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Do you know how many were Arbitration Cases?
I know that the Nagrampa case was argued by the TLPJ. Are there any others?
Top 5 Landmark Lawsuits Affecting Franchisees of 2007
Submitted by Don Sniegowski on Tue, 2008/01/15 - 12:53.
Franchisor versus Franchisee. In These Legal Cases, Franchise Owners Are Freed from Arbitration Clauses, Retaliatory Franchisor Litigation and More
Franchise attorney David Sager of Day Pitney in Florham, New Jersey and Jonathan Solish of Bryan Cave in Santa Monica compiled hundreds of franchise cases for 2007 in a book and presented highlights at the annual meeting
of the American Bar Association's Forum on Franchising. Blue MauMau asked these two top attorneys to whittle down their list even more to cases with the greatest impact on franchise owners.
Here are Sager and Solish's top five picks of lawsuits in 2007 that may have the biggest impact on franchise owners.
1. Randall v Lady of America – Federal judge rules that written disclaimers in the disclosure document cannot defeat a franchisor's false promises. Franchisees claimed that they had been deceived on expected earnings in the buying process by company representatives and hand-outs during Discovery Day. Even though such misrepresentations were disclaimed in the offering circular, the franchisees sought to have their agreement obligations to the franchisor rescinded. The franchisor filed a counter-suit for damages from future unpaid royalties that resulted from the franchisees leaving. Solish observes, "This case may prove to be influential because it is thoroughly reasoned, even if those of us on the franchisor side believe the reasoning to be incorrect. The exact opposite position was taken in several cases from other parts of the country last year."
Winner - franchisees.
2. Nagrampa v MailCoups – Arbitration clauses governing franchisees may be unenforceable. Franchisor MailCoups’ arbitration clause was so one-sided that the 9th Circuit voided it. Solish concludes, "This decision will receive no respect at all from courts in many other parts of the country, further leading to inconsistent results in different jurisdictions."
Winner - franchisee.
3. Bray vs QFA Royalties – A benchmark of reasonableness was added to a franchisor's retaliatory litigation against a franchisee. Quiznos became so upset at the head of its independent franchisee association for posting a suicide note on the web that it terminated the association's president and franchisee, Chris Bray. Although the franchise agreement permitted Quiznos to terminate for conduct which "in the sole judgment of Franchisor, materially impairs the goodwill associated with the Marks ....", the court found that Quiznos did not exercise any judgment and that its actions were purely punitive.
Winner - franchisee.
4. Radisson v Majestic Towers – Banner case for liquidated damages. Franchisee Majestic Towers agreed in its franchise contract to award liquidated damages to franchisor Radisson Hotels totaling two times the previous year's royalty fees upon termination because it would need to forgo two years fees in searching for a replacement franchisee. "There's no basis that finding a buyer will take two years," says the franchisee. "Immaterial", says the court. Solish summarizes, "the court rules that agreement provisions are enforceable and gives insights into a reasoned analysis of liquidated damages provision." He continues, "The Radisson decision rejected the controversial California state court decision of PIP v. Sealy (which held that where an agreement is terminated by the franchisor, there might not be any damages), concluding that it did not apply to liquidated damages."
Winner - franchisor.
5. Century Pacific v Hilton – Franchisors have the right to sell the franchise. Century Pacific Inc. franchisee claimed that business was hurt by an inferior reservation service system after franchisor Hilton Hotels sold the chain. The franchisee felt Hilton falsely reassured it before buying the hotel that the franchisor had no intention of selling the chain, all the while they were actually preparing to sell the chain. The court ruled in summary judgment that the franchisee could not prove fraud and that the agreement held. Solish says, "Franchise agreements allow franchisors the right to sell the system. Franchisees should take this into account when buying a franchise. This case upholds the franchisor's contractual right to sell the system without being hindered by claims of purported fraud."
Winner - franchisor.
