Class Action Alleges 3000 Quiznos Sold but Not Opened
Lawsuit Claims Quiznos Collecting Upfront Fees, Giving Prospects Nothing in Return
DENVER (Blue MauMau) - Because the problem is now nationwide, an amended class action lawsuit was filed in U.S. District Court in Colorado on August 1 to expand the scope of the New Jersey lawsuit filed previously. The amended version alleges that Quiznos fraudulently induced prospects to purchase franchises at a price of $20,000 to $25,000 each, knowing that their stores would never open. It states that, according to Quiznos' own figures, it sold more than 3,000 franchises that never opened, resulting in approximately $75 million in revenues for the franchisor, without providing anything in return to the purchasers. The named franchisees in the lawsuit represent a putative class of thousands.
Last July, Quiznos in Canada agreed to pay $2 million in a class action settlement with Canadian franchisees, for similar accusations. It will allow the Quiznos Sub sandwich chain to refund part of an estimated 170 deposits and taxes to franchisees. The Canadian settlement will cover losses for more than 25 franchisees named in the lawsuit who lost fees in the range of $30,000 each.
Alleged Churning in System is Equivalent to "Ponzi Scheme"
Justin M. Klein, Marks & Klein, lead attorney for the U.S. amended suit, states in the complaint that franchisees are required to open a restaurant within a twelve-month period of signing their agreement or they will be in default. Quiznos maintains unilateral discretion over the approval of the franchisee's location and the franchise lease, both included in the franchise agreement. It states the terms are "extremely one-sided in favor of Quiznos." If a location cannot be secured, Quiznos then threatens termination due to the franchisee's failure to open a store within the time period. The franchisee can be held liable for years of unpaid royalties.
As an alternative to termination, franchisees are given two choices: they can extend the time to find a location in exchange for a general release, freeing Quiznos from any liability; or they can voluntarily terminate the franchise, which includes signing a release, and again freeing Quiznos from any liability. The class action lawsuit claims that the releases are then used by Quiznos to protect itself from the franchisees it has defrauded through threats and intimidation. It says, "Quiznos' overall approach to the SNO (Sold Not Opened) is the equivalent of a 'Ponzi Scheme,' which it hucksters to the general public."
The complaint also alleges that the franchisor sells the same trade area to multiple franchisees, stating, "That is, Quiznos 'churns' trade areas by selling the same area multiple times in an incessant need to raise capital and promote brand growth to the national marketplace." In doing so, it fails to disclose to a new franchisee that another had owned it and could not secure a location.
Inherent Conflict of Interest in Compensating Employees for Sales
The amended complaint also claims that Quiznos bases the compensation of its franchise salespeople and other employees on their ability to sell franchises. By doing so, it says, "This creates an inherent conflict of interest for Quiznos' salespeople, who are placed in a position where their livelihood depends upon selling franchises without regard for the franchisee's ability to ever open a store." The franchisor also provides bonuses to employees who sign up prospective franchisees to attend seminars, and to those who are able to secure signed applications. They are also paid to those who are able to secure a signed franchise agreement. This information is not disclosed in order to give franchisees a sense of trust and confidence in the Quiznos employees.
Franchisees are requesting, among other things, rescission of the franchise agreements due to their unconscionable nature and as induced by fraud, rescission of all contracts and releases obtained through economic duress, and damages. It also asks the court to issue an order for preliminary and permanent injunction enjoining the franchisor and its entities from continuing to take illegal action in selling any future franchises in the U.S., until all current franchisees are provided approved locations to open and/or Quiznos reimburses the fees collected to those who want them returned.
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Previous Quiznos Article:
National Class Action Filed Against Quiznos
- Franchise topic:
I'm trying to by a quiznos franchise, but I see to many negative things about it.
I don't know what to do
thanks for all the info uoy can give me
Jose...for the love of your family...your wife...your children and their future...DO NOT...DO NOT get involved with Quiznos!!!!!!!!!!!!!!!!!!!!
I've been a franchisee for over 6 years now...own a top-ranked store and location...have been in business for over 22 years with various concepts and partners and can tell you that the Quiznos formula simply does NOT work!!!!!
Keep your eye on them though...if you see that the Franchise is sold to a worthy operator or if you read that Rick Shaden dies an untimely death...THEN...buy it!!!!!!
there is a little box. Type in Quiznos. Then left click the little orange button that reads 'search'.
Then you can read on until you are too old to buy anything other than a coffin. Which gives similar meaning to buying a Quiznos.
