California Superior Court Rules for Franchisor Mail Boxes Etc.
Franchise Agreements Were Not Violated When UPS Had Mail Boxes Etc. Stores Rebrand to The UPS Store
SAN DIEGO, Calif. (Blue MauMau) - California's Superior Court in San Diego ruled in summary judgment that the Independent Association of Mailbox Center Owners (IAMCO), a group of Mail Box Etc. franchise owners, could not prove that their franchisor Mail Boxes Etc. Inc. (MBE) violated any California commerce laws or terms of the franchise agreement when the franchisor required their franchise owners to upgrade trademarks to The UPS Store.
On October 18 Judge Linda Quinn ruled that the MBE franchisees (plaintiffs) had shown no breach by the franchisor of the franchise agreement or California commercial law. In a 5 page memo, the Judge replies to the charges in paragraph after paragraph, "plaintiffs cannot prove," "plaintiffs lack standing" and "there is no evidence."
A summary judgement is granted when a court makes a determination that a full trial is not necessary, often because of a lack of material fact.
In response to the court ruling, Rich Hallabrin, public relations spokesperson for Mail Boxes Etc., stated, "this is the first ruling we've had that speaks to the merits of the case and not to procedural matters." "This ruling substantiates what we've maintained all along - that the Gold Shield program (a project of converting MBE stores to The UPS Store) was legal and fell within our rights as the franchisor," he continued.
Some of Judge Quinn's statements are listed below and can be read in full in the attachment, Summary Judgment, IAMCO vs Mail Boxes Etc. USA Inc. (5 pg pdf file).
- "Plaintiffs cannot prove any breach from failing to renew the franchise agreements on substantially similar terms or from requiring renewal as The UPS Store"
- "Plaintiffs cannot prove any breach regarding advertising."
- "Plaintiffs cannot prove any breach regarding support obligations to the franchisees."
- "Plaintiffs cannot prove any breach of any contractual duty regarding their exclusive territories."
- "Plaintiffs concede defendant James Amos is not a party to the franchise agreements."
- "Plaintiffs concede defendant 'MBE, Inc. has in fact assumed the liabilities as the franchisor' thus plaintiffs have no basis to contend defendant UPS should be treated as having assumed those liabilities."
Attorneys for IAMCO could not be reached to comment on the decision.
Jonathan Solish, a franchise attorney with the Santa Monica, California office of Bryan Cave LLP, observes, "the franchise relationship is established by contract. Courts are not set up to make better deals for the parties, but only to interpret what the contract means in the context of a particular dispute. Franchisors generally retain a contractual right to sell or assign, which means that they have the express right to bring in someone else to take their place. A court, in interpreting that right, has little choice but to enforce it."
"Companies are routinely bought and sold in our economy and there is a high likelihood that a franchisee may be dealing with an entirely different organization during the course of the contract relationship," says Solish. "The purchaser is still bound by the terms of the original contract so the contract is not breached by the transfer."
Paul Steinberg, a New York-based franchise attorney, adds, "In what is generally considered a state that has pretty liberal courts, even California stresses the importance of what is in the franchise agreement."
One bit of forceful wording was Judge Quinn's statement, "the Old MBE (franchisor), if it had wanted, could have abandoned or diluted the trademark."
Such a statement is a reminder that under state commercial law franchisors have no obligation to keep or manage trademarks to the benefit of their franchisees. Trademarks are theirs to do with as they see fit. On the other hand, franchise owners must update trademarks when the franchisor requires it.
Again, Solish interjects, "The point the court is making is that, under the agreement, the marks belong to MBE."
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Other readings:
- Michigan Investigation Persists on UPS Measuring Devices
- Franchisees Protest at UPS Shareholders Meeting
- Franchisees React to UPS Convention: "It's All About Them, Not Us"
| Attachment | Size |
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| IAMCO ruling.pdf | 583.73 KB |
Judges Making Laws
This is a good example of a judge who prefers to make law rather than apply the law. However, with Supreme Court justices like Stephen Breyer using foreign law to justify decisions that change the intent of laws passed by Congress is it any wonder that this judge would use that same logic to apply her own brand of justice rather than serve as a true arbiter of the facts.
