Quizno’s Australia, 7 Years via the ACCC
Thoughts on Quiznos Australia 7 Years On Via the Australian Competition and Consumer Commission
The Quizno’s Master LLC, the US franchisor, registered Quizno’s trademarks in Australia from 1999. By late 2001 the US franchisor had signed up an Australian master franchise agreement with a company that traded as Quizno’s Australia Pty Ltd. The Australian Quizno’s franchisees are contract bound to the Australian master, and their immediate fate is primarily tied to that of the Australian master.
By July 2007 the Quizno’s Australia story had veered off track. Following an investigation by Australia's consumer regulator (the ACCC) into allegations of misleading and deceptive conduct towards franchisees and prospective franchisees, Quizno’s Australia Pty Ltd signed an enforceable undertaking with the ACCC. Quizno’s Australia (by this time forgettably renamed to ACN 098 540 633 Pty Ltd, probably in order to comply with the Master Franchise Agreement between Quizno’s Master LLC and Quizno’s Australia Pty Ltd) agreed to offer to settle a festering dispute between itself and the ACCC (the latter acting on behalf of up to 20 franchisees). A sum believed to be equal to each individual franchise fee (up to $25,000 per franchisee) would be offered to each of the franchisees that was represented by the ACCC.
The refund of the franchise fee does not take into account the sunk costs of establishing the Quizno’s, or the opportunity cost of the money invested. In Australia, the average startup cost of a retail franchise unit in 2006 was $265,500 (Frazer et al, Franchising Australian 2006; Griffith University). Most of this sum is sunk costs. The ACCC brokered settlement involves the franchisees absorbing the loss of all except the initial franchise fee. The next step for the individual franchisees will be to decide whether to:
- Accept the sum and move on.
- Accept the sum and litigate as a class or individually. (acknowledging the limitations imposed by clause 14(f) of the undertaking).
- Reject the sum and keep open the right to litigate. (see list of potential respondents s 75B Trade Practices Act 1974 (Cth).
- Negotiate new agreements direct with the franchisor if they still believe in the brand. The Quizno’s Master LLC has the brands registered as trademarks in Australia until March 2009.
Resolving disputes between franchisors and franchsiees via the s 87B Trade Practices Act undertaking route is strongly favoured by the ACCC. In some ways it is a reflection of pragmatism – why litigate against a company that has ceased trading? However, setting up a company, offering franchises, failing to deliver, and then avoiding accountability by announcing the company has ceased trading is just too easy. It is inconceivable that Quizno’s would risk granting the development rights to its brand to an impecunious master franchisee. Franchise offerings are not required to be placed on a public register in Australia. This means we will never know how much it cost to buy and set up a Quizno’s franchise or how many were sold before the ACCC secured the undertaking. The lack of accessibility of franchise offerings affects potential franchisees’ ability to compare the offerings of different franchisors.
Jenny Buchan
UNSW, Sydney
Is it a consumer contract
Does Australia make legal distinctions between consumer and commercial contracts, or in any way act in a more protective manner where the franchisees are small businesspeople?
Quiznos Lying Found Worldwide
So Quiznos ripped off people in Australia too, eh? How did they do it? They took the same formula down under that they use here in the US to rip-off investors/franchisees. Lies about cost and performance. Charging outrageous prices to buy, build-out, and operate the restaurant. And instead of distancing themselves from this type of behavior the current group led by Greg Brennanman has embraced it. The costs are still outrageous, there is still encroachment, and there's still no accountability. Have to make this dog appealing to the suckers on Wall Street. The only way to get any meaningful changes or a fair settlement for ripped-off franchisees out of this rogue company is through a judge's decree.
Australian caleasi?
Has there been any thought of doing an Australian version of what the state of California does: have the disclosure documents posted on the Internet for the public to read and compare?
Re: Quizno’s Australia, 7 Years via the ACCC
The Quizino's mess is causing problems everywhere they are and with everyone involved!
Quiznos not totally to blame
The Aust. government made 7 allegations. Three relate to the history of Quiznos and the menu; those should have been easy for the zees to verify, in particular, whether the menu was 'Australianised'. One relates to the performance of a zor-operated site. Three relate to representations as to what the zees could expect in the way of operating expenses and gross sales.
By contrast, in the United States, the allegations primarily relate to site selection and supracompetitive pricing on mandated raw materials purchased from vendors controlled by the Schadens.
The cases are different, and not at all the "same formula" they use in the US to "rip-off" franchisees. Perhaps the troubles in Australia have more to do with their country master development agent than with the parent (US) franchisor.
Mr. Rooter UFOC of Dwyer Group
I have been trying to get Mr. Rooter Franchise from the Dwyer Group up on the California Site but have had no luck. What am I doing wrong?
consumer contract?
