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Point: Sue me, Bob Zarco

If Robert Zarco is going to sue everyone who speaks the truth about Cold Stone Creamery, he'd better hire a few more associates.

I have long respected the work of Zarco, and his firm. But he should be embarrassed not only by the legal threats but his over-the-top rant about non-actionable reportage. (Not to mention the implicit threat which he made to the franchisor, but let's get to that interesting tidbit later)

Cold Stone/ Kahala Brands could have given an interview to CNBC. They chose not to do so.

Most of Mr. Zarco's 3-pages of griping has to do with what a horrible human being Cecil Rolle is. Well...so what?

Let us assume that Cecil Rolle is the worst man to have walked the planet. How is that a legal argument?

Let us assume that Mr. Rolle is not an attorney. Let us assume that he is the local dog-catcher. How is that actionable at law? How does that affect whether his statements about his experience as a franchisee are correct?

As to the "kickbacks"-- well, yes: they are indeed kickbacks--money kicked-back to the franchisor in return for the franchisor requiring the franchisee to purchase goods from the vendor providing the kickback, and they have often been referred to as such within the franchise industry. That is not a word on which to pin a defamation suit, much as Mr. Zarco may find it to be "inflamatory"-- the accuracy of the term is not negated by its inflammatory nature, and inflammatory journalism is as old as the Zenger trial.

So sue me for that, Bob. Truth is an absolute defense, and they are kickbacks. But of course I will expect that in each franchisee litigation you file henceforth, you will refer to them as "vendor remunerations of a pecuniary nature which are disclosed on page 67 at paragraph LMXV subpar viii" or some similar obfuscatory language.

But before you run into court, let me give you a few more thoughts about the "hidden"  and "improper" expenses.

The practices of Cold Stone Creamery with regard to the fees were discussed in the CNBC story (which... ahem... Coldstone chose not to participate in). Your letter makes the point that so long as deep with in the bowels of the FDD, the franchisor dots the "i" and crosses the "t" that all is peachy and that anyone who says otherwise will incur your well-funded wrath. That is an interesting position, and now that you feel that way perhaps Don Bororian will be wiring a big chunk of cash your way soon.

The "lease administration" fees are indeed a scam if the involvement of Cold Stone in "administering" the lease is non-existent. In such a situation, the "lease administration" is a misleading term to cover-up what is really added grease for the franchisor. I would argue that such an arrangement is indeed "improper" and I cordially invite Mr. Zarco to sue me and look forward to exploring this issue in depth right here in New York... a most convenient location since CNBC has studios right across the river.

About the only thing which is a potential issue is the relationship of Kahala to its mandated vendors, and whether the relationship constitutes "control."

Most "outrageous" (to use Mr. Zarco's term) is indeed the suicide issue. It would appear that Mr. Zarco is trying to lay the groundwork for depositions of Mr. Rolle to discover which franchisees discussed suicide (that is why he makes such an issue about whether Mr. Rolle is an attorney or not). This is beyond outrageous, it is reprehensible.

Some of you on this website know that I have strong personal feelings which may be coloring my views about this issue, but I suspect that I would be correct in cautioning Mr. Zarco that he is going down a road which is likely to backfire not only among Mr. Zarco's franchisee clients but also the general public.

The beauty (from Mr. Zarco's perspective) of raising the suicide issue is that it is almost impossible for any of us with actual knowledge of Cold Stone franchisees who have been on the brink of suicide to step forward and say that in defense of Mr. Rolle's comments to CNBC. And parenthetically I would note that as an attorney myself I am bound by attorney-client privilege. Suffice it to say that I have every reason to believe Mr. Rolle, and let us leave it at that.

Now, about that curious comment to Janet Sparks...

According to Mr. Zarco's own statements, he announced an "independent" franchisee association just 2 weeks prior to the CNBC story, and he says that while there was no discussion of litigation (does anyone really believe him when he says that?) "That doesn’t mean if it ever arose we wouldn’t do it.”

Well presto... the franchisor "immediately wired him a retainer check" and now there is no threat of Mr. Zarco litigating. What Janet Sparks doesn't tell you is that Mr. Zarco is going to have an awfully hard ethical conundrum if he now tries to sue Coldstone. He is now representing both the franchisor-sponsored association and the "independent" association set up by Mr. Zarco.

Umm... am I the only one who wonders why the zees need Mr. Zarco to set up an "independent" association and then 2 weeks later he decides to also represent the franchsior-sponsored association? I mean, if the existing association was responsive to zees then why would Mr. Zarco need to set up an "independent" association in the first place. But hey, maybe I'm the only one who is so cynical this holiday season...

Now Mr. Zarco says that he made Coldstone sign a waiver. Curiously although Mr. Zarco gives a journalist the whole ranting letter, he does not provide a copy of the waiver. But being meticulous with his language, we see that he does not mention anything about the "independent" association being told of any conflicts of interest. So since he is now representing the franchisor-sponsored National Advisory Board (on which the zor has representation and which presumably was not serving as an adequate voice for the zees), it will be interesting to see which side he picks if his two clients (the National Advisory Board and the "independent" association) are at odds in the future.

Mr. Zarco already admits to an ethical lapse:

Zarco emphasized, 'My representation of the franchisees of Cold Stone will be done in a way in which we align the interests between [sic] the franchisees and the franchisor, which will benefit both.'

No! An attorney's representation must be done in a way which aligns only one thing: the interests of his client. By admitting that he is going to "align" the interests of the "independent" franchisee association with those of the franchisor, Mr. Zarco is letting his greed get the best of his ethics, and that is a sad come-down for one of the giants of the franchise bar.

But that is what happens when you ostensibly represent the franchisee and yet the franchisor is paying your fee since you want the maximum payday and not the maximum result for your clients.

This whole thing smells worse than a marlin washed up on South Beach. There is nothing wrong with a lawyer having disreputable clients such as Kahala, and nothing wrong with a lawyer trying to get money from both sides, nor from a lawyer trumpeting that to the media and bragging about his "media savvy." But the collateral damage here is to franchise journalism and free speech.

Those here on BMM and those who value free speech and investigative journalism should email David Sternlicht at CNBC in support of the fine job done by Darren Rovell and his team. Mr. Sternlicht is the attorney for CNBC and he can be reached at david.sternlicht@nbcuni.com.

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About Paul Steinberg

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Public Profile

Attorney. Former franchisee. Co-author of Beguiling Heresy: Regulating the Franchise Relationship (Penn State Law Review, 2004). Paul primarily represents small business clients and franchisee litigation in the state of New York. Contact the Law Office of Paul Steinberg, NY, NY at 212-529-5400.

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