Tentative Ruling Confirmed Next Day
Finality of Tentative Ruling, Summary Judgment of October 17 Confirmed Next Day
Rich Hallabrin, public relations spokesperson for Mail Boxes Etc., stated that Judge Quinn's tentative ruling of October 17, dismissing the merits of IAMCO's argument, was confirmed the next day on October 18.
A tentative ruling is where California state courts provide a heads up to the parties involved on how the judge will rule. Jonathan Solish, a California franchise attorney explains, "Many judges give tentative rulings right before hearings. Often, after argument, the tentative ruling becomes the final ruling."
Paul Reeve, attorney for The UPS Store, confirmed that there was an oral argument the day after the tentative ruling, in which the earlier judgment was confirmed. The California Superior Court in San Diego followed up by issuing a final minute order on the hearing October 25.
The attached summary judgment outlines the opinions of the judge on the merits of the case.
Why Were The Best Legal Arguments Not Used???
I know someone who was involved in several successful arbitrations against MBE-UPS. In those cases, the legal focus was on the MBE contract language saying the MBE mark could only be changed, improved or modified if the change did not materially and unreasonably increase the franchisee’s obligations under the contract. There are many ways where a change from the MBE, multi-carrier mark and business model with two decades of massive advertising and established goodwill to “The UPS Store,” a new mark and single-carrier business model with a UPS- mandated pricing structure, whose first debut was not until February of 2003, would materially and unreasonably increase a franchisee’s obligations under the contract. Those MBE franchisees who switched to the UPS Store have obviously found this out the hard way. Just as important, another legal focus was the California Franchise Investment Law provision requiring all franchisors, like MBE-UPS, to file an application for modification of an existing franchise before soliciting any changes. The required protocol is to make the filing with the California Department of Corporations, get approval for disclosure language in what amounts to a mini-offering circular that discloses the financial implications, advantages and disadvantages of all proposed changes. That document, after it's approved as to form, has to be given to all affected franchisees and must state the proposed changes are voluntary. This was never done by MBE-UPS. It’s incredible these arguments were not made in the California Superior Court case.
California Superior Court Rules for Franchisor Mail Boxes Etc.
I have a couple of comments. I think the person who put this up should have found the "confirmed" ruling and not the tentative ruling. While the author contacted UPS/MBE for a comment, there is no mention of him trying to reach the attorneys for the Plaintiffs. While I am not an attorney, part of this case was done in a writ to the Appellate Court and they won. I am sure they will appeal this. My observations of Judges at this level is that they don't want to be bothered with these type of cases. I have been in the Courtroom when some of thise case was heard. It was obvious the Judge had never taken the time to read many of the documents and was looking for a way to get rid of this case and others like it. It seemed clear that she felt this should all be decided by the Appellate Court. In fact, there is a similar case that was dismissed, and the Judge stated, "we will wait for the wisdom of the Appellate Court". Their case has now been heard by the Appellate Court and they are waiting for that Wisdom. This was another group of Mail Boxes Etc that sued UPS/MBE.
I am disappointed in the lack of thoroughness by the author. Why such a rush to publish? No mention of the writ they won, no mention of contacting the Plaintiffs attorney. Poor job.
"TENTATIVE RULING"
I read all 5 pages - It becomes obvious that the judge thinks she is the judge and jury and has her mind up before hearing the oral arguments. Over and over, she parrots the same tune. "plantiffs can't prove"
Hello, that is the purpose of a trial and the job of the jury to determine what can be proved.
I am not a lawyer, I didn't sleep at a Holiday Inn Express last night, but I drove by one on the way to work!
Oh well, that is what the appelate court is for, to put in a check and balance against renegade judges who think they know a lot more than they do.
MBE Franchisees Have Protective Agreement
Interesting. From what you are saying, franchisor MBE decided to bind itself in the development of its trademarks and brand. It would need permission from franchisees that changes to its mark would have to be "reasonable" and to not materially increase the franchisee's obligations.
That's one heck of a protection for MBE franchisees written into their agreements.
Can you quote the agreement clause that protects MBE's franchisees so?