--
Related readings:
- The Victory of Common Sense: Why Randall v. Lady of America Matters
- Journalist Janet Sparks reports, Lady of America franchisees file 'kitchen-sink lawsuit', FT
- Franchisor Retaliation Restrained: Bray v Quiznos
- TSFA President Bray Settles Quiznos Lawsuit
- Century Pacific Case Against Hilton Dismissed, Hilton Protected by Agreement
- Franchisee Pays Liquidated Damages: Radisson Hotels v. Majestic Towers
LandMark Law Suits
Submitted by Guest on Tue, 2008/01/15 - 16:12.
Lady of America v Advecor
Submitted by Don Sniegowski on Tue, 2008/01/15 - 20:23.
Writer's note: Attorneys Jonathan Solish and David Sager sent me the right case. Unfortunately, I researched and wrote about the wrong franchisee (but right franchisor) in my first draft. The mistake was caught and my correct notes with the wrong case thrown away. Then I realized it is better to list cases than to keep cases tucked away. So here it is.
Lady of America v Advecor – Despite the inconveniences of travel, a franchisee is required to litigate in the franchisor's jurisdiction on the opposite coast. A Florida health club franchisor took to task its California franchisee for not supporting a mailing promotion that extended to far-away Florida. The California franchisee wanted to transfer the case to Southern California. But the court ruled that the franchisee had made a calculated decision to partner with its franchisor headquartered in Southern Florida so a hearing there was proper.
Winner - franchisor.
Mr. Franchise - Nagrampa v. MailCoups
Submitted by Patricia on Thu, 2008/01/17 - 09:30.
I understand Kevin B. Murphy, Mr. Franchise, was the franchise expert on the franchisee (Nagrampa) side of the Nagrampa v. Mailcoups case. Does anyone know of a case he's worked on that hasn't won?
Nagrampa v. Mailcoups
Submitted by Guest on Thu, 2008/01/17 - 10:02.
I was one of the lawyers on the team representing the franchisee in this appeal. The case is a striking example of how badly mandatory arbitration can treat parties who are not "repeat players" (meaning, large corporations with an ongoing relationship with the arbitration firm). The arbitrator and the arbitration firm billed our client tens of thousands of dollars, required our client to travel across the country from San Francisco to Boston if she wanted to participate in the arbitration of her case in person (which she was not able to do), and issued a ruling that was not at all consistent with the evidence in the case. The decision of the en banc panel of the Court of Appeals in this case was a welcome dose of reality and justice. Most of the credit for the legal work in the case goes to two brilliant young lawyers who used to work at my firm, Public Justice, and have gone to other positions -- Kate Gordon, and Mike Quirk.
Our firm has helped a large number of individuals who are resisting unfair and abusive arbitration clauses. For more information about us, and copies of our briefs, you are welcome to go to our website, www.publicjustice.net.
Paul Bland
Arbitration Question
Submitted by Guest on Thu, 2008/01/17 - 11:08.
I didn't understand your comment "parties who are not "repeat players" (meaning, large corporations with an ongoing relationship with the arbitration firm)."
Isn't arbitration before the American Arbitration Association, and isn't the arbitrator selected a person mutually agreeeable to both sides? If one of the parties had an ongoing relationship with the arbitrator, wouldn't this be a ground for immediate removal or disqualification? Just seems like common sense to me.
I've never heard that just because a company uses AAA arbitration a lot, they are repeat players that somehow enjoy an advantage in arbitration.
Arbitration
Submitted by Bubba Sparky on Thu, 2008/01/17 - 13:45.
Not that I am in favor of mandatory arbitration; however, it should be made clear that their UFOC disclosed, or should have disclosed, that this was the method of dispute resolution with the zor. Its a different story where a bank makes mandatory arbitration the sole means of dispute resolution after the contract has already been executed, with the alternative being termination of all agreements and immediate payment of all outstanding balances. In franchising, they were disclosed that mandatory arbitration was coming in the event of a dispute. They were disclosed that venue/choice of law/etc was to be at a particular locale (likely the zor's home state). Complaints about it after the fact seems like crying over spilt milk. You have already agreed to it.
With respect to your claim that arbitration caters to repeat players - this is one of the most significant problems with arbitration. Honestly, who do you know that bites the hand that feeds them? It becomes less a matter of dispute resolution and more a matter of economic survival. Other issues is the possible lack of arbitrator experience in legal matters, lax evidentiary standards, lack of documented precedence, etc. I could go on and on here.