Seriously; are you nuts. When you pick a shocker you go straight to the bottom.
myself apologising for my insensitivity. As recompense I have a once in a lifetime offer and not just for anyone contemplating Quiznoes. I will extend this offer to anyone out there who is contemplating signing into any one of the multitude of scams.
All you have to do is direct deposit all your money into my bank account and send me the deeds to everything else you own. I’ll keep it but here is the sweetener that Quiznoes or others won’t offer; I will organize your *divorce.
Email me at ozfranchising@hotmail.com and I’ll send my bank and post details. Make sure you send me a copy of your marriage certificate so I can get the ball rolling at this end. Why would anyone give everything over to a shark when here I am and I’ve already apologised?
*This offer is valid for 7 days from and including today’s date and cannot be used in conjunction with any other offer I may have or may in the future make. Should take up of this offer exceed projected demand …. I’ll handle it.
Guest; congratulations on bothering to start due diligence. Most don't and most don't know where to start, what to ask, what to believe and how to interpret any offering let alone understand the importance of getting an industry experienced adviser. At least due diligence on a Quiznoes is cheap and quick.
Due diligence on a Quiznos is cheap and quick.
When you really think about it, the reality of what Q did with many zees is terrible. Not very funny.
Ray your sarcasm is getting very sharp.
Ray, you hit the nail on the head: "due diligence on a Quiznos is cheap and quick." Most franchise systems have few franchisees willing to speak out against their franchisors for fear of reprisal, lawsuits, etc. I have yet to find one published negative comment about my franchisor yet one lawyer on this site, after privately discovering the name of my franchisor, said 'now they understand my frustration'.
Hopefully, potential franchisees to this site will not end their search by just looking for the negative comments online. It would be in their best interest to contact the lawyers who post on this site (and maybe only a handful of other well-known franchise attorneys) for "inside" information into the systems they are interested in.
Under the rules of franachise accounting adopted by the Financial Accounting Standards Board of the AICPA, initial fees are not to be "taken into" general revenue accounts until the store is open/up and running.
As this is different from an impound in which the initial fee income is required to be escrowed until "up and running" is achieved, it is likely that this treatment is an accounting fiction only within Quiznos and that the money is "gone". $ 75,000,000 is a lot of money. If a court ordered it ponied up into an escrow account pending performance by Quiznos of what is related to that revenue, could they do it, or would that plunge Quiznos into immediate bankruptcy?
Is this a choke point that might compel Quiznos to come to terms on this issue to avoid bankruptcy?
Richard Solomon
www.FranchiseRemedies.com
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 point, but the Q contract deems the initial payment to be earned immediately upon payment.
Why would the accounting standards trump the contract, at least in the US? (The standards might trump in Ontario because of our stand alone good faith, fair dealing and commerically reasonable standards clause - unfortunately this was not pleaded in the Ontario class action.)
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 franchise fee should remain as a liability (customer deposits, etc) until the point the fee is 'earned' or becomes non-refundable. This is probably where the contention lies. From a 'real world' perspective, these franchise fees should stay in this account until the location has opened or the 1 year has passed. However, I'm sure Quiznos will argue that since the franchise fee is non-refundable from the minute it passes into their hands, they could use their "discretion" to declare it as revenue immediately.
Lisha
Rhino Super Center
Lisha
Rhino Super Center
FastCasual.com's editor has posted this story from Blue MauMau, emphasizing the "Ponzi Scheme" part of this whole mess.
3,000 Sold Not Opened (SNA) Quiznos Franchises?
For any new buyers out there, what that means is that the franchise buyer (you) lose your tens of thousands you paid upfront for the franchise fee, as per the Quiznos franchise agreement, because Quiznos has not approved the various sites you sent them. Sweet deal, no?
They can minimize their support costs in setting up a new store, while just taking in your franchise fee revenue, and training fee.
Besides FastCasual's "Ponzi Scheme", these words fit the situation:
Can anyone out there think of any other words that fit? (And can be published in a public forum.)
In this morning's Houston Chronicle (p. A-18), Quiznos announces that on 28th August - next Tuesday - they are having a Quiznos franchise fair - ONLY A LIMITED NUMBER OF AVAILABLE FRANCHISES. Why aren't these available to the 3,000 claimed sold but unopened folks in the lawsuit?