Judge and Jury
The Judge, of course, has the power and the discretion to say over and over again "plaintiffs can't prove" --- and the summary judgment is often used to keep plantiff franchisees out of court.
Federal regulatory policy intends that franchise disputes be arbitrated and kept out of the courts. Franchisees are to be discouraged at every turn and of course the airtight killer franchise agreements that nail the franchisees to the cross almost always results in crucifixions of the franchisees, as planned --but not always! The judges like these airtight franchise agreements that make their lives so easy.
We do have appelate courts and it aint over until the fat lady sings.
IAMCO Legal Arguments
Patricia;
If you read the summary judgment carefully, I think that you will find that these arguments were made.
We cannot access the memorandums directly so I cannot be positive about this.
But, I will bet right now, unliked Richard who believes that the brief was doa, that a substantive part of the Honourable Justice Quinn's Ruling will be overturned.
THe Honourable Justice Quinn ruled on summary judgment that UPS did not use any confidential information from the MBE franchises to compete against them because UPS said they didn't.
This appears, on its face, to require a trial, with full discovery. This is not the type of issue to be decided on a summary manner.
Also troubling is the legal analysis of what MBE could do with their trademarks - does anyone in the franchise world want a ruling, even out of California, that allows a franchisor to deliberately destroy its trademarks?
High water mark for franchise contract drafting, and low water mark for franchising.
Michael Webster PhD LLB
Franchise News
Tentative vs. Confirmed
A judge makes a ruling and it's a "tentative ruling"? That's news to me! There's a "confirmed ruling" out there somewhere? What are you talking about? How about explaining what you wrote?
What were you doing in the courtroom? Are you an MBE franchisee or former franchisee? How many of the comments by Guest on this story are yours and which are they?
You write, "part of this case was done in a writ to the Appellate Court and they won." I think you mean that the court ordered a writ to be issued. You’re talking about the California appellate court ruling of two years ago, right? Don’t see why that should be a part of this story, since it was a ruling on a separate issue, plus it happened quite some time ago. And, in case you missed it, the story above clearly indicates that IAMCO’s attorneys could not be reached for comment. That’s an acceptable standard in journalism, although you don’t appear to be much of a reader.
Your writing and reasoning have been as clear as mud. Hope you do better in your reply, which I expect to be vitriolic (look it up in the dictionary).
Matt
Its Appeal Courts Time Once Again
Once again Quinns foolish judgements will be thrown out by the appeals court as they have done in the past with IAMCO and there dealings with "Judge Quinn"
Good Sense
What the judge ruled is correct. Everything that the plaintiffs accused the franchisor of doing wrongfully is specifically permitted by a clause in the franchise agreement.
When a franchisor does what is provided for in the franchise agreement, it is almost never a wrongdoing unless there are other overwhelming and exceptional facts present.
All the issues in this case have long been established in other franchise cases around the country, and just about every other court has ruled on these issues in the same way.
The judge in this case followed long established law and will not be reversed on appeal. A competent plaintiffs' attorney would have known how all these issues have been decided by other courts and not brought this case in the first place. It was DOA when s/he filed the complaint. You can't blame the judge for the attorney's inadequacy. Being angry because someone else did what they re entitled to do does not give rise to a claim, not even in California.
Richard Solomon, www.FranchiseRemedies.com, has 44 years experience with franchise litigation and crisis management. Trouble is his speciality. He is a graduate of The Citadel (A.B. Modern Languages) and The University of Miichigan Law School
Matt, Matt, Matt
Before you insulted me, maybe you should have read the attachment to the original article. And you have the gall to say I need to look up your word in the dictionary.
>A judge makes a ruling and it's a "tentative ruling"? That's news to me!<<Get real!
The ruling was tentative in advance of oral arguments scheduled on a later day. That is not a comfirmed ruling. The reporter was not reporting a confirmed ruling.
>There's a "confirmed ruling" out there somewhere? What are you talking about? How about explaining what you wrote?<<Show me the confirmed ruling, I believe you can't.
>What were you doing in the courtroom? Are you an MBE franchisee or former franchisee?<<For what it is worth, yes I am an MBE franchisee. I was not in the courtroom. What is your interest in this case.
> How many of the comments by Guest on this story are yours and which are they?<<I could ask you the same question, what is your point!