In Australia, the federal legislation (Trade Practices Act 1974 (Cth) (TPA) categorises small businesses (franchisees and tenants are the usual beneficiaries of the term) as 'business consumers' and affords them some protection through the unconscionable conduct provisions of the TPA. (s 51AC). Apart from that, there is mandatory pre-contract disclosure and further disclosure during the term. J Buchan, Australia
online disclosure
There is no requirement that disclosure is publicly available in Australia, so in the absence of a requirement, noone puts their disclosure documents online as far as I am aware. Publicly available disclsoure was recommended (Recommendation 23 of the Matthews Report October 2006) in the recent review of the disclosure provisions of the Franchising Code of Conduct but the Government did not take up the recommendation. The problem with a failure to have disclosure documents on a public (even better internet) register is that franchisees do not consider more than one franchise offering in depth. In order to get their hands on the draft franchise agreement and the disclsoure documentation in the Australian system prospective franchisees have had to pay a sizeable deposit to the franchisor. It's like paying a deposit on a number of private schools for your kids, knowing that they may want to go to one or none of them eventually. You do the homework you can then go with the most likely as you can't afford to open all the doors. J Buchan, Australia
Re: Australian caleasi?
Sounds like a great idea!
Rooter exempt in CA
Probably putting a period behind Mr(.). However, Mr. Rooter is exempt in California.
If you're interested in a Mr. Rooter Franchise, it's a great company and a great organization. Contact them --- attend an orientation day --- and they'll gladly provide you with a UFOC
Believe & Succeed,
Dale
FranSynergy, Inc.
Synergizing Franchising!
www.fransynergy.com
Similar law in Texas
The Texas Deceptive Trade Practices Act works similarly, but has more teeth in it, including treble damages plus attorney fees for intentional wrongdoing.
It applies to franchise transactions, specifically providing that a violation of the FTC Franchise Rule constitutes evidence of violating the DTPA.
Effectively, that gives Texans almost a private right of action for violating the FTC Franchise Rule.
Richard Solomon
www.FranchiseRemedies.com
Figures Lie and Liars/Quiznos Figure
Actually, Q does lie to prospective franchisees about operations, build-out, food, average store sales, and labor costs in the US. They include discount costs in operational earnings - resulting in a five to six percent difference in how much the average store is making per day and year. That's a difference in the 10's of thousands and would be the difference between a good and bad investment. Their estimates on the build-out are also 30-40 thousand dollars less than actual costs. Those are good reasons why so many American franchisees are now working for nothing. I can't explain why that's not part of any lawsuit, however, you can't possibly believe that this thieving company changed its sales pitch when it went down-under and began ripping off Aussie franchisees.
Matthews report
Do you have a link to the report? It sounds familiar, but I couldn't locate a link in the BMM search engine.
Given that MSWord 2007 now has a free "Save as PDF" feature, I don't see what is so technologically difficult or expensive in requiring all zors to submit a pdf copy to be posted on a regulator's website. And it would seem that you would need just one website for the entire country; doesn't Australia just have one disclosure document that is valid everywhere?
Mr. MauMau says that California spends a lot of money just on maintenance of Caleasi, and he has tried without much success to explain to me why it is so costly to maintain such a site. But then, I'm not a webmaster.
Why is Dwyer Group Mr. Rooter a great franchise ? Dale?
It is not enough to say Mr. Rooter is a great franchise unless you indicate that they have great success with their first-generation franchisees who survive their 10 or 15 year contracts, or whose franchisees can sell their franchises before the expiration of the stated terms at a profit?
You seem unwilling to come out here on Blue Mau Mau and do this. You must know the answer to this question because you said you worked for them.
In my mind, you belong to the "pack" that condones the selling of franchises who have very high rates of failure and thus, your endorsement of Dwyer doesn't ease my mind ----especially in view of the fact that they qualify not to register in California.
You know that my desire is to find some good franchises to suggest to veterans and to warn vets and their families as well as other prospects about the very great dangers of franchising with long term contracts.
If it is really true as CPA's suggest that four out of five small businesses fail within five years, good franchises are very rare "investment?" vehicles if they can even be qualified as an investment vehicle instead of just a "lousy" and low-paying job!
Franchisors have indemnity faulty Start-up Estimates -The Lie
If you like to read the law and if you read the UFOC and if you read the Franchise Agreement, you will understand that the franchisors have given themselves indemnity under the law for false and flawed startup estimates and flawed business plans that only protect the interests of the franchisors when push comes to shove.
