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Diana Michael

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Schnell's email to zees in June, 2012 addresses infringement

Here is an email dated June 22, 2012 from BrightStar's Brian Schnell to several franchisees that addresses the territory infringement issues by fellow franchisees.

From: Brian Schnell ([email protected])
Sent: Friday, June 22, 2012 9:03 p.m.

NAMES REDACTED,

I first want to thank you for your patience as we have sorted through the issues we addressed in our May meeting.

Phoenix is an important market for the BRIGHSTAR® brand, and we are committed to the success of franchisees in the area. We have been mindful of the friction that bas developed among Phoenix area franchisees and the need to address it. I was convinced that the place to start was with face-to-face meetings. Our discussion in Phoenix was spirited, but it was also open and frank. As a result of our meetings and BrightStar's subsequent investigation, we have learned a lot about the issues the brand and the owners are facing in the Phoenix market and have developed some ideas on where we go from here. With these thoughts in mind, I tum first to the points raised in your May 21 meeting recap.

ABS2: Before I turn to specifics, I do wish to comment on your point that BrightStar should not have rolled out the ABS2 program "in its current state." Having represented many franchise systems prior to joining BrightStar, I can attest that every franchisor faces "bugs" when it rolls out a new software program of the magnitude of ABS2. No matter how much the franchisor tries to identify problems in the beta test stage, actual field experience exposes problems that it could not have reasonably anticipated. This is especially true for a system like ours where franchisees offers different types of care but the franchisor must develop a program that meets the needs of all franchisees in one degree or another. Your comments regarding ABS2 not meeting the needs of offices with a high volume of customers is not accurate, as many of our top performing franchisees are using ABS2 effectively, although there certainly were learning curves over the last few months. The important point to keep in mind is that we are committed to resolving issues with ABS2 and remain convinced that the technology will provide our franchisees with a significant competitive edge. One final general point worth noting is that, while I understand you may not agree, I also have heard a number of franchisees (some of whom have gone through technology changes with other companies) state that the ABS2 conversion has been typical in many respects with their prior experiences. Again, the rollout has not been perfect but we are committed to making ABS2 a difference maker for our franchisees.

Turning then to the specifics, you correctly note in your email that we heard the most from Cyndi about ABS2 system. As I promised at the meeting) BrightStar sent Carolyn Grady from BTG to Phoenix to address