>You write, "part of this case was done in a writ to the Appellate Court and they won." I think you mean that the court ordered a writ to be issued. You’re talking about the California appellate court ruling of two years ago, right? Don’t see why that should be a part of this story, since it was a ruling on a separate issue, plus it happened quite some time ago. And, in case you missed it, the story above clearly indicates that IAMCO’s attorneys could not be reached for comment. That’s an acceptable standard in journalism, although you don’t appear to be much of a reader.<<I did not write the comment you are refering to here, though it is relevant to the fact that the earlier ruling by the Superior court was overturned on appeal and this case is part of that case.
>Your writing and reasoning have been as clear as mud. Hope you do better in your reply, which I expect to be vitriolic (look it up in the dictionary).<<I cannot help you, if you lack the ability to understand my clear statements on the matter. Actually you seem to be the one with a reading problem.
Ask the man that owns one!
Here's the MBE Franchise Agreement Clause
Paragraph 21.01 of the MBE Franchise Agreement says:
“Accordingly, Franchisee expressly understands and agrees that Franchisor may from time to time change the components of the MBE System, including … altering the programs, services, methods .. of that System; adding to, deleting from or modifying those programs and services which Franchisee’s MBE Business is authorized to offer; and, changing, improving or modifying the Proprietary Marks. … provided, however, that such changes do not materially and unreasonably increase Franchisee’s obligations hereunder…”
12
Richard,
The same case is before abitration judges and that judge denied summary judgement. Same causes of action, same discovery and Same lawyers. Look at quinns record of those cases brought to appeal. Not good.
cg
Hoping
I sure hope we can keep Patricia interested in continuing to post in here.
Thanks, Patricia.
Richard Solomon, www.FranchiseRemedies.com, has 44 years experience with franchise litigation and crisis management. Trouble is his speciality. He is a graduate of The Citadel (A.B. Modern Languages) and The University of Michigan Law School.
Mark Changes That Materially Affected MBE Franchisees
Nicely done, Patricia. The clause is worth repeating. Here are the words in the franchise agreement that MBE Inc. could make changes in their trademark in so far that:
Good arguments seem short and tight. It's too bad there aren't more like you posting.
According to the contract, there are two conditions that cannot be abbrogated by MBE Inc. Now tell us why the new changes in trademark not only increased a franchisee's obligations but also was commercially unreasonable.
Nonsense
The judges ruling is incorrect. And it is a tentative ruling prior to oral arguments. In other words, the judges mind is closed before even listening to the facts. There are triable issues of fact here. There are precendents that say certain parts of adhesive contracts are unconscionable and therefore invalid. There are or maybe public policy issues that have been ignored that would preclude a summary judgement of this nature.
I am not saying that the plantiffs case is ironclad, just that there are enough facts in dispute that it deserves to be heard by a jury of peers, not one myopic judge.
What do you call an attorney with an iq of 70 or less?
ANSWER: "Your Honor"
Attorneys always protect the judges --Good Sense?
Attorneys always protect the judges who he says are protecting the rule of law, the contract terms.
Of course, the unilateral unbargained franchise agreement always gives the judge the right and discretion to throw franchisee plaintiffs out of court. This is the plan, isn't it
We see that franchisees are discouraged at every turn and only a few franchisee attorneys are recognized as "big" stars in the process and now and then win some kind of concessions from the courts for the franchisees.
We notice that Richard pushed this law firm on this site and he has the guts to criticize the attorneys who were thrown out of court. But, he has criticized MBE-UPS many times on this site and knows that they were and are selling a dud to the public.
Apparently, it is okay to sell duds to the public because the contract and the UFOC doesn't disclose that the franchise is a dud.
Fleecing the stupid
It aint lawful to cheat the stupid. But the way stupid works out makes it seem like it's lawful to fleece the stupid.
The stupid sign stufff they don't understand. The stupid fill out franchise applications in which they tell franchisors that they are competent and have enough money, etc.
The stupid don't have a bloody clue how to vet a franchise investment.
The stupid won't hire competent due diligence help to protect them against their own ignorance (note the difference between ignorance and stupidity).