Mr. Franchise's Expert Witness Track Record
Submitted by Guest on Mon, 2008/01/21 - 16:46.
I've done some research, based on the franchise expert cases Mr. Franchise has worked on, listed at:
http://www.franchisefoundations.com/expertqualifications.html
I haven't found one where he hasn't been on the winning side.
Arbitration Question
Submitted by Guest on Thu, 2008/01/17 - 12:33.
Your remark only seems like common sense to you because you have not been subjected to forced mandatory arbitration.
In our case CB vs WW,LLC, The attorney who defended CB is an arbitrator for the AAA, and also contracts the AAA for all of his firms disputes.
The arbitrator disclosed that she uses the same accounting firm as CB and had also been involved in another case with Paul Fransway, who is the CB attorney. Consider that our case came down to damages, and who decides damages? THE ACCOUNTS
We demanded more information about the arbitrator and the other case with Fransway, and asked that she be removed. We have yet to ever receive a response.
If that is not shocking then how about this arbitrator being appointed 6 months before arbitration was compelled
I have yet to hear of anyone who got a fair deal in arbitration. I'm sure that there are those who have, I just have not heard of any.
If arbitration became a choice instead of being mandatory, maybe there would be fairness in the system.
Then, just like any other business, they would get cases by word of mouth instead of being guaranteed steady income by big business.
Everyone of you have at least 2 contracts that require mandatory binding arbitration. These contracts are in everything we sign today.
Given the power that these arbitrators have that should scare the hell out of everyone.
Arbitration is a privitized judicial system that goes unchecked, you can not question it, and an appeal is almost l00% of the time, as there are no checks or balances
Anyone who writes a contract can include an arbitration contract within it. We even had our contrat to arbitrate amended and the AAA has so much power that it is almost impossible to stop them. Our attorney wrote at least 6 letters to the AAA case manager that went unacknowledged. The rest is history
Looking at the CB it is pretty hard to give them any crediability. They are under investigation again in Maryland, withdrew the Illinois registration because they refused to comply with the Illinois Law, and now another Violation.
Bubba
Submitted by Guest on Thu, 2008/01/17 - 14:53.
We had our Franchise Agreement amended to read that violations of State would be handled by that States Law. Both signed this amendment and it is seperate from the Clause in the FA. Our Franchise Contract goes so far as to say "We do not give up our right to a trial by jury for violations of the MFRDL." The AAA did not respond or even acknowledge our Contract to Arbitrate. I can't say alot as this is in appeal, but I can say that people should be concerned about arbitration. We were sent additional questions from The Congressional Committe where I testified for the Fairness Arbitration Act, and we sent them infromation showing that the arbitrator was appointed 6 months prior to CB filing to compel the arbitration.
Kevin's Qualifications
Submitted by michael webster on Mon, 2008/01/21 - 16:49.
I like Kevin's website, although it is a bit 20th century.
But couldn't you supporters of Kevin get him to post here, under his own name?
Michael Webster PhD LLB
Franchise News
with all due respect.
Submitted by Guest on Mon, 2008/01/21 - 17:45.
Do you really think his website would publicize a case he lost? I have no idea who Kevin Murphy is so please don't construe this as a shot at him or his firm -- it's not. I'm just injecting a little common sense....
I just read...
Submitted by jd on Thu, 2008/01/17 - 15:17.
'In this case, respondents do not challenge the validity of the arbitration clause in the franchise agreement.'
WW, LLC is the respondent, and this quote comes from the Judge Duggan's Motion to Stay (dated 7/18/06), prior to the arbitration hearing.
Why would Judge Duggan's motion state this if you were opposed to arbitration from the beginning? Just asking.
Arbitration and Stacked Deck
Submitted by Guest on Fri, 2008/01/18 - 14:14.
I agree with the above comments.
The franchisors know that the law surrounding franchising and the law of the contract that compels arbitration is stacked in their favor.
Absolute power always corrupts and protects the corruptors ---both the franchisors and the arbitrators. This private justice is out of view of the public and the courts tend to protect their innocence by strictly enforcing the terms of the contracts when these matters are brought to their attention, even when the "bad faith" of the franchisor and the contract has been demonstrated by the outcome to the franchisee.