The UFOC that the FTC represents as Regulation of Franchisors to disclose the risks to the franchisee is a red herring to disguise the actual FRANCHISOR-KNOWN risk of success or failure of first-generation franchisees. The success or failure of first-generation franchisees who provide the capital and the labor to build the units that merely wear the brand name is a material fact that should be required to be disclosed under law to NEW franchisee prospects. The franchisors have no capital investment in these physical units and bear none of the risks of the failures of the individual physical units.
In effect, the UFOC's require the prospective franchisees to try to discover this risk through contact of Item 20 references who are often silenced by confidentiality clauses that franchisees sign under the duress of transferring their failing units in fire sales to third parties. The government knows that this interview of present and ex-franchisees who appear in Item 20 is an inefficient and ineffective method of doing due diligence and will not result in any statistics upon which to determine the REAL and TRUE risk of the investment. They know that the prospective franchisees do not contact all of the references. They know that, even if they did, the references might not tell the truth for many reasons. The FTC even warned in a guide book that some franchisors PAY franchisees to give them good references.
In my opinion, as a lay person, the UFOC together with the Franchise Agreement acts to protect the franchisor from any claim from the franchisee that the risk is hidden because the obligation to determine the risk is transferred to the franchisee who generally doesn't perform full due diligence on the reference lists and, thus, cannot claim that the risk has been hidden from them by the franchisor. Any damage they suffer from buying a flawed business plan with great risk is attributed to the franchisee's failure to do due diligence and the damages, therefore, are proximate to this failure and not to the failure of the franchisor to disclose the risk, as required by law, or the failure of the franchisor's proven business plan.
Quiznos knows that they reside safely within the protection of the status quo of franchising and the law that surrounds franchising. They know that those franchisees who stand at breakeven will continue to stand to service their debt and to avoid losing their entire investment. They know they hold the Aces. They know that the assets of those franchises who can't stand at break even can be acquired by Corporate one way or the other and that bankrupt franchisees have no voice, no money, and no representation from attorneys who are aware of the law and the great unknown risk of representing franchisees on a contingency basis who will ultimately be thrown into arbitration.
Read the Coffee Beanery Case on Blue Mau Mau and then think about how the State Franchise Relationship Laws, federal public policy, the Rule, and the rights of franchisees all come into play.
Understand that the SBA continues to guarantee loans at very high failure rates for first generation franchisees and think about all of this. Realize that the banks don't fail if there is collateral, the government doesn't fail if there is redistribution of money into the economy that produces jobs and taxes, the franchisors don't fail. It is only the franchisee who provides a cheap source of capital and a cheap source of labor for the franchisor who fails after two, three, four, or five years of attempting to get to break even. In that two, three, four, or five years, the franchisee is feeding the economy and most often, in failure, his assets continue to serve the economy under the control of the franchisor. as assured by the terms in the franchise agreement.
The truth is very powerful and hard to refute and it only when the franchisees know the truth that is kept so close to the chest of the "others" that there will be changes in franchising that prevent predators from using the "small folks" as cheap labor and cheap capital to prove their unproven plans.
This is about the integrity of government and the integrity of free markets and capitalism. If franchising really operated in a free market where the risk of the failure or success of the first-generation franchisees was required to be disclosed under law to new first generation franchisees, we wouldn't have the mess of Quiznos, the UPS Store, The Cold Stone Creamery, Sona, and many others, still unknown.
Only those franchisors with very low failure rates of first-generation franchisees and whose franchisees survived the term of the contracts would be recognized as worthy vehicles in which to invest one's life savings to get a job. The PONZI scam would be stopped.
Little FTC Action
Correct me if I am wrong Richard, but the DTPA only provides the a breach of the FTC Rule is "evidence" of wrong doing.
Could that evidence could be rebutted by showing that the purchaser did not rely upon the omissions in the UFOC?
Both Alberta and Ontario, on the other hand, provide for deemed reliance. The franchisor cannot argue that the franchisee did not rely upon the misrepresentations.
Michael Webster PhD LLB
Franchise News
Things to consider when reading Item 20 Ranter
Go ahead and cite the 80% failure rate, but when you do, also include this PHD's analysis of that rate.
http://business.usi.edu/news/2007/2007-06-05-Murphy.asp
Why is Dwyer Group Mr. Rooter not a great franchise?
Do you have anything to substantiate such an inference? With you everyone is guilty until proven innocent. That's not how it works here.
The fact that they are exempt in CA merely means that they fit the criteria for exemption as determined under CA regulation. That is not uncommon - try searching for Pizza Hut, McDonald's, etc - they are all exempt.
Warn vets, hell warn anyone, about systems to be avoided. You have no reason to warn people from any Dwyer Group systems, do you? Just because you despise franchising because the acts of a few disreputable zors does not justify this strategy.
And yet Item 20 Ranter you can't get agreement from...