WHO'LL BE THERE? - Aspiring Entrepreneurs - Top Level Employees and Executives tired of the corporate grind - Motivated Indiividuals - Couples With Big Dreams
Endorsements from present franchisees:
"I worked in restaurants for years and was interested in opening a sub shop. Quiznos has great support for their franchisees, the training program is great and they want you to do well" Rachel Stewart - Colorado
"Quiznos is very innovative when it comes to product and customer service.. everything is there for yu. All you have to think about is running your business." Paul Arnold - Colorado
TODAY'S QUESTION IS - WILL THE QUIZNOS FRANCHISEES WHO CLAIM THEY GOT CHEATED BY THERE AT THE HOUSTON MARRIOTT WEST LOOP AT 7 PM ON TUESDAY 28 AUGUST TO TELL THEIR SIDE OF IT?
Richard Solomon
www.FranchiseRemedies.com
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
Quiznos has always been a case study in why not to get into franchising, in my opinion. I always have used it as a bad example when I do seminars around Cleveland.
Having said that, it is the prospective franchise owners job to learn how to do proper due diligence, which includes the most important part of the research phase:
Calling current and past franchise owners. If some of the Q franchise owners who never were able to open their stores did at least that..they would have found out about the problems with non-store openings. If they would have then taken the emotion out of the equation, and stuck with the facts and the data, they may have looked at another option or two in franchising.
Adults are responsible for their own decisions.
Franpro
Franpro is:
Joel Libava, President
Franchise Selection Specialists Inc.
Cleveland, Ohio
I have a big problem with franchisors ripping off franchisees.
But let us also not forget that franchisees are "adults responsible for their own actions", paraphrasing Franpro.
Example. When the UFOC highlights, stars, centers, and writes in capitals on page 1, "THE FTC DOES NOT READ OR CHECK THESE DOCUMENTS", I cannot reasonably support a franchisee saying that the government conspires to trick them that it monitored the accuracy of UFOCs.
Bob, would you change your opinion if a battery of psychological tests showed that most people didn't understand the significance of this risk warning - wouldn't that make a difference?
Do you think that it is important that the FTC doesn't have a single page on its site showing an example of how to check out the UFOC representations?
Do you think it important that the vast majority of attorney's who perform due diligence, even experienced franchisee attorney's, limit themselves to a review of the contract?
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"
Franpro writes: "Calling current and past franchise owners. If some of the Q franchise owners who never were able to open their stores did at least that..they would have found out about the problems with non-store openings."
How would they have found the names of the SNOs? (Stores not opened)
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 mind boggles that there are so many dishonest franchisors out there and that people who can produce upwards of a half million dollars to a million dollars in cash and commitment are so easy to bamboozle with a slick sales presentation engineered to simulate professionalism.
What is it that makes these thieves believe that such people would believe nonsense without competent investigation?
The answer is that they do believe it. They drink it in like free cold beer at a political rally. Hell, everyone will vote for free cold beer, right?
The crooks see these people as a gift from God. After all, they posit, if God didn't intend that there be shearing, She would not have created sheep.
They present themselves as rich morons. They don't/won't competently consider - even though they may read it - the warnings that are placed right in front of their eyes. These warnings include, for example:
The biggest public service that we can all try to accomplish in BMM is to try to wake these folks up and get them to pull their heads out of their arses.
The poor bastards who bought the 3,000 sold but unopened Quiznos franchises are to be viewed as just an addition to the hundreds who are open and can't make a living being a Quiznos (insert any of dozens of other franchise names) franchisee.
You could posit that the 3,000 who were cheated out of their initial fees are the lucky ones. Actually opening a Quiznos franchise will cause you to lose a lot more money than just the initial fee if the stories told in here are correct.
We gotta get 'em to desert the Moron Army.
Richard Solomon
www.FranchiseRemedies.com
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
They don't trump the contract - that's why I made the distinction between the accounting issue and an escrow.
But if Quiznos had to account for its ability to refund for non performance - if ordered to account by a court as an exercise of its equity powers - what might that lead to?
I don't know if there's an accounting claim in the complaint, but if the lawsuit is in part about selling franchises that aren't available and accounting for money that is tied to a specific non performance issue, it could get rather delicious.
Richard Solomon
www.FranchiseRemedies.com
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
Muldoons is justs a few blocks away from the Quiznos franchise extravaganza location. If the protestors wanna meet at Muldoons and paint posters and nail 'em to sticks and get drunk before wandering over to the hotel to picket, I'll set it up - All you can drink cash bar.
Richard Solomon
www.FranchiseRemedies.com
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
I think the FTC must've heard you years ago. From a UFOC of 4 years ago, Page 1. The FTC warning is centered, framed, and formatted to stand out on the page.
##
"would you change your opinion if a battery of psychological tests showed that most people didn't understand the significance of this risk warning?" - Webster
Possibly.