Apparently, if Federal Regulatory Policy results in disclosure that permits the bad faith practice of selling unviable franchises to the public, the courts uphold federal regulatory policy.
The arbitrator has more power than a judge and the rulings are not sugject to appeal unless "fraud" can be proved to the court. Have you researched as to whether any arbitration ruling has EVER been overturned because of "fraud?"
JD
Submitted by Guest on Thu, 2008/01/17 - 16:33.
Because if there is a doubt about a contract to arbitrate it is settled by the arbitrator. In our case, we were ignored and then the arbitrator said that she would decide during our arbitration. that is why she states in the award that everything is to be arbitrated. We do have on record that we contested this and it is in the brief before Judge Duggan. Just because he did not reference it does not mean it was not argued.
You can go on line and read the "Contract to Arbitrate" in the Franchise Agreement.
An arbitration contract is like any other contract, ours was breached. The arbitration contract clearly discloses that issues will be between the zee an the zor, no other parties can be involved. The Md. Securities Commissioner gave the arbitrator a letter telling her that we were not a party to the State's investigation, noe we were a party to the States negotiations. For the arbitrator to qard based on the States case was an over reach on her part. Arbitration according to the contract is to be confined to CB and the parties buying the franchise.
JD I hope this helps, if not let me know. Arbitration is a dangerous judicial system as it is now. It would be much better if it were a choice.
Why ADR upheld by judiciary
Submitted by Paul Steinberg on Fri, 2008/01/18 - 20:21.
Guest writes: the courts tend to protect their innocence by strictly enforcing the terms of the contracts when these matters are brought to their attention, even when the "bad faith" of the franchisor and the contract has been demonstrated by the outcome to the franchisee
Not true, for the most part.
The legitimate reason given for confirming arbitral awards (even of dubious basis) is that the parties have voluntarily chosen to submit to arbitration and they don't get a second bite at the apple by re-arguing the case via litigation.
There are many concerns about pre-dispute ADR clauses, but you do your cause no favor by not recognizing the basis for those judicial and legislative actions with which you disagree.
You had a choice!
Submitted by Truth in Franchising on Thu, 2008/01/17 - 17:50.
You did not have to sign the franchise agreement and become a Coffee Beanery franchisee.
The Truth Shall Set You Free!
TIF
Actually
Submitted by jd on Fri, 2008/01/18 - 07:32.
If you reread my post, i asked if you opposed arbitration before it happened. If you did, you didn't do a good job of explaining it to Judge Duggan since he said that you weren't denying the validity of the arbitration clause.
So, either you were opposed to the arbitration clause in July 2006 and Judge Duggan was wrong or you weren't opposed to it at that time and only bring the 'mandatory arbitration' up now that you lost.
For some reason, I think I believe Judge Duggan's statement that you didn't dispute the validity of the arbitration clause and only since have argued against it.
Arbitrator Awards
Submitted by michael webster on Sat, 2008/01/19 - 09:50.
Paul, I think that there is another legitimate reason to uphold arbitrator's awards, from labour law. The arbitrator is expected to know something about the industry, and the actual fact pattern probably doesn't give rise to anything of precedential value. What is needed is a quick and dirty decision to get everyone back to work because there is an ongoing relationship. In these cases, I fully supported the jurisdiction of the arbitrator and not being second guessed.
In Ontario, the Arbitration Act allows the parties to craft their own routes of appeal, and if they haven't with respect to questions of law, then section 45 governs.
45. (1) If the arbitration agreement does not deal with appeals on questions of law, a party may appeal an award to the court on a question of law with leave, which the court shall grant only if it is satisfied that,
(a) the importance to the parties of the matters at stake in the arbitration justifies an appeal; and
(b) determination of the question of law at issue will significantly affect the rights of the parties. 1991, c. 17, s. 45 (1).
Idem
(2) If the arbitration agreement so provides, a party may appeal an award to the court on a question of law. 1991, c. 17, s. 45 (2).