Solomon, Webster, Steinberg! Have you asked yourself why they never come and agree with your diatribes?
Evidence of Violation of DTPA
You are right - it is evidence of wrongdoing - which is exactly what I said.
Relaince is always (at least to me) a fact question. Deeming something to exist when there is a potential for facts to show that it did not exist is itself an act of unfairness. In many cases there is not real reliance due simply to the fact that the plaintiff and defendant had a history of dealings prior to the accused transaction, and that what transpired during that prior course of dealing made actual reliance unlikely.
In one recent Texas case, the plaintiff franchisee had operated under the exact system for several years as a distributor of the franchisor. The franchisor decided to convert all distributorships to franchises and the plaintiff franchisee signed a franchise agreement. His experience dealing with the defendant made it unlikely that he relied upon hortatory statements rather than his actual history in making his conversion decision. It is similar to a "sophisticated investor" defense - it depends on the facts that you can prove.
Richard Solomon
www.FranchiseRemedies.com
More Irresponsible PR for Franchising ----False Premises
You would, of course, Dale, change the subject and publish more misleading PR for franchising out here ---knowing that the Doctor was mixing up small "independent" and small "franchising" business opportunities to make his points that obscure the truth about the HARD and Permanent failure of franchiZEES. He, like many of the researchers, concentrates on the success of the franchisor who feeds the economy, and doesn't speak to the plight of the first-generation franchisee who is a log on the fires of development. Of course, Government/Commerce/the FTC, Congress and the IFA rationalize that the public good and the greater good is served by the sacrifice of first-generation franchisees to the success of the franchisors, who are essential to a successful economy. Maybe this is why so many of the franchisors have to pray ---pray for forgiveness for serving the public good while greatly profiting under the concept of the "public good" while others are sacrificed.
How disingenuous of the Doctor if he KNOWS how the long-term franchise agreements and the contractual terms of termination before the expiration of the contracts so seriously and badly and permanently destroy investors in business opportunity franchises who have no idea of the true and actual risk of the "investment."
Does the Doctor provide this information for Propaganda for the IFA and you, Dale, unknowingly? Does the good Doctor condone the sale of franchises to new prospects without disclosing the known ZOR statistics concerning the success or failure rate of first-generation franchisees? Does he preach the sacrifice of the first-generation franchisees to his MBA students as a necessary sacrifice of franchisees to the economy that is becoming even more dependent on franchising. Are we in a new cycle of modern "slavery" of the masses by giant corporations and equity investment firms.
The rhetoric of the status quo protected slavery and child labor and union busting and many evils until the TRUTH that is powerful finally surfaced and the consciousness of the nation was raised to reject these evils.
Those who hide the light of truth often survive in the short term but-t-t when they teach in our Universities and work to hide the ugly status quo, this is dangerous for our democracy. Can't you see this, Dale!
When huge Corporations can exploit the capital and the labor of those on the bottom with no government oversight and no protection of that little guy on the bottom, this is not democracy, this is fascism and is it already here? When Government and Media and the IFA get together to target the novice "Entrepreneur" to harvest his capital and his labor, this is NOT RIGHT. When our courts protect this "harvest" this is NOT RIGHT.
Is this what you want to leave for your children, Dale? If franchising can stand on its own success rates for the original investor ---this is great. But, if it stands only as a PONZI Scheme to feed the bigger corporations and the giant capitalists, how can you go to Church on Sunday, Dale?
We know, of course, that Richard Solomon, Paul Steinberg, and Michael Webster have their own churches that are franchised?
Exemption of BIG Franchisors under the Law
Not being an attorney, I'm not sure that what I understand from what I read on the CA site is correct.
Exempt franchisors cannot make loans to prospective franchisees and accept the personal assets, homes, etc.. from these franchisees as security under the franchise agreement. Only the assets of the business can be used as security for any loan made to franchisees.
Is this why Dale Nabors indicated that franchisors do not make loans to their prospective franchisees. Is this why Dale was surprised to hear that MBE-UPS and others will loan; MBE-UPS will loan up to $50,000. These franchisors require personal guarantees on the franchise itself and the lease and hold first security rights after the franchisee defaults on the contract or the lease.
What am I missing here?
Item 20 in Australia
Jenny Buchan posted an article about Australia. Is everyone on this board so narcissistic that each and every article must turn into a discussion about their particular hobbyhorse?
There is an entire forum devoted to Item 20. You can regurgitate as much as you like there.
Have some courtesy and don't keep making every posting about Item 20. Last I heard, Item 20 is in the american UFOC.
What does that have to do with Australia?