When you say "a battery of psychological tests showed that most people didn't understand", you mean like how a battery of psychological tests show that most of us cannot even ascertain how many Fs are in the sentence below when we read it quickly?
Answer: There are 6 Fs. You may want to count again.
Michael,
If one were to call current and past franchisees from the UFOC, one, I would hope, get a feeling for the current state of a particular franchise company, including disgruntled zees who have not been able to open..
I have found that asking great questions leads to getting great answers.
I would say it is all about the ability to peel the onion.
Wouldn't you?
Franpro
Franpro is:
Joel Libava, President
Franchise Selection Specialists Inc.
Cleveland, Ohio
Guest,
How do YOU know that Veterans won't spend their "scarce dollars" on due dilegence?
Most due dilegence is FREE, anyway. As is free info.
Franpro
Franpro is:
Joel Libava, President
Franchise Selection Specialists Inc.
Cleveland, Ohio
Their mission statement should be to ruin people's lives. I have read more stories recently about hurt 123 fit zees. If I had known about Richard Solomon would I had used his services? You bet ya. It is so sad to hear the sad stories all over the country.
My only hope is the new zees will get more support and guidance. (It seemed they gave support when the area directors came over to our club. The truth is it was all BS.) Hopefully all the burned zees from 123 fit will be made whole again. We only lasted 9 months.
It is different when you invest in stocks. When you have people straight out lying to you and telling you clubs are making it.and an icon is in the business and he was gone way before you signed the franchise agreement you feel misled and straight out misrepresented.
I really hope no one will be hurt. But from all the e-mails I recieved this week-end our stories are no different.
I do feel for the Quizno's people. We are from the same people aren't we? May God seek revenge on these evil people who took advantage of really good people and robbed them of everything they had. Upper middle class and make them poor. We know you made your money up front. If you were good we would back you and praise you for being good business people and leaders. Whenever it isn't a win win deal it is one sided. You win for now. Most of the zees in the 123 fit franchise are not quiters. If ever there is an opportunity we will fight for what is right. If you do not know the circuit you claimed was exclusive is now for sell to independent business owners for half the price you sold us , go to Life Fitness. com. The circuit is there. You are low lifes in my book.
I just get very angry when I read all the sad stories of people you ripped off. People who put their good faith in you to do business with. I pity anyone who does serious business with you. You are a scam and may God have mercy on your pityful souls.
While the Risk Page has alwasy been there, very view people accept and understand the implications of the Risk Page.
1. Either the person has little knowledge of similar prospectus like disclosure and then simply accepts that despite the warning the government has really vetted the document.
2. Or the person has familiarity with a security prospectus and wrongly believes that he or she has been given securities like disclosure - that there is sufficient documentary backup for the representations being made.
Both are errors. It is also false to think that even the experienced franchisee lawyer can perform proper due diligence. Proper due diligence, in my opinion, is best performed by a litigation minded skeptical experienced son of a gun. Or as my wife says "skeptical little bastard."
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"
Guest says -
"These franchises are organized crime."
"It wouldn't surprise me if they paid off the judges. I know that has happened before from other franchise owners I've known."
You should report these judges and the organized criminal activity. Your allegations if proved could change the face of franchising forever.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
Guest writes: "We had our lawyer read the UFOC for 123 fit."
If your lawyer understood the UFOC, then he or she should have said: No Shaden franchise. Rick Shaden is not franchisee friendly - to say the least.
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"
Please do show me how the phrase, "THE FTC DOESN'T KNOW JACK ABOUT THIS FRANCHISOR OR ITS CLAIMS. PROCEED AT YOUR OWN RISK," for some psychologically translates to:
It sounds to me that some buyers connect so intensely to buying the business that they see what they want to see in the UFOC.
for our anonymous guest to equate veterans as naive incompetents unable to obtain or incapable of understanding the need for due diligence. It is one thing to offer vets preferential treatment as a result of their service to their country (which is an acceptable premise), it is another to infer that vets should be provided a higher duty of care because they are otherwise more susceptible to the same policies used by franchisors on civilians (which is not).
If you cannot read and understand what the preface to the UFOC states, then that should be your first indication that you need professional assistance. If you are incapable of recognizing that you need professional assistance despite not being able to understand anything in the UFOC, well, you probably wouldn't have made it in any type of business.
Is there a difference between intellectual capability and intelligence? You bet there is.
Your intellect plus effort enables you to deal with thiings that are right in front of your nose. You can, if you work for a company, follow the company rules and execute the system of the company to do the job assigned to you.