The stupid make a bloody mess of their investment opportunity because they knew nothing about what was going on.
The stupid won't band together with their fellow franchisees to make a united aggressive stand about anything.
The stupid won't hire competent franchise trial lawyers because they cost money, by God's holy trousers.
Then the stupid come in here and whine about unfairness and lack of gub'mint protection against the consequences of their being so bloody stupid in the first instance.
DUH!!!
Richard Solomon, www.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
See My Post Above
Among others, the switch from a multi-carrier, franchisees can determine their own pricing (which was premium pricing under MBE) business model to a single-carrier (UPS only) model where UPS dictates low margin or no margin pricing. MBE went from a "business format" model to a single "product franchise" with a lot of financial downside. Also, none of this was ever spelled out (disclosed), as required, in a registration document before the changes were solicited.
Why?
The failure to comply with the disclosure regs made any assessment of reasonableness impossible or impracticable. Without disclosure of information to enable such an assessment, everyone is foreclosed from deriving the benefits intended by the statute. It also foreclosed any assessment of how much, if any, the franchisees' obligations might be increased.
Richard Solomon, www.FranchiseRemedies.com, has 44 years experience with franchise litigation and crisis management. Trouble is his speciality. He is a graduate of The Citadel (A.B. Modern Languages) and The University of Michigan Law School
Richard never misses
A chance to blow his own horn. If you believe him he is the only attorney on earth that could have won a case.
THEN THERE IS HIS KILLER DD
If that can't save you nothing will.
Richard is just trying to advertise
Judges Honor My Signed Legal Contract
Judges and courts throughout the country, not just California, will rule to uphold the legal agreements that we sign, even when we later regret those clauses.
It is also legal for the public to invest in business duds without knowing it is a dud. It is even legal for business / franchise owners to sell duds without disclosing it.
And franchisors have complete control of the trademark when franchise owners sign agreements that give franchisors such control.
Strange country that we live in to allow such business activities, huh?
Guest 30
Stupid vs Smart?
Richard, please help me distinguish the smart from the stupid in regards to MBE and UPSS.
Based upon your definitions of stupid, the MBE’s should be in the smart group since they apparently have banded together to form a group, (Independent Association of Mailbox Center Owners & Platinum Shield Association) and have hired what we will assume to be competent attorneys. I’m not sure you can make a claim that they made a bloody mess of their investment opportunity because they didn’t know what was going on, although that claim could be said of UPSS owners. (that puts UPSS in the stupid group). In regards to due diligence, since the class action suit has claims of intentional misrepresentation and multiple statutory violations relating to the conversion, maybe those MBE’s didn’t believe what was presented to them (smart group?) but UPSS’s did (stupid group?)
The MBE’s franchise agreements were not violated when UPS had MBE stores rebrand to The UPS Store although The UPS Store owners now have a class action certification relating to The UPS Store conversion. So was the smart group stupid or was the stupid group smart?
Dehumanizing those who have a Franchise Failure
I see the industrial utility in continuing to promulgate the easily disproven assumption that success or failure is 100% within the franchisees' control.
You know it. Any experienced franchise attorney knows it.
Your words are offensive and would never arise in a face-to-face conversation. If the word "franchisee" were substituted with a racial minority, visibly handicapped, women, children (eg. any class), you comments would border on hate.
Stop it. Now.
* Rudeness is the weak man's imitation of strength. Eric Hoffer
- 30 -
Judge and MBE-UPS No Standing for Personal
Interesting that the judge ruled that those who signed the personal guarantees on the franchises and the leases, HAVE NO STANDING to sue.
Just more of the same. Individuals are induced to form little corporations to do business with the bigger corporation with the view to all of the advantages that are incurred in this process ----not realizing that even this small advantage (taxes, maybe) is really a great advantage to the franchisor, who doesn't have to deal with the failed franchisee who doesn't keep the corporation alive in the state in which the business existed.
The process is rigged throughout with the use of the law that provides the noose to silence franchisees. .
Stupid and Unlawful
Richard writes: "It aint lawful to cheat the stupid"
Of course it is unlawful to cheat anyone, even the stupid. People who make a stupid error because they have been cheated deserve the full protection of the law.