Appeal on question of fact or mixed fact and law
(3) If the arbitration agreement so provides, a party may appeal an award to the court on a question of fact or on a question of mixed fact and law. 1991, c. 17, s. 45 (3).
Michael Webster PhD LLB
Franchise News
ADR upheld by Judiciary
Submitted by Guest on Mon, 2008/01/21 - 17:06.
It is all in one's point of view. You indicate that franchisees sign these contracts and that the process is voluntary, although not bargained.
How can a franchise agreement that is presented with a government disclosure document, the FDD or the UFOC, that implies that the franchise agreement is a "take it or leave it" uniform, boilerplate contract be considered a voluntary action? Potential franchisees are just not "stained enough" to realize that their government permits franchisors to sell franchisees at any degree of risk to the potential franchisees, and that the FTC makes it possible for the franchisor to hide the actual risk of the investment in the franchise.
The constructive fraud of a franchise agreement together with an ineffective government required disclosure document does the work it is intended to do and the courts protect their innocence with the pronouncement that this is a voluntary action on the part of the franchisee. The courts must marvel at the stupidity of franchisees who sign such agreements!
We had a choice
Submitted by Guest on Thu, 2008/01/17 - 19:33.
And we amended the Franchise Agreement.
Can you read?
ADR Contracts
Submitted by michael webster on Mon, 2008/01/21 - 17:30.
Guest writes: "How can a franchise agreement that is presented with a government disclosure document, the FDD or the UFOC, that implies that the franchise agreement is a "take it or leave it".
Because you are presumed to have read the FDD or UFCO before you decided to take it or leave it.
Read it and leave it, is often the best advice.
Michael Webster PhD LLB
Franchise News
Yes...
Submitted by Truth in Franchising on Thu, 2008/01/17 - 19:42.
What specifically does your negotiated and amended franchise agreement say about arbitration?
The Truth Shall Set You Free!
TIF
he cannot read that which opposes his viewpoint....
Submitted by Guest on Fri, 2008/01/18 - 13:26.
...or opposes franchising in any way, shape, or form. this is the TIF way. although lately i must admit he is being a bit more objective.
Read it and Leave it is Good Advice
Submitted by Guest on Mon, 2008/01/21 - 17:56.
However, Michael, you know that EVERYONE knows that potential franchisees don't read the disclosure because it is GOVERNMENT who requires the disclosure and potential "marks" don't understand that their government is pretending to regulate on their behalf while really regulating on behalf of the franchisors and protecting them from fraudulent inducement claims from those who buy their lousy products.
The government is aware of the fact that Government required disclosure d9oes imply oversight of the industry, etc... and how are the uneducated brought to understand this. The potential franchisees act in good faith believing that their government and the franchisors are selling franchises in good faith.
Bad mistake!
Dweebie one I haven't changed one bit...
Submitted by Truth in Franchising on Fri, 2008/01/18 - 18:34.
You on the other hand may have learned something.
The Truth Shall Set You Free!
TIF
Da guvmint is not your wet nurse
Submitted by Bubba Sparky on Mon, 2008/01/21 - 21:50.
(I was getting kind of tired of the repetitious "not your mommy" subject lines)
All the government requires is that the zor disclose certain things. It is up to the prospect (through their choice of wise counsel) to glean how the disclosure details the strength, or questionability, of the system. If you are too "uneducated" to understand that there is nothing more to be imputed from government disclosure than just this, then you are just as likely to be fleeced in any business endeavor, not just that of a franchise. Education is the resolution to this problem, not more guvmint. Suggesting that government mandated disclosure somehow is validation of a franchise system is where your premise is faulty. The responsibility for the interpretation of the disclosure is on the zee's shoulder's, not matter how much you want to shift the burden elsewhere. Somehow blindly implying government mandated disclosure is a measure or testament as to the viability of a system is just foolish - the UFOC on the cover plainly, and in bold, clearly states otherwise. If you don't read the UFOC, well, that's just foolish too.
Again, its your house/retirement on the line - act like it is important to you.
Good Advice
Submitted by michael webster on Mon, 2008/01/21 - 18:30.
