parliament, and thus the debate. Apparently, a UK website was airing one of the complaints as well.

I haven't been able to find the first debate but the second dabate can be found on Google at http:www.publications.parliment.uk/pa/cm.200607/cmhansrd/cm070522h..

I found it interesting that the Ministry for Industry and the Regions (Margaret Hodge) says:

"So we have not not had enough evidence, although we shall keep minitoring, as we clearly need to. The other issue is whether regulation might provide a false sense of security. We always have to be wary. Even if we were to introduce the American-style regulation, that is not very different from what the BFA does voluntarily."

Minister Hodge continues and indicates that the franchisees didn't do proper due diligence.

Isn't this exactly what the Rule and the UFOC's have done ----given prospective franchisees a false sense of security, especially when dealing with very visible networks with famous brand names.

The UFOC is very inadequate from the standpoint of determining risk because of the red herring of Item 20 about which michael Seid indicated in his Article, Make Sense of the UFOC, in Entrepreneur.com, August 26, 2002:

"Deciphering the Item 20 Charts -----I need to be honest with you ---the current charts are often so confusing and subject to potential manipulation that some professionals think they don't really provide any useful information at all. Others go much farther in their criticism" ------

In the beginning of the Article cited in the paragraph above, Michael Seid says "Blame it on the Regulators" ------It appears that the DEAL that was struck with the regulators in the late 70's to obscure and confuse the actual risk of the failure of the franchised business plans has worked to give the public a false sense of security about investment in franchising.

If the FTC in the original rule thought it was important for the reasons for "Terminations" to be indicated, I can't find any reason why the reasons for "transfers" that so often represent the completre failure of first- generation franchisees, who have financed and built the physical units that bear the brand name, are not indicated. Was this to enable turnover of failed first-generation franchisees assets to the franchisors who would carry these failed units as successes for the franchisors when second-generation franchisees continued their operation? Was Item 20 premeditated by the FTC to enable the hiding of first-generation franchisee failure in the UFOC's?

Looks like a DEAL to me and a disservice to the American people and especially those veterans and middle-class people who are just looking for a job. The regulators know that nor everyone who looks at a UFOC will know that they can get a negative check from our attorneys here on Blue Mau Mau. The government doesn't require prospects to engage due diligence experts and they are remiss in their duty to treat franchisees equally under the law.

This is about your integrity Item 20 Ranter

You have in your prior posts led folks to believe you were a churned failed UPS Store franchisee and in subsequent posts you have said you were not.

No one cares about your specific identity, however people want to know the Truth about you.

Les Stewart's picture

Threats to Franchisee Advocates

Juan,

An excellent question and a very relevant one to anyone who opposes the franchise industry's interests.

My clients and I have dealt with several threats and actual violence over the last 9 years. I'm a little reluctant to get into too much detail for obvious reasons but can share a few pointers

Tell at Least One Person
Anyone who has concerns, no matter how silly they seem, should tell someone and document the matter. Feel free to contact me off-BMM if you feel comfortable. Sometimes it is very difficult ask family to carry this weight.

Duty to Police Enforcement: To Inform [not Judge]
You very likely have no background in investigating threat allegations. Contact local police agencies and get a report number. Let them decide and you'll be quite surprised what they already know [informally] about franchising. Better safe than sorry.

Duty to Politicians [others]

You are the primary target but those that threaten want to alter other people's behavior, mostly. Reduce your risk and notify your congressman, senator, attorney general, etc. by email. They have a legal obligation to receive and retain your correspondence.

You'll be surprised to find out how sensitive they are about the suppression of appropriate franchise laws (see Regulatory Capture).

High Risk Group
I have several published articles that show examples of franchisee advocates receiving threats. I'd be happy to furnish them and my favorite involves the word scum.

Summary:

  • tell those in authority (and keep them informed),
  • ask for advice from those that have experience,
  • document, document, document, and
  • inform and cooperate with investigators.

Les Stewart, MBA
Industry Investment Analyst
FranchiseFool.com :: the Wise learn to say No

Z-Rube can read

...it's the comprehending he can't do

Let's wait and see what the MD says. Also you never answered is CB selling franchises in MD and has CB sold more franchises in MD. Their attorney should have advised them to not sell in MD until they had their act together. It's not worth the trouble for such a small market.

If CB is not actively selling there is no violation...

You have offer or offer and sell to be in violation in MD. Have they sold any CB franchises or offered to sell any CB franchises in MD?

Barbara Jorgensen's picture

So what do they do?