Attorneys are captured by the Status Quo
Attorneys are captured by the status quo and are sworn to uphold the law, no matter who it serves. They do not write the laws. They just represent clients within the boundaries of the laws as they exist under the status quo. They don't write the laws and neither do the judges. Solomon, Webster, Steinberg are all excellent asttorneys who have helped to educate me and who never indulge in lies.
It is not the judges or the attorneys who have sold the law to the Corporate interests with regard to franchising. The ABA, that is dominated by the big money Corporate Attorneys likes the status quo and does nothing as an organization to change the status quo? Why would they? Money is the greatest value of our Republic and money will get you everywhere.
Even the Franchise Associations have to work within the status quo of Congressional public policy and the law in order to accomplish any good for franchisees. Mr. Purvin knows the Government knows what is going on because he told them but they do nothing to change the Rule and it is "business as usual" and rationalized as necessary for the "greater good" by those who know the truth.
It is the Congress and the Executive, Commerce/FTC, who are responsible for this ugly public policy and this ugly status quo that could turn out to be ugly fiscal policy.
Actually ...
I did agree that it was material to know what on average each franchise store sold for, compared to what it was purchased for. This data is collected by the franchisor and should be disclosed.
Michael Webster PhD LLB
Franchise News
Reliance versus Causation
Deemed reliance is one of the primary statutory technique behind most misleading advertising laws.
Removing the reliance as an element of negligent misrepresentation to the public makes a great deal of sense.
In the end, we still need to prove causation to establish damages. As the recent CB discussion showed, what it really comes down to is what caused the franchisee's damages.
Michael Webster PhD LLB
Franchise News
if you only had a brain!
You asked what you were missing!
Wow, you really need help
First, you are ripping into Dale, when I was the one that posted this information.
Second, you quote the 4 out of 5 stores close now in almost everyone of your posts, like the Item 20 stuff. Where did you get this information? How was this percentage calculated? Maybe the professors points should be taken into consideration. You only hear one side and that's it. You don't budge at all, even if you know that you are probably wrong.
I was actually going to make a post today that would've helped one of your causes, but I think I will hold out on that, because you'll just spin it and use it in every one of your posts, and people don't want to hear the same thing over and over again.
Deemed Reliance
To me the prospect of deemed reliance being necessary to enforcement regimens is most appropriate for mass market transactions, not franchises. Calling a franchise sale a "consumer" transaction tends to mislead if it is intended to suggest that franchise sales are also mass market transactions. Thay aint.
In the USA, the commercial codes treatment of mass market transactions is different from the one at a time (not mass market) business that franchise sales represent. Even where the franchise sale is an area development, multi unit opportunity sale, mass market treatment does not appeal to me.
Richard Solomon
www.FranchiseRemedies.com
Okay go ahead get Purvin to agree with your diatribe
Get someone with at least a bit of creditablity and sense.
Maybe someday the Truth will set you free too. I will say a prayer for you.
TIF
Item 20 Ranter ok get Purvin to endorse your bankrupt ideology
Get somebody with a bit of creditability.
Michael Webster agrees with Item 20 Ranter
Is Webster sure that franchisors have the actual verifiable initial development cost for franchises 1-40+ years old that may have changed hands multiple times?
Can you be certain that franchisees properly account for their initial actual development costs?
Do you think that franchisees want their transactions made public in a UFOC?
How would you account for transactions where the franchisee leases opposed to owns the underlying real estate in creating this measurement? And what if the franchisee owns the real estate but only sells the franchise business but keeps the real estate?
The Truth shall set you free.
TIF
P.S. Michael you will likely be quoted by Item 20 Guy as being in support of his ideology.
I have commented on this
I have commented on this several times. I suspect the failure rate of small businesses is vastly overstated simply because selling the business(most small businesses change names at the time of sale i.e. Jim's body shop becomes Chuck's auto repair) and using those proceeds to start another counts as a failure. I have never had an unprofitable business, but over the years I have liquidated many that simply did not meet my performance criteria. Some I sold as they met other people's performance criteria. Others I liquidated to gain capital to start a more lucrative venture.
One the other hand I suspect franchise failure is vastly understated simply because they are difficult to terminate without enduring substantial penalties.
Regards,
FuwaFuwaUsagi
Trying to put Purvin on the Spot ----Purvin is too smart
It is government who created this mess when they got into bed with the FTC. It is government who has to try to find remedies for the "original sin."
There will be FEAR from all quarters in franchising because it is unknown how TRUTH will both affect and effect investment in the economy and the government is already worried about the economy and jobs and this is why we have had The Patriot Express Loan Initiative. A good economy is central to the survival of political parties, etc... And to the re-election of incumbent parties.
We seem NOT to elect Patriots and Statesmen who will tell the truth to the American People at any risk to themselves. It is a pre- election year and only selective truths will be revealed in an effort to garner votes.