Guest writes: "However, Michael, you know that EVERYONE knows that potential franchisees don't read the disclosure because it is GOVERNMENT who requires the disclosure and potential "marks" don't understand that their government is pretending to regulate on their behalf while really regulating on behalf of the franchisors and protecting them from fraudulent inducement claims from those who buy their lousy products."
I have sympathy for individuals who don't read the disclosure document throughly 10 days before closing.
But when the document is available for purchase for $200.00 or free on Caleasi, I have no legal case to present the Court on their behalf. I cannot that those who did not read can ask the Court for forgiveness.
You don't read: you may pay a heavy price.
The information is there: you must access it before you hear the siren's of the franchise salesman.
If you don't understand the UFOC, call someone who does.
Failure to do so will be injurious to your financial health.
Michael Webster PhD LLB
Franchise News
The Government is not your mommy
Submitted by Truth in Franchising on Mon, 2008/01/21 - 18:34.
Will you ever understand that you are personally responsible for your actions?
The Truth Shall Set You Free!
TIF
Da guvmint is the wet nurse of the Franchisors
Submitted by Guest on Tue, 2008/01/22 - 09:55.
Bubba! Please read the FTC's official explanation of the PURPOSE of the FTC Rule! It is obvious that the purpose of the Rule has been aborted. The FDD does not allow the ZEE to assess the risk of the investment or to compare it with other investments, etc...
I am suggesting that Government mandated disclosure and tha "To Protect you" language when presented together with a boiler plate contract that ZEES believe is unnegotiable does the work the government intends it to do. Prospective ZEES who respect their government do not think that the franchisors will "fool" with the government and that mandated "disclosure" in itself implies that the franchisor is in compliance with government regulations that were passed to protect ZEES.
ZEES sign these exploitive franchise agreements because they believe it is the only way to access the profits and rewards that the ZOR promises outside of contract. The SBA approves the ZOR's contracts, and as long as the ZORS don't talk about the risk anywhere in the contract, and make the right disclaimers, the franchise makes it on the SBA Franchise Registry.
The ZEE, however, looks at the standing network in Item 20 and believes that all of the standing ZEES have signed the same contract. The visibility of the Network together with the "need" of the ZEE presents a false picture to ZEES. The 23 Items in the FDD (the UFOC) act to obscure the actual risk of the investment in the franchise in terms of failure or success of first-owners of the franchise.
The FDD or the UFOC helps the franchisors to churn and turn with immunity under our laws while giving the government deniability about the churning and turning or the unviability of the franchises being sold to the public. It is only when there is a complaint from a ZEE that government rushes in to negotiate Rescissions, that are negotiated in the interests of not destroying the ZOR with no regard to the ZEES who are destroyhed by the Rescission that they had no part in negotiating.
The malice of premeditatedly selling franchises with long terms that require long-term leases that result in malicious legal traps is only possible because franchising is not regulated as well as securities are regulated by the SEC.
As I've said before. It is hard for normally intelligent and naive potential ZEES to understand that the Small Business Administration will guarantee loans for ZEES at any degree of risk. Apparently, franchising is durable because the lenders are also taken in by the visibility of the franchisor in the marketplace. Advertising will get you everywhere and if the collateral of the ZEES is good, and there are government guarantees, and this stimulates the economy, who cares about the ZEES who bear the entire brunt of failure?
Franchising is not an authentic "free market" practice because there is no competition between sellers of the same concepts or similar concepts. If the success rate or failure rate of first-owners were required to be disclosed, this would result in competition between those franchisors with the same or similar concepts and the unviable franchises would be weeded out.
You defend this ugly, immoral, and unAmerican practice with your rants about "due diligence" and I notice this is the only excuse that the FTC offers as well. The FTC apparently works on the premise that "the end justifies the means" and you legal types and others whno surround franchising like the status quo and intend to support the status quo.
The Internet will act as a giant net to capture the little fish for the big fish to eat and you enjoy standing by and watching the feast. I understand! I understand that you are not the kind of guy who would run into a burning house to save those inside. You play the odds! --and obviously their house is burning down because they didn't do their "due diligence!"
based on your response...
Submitted by Guest on Mon, 2008/01/21 - 17:46.
i have to admit you are correct, you haven't changed.