Your business has gotten to the point where you can't pay the rent. You've marketed and marketed and soon there is no money left to do effective marketing. I know of zee's out there who are $30,000 in arrears on their rent and still open. Is that wise? You know you've done all you can do. What's worse is you've used your last dime on the business and now is srambling to get enough money for food and gas. What do you do?l

Why? About Arbitration and Fairness

I think we are on the same page and talking about the same thing but in different terms.

I agree that Maryland wronged you and owes you an explanation but I still feel that it is federal policy to protect the franchisors and not to take down networks to provide restitution to those who sue for violations of the Rule and/or the UFOC.

If Maryland agreed to limit the damages when they negotiated the Rescission, it would have been an effort to not destroy the CB franchisor and not any kind of personal deal for the administrator who negotiated the deal, Mr. Dale Cantone. If a network is destroyed because of the necessity to make full restitution to those who were harmed by incomplete disclosure, this can also destroy innocent franchisees in the process and government is concerned with the greater
good.

The fact that Maryland can negotiate a Rescission may be tied to the fact that Maryland has a private right of action that is an inducement for franchisors to negotiate rescissions with the State. If these rescissions are not accepted, the party is then returned to his original position but is forced to arbitrate the violations of the UFOC as if there were no Rescission and no action by the State. The federal policy can be seen in the arbitration of your case, the Coffee Beanery. It is federal policy not to destory franchisor networks by providing full restitution for the damages you suffered in purchasing a failed franchise concept, the Coffee Beanery Cafe. The UFOC's and the franchise agreements do not deal with the success or failure of the concepts. The language of the contract you signed with CB may allow the arbiter to determine that you bought the CB while being informed in the contract that there was no guarantee of success and therefore you accepted a 100% risk of failure when you signed the contract, and you weren't justified to rely on the UFOC regardless of the ommissions and the violations of the UFOC that resulted in the state rescission.

CB, in ommitting and misrepresenting information in the Item 20 columns violated the UFOC and Maryland State Law and the State negotiated a rescission. You say that CB's UFOC is still in violation of Maryland law but that Maryland has permitted them to continue to sell franchises in Maryland. Normally, franchisors are allowed to correct their violations of the UFOC's and continue to operate in the State. The states are interested in whether or not the franchisors have complied with disclosure laws and not interested in the success or failure rate of the franchise that can be investigated by the prospective franchisees through interview of Item 20 references BEFORE the contract is signed.

Both state and federal government are interested in promoting Commerce and they use their regulatory powers to regulate without inhibiting the free markets.

My point is that Item 20 enables franchisors, especially the large and well known franchisors, to obscure and hide the failure rate of first owners, first-generation franchisees, in the transfer columns of the UFOC's. This, then, permits these franchisors to sell unviable poducts because they can stand up their networks on the backs of their failed franchisees whose assets continue to serve the franchisor under second generation ownership, etc....

If the reasons for the Item 20 transfers and the terminations were required to be disclosed in the UFOC, or if resale prices of transfers were revealed, this would present a clear picture of the viability of the investment in terms of success and failure and possible return on the investment to a new investor. As it stands now, a clear picture of the viability of the franchise for the new investor is not disclosed and it is up to the franchisee to try to ascertain the viability of the franchise through interviews with strangers who might or might not tell you the truth for many reasons. Many of these ex-franchisees are silenced with confidentiality agreements. The FTC itself admits that they know that franchisors often pay for good references, etc... The FTC and the franchisors know that most prospects do not do full and complete due diligence on the Intem 20 information and that inexperienced investors often mistake the sale-transfers that are complete failures as successful sales in which the franchisees sold their units at a profit ---and now and then this is true!

I hope that the Arbitration Fairness Act will be passed and that franchisees will get some relief under the law but I still believe that there will be many more victims of franchising until franchising is regulated at least as well as securities are regulated by the FTC. I don't think the current laws protect franchisees from making high risk investments that destroy them financially and emotionally. I believe that you indicated that Coffee Beanery is still on the SBA Franchise Registry and this makes my point for me.

I know this has been a terrible trauma for you and I respect your courage in fighting to right the wrong that has been done to you.

Re: Item 20 Ranter still can't name even 5 good franchise concep

The same question was posed to you and you, an advocate of franchising, refuse to do the same. You should be coughing up five names if you can.

best regards-

NOT the 'Item 20 Ranter'.

Sean Kelly's picture

Why they don't let lawyers advertise

...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...

A complex, time consuming, invaluable service they name a "contract review."

But a simple contract review they name a "Fair Franchising Seal."*

Now I see why they don't let you guys advertise.

Sean

* I know, you call it an "accreditation," but the drunken liar in me made me stretch it.