It is government's obligation and not Purvin's obligation to clean up franchising.
I heard Ted Kennedy's speech and prediction about and against the IRAQ war on Public Television last night and I'm about ready to work to run Ted Kennedy for President. He has become an elder statesman to be admired who so often speaks the unpopular truth in the Senate. The Kennedy’s have shed a lot of blood for this country. I like John Edwards and Elizabeth and I think John Edwards wants the power to do good for the people and is a smart enough attorney to know what the corporations are up to when they lobby their initiatives to the Congress. I like and greatly admire John McCain but he missed his timing and the Republicans don't like John McCain who is too independent and outspoken for the party line. I would vote for Ralph Nader in a minute even knowing that he doesn't have a chance because I have always supported this brilliant and honest attorney and American patriot who has tried always to use the law to serve the people.
I think both Mrs. Clinton and Obama are brilliant and good Americans but I think the timing is wrong and that it may be a bad time for any Democrat who inherits the mess that the Republicans have produced. I think the Republicans want to run against Mrs. Clinton or Obama and this is why that "person" who appears on Fox who used to be their friend and who worked for Bill Clinton pushed her and our Secretary of State, early in the game, as candidates for the Democrats.
The Republicans will play the "race" and the "sex" card and will appeal to the independents that are mostly neither far right nor far left and will vote their interests and their prejudices in the privacy of the booth or the curtain on Election Day.
Franchisees Privacy Invaded by Item 20 ---Risk is Hidden
TIF knows the phoney baloney of Item 20 is an inefficient and ineffective way of doing due diligence on the "risk."
He says" Do you think that franchisees want their transactions made public in a UFOC?
As it stands now, their personal home telephone number and home address is provided in the UFOC as part of the sales process to the public and this personal information is widely distributed because apparently the franchise agreement that the franchisees signed gives the government the right to mandate the invasion of the privacy of the franchisees. This invasion is necessary to provide the appearance that government has met a LOW threshhold of requiring the franchisors to disclose "essential" information that will enable prospective franchisees to do their due diligence on the risk.
None of our attorneys are willing to suggest that Item 20 asccomplishes anything more that providing an imprecise overview of the franchise network that tends to confuse and confound naive and inexperienced franchisees and inexperienced attorneys as well, or we wouldn't have so many "dogs" and "pigs" sold to the public, as Richard Solomon indicates.
The ex-franchisees have no legal obligation to even talk to new prospects and certainly wouldn't put anything in writing. Even if they did, it has no legal significance in the future. Because franchisees don't "want their transactions made publin in a UFOC" they aren't going to share their personal business with strangers. Most failed transfer franchisees are silenced with confidentiality agreements that they sign under duress as a condition for the franchisor to approve the fire sale.
The hard statistical information, as suggested by Michael Webster, could be provided by store number and the personal information; the personal name, phone number, and address would not have to be published in the UFOC. Government would not have to mandate the invasion of privacy of ex-franchisees to help the franchisors in their sale process. Government itself warns that franchisors pay ex-franchisees for good references. Current franchisees, who are currently intimidated by the terms of the contract, are not going to be forthcoming, either. And, as Paul Steinberg says, the salespeople just tell them that this ZEE was inept or something and this is "sour grapes" etc.! Item 20 was designed with human nature in mind.
It is because the UFOC was designed to obscure the failure rate of first-generation franchisees from other naive and inexperienced prospective franchisees that you, who want this information hidden, find reasons why this information can't be discloed. When, there is a will, there is a way. When there is NO WILL, there is, of course, no way! When the IFA and the FTC are in bed together and the union is happy and successful and supported by the status quo, the voices of the franchisees are silenced in bankruptcy or lawsuits! ---Until recently, that is, when the Internet has given a voice to franchisees.
Why is it that you think that this hiding of the risk couldn't be a problem for the banks who are loaning on home equities not knowing the actual failure rate of the first-generation franchisees in the system? Why isn't this a problem and a disservice to the SBA and FranData who are putting inaccurate statistics out to the public if FranData doesn't due deep due diligence on the Item 20 columns of the UFOC's?
This cooperation of tax-payer supported entities to wear blinders is suspect. Is there any rate of failure of a franchise at which the SBA will not guarantee a loan?
Is this responsible fiscal policy, long term?
I hope, TIF, that you will refute my comments instead of just discrediting me.
Interesting view about UFOCs
Very interesting view Richard. But franchises are pitched to the general public. Increasingly through the internet representations which are offside wrt to the UFOC are made.
While I agree that the for mass market transactions, it would be difficult if not impossible to prove reliance, that isn't the sole reason for deemed reliance found in most franchise statutes.