Richard, your rhetoric fails here.
Would it be illegal to rape the slatternly? Yes, and we won't tolerate remarks suggesting that they somehow deserved it.
People who are cheated are not stupid because they have been cheated - they have simply been cheated.
For somone who likes to parade his street smarts, your post and this rhetoric is more than annoying - it demonstrates that you know nothing about the psychology of fraud.
But, I don't believe it. I believe that you know quite a great deal about fraud - so why pick on those who were defrauded?
It doesn't improve your stature as a street smart lawyer.
It doesn't improve due diligence for the prospective franchisee.
It does make you look like a jerk, which you aren't.
Michael Webster PhD LLB
Franchise News
By The Way
There is a FREE tutorial on my web site telling you how to go about selecting a lawyer to represent a franchiseeor franchisor in litigation/arbitration. If I aint your huckleberry, choose anyone else you do like - but for God sake choose one who isn't a total Bozo. There are dozens of pro bono tutorials on my web site for franchisees and franchisors - and they aint required to do business with me or to register with me - or even talk to me - in order to have access to them. There's no excuse for not getting someone competent unless you are just too cheap to pay a competent lawyer.
Richard Solomon, www.FranchiseRemedies.com, has 44 years experience with franchise litigation and crisis management. Trouble is his speciality. He is a graduate of The Citadel (A.B. Modern
Real Problems
Richard wrote: "It aint lawful to cheat the stupid. But the way stupid works out makes it seem like it's lawful to fleece the stupid."
Many individuals who are fleeced are neither stupid, incompetent nor have any other attribute that would vest responsibility for being fleeced with them.
Frankly, I am puzzled by Richard's rant.
It won't increase due diligence.
It won't increase Richard's self professed stature as a "street smart" lawyer.
It only indicates that Richard may know nothing about the psychology for fraud. And I mean nothing, if the victim of a fleece is called stupid.
I assume that this rant is from Richard's alter ego. Because it makes no sense otherwise.
Smart people get fleeced - con criminals excel at stealing from smart people. Dumb people don't have the imagination to get caught up with the phantom dream.
Again, I don't understand the point of this rant. Because it is so clearly wrong.
Michael Webster PhD LLB
Franchise News
Choosing the Right Attorney
Richard's article is here, and Keith Kanouse has an excellent article about choosing a franchise lawyer here.
Michael Webster PhD LLB
Franchise News
Wrong
Anything I say in here I would say to your face. If people like me don't start slapping rudely about what is happening, it will continue to happen. I am shouting that people have to do what will help them rather than whine about not having done what they needed after it is too late. One uses the dead to save the living. That's how cures are found.
Slogans will not teach people how to prevent being cheated. Being polite has for too long enabled people to be cheated. I will not be polite because you have pain. Too many poeple have the same pain you have. The problem is to make it possible for fewer to have that pain. It will not happen with slogans; not with chatty BS; not with ignoring the problem. You will just have to suck it up. I will post aggressively in here as long as Mr BMM allows me to, in order to try to get it through people's skulls what they have to be prepared to do to keep from being fleeced.
Richard Solomon, www.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
Ends justifying the Means
Richard,
You know you are making a fundamental logical error and continuing to propagate untrue and hateful rants against an identifiable group of people.
I kinda thought Blue MauMau was focusing on franchisee interests? Or has economic realities turned this into more of a "targeting" exercise?
Double-agent/Cats-paw business
To diminish another's rights, is offensive from the first to the last.
Sorry. No one on this earth has the authority to extinguish a group's humanity.
But I see who principally profits from attempts to do so...
- 30 -
"And then she understood the devilish cunning of the enemies' plan. By mixing a little truth with it they had made their lie far stronger." CS Lewis
"The conspicuously wealthy turn up urging the character-building value of privation for the poor." JK Galbraith
He does have a point
although it is overshadowed by his abrasive delivery. Franchisees enter into these relations with presumptions that are all too often emotionally fueled - and salespeople exploit it. What makes this situation all the more frustrating is the level of potential loss - franchisees frequently have their entire retirement or future hinged upon the success of their venture but take inadequate measures to evaluate the merits of their decisions. A lot of these systems that give franchising a bad name had red flags, be it potential encroachment issues or excessive unexplained turnover in a relatively young system...enough that a prudent investor would start digging for answers, and if they were unsatisfactory, drop it as a potential franchise.