 

The truth

"To me, truth is not some vague, foggy notion. Truth is real. And, at the same time, unreal. Fiction and fact and everything in between, plus some things I can't remember, all rolled into one big 'thing.' This is truth, to me."

- Jack Handey

Lighten up everyone - its a holiday weekend.

So you have no direct experience in franchising whatsoever???

You just have opinion and anecdotal information that you rehash into the ridiculous commentary that you vomit out in large volume on Blue Maumau!

Action --Not Condoning

I agree with all that you say. I hope it is true that something can be done and this is why I post on blue mau mau with the hope that a few voices might become many voices and that our Congress will do the right thing and that the FTC will open their minds to more effective regulation of franchising.

When you research the history of regulation concerning franchising, you find, however, that the franchisor lobby has been successful in preventing any federal legislation that would really inform and protect franchisees from predator franchisors. This has been the case for so many years in the Congress but, perhaps, with the new Congress, there would be more minds open to really effective legislation and regulation of franchising.

If franchising is valuable and necessary to our economy and if American franchisors are going to colonize the world, it would be in our interests to treat franchisees equally through new laws passed by the Congress and the States. If we are to be a beacon of freedom and democracy in the world, we shouldn't send our predator franchisors out into the world to further alienate world opinion.

It is part of the American dream to believe that one person can make a difference and if many join together to lobby the Congress for just laws, even if there isn't a victory, there is a victory in that people join together to do the right thing.

Thank you for your encouragement and your truth that I recognize to be the truth.

Privacy Laws and UFOC References

When ex-franchisees leave the system as either a transferee or as a terminated franchisee, do the franchisors have the right under the law to publish their names, home addresses and home telephone numbers in the new UFOC's without the permission of the ex-Zees?

No you're some other cowardly guest poster...

who doesn't register anonymously and doesn't know the difference between attacking a person versus their position.

Sleep Tight!

The Truth Shall Set You Free!

TIF

Patriot Loan program built on the backs of Vet's Kitty Cats

New unverified and unsubstantiated reports of missing FranVet appilicant's kitty cats have surfaced here on Blue meow meow and the rumor has it that certain pro-franchisor forces are holding the kitty cats hostage so that the Vets will be forced to sign unfair contracts of adhesion that will force them to ultimately lose all lawsuits in arbitration.

Help us free the kitty cats by calling franchisors and demand that they release all Vet kitty cats being held.

RichardSolomon's picture

I would happily agree with that if....

we could galvanize these FranWads into doing intelligent and competent things to protect their own interests before they piss away everything they own in the world.

If these FranWads were some minority or otherwise deprived in some politically au courant manner, they would get a lot of programs to protect them.

But, again, you are correct in that they won't be militant, and they won't take cohesive group action - like fish in a barrell, they await the pickling brine of death.

When I think of what black Americans did to get the civil rights act passed, and what the women declined to do and didn't get the ERA ratified - it shouldn't be that hard to figure out that the FranWad whiners require intervention by the FTC.

If the FTC did something for somebody - anybody - I don't care who - maybe I wouldn't urge enforcement action. But their level of effective activity on behalf of anyone is so pathetic. Providing the FTC with a budget is an insult.

--

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

RichardSolomon's picture

Too theoretical to be of any use

The FTC needs to wallow less in theory and get off its arse and do something.

But I also don't buy the argument that people are being lulled into believing they have protection. That is sheer stupidity. People are being lulled into believing that they know what the hell they are doing when they invest in franchises. The only cure for investment stupidity is mass failures and dead investment bodies lying about everywhere you look. OK - we now have that! Having that out there for everyone to see and smell, there is no excuse for continuing to drink Draino.

If I read all the crap you read, I might believe that theoretical issues underly the difficulties. They do not. Toporoff's position is the same as any lazy government agent who doesn't want to bother with having to work for a living.  Any bozo can concoct a statement of philosophical position that sounds as though it might be respectable, and then rely upon that as an excuse to shirk enforcement responsibility. If fact, Toiporoff could have just asked the IFA to give him a high sounding reason to do nothing, and they would have come up with something just like that - Hell, that's probably exactly how he came to take that position.--

I don't know the sumbitch, and he's probably some certified honor student type who got good grades on tests and graduated at the top of some class - probably in some eastern school. Those are typically the kind of credentials that result in useless policy. They wouldn't put a real enforcer in any position of authority for that very reason. For all the good the FTC iis accomplishing, it could be populated with people who suffer from Down syndrome. Larry the Cable Guy would be far better than what we have in there now. At least his view is "Git 'er done!"

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

Franchising is a Gamble

You are right. You have my sympathy. You were robbed by the system and ineffective regulation made the robbery possible.

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