Francorp's One-Stop-Shop Program Scrutinized at ABA Forum
Ethical Issues Raised Regarding Franchise Consultants and Lawyers PHOENIX (Blue MauMau) - At the 30th American Bar Association Forum on Franchising last month, speakers Michael H. Seid, Michael H. Seid & Associates LLC, and Leonard D. Vines, Greensfelder, Hemker & Gale, P.C., discussed the respective roles of the franchise consultant and the franchise lawyer. As Mr. Seid opened the session he said, "We will be discussing the Francorp case. Their Forum Paper explains: "Perhaps the most significant case that faced the issue of the unauthorized practice of law by a franchise consultant is Francorp, Inc. v. Siebert."
Francorp's former president, Mark Siebert, who had started a competing business, brought a counter-claim against Francorp at one point during litigation, alleging that Francorp's preparation of franchise documents constituted the unlawful practice of law, which constituted an unfair trade practice under the Illinois Uniform Deceptive Trade Practices Act. The court determined, according to the Forum paper, that "one who reviews documents produced by a lawyer, critiques them, and advises another of their legal consequences is practicing law." The court continued, "[n]o matter how knowledgeable the lay person, or how inexperienced the lawyer, however, Illinois has rendered its judgment that certain tasks are to be performed only by licensed attorneys directly engaged by the client." The court made it clear that an in-house attorney can only perform legal services for their employer and not for his or her employer's clients.
But based on the findings that drafting the legal disclosure documents and executing registration certificates constitute the practice of law, and that the evidence suggested that Francorp was doing significant legal work with outside attorneys only on the cursory review of documents, the court refused summary judgment. The Forum paper explains that it was so because the precise division of responsibilities between Francorp and the independent counsel was unclear and very much in dispute.
Although no reported decision followed, Seid and Vines' Forum materials state that the ruling indicates that a consultant who creates legal documents, even through a licensed in-house attorney, would be treading on thin ice. But it continues, "The case did not address whether legal advice generally provided by consultants, as part of their services, would constitute an unauthorized practice of law by the consultant."
Francorp's Current Little Problem
When working with an "all-under-one-roof" consulting firm like Francorp, one insider states it is critical that the staff has the necessary experience and credentials. But according to reliable sources, Francorp is now operating with an inexperienced legal department, especially after the departure of several key consultants last summer and the release of the firm's most seasoned franchise attorney in recent weeks. But according to Francorp’s legal services website, the consulting firm continues its same practice in preparing disclosure documents for its clients through its in-house counsels, which are then submitted to their attorneys.
---
Related readings:
- Franchise topic:
Janet, thanks for another wonderful job. Now, when you write that, "The court made it clear that an in-house attorney can only perform legal services for their employer and not for his or her employer's clients.", it brings up a confusion that I have not resolved since learning of this case. As a franchise consultant, I would not attempt to produce disclosure documents or FA's for a client, not because I don't know how to "cut and paste" (sorry, many fools handle their own just that way), but because I would not put myself or my client in jeopardy. I’m not a lawyer and I don’t practice law, so I choose to work the finest in the land and the relationship makes sense – for me, for the client, for the attorney. (And btw, except for an initial meeting, I try to keep the lawyer and the client away from one another until I get through ‘consulting’, which means doing my job of personal and franchise strategic planning. Then everything goes to the attorney to be made whole.)
OK, so my issue is this: If I employed a franchise attorney as opposed to contracting with one for this work, why am I not doing things legally? Or, if I were an attorney and took on the consulting role as well, assuming that I understood the ingredients necessary to consult on personal and professional development, would that fly? Or, is this whole debacle a function of law in Illinois? Anyway, I realize and accept that the role of a franchise consultant and a franchise attorney are two very different functions and require different skill sets, but why they cannot function legally under the same roof is beyond me.
--
About the writer: Nick Bibby is principal of the Bibby Group, an international franchise consulting firm.
Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.
This is not the first time the unauthorized practice of law has come up pertaining to franchise consultants who provide legal services. I know when Don was running Franchise Concepts, one of the predecessor companies to Francorp; he sought the advice of the legal firm then known as Rudnick and Wolfe.
We all know that Francorp produces legal documents and coordinates the filing and registration for their clients. The real question is why do some franchise consultants provide legal services?
I can tell you from my 32 years of experience, of providing consulting services to franchise companies, that franchising is a complex process. The legal aspects are just one of the eight critical areas in order for a company to consider franchising. These consulting companies put a lot of emphasis on the legal aspects because they don’t provide services in the other critical areas.
Think of franchising this way and this is how we explain it to our clients and is the name of our upcoming book entitled, “Running On All Eight Cylinders – How Many Franchise Companies Don’t.” Franchising is like an eight cylinder engine. It is just like the engine in your automobile. One major significant difference is that if there is a problem in your auto warning lights illuminate on the dashboard warning you to take corrective actions. In franchising and in business, in general, we don’t have a dashboard or warning lights. We only have warning signs and then it is generally too late to make corrective measures.