When you leave the company and go into a different field - take small business investing for example - your intelligence level informs you whether you are into something else in which you either do or do not have reliable experience and capabilities.
Being Vice President in charge of whatever in some company does not make you competent to vet small business investment opportunities. If your intelligence level doesn't inform you of that, then you are simply not intelligent, even though you may have intellectual capability in some areas of actiivity. I can cook does not mean that I can fly a plane. If you were intelligent, you would be able to recognize that.
If, lacking intelligence sufficient to cause you to realize that you are out of your depth - to put it nicely - you are just walking through a high crime neighborhood flashing your money (easily $ 250,000 in liquidity). Were you not intelligent enough to appreciate that flashing that kind of money attracts crooks? Are you still having your mommy read you Little Red Riding Hood?
Richard Solomon
www.FranchiseRemedies.com
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
.....check out the specific companies they contract the advertising 'through'. Meineke had set up a dummy company called Horizon and funneled the advertising through them, taking 15% commission off the top. (Broussard v. Meineke) To this day, they still say they had the right to do it.
Lisha
Rhino Super Center
Lisha
Rhino Super Center
Bob, this is a well known example of the representation bias. It is easier to think of a word beginning with "f" than ending with "f', in this example. So we tend to count the "f" words by looking at the first letter and not the last letter.
But the representation bias play a minimal role in the franchisee's lack of due diligence.
The major psychological component, which prevents adequate due diligence, at the discovery day stage is a combination of the sunk cost fallacy and confirmation bias. Ten days is simply too short a period for the prospective franchisee to regain his or her skeptical skills.
This is why I recommend buying the UFOC well in advance of attending the discovery day -buy or check it on Caleasi.
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"
We can only conclude it to be true!
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
Skeptical bastard available here.
Richard Solomon
www.FranchiseRemedies.com
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
but at what point is the onus on the franchisee? The FTC blatantly states that there is no substantive federal oversight as to the contents of the UFOCs, yet wouldn't there be a reasonable person standard used in determining whether the warning is sufficient? I mean, it does basically say the FTC hasn't even looked at it and for the buyer to beware.
Your argument would have anyone circumvent warranty disclaimers merely because they weren't sufficiently psychologically composed to comprehend what any other reasonable person would understand as a hands-off approach by the FTC. Granted, most people reading the UFOC may be under the influence of that "new-franchise" smell, but does that justify a different standard? I don't think so.
Guest writes: "Furthermore, the UFOC's I have seen do not disclose the terms of confidential settlemments."
The new FTC Rule changes this, and settlements now have to be disclosed.
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"
I must admit that makes sense.
But I must say in the back of my mind I have this nagging feeling that I've seen these behaviors in people I admire. Some of that approach seems rather entrepreneurial, while corporate guys and professionals stay the safe route with endless analysis.
No?
Uh, try googling "Schaden scam" or "Schaden fraud". Don't blame your lawyer if you get whacked by the most transparent of bad deals.
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"
In every state in the USA, the lawyer disciplinary rules - largely ignored in the context of advising franchisees - impose a fiduciary duty upon lawyers to disclose their limitations. What that means in fact is that if a lawyer has no background/experience that enables competent DD, he is supposed to advise the client seeking franchise DD of that limitation. He shsould at least say that he can talk about what the contnract requires, but can't provide investment guidance on the deal itself. If they even said that, it would at least be a beginning.
It is the same with respect to giving advice regarding conflict resolution.
There is an abrasive interface between the client not wanting to spend the money to obtain real expertise and the lawyer who lacks expertise taking the small fee to "read the contract".
It is aggravated largely by the fact that the ABA, IFA don't teach lawyers to do deal DD on franchise transactions. The ability to do expert level franchise deal DD, absent intense educational programs, comes only with long years of extremely focused practice with a deep involvement in litigation/arbitration of franchise fraud cases.
The ill equipped lawyer will claim that he does what business lawyers are trained to do - explain what the contracts require and tell the client to "talk to franchisees" about what is reliable and what is not.
That's why I am developing a seminar program for lawyers to teach them to do franchise DD at a level that they do not now have access to train for.
One of the problems is that most business lawyers don't have enough business in advising franchisee prospects to make it very obvious that they ought to get on a plane and go someplace and spend $ 750 - $ 1,000 for a one day intense seminar. I have no way to judge the market for the seminar as of yet. For that reason I will select the first venue here in Houston. Between the plane, the hotel, the local transportation and the restaurants, you are looking at probably another $ 1,500 - $ 2,000 on top of the seminar fee. The market research continues.