Deemed reliance makes the statutory different from the tort of misrepresentation. When the misrepresentation occurs within the statutorily defined disclosure document, you need not prove reliance as reliance of the UFOC's statements should be assumed.
The FTC Franchise Rule has deemed reliance, but unfortunately no private cause of action. Wouldn't you prefer to litigate a breach of the FTC Rule than having to prove reliance?
Michael Webster PhD LLB
Franchise News
TIF on Item 20
TIF,
I think that you are right to point out that the development costs of the original franchisee may be hard to get.
But, I don't think that there is anything inherently private about knowing that location x was purchased in year 1 for y, and then sold in year 10, for z. That information is known by the franchisor, is material, and in Ontario should be disclosed.
Michael Webster PhD LLB
Franchise News
Okay
But it doesn't change the fact that the bulk of our anonymous zealot's strategy is simply argumentum verbosium (sounds like a Harry Potter reference, I know). He takes choice sound bites (a little "UK Minister said blah, blah, blah" here, a little "4 out of 5 Dentists think small businesses fail like crazy" over here, with a little bit of unsubstantiated veteran targeting nonsense for flavor), wraps this all up in his righteous indignation about Item 20 ambiguities, and then force feeds the whole shebang to us in the hopes of making some franchise foie gras.
It's not that his message is necessarily incorrect - its just unsupported by proof (besides pithy reassurances correlating every three letter acronymned organization to each other based upon the fact that they may have valid business relationships) and that this is repeated even on unrelated posts.
But I suppose we all need our diversions.
Termination Penalties in Franchise Agreements
This is a really disgusting aspect of franchising that is intentionally unclearly disclosed in FA's and never noticed by the good -faith franchisee who enters the franchise agreement with the view of being successful under the "sharecropper" agreement that he has signed with the franchisor.
The termination penalties that often keep breakeven franchisees indentured for the term of the long-term agreements, together with the long-term leases, are legal traps that are set for naive and inexperienced franchise investors. The franchisee can't just liquidate or sell; can't compete with his assets, and is trapped at breakeven to service his debt and to keep from losing everything. Franchisors are free to encroach under contract and don't mind that their franchisees stand at break even because two franchisees standing at breakeven is better for the ZOR than one franchisee standing with profits. (Quiznos tactics) It is the gross sales of the franchises and the supply fees upon which the ZORS realize their profits and they share none of the expenses or overhead of the business that wears the brand name.
Upon competion of the contract terms of the breakeven franchise, often the business is worth nothing. If the franchisee fails at any point of the contract, his assets can be taken by the franchisor through third parties who get them at fire-sale prices. Generally, if the failing franchisee holds the lease, he is forced to sub-lease to the the third party who got his business for nothing, and remains on the hook for the lease if the second-generation owner can't make it. The franchisee is really just cheap venture capital and cheap labor for franchisors who hope to profit from growth of their networks through encroachment and churning of discounted stores.
The Independent, who doesn't franchise, is in a much better position to control his fate, as FuwaFuaUsagi suggests, because he owns and controls his assets. The franchisee may own his assets but they are controlled by the franchisor throughout the long-term contract agreement, ten or fifteen years.
The disadvantages of franchising far outweigh the advantages of an independent business and and the advantages of franchising are greatly misrepresented, overrated and oversold. Richard Solomon has gone so far as to suggest that little "food" businesses are better off not to franchise if they can find the right niche as an independent and has suggested that the competition among "fast food" restaurants where he lives makes all fast food concepts risky.
I think FuwsFuwaUsagi once commented that he hadn't seen a franchise where the opportunity for profits outweighed the risk, but I am sure he will correct me if I misquoted him.
As Fuwa says "Never underestimate the stupidity of people in large numbers ........
You do realize...
Ranter quote:
'The hard statistical information, as suggested by Michael Webster, could be provided by store number and the personal information; the personal name, phone number, and address would not have to be published in the UFOC.'
The UFOC's that I've looked at already include store numbers with the store owner's name. You're idea that just showing it by store number, doesn't protect the personal information that could be gathered from using an old UFOC, thereby letting people know how much you sold a store for.
No need to discredit the Item 20 Ranter...he does it himself
The Truth shall set you free.
TIF
Actually I would prefer to prove reliance
If I have to prove reliance, I get to portray the accused behavior of the franchisor much more dramatically in how I present my evidence and in how I can make the final argument. The jury/judge gets a much juicier view of the scenario than what would result from my not getting to offer that evidence in that manner.