The eight cylinders occur simultaneously at two distinct levels: the consumer level and the franchise level. I can tell you that many companies confuse and don’t separate the two. What the franchise company needs to do is wrap rules of conduct and acceptability to each of these cylinders in order to franchise effectively, which means to transfer knowledge, information, technology, etc. to the distribution system participants.
The main categories or eight cylinders, as we refer to them are: 1 -Operations, 2 - Marketing/Advertising, 3 - Legal, 4 - Sales, 5 - Financial, 6 - Organizational/Human Resources, 7 - IT – Information Technology and 8 - Imaging, Branding and Positioning.
I also believe, and have been quoted in the media as saying, “the very things that cause success or failure, in franchising, has absolutely nothing to do with franchising, per se, which is the legal, regulatory and compliance part of franchising, or the 3rd cylinder.”
Again, in my opinion, the real reason Francorp puts so much emphasis on the legal aspects is because they don’t provide services for much anything else. Sure they write operations manuals but do so with “generalists” and not specialists of a particular industry or business segment. Sure they write brochures and produce videos but they do it without understanding the profile of franchisee that is best for a company to seek.
Remember my previous comments that franchising is not a “One Size Fits All.”
They, as well as other consultants, will franchise anyone, anybody and anything, as long as their fees are paid. They have created an economic monster that must be fed.
The real education that needs to take place for prospective franchise companies, as well as many existing franchisors, is that the business model needs to be defined, refined, disciplined, documented and computerized, if possible, prior to franchising. There is much to be done to the business model, itself, and that the legal aspects are the very last thing that should get produced, long after everything else. Francorp puts it in the front end of the process.
Francorp offers “quick entry” into franchising, which I believe, in many cases, is immoral and, as this issue raises, potentially illegal activity.
Another point I would like to make, in reference to Richard’s comments, is that the lawyers are very quick to point out when the unauthorized practice of law exists but are very slow to point out when the unauthorized practice of business consulting takes place by them.
In closing the answer to the question, "Should consultants provide legal services" my answer is an overwhelmingly NO.
Finally, as someone said there is no education or certification for a franchise consultant. Many of them lack the experience in all eight cyliners to perform and, in the case of one of the presenters at the ABA Forum, they even "puff" up their work experiences and creditentials, which I will leave for a different posting.
Craig Slavin
Franchise Architects - www.franchisearchitects.com
Franchise Navigator - www.franchisenavigator.com
847-465-0111 - Drect Line
Craig Slavin
Franchise Central
Franchise Architects
Franchise Navigator
847-465-0111
Y'all can share office space. That's it. An y other relationship has to be disclosed by the lawyer to his/her client. Your employee lawyer can't do legal work for your customer because that would mean your company is/you are practicing law. Neither you nor your company has a law license. The lawyer can't pay yuou for sending him/her the client - we lawyers have it rigged so we are forbidden to pay non-lawyers commissions for business.
The lawyer can do franchise consulting - no license required to be a franchise consultant. Most lawyers who work with franchisors end up discussing business as well as legal issues anyway. Lawyers who have a great deal of franchise experience and good business sense probably have some pretty good insights into the model. Lawyers who just do paperwork probably lack insight into the business issues.
In reality, franchise consulting requires a lot of good sense and a alot of franchise experience. You couldn't get that even if they offered and you had a degree in "franchising". The IFA will give/sell/confer upon you a certification that you are a franchise executive. Is that meaningful? I bet it's like the Martindale-Hubbell av rating - totally meaningless and easily obtainable if you just buy some drinks and get your guests to write letters saying what a great drink buyer you are.
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
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Sorry to hear that about Donald Duck--
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
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Interesting that the lawyer can/will 'accept' a referral fee from a consultant. As the "Lonesome Dove" line goes (in paraphrase) - "Let's get a piece of this land before the bankers and lawyers own it all".
This isn't the first time, and probably not the last, that my logic doesn't square with statute.
In our 25 years of discussing various matters, there always comes a point of balance. So, as a long time 'non-IFA' member in 'non-standing', I do agree with you.
At the end of the day, franchising is mostly blood sport. I love it for a variety of reasons, but mostly to stiff the shark. If one is weak hearted, regardless of the role they play, they will not last. We've been around for a while.
--
About the writer: Nick Bibby is principal of the Bibby Group, an international franchise consulting firm.
Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.
--
About the writer: Nick Bibby is principal of the Bibby Group, an international franchise consulting firm.