Richard Solomon
www.FranchiseRemedies.com
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
courts, the franchisees, the dealers association, the AAFD and even Meineke's next contract all disagreed that it was 'allowable, usual or customary'.
Lisha
Rhino Super Center
Lisha
Rhino Super Center
Bob, you are falling for the selection bias - the correct way to look at this is to draw a 2 X 2 covariation table: rows- behaviour you admire, and don't; columns- success and not success.
You are focussing only on the one square: admire & success. But in order for there to be a real correlation, you have to fill in the other squares and do the appropriate ratio test.
None of this hard conceptually, but people generally fail to consider what social scientists refer to as "the fourth cell" - in this case, the number of financial failures that none the less have all the behaviours you admire.
I recommend Taleb's two entertaining books "Fooled by Randomness" and "The Black Swan" for more useful information.
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"
Why don't you all come forward to DA? It is your duty as citizens.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
Pigs now fly, hell hath frozen, and Solomon is not cynical enough.
Actually, anyone (lawyer or not) who has attended either the annual IFA legal symposium or ABA Forum on Franchising would indeed know where bodies are buried. In particular, the IFA symposium is a depressing eye-opener for anyone considering buying a franchise. Forewarned is forearmed, as they say.
It is true that many zor attorneys put in onerous clauses which their clients exercise only in rare situations of zee abuse. For any general-practice attorney, it is well worth spending a few days at an IFA or ABA seminar, listening to all the ways in which the deck is stacked against zees. (In fairness, much of that stacking is an ex-post response to a bad experience with a rogue zee; but that doesn't change the fact that franchise agreements have tended to grow more pro-zor over time.)
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
While Professionals Ploddingly Analyze To Reach Safe Conclusions
As usual, Michael brings up excellent points. It is possible that the very attributes that are admired in an entrepreneur could also be the seeds of failure at the same time.
So where does that leave us?
Thinking in terms of 2x2s and Taleb's Black Swan.
Hmmm, sounds kinky.
You should have seen Schaden's name and bio?
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
Alright, I will bite: Here is the 2006 redlined 123Fit UFOC:
http://134.186.208.228/caleasi/PDFDocs/004404429.PDF
Now are you telling me that your lawyer didn't do any Pacer searches on Schaden and Quiznos!
Or are you going to tell me that that your lawyer didn't know about Caleasi?
Hopefully he/she has malpractice insurance because if he/she didn't do so, they were completely negligent.
These UFOCs are there for a reason: do your "six months" of research before signing the dotted line.
You could look it up.
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"
is it really shadenfruede?--
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
You might find today's post on Disclosure Laws interesting.
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"
"Don't you listen to the news?" - Guest
No, Although I've been watching, I'm afraid I haven't heard this story of a judge being paid off by a franchisor. Got a link to the news story? Maybe we can get Mr. B to interview the judge.
Frankman
They are public documents and if the franchise is sold in the State of California the document is online at Dept. of Corporations.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
But most franchisors, in making these "onerous" provisions, seem to gloss over whether or not its inclusion will have long term negative ramifications on the system as a whole. The zor's primary concern appears to only be precluding the situation that was the catalyst for that certain provision's inclusion. There are means of accomplishing the above without unduly burdening the franchisees.
I would imagine most franchise agreement drafting is done from the perspective of how best to protect the interests of the franchisor. I can understand that, but it is overly simplistic. What is best for the franchisor can so hurt the franchisees collectively that at some point, its overall effect may not actually be in the best interest of the franchisor. It's shortsighted for franchisors to not approach it from the simplistic perspective. For example, Quizno's lack of protected territories...it was inevitable that this would lead to encroachment issues. Quizno's had to know this would occur. While there technically may be nothing incorrect with not having protected territories, given Quizno's growth, at some point there will be sufficient cannabilization of existing open stores that franchisees have no choice but to seek alternative methods of redress merely to continue the hopes of sustainability - and Quiznos set it up that way.
Granted this is a bit naive, but the zor can still get a piece of the pie without hamstringing the zee's ability to make a profit. From a cost-benefit analysis, thinking of only maximizing initial profits at the onset from a contractual perspective does not take into account the problems may occur from the affect of these provisions upon the zees. Looking at some of these franchise agreements leads me to think that those zors approach the zees with the mindset of "Arbeit macht frei," knowing full well that the contractual terms are so skewed as to make profitability of individual zees improbable at best.
Guest wrote: "In most cases of drafting so-called onerous provsions we consider the health and welfare of the franchise system inclusive in that consideration the preservation of our royalty revenue. We do not preserve our royalties by having units close."