But the psychology of it is that people are far too trusting and deep inside they want it all to work out; they accept the half-baked responses as legitimate. Part of it likely is the fact that everything is supposedly already laid out to you, packaged in the form of a UFOC - which I am sure the sales person tells you is a federal requirement, they are bound by all these laws, etc., etc. In the cases where the UFOC seems to be touted more as a sales tool (i.e., "hey we had to meet stringent state and federal requirements to even sell to you in your state"), frankly, I would run. Successful franchise systems should sell themselves. You look at the nature and number of litigation claims against the system. You look at their Item 19 claims. You call every freaking zee until your fingers are raw. You take the contract to an experienced expensive franchise attorney who will do his best to justify his fees by explaining in explicit detail exactly how and why that contract will do its best to screw you over. You take it to your accountant and find out if profitability is foreseeable within your lifetime. You do all these things and more because YOUR STINKIN HOUSE/RETIREMENT/CHILD'S COLLEGE FUND is on the line. If then it satisfies you, and you come on board, and it still is a stinker...you grab every single franchisee you can find and scream at the top of your lungs and get the nastiest litigator you can find.
But ignoring this, or glossing over this, or blaming inadequate government regulation, or not doing everything in your power to protect that which you've accumulated in a lifetime...that is stupid. If you still got screwed over, then you honestly weren't stupid, because sometimes bad things happen to smart and good people...but at least you did everything you could to prevent it from occuring. It is the people that rant and rave when they did not take their investment seriously that I believe Solomon is calling stupid. Frankly, I agree with him on that.
Hindsight is 20/20
Bubba,
Even if Due Diligence was an accurate predictor of FUTURE franchise financial success, which it isn't because of post-signing CHANGES in franchisor use of opportunistic measures, you are comparing informational APPLES and ORANGES.
Please don't apply the same standards of knowledge or competence to a run-of-the-mill Mr. Smith investor and a franchise lawyer or consultant with +20 years experience.
It just adds confusion to the potential franchisee who is trying to wade through the storm sewer of franchise disinformation.
Some of it flushed unintentionally, others not so.
- 30 -
True
but if a run-of-the-mill investor is not cognizant of the risks associated with his investment and fails to obtain assistance from those that can assist in making such a risk analysis, then it would be fair to say that he would likely fail in any business venture, not necessarily just that of a franchise. Self-awareness of areas where one is lacking knowledge is essential to long term survival, and not just in the business world. If you do not currently possess the skills with which to make an informed decision, pride or finances should not rationally be obstacles in ensuring you find someone who does; and this does not include Uncle Frank. Granted, due diligence does not provide a guarantee as to the viability of a system, but it should be an obvious required first step and all too often it just is not.
I don't disagree that there are systems that will take advantage of every legal opportunity available to them - but this is why your attorney should vet the contractual provisions. As to post-signing changes, i.e. verbage in the agreement stating that zee must promptly comply with changes in the manual, and the zor then using manual updates to implement onerous changes...this is something that due diligence should sort out. If the zor decides to implement changes that aren't supported by contract, well, then there are legal remedies for that.
I just think that too many zees have this assumption that franchising is a bee-youtiful risk-free venture because the zor has already figured everything out, "everything" is all in the UFOC, and all they have to do is buy it, run it and they will be successfull. No, it's a business venture in many ways like any other, with the risks associated with it. But that's where the psychological component comes into play - too many view due diligence (if they get it at all) as a pro forma exercise, merely to placate the devil's advocate telling you that perhaps you really shouldn't get a third mortgage to pay for this thing.
It just seems like people only really start taking it seriously once their store is failing - they don't realize that they were likely going to fail from the point they first signed on board. I don't buy the argument that the zee is solely responsible for when their stores fail (zors like to claim that their system is established and any failures are a result of zee deviations) - the reality is that stores fail for any number of reasons, but if the zee did not conduct proper due diligence prior to signing any agreements, then some of the responsibility should, and does, lay with the franchisee.