First, I have never ‘put down’ a fee for service franchise consultant, but if you think I have, show me the proof. Second, it’s true, I do 'put down' brokers that title themselves consultants, because it’s a falsehood. (I don’t sell franchises, and I don’t represent franchisors in the sales process. I don’t work for a commission. I get paid by a client to work on their behalf. Get it?) At the same time, I don’t ‘put down’ those who sell franchises and refer to themselves as ‘brokers, sellers, agents, or sales people’, because that would be an appropriate description. Third, to answer your other inquiry, read my site.Fourth, the reason I eschew discussion in this forum, is that creeps like you hide behind their keyboards. It was a turn-off to me initially and it remains the same today. If you have some burning issue to resolve or if you wish to challenge me in any way, then why not come out of the woodwork and stand up, call me on the phone, or schedule a visit, but none of those things are going to happen, are they?
Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.
I don't know who Nick's clients are. However, I can tell you that in all these years, not one of them has ever required the services of someone like me.
Your "challenge" reminds me of one night in a back country beer joint when some guy got his knickers in a knot about something I said and expressed a desire to cause me pain - thinking I would back off. When I didn't he suggested that we whip out our respective anatomy to see whose was bigger. That's what this "challenge" sounds like to me.
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
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Only fools adopt rules prohibiting the receipt of money. Smart people adopt rules prohibiting the payment of money.
Franchising has always been a blood sport for people like you and me because we don't involve ourselves in ownership - for many very valid reasons - one of which is that we would become upset if a company we owned a chunk of weren't being run as we think it ought to be run.
Quiet equity participation is the road to real wealth, not having to hunt in order to eat. You and I both lack whatever it is that enables Warren Buffet to be Warren Buffet - but - to be fair to us both - so does almost everyone else.
About 30 years or so ago, the late Federal Judge Philip Pratt, a dear and very bright man, told me his feelings about litigators. He said that real wealth is quiet and understated. Litigators with their Gucci shoes and $ 100 haircuts, Rolex watches and Mercedes automobiles always seem to him to die broke of cirrosis of the liver.
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
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
The legal profession has always sought to maintain high barriers to entry (e.g., ABA accreditation requirements) and sought to force the public to use lawyers instead of non-lawyers (e.g., the Nolo Press & We The People arguments) and to keep fees high (fighting the printing of fee schedules and other restrictions on advertising).
I see some validity to those arguments (particularly in the case of We The People) but for the most part, we are looking at an old-fashioned antitrust cabal here.
My guess is that a Nick Bibby (or Jim Amos, for that matter) has forgotten more about franchise law and practice than the attorney who handled your house closing. And yet, that unqualified guy down the street is permitted to draft a UFOC and FA, but the bar association will nail Bibby or Amos for doing a much better job. The assumption that every franchisee will hire Michael Garner and every franchisor will hire Dennis Wieczorek is not true: instead the zee hires the guy on the corner and the zor hires someone like the guy that drafted Spuddy's UFOC.
A non-lawyer I know has been in the real estate business since he was a teenager, and on a frequent basis he ends up drafting real estate litigation pleadings and emailing them to the retained counsel, since the non-lawyer is more familiar with the law and the relevant courts than counsel is.
Ideally, your interaction with your attorney should be a dialogue in which both parties learn something. As a former sandwich franchisee, I know from experience that (particularly when it comes to administrative and lower-level tribunals) the experienced business owner is often a lot more savvy in navigating the regulatory and judicial system than the attorneys who are tourists in the maze, and don't even realize that they don't know what they don't know.
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
It is safe to assume that both Nick and I have seen many Francorp clients/victims - - and that they lacked or were unwilling to spend further resources to try to become successful franchisors.--
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
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
--
About the writer: Nick Bibby is principal of the Bibby Group, an international franchise consulting firm.
I agree once more, but it's is not necessarily about cash. Ownership is a fact of life; it's just about how we are invested.
Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.
My first employer was like that. He liked to hire only greenies because he felt he could mold them to what the company needed. People with experience were expensive and had "bad habits".
He was able to do that when he was the top player, and the field unplowed. Years later, more sophisticated competitors with experienced employees began to significantly take over his customers and out-maneuver him.
Looking back, I realize that the management skills in the organization were mediocre or worse. The firm had its own "bad habits" that took me years to identify and unlearn.
Maybe they need an attorney for this deal?
Michael Webster PhD LLB
Franchise News
Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"
The problems at Sona occurred long after my association with the company, and after the owner I worked with no longer owned the company. I was not involved with nor consulted about anything that related to any of the problems that have been discussed on this forum.
--
About the writer: Nick Bibby is principal of the Bibby Group, an international franchise consulting firm.
Nick Bibby founded BibbyGroup.com, an organization dedicated to franchise and entrepreneurial excellence.
Little girls? Do your initials LMP stand for Limp?--
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
Richard Solomon, FranchiseRemedies.com, has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
Post new comment