The natural instinct of a franchisor lawyer to draft around the last litigation loss to a franchisee.
While this appears to be reasonable, it is in fact wrong. Local optimal improvements are unlikely to generate global optimums.
The franchisor lawyer increasingly forgets the rationale for franchising: local owners make more gross sales than company owned stores. This must be because local owners have local knowledge unavailable to the the franchisor, even if they could hire the talent.
Rogue franchisees are of course an error in the franchisor's due diligence process, and not an excuse to redraft the franchise agreement.
When franchisor agreements become so centralized in the exercise of all discretion, they lose the entire benefit franchising offers.
Franchisors fire your franchise attorney's and get some real business advice about how to exploit networking effects. It is absurd that franchisors would turn to law firms for an understanding of network effects; law firms qua partnership exist as an affrontery to network economics.
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"
Schadens may very well be less than honest, but you want a free pass on your responsibilities to have investigated the 123 Fitness franchise thoroughly before you signed the franchise agreement.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
I looked at 123 Fit's UFOC this afternoon and no I'm not a lawyer.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
Guest writes: "The average person does not have the knowlege you have. You were fortunate to have the education to know all this. It's like everything else when someone buys a home if the realtor does not disclose, they would be in big trouble"
I am not fortunate to have the education - I worked long and hard to get it.
How did you choose your lawyer? Lowest price?
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"
It is freely available and Schaden's name disclosed. Schaden is well known for his ability to get everything out of the franchisee network and turn it into dollars for himself.
Unlike other franchise systems, we don't hear about the Quiznos operators who are millionaires.
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"
1. Post the UFOC that you relied upon.
2. Post any marketing materials that you relied upon.
Do I understand you correctly, that you relied upon 123 Fit's recommendation for a lawyer?
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"
Abusive franchisors make for the best blog stories, and Quizno's and UPS are the gifts that keep on giving. But...
Zors like Quizno's are on the extreme fringe, and while they get a disproportionate amount of attention on sites such as BMM, we do need to remember that there is a range of relationship behavior that does not overreach to the extent that Quizno's does.
Encroachment is sometimes obvious, sometimes in the eye of the beholder. Often it is a sign of lazy development agents who assume that since a particular store is doing well, it is easier to put up another store nearby (and cannibalize some sales) than do the heavy lifting of demographic analysis and territory development.
I never understood Quizno's development strategy. On the one hand, they cannibalized at a relatively young stage of development. But in places like New Jersey, they seem to have figured it was more profitable to prevent franchisees from opening (and thereby capture repeated franchise fees at $25K from successive prospects).
From what I have seen, this suit against Quizno's results from legitimate franchisee complaints. In the late 1960's and early 70's, scuzzy franchisors led to federal legislation. Hopefully at some point, the reputable franchisors will pressure organizations such as the IFA to distance themselves from the disreputable franchisors--not because of any moral qualms, but because it is in the self-interest of the franchise industry.
Paul Steinberg, Franchisee Attorney, New York City, Ph: 212-529-5400
You are absolutely correct in your views in this post, and I wish that we could harken back to the days when franchise health enhancement was thought to be the goal of franchising for reasons of promoting mutual success.
More recently, however, "consultants" who promote folks to start franchsing their businesses hard sell all the extraneous revenue stream opportunities in addition to royalties and how you get rich making franchisees buy stuff from you or from vendors who will pay you to make your franchisees buy only from them, insulating them from having to compete for that business.
They also promote thinking about how you unbundle as much of the franchise package as you can and charge seprately and additionally for the "pieces".
Instead of the royalty and advert fund revenue streeams, all of a sudden you have the Quiznos model in which there are so many "bleed" lines into the franchisees that the franchisor model is a true "suck 'em dry" concept.
Unfortunately, it is also correct that a lot of the clauses now in franchise contracts that could be put to abusive uses are the product of franchisee "cheating". I know this because I'm so old that I can remember when a lot of what is there now simply wasn't there, and we got yelled at for having contracts that left the franchisor with enforcement options that weren't assured, slam dunk, summary termination rights backed up with all sorts of post termination horrors sufficient to convince the sleaze balls to toe the line. I took many a crooked franchisee's deposition, so I know that to be a true statement of what was going on when there were fewer draconian contract clauses.
Judge Guy in the McAlpine vs Aamco case noted the inherent abrasive interface in every franchise relationship in which franchisees came to beleive that they were no longer getting new "stuff" worth paying royalties for and spent the rest of their tenure as franchisees resenting the relationship and looking for ways to get out of it. Even the most beautiful bride eventually farts in bed.
What goes around comes around.
Richard Solomon
www.FranchiseRemedies.com
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
File for the exemption and pay a fee.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
Any franchisor is welcome to consult me about how to draft their franchise agreement to maximize networking effects and to get back to what makes franchising work.
Just don't be surprised if I rip out most of your contract terms as having no business purpose.
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"
What is your objective in posting in this forum?
You have yet to describe what went wrong with your 123 Fit franchise.
The Truth Shall Set You Free!
TIF
The Truth Shall Set You Free!
TIF
I represent franchisees in Ontario whose lawyers were negligent in their review of the Disclosure Document.
Unfortunately, many of these franchisees went with the lowest cost service provider in the first place.
I have been on Canada's National TV, CTV, several times warning about franchise scams.
You have my sympathy for your financial loss; hopefully your original lawyer has professional negligence insurance.
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"
It is actually a terrible rule.
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"
game. Lawyers are supposed to be detached professionals who analyze the situation on facts and legal principles. If you want sympathy/empathy, go see a bloody priest.--
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
You can just email me the whole thing.
It isn't hearsay that your area director recommended a lawyer. You can testify that he or she did so and a Judge has to decide whether or not you are telling the truth.
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"
Guest writes: "Yes we were one of them. Close to retirement and we will loose what we've worked for. Why am I here is I'm hoping people will read it and not buy a 123 fit or Quisno's. So many people's lives ruined. By the way that is why we have lawyers to review contracts for us."
I hope that you stay around and tell your story, warn others, and gain some measure of support here.
You also might want to review my own 10 tips about franchise due diligence.
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"
All prospective franchisees have to do with regards to 123 fitness is look at their financial statements as part of their 2007 filing. The auditors report has an explanatory paragraph which states 'The Company has experienced circumstances which raises substantial doubt about its ability to continue as a going concern'. What this means is, the auditor is stating that their belief is that the company won't be around a year from the date of the audit. Reading the financial statement footnotes it goes into it in more detail and states that they have a 'plan' that they think will provide them with enough income from franchise and area director sales.
When there is a going concern paragraph, I would recommend (and any accountant should) that you stay away.
Oh, the reason they have this lovely paragraph, for 2006 they had $2.5m in revenue and $6.1m in expenses. Most companies aren't going to last with that type of ratio.
Generally, in a state action, there is no requirement to prove reliance. But at common law whether before a Judge or Arbitrator, the plaintiff must prove reliance. It appears that the arbitrator did not accept that D&R relied upon the false earnings claims - the arbitrator appears to have accepted that D&R thought that they could do better than the earnings claims.
But Maryland simply has to show that there was a technical flaw or fault in the UFOC to succeed in their public action. This they could do. Maryland did not have to prove that that any of the franchisees relied on the misrepresentations to prove their public case.
This is the major difference between the public cause of action and the private cause of action.
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 problem is that when it becomes a matter of proving your facts in court, it gets very expensive, and the lines become very blurred as to what is truth, and what is not. Is is neither fun, nor fair, and good franchisee attorneys are paid well.
The absolute best approach is to find others in the franchise that share your facts, or views, and are willing to share the costs of litigation if there has truly been a misprepresentation or breach of contract. Going it alone is very brutal.
From experience, I have also found that the things we think the zor has done wrong (from our business point of view) are not always legally actionable in a court;
If you do go forward with a legal challenge, please make sure you choose an attorney that has expertise in FRANCHISE litigation - my past experience suggests it is well worth it to seek out and pay for this expertise.
Don't look for an attorney that assures you that you have a winning position, either - none of them ever really know how the case will turn until it is over - look for one with lots of actual experience in your type of franchise case.
Best of luck to you.
"Remember 147 franchises sold and only 29 left"
This should really be not be a difficult legal action if this is what has happened. If only 29 zees are left out of 147, a good franchisee lawyer should be hired by the 118 or so zees that lost their businesses. Are these people as disgusted as you?
At just $2,000 each, you have an adequate warchest to give this franchisor the legal fight of its life.
Getting mad and frustrated only causes ulcers - get the group together and go after the franchisor. Call each and every one of them, and get them to donate to a legal fund to stop the madness.
Alone, you are unlikely to succeed, but as a group, you are unlikely to fail.
I really do understand your frustration. The best medicine for your malady is to rally the other franchisees and fight as a united group.
To quote the great Winston Churchill: Never, never give up!
Best of luck!