To me procedural goodies that look facially like work saving assists are usually not the help that they are to some lawyers. Not having reliance deemed in a B-toB transaction gives me at least an hour more of jury face time with a well prepped client on the stand who will not wilt on cross examination. I also get the opponents on the stand for cross examination, and they can't stand up to cross examination because their paper trails will support my client's version of the case and not theirs. Since it is their paper and not mine, I don't let them get away with trying to run from what they wrote and said when a jury wasn't in the room listening. I get to rub it in their faces all the harder as they try to flee. When those evidentiary presentations are done, the result is far better than having reliance deemed. The stench of fraud pervades the room. If that were not the case, we would have settled before trial.
The fact that franchises are pitched to the public does not, to me, make it a consumer transaction as you think and speak of that term.
Richard Solomon
www.FranchiseRemedies.com
Item 20 Ranter cannot answer simply questions...
What is you expertise and experience in franchising?
Were you or were you not a failed UPS Store franchisee?
TIF
Poor JD ---Negativity is his Middle Name
He tells us he used to work for a franchisor who wasn't doing the right thing by his franchisees, or something like this, and he is always out here telling us that there is NO POSSIBLE way for the franchisors to disclose the success or failure of their first-generastion franchisees to new first-generation franchisees.
Once! JD suggested that he had found a way but he hasn't shared this with us, as yet!
Come on! JD! Tell us how to do it!
Proof of Reliance - One Off versus Class
Richard, I actually agree with your view for the single transaction. I want the jury to hear how much my guy or gal believed in the representations, how they tried to ask questions, and how much there is a big mismatch between the marketing materials, the oral representations, and what was actually delivered.
But, now consider the recent Ontario class action against Quiznos for the sold but not opened stores. Quiznos has a clause which allows them to keep the franchise deposit even when no location is found - thus the rise of the SNO's, sold but not opened.
In Ontario, it was pleaded that the lack of disclosure about the statistics about the SNO's was both material, and since it was not in the disclosure document, gave rise to the statutory right of rescission. (Frankly, I think this was the wrong legal theory and is largely responsible for the poor monetary result.)
In any event, this pleading did not require reliance and arguably returned something signficantly more to the class. Had reliance been required, there would have been no class action.
So I wonder if our divergence over reliance is in part a result of the jurisdictional challenges to franchise class actions?
Michael Webster PhD LLB
Franchise News
Re: Item 20 Ranter cannot answer simply questions...
go get'em dumb dumb.
attaboy.
does your boss know that you're using his business' name to write your little diatribes? must be great for business.
I don't do class actions
I don't accept class action litigation. There are many reasons. The first is that they are almost always contingent fee cases, and I don't do contingent fee cases. I take only well funded cases with the money in front in large chunks so that I can buy what I need as expert assistance. I am very frugal with clients' money, but I aint the bank.
Class actions consume a lot of time just litigatng whether it will be accepted as a class action. No thanks.
Client help when you need it in cases where the client isn't paying for the work himself is reluctant at best. When they are paying for the work, they really pitch in and are quite productively helpful.
Too often class action work ends up fruitless. No thanks. I'm not a deferred gratification person who accepts frustration happily. Life is too short.
Now the guys who do that kind of work are very special. I don't mean to criticise them . It just aint my cup of tea. I like group cases, but not class action work. Give me a group of franchisees who will put up a proper funding resource and pitch in to help out when it is needed, and I will give you one hell of a good show and a good result - because winning is as much about picking the right fights as trying a good case.
Richard Solomon
www.FranchiseRemedies.com
Quiznos ---SNO's in the US --Class Actions
Didn't some prospective franchisees in the US lose a case early this year against Quiznos when they claimed that Quiznos indicated AFTER they had signed the contract that the deposit would be refundable.
I think these claimants (Moates vs. Quiznos) lost on all nine of the elements that have to be proved when charging fraudulent inducement to contract and the court ruled for Quiznos in a summary judgment.
Apparently, the Canadian case and "Rescission" was based on a contractual term that was "unconscionable" or "uninforcible" because a material fact, the statistics concerning the SNO's, were not disclosed in the Offering Circular; thus obscuring the risk of success or failure in finding a location was not disclosed. Is this right? This was a victory for the franchisees and a "first" ---wasn't it? Does this mean that this contractual term is illegal in Ontario unless the statistics concerning SNO's are disclosed in the UFO and/or the FA's to new prospective Quiznos franchisees?
Hopefully, our US Courts, when hearing the US Class Action Suits against Quiznos will be informed by the actions against Quiznos by both Canada and Australia in which Quiznos was found to be remiss in NOT disclosing the risk of losing the deposit to the depositor. Is this new law?
Re: Re: Item 20 Ranter cannot answer simply questions...
Why don't you stop the bashing of a poster?
US SNOs
There is a current class action against Quiznos regarding SNOs.
The Ontario result is likely a result that is peculiar to our jurisdiction, and may not have any import outside Ontario.
Michael Webster PhD LLB
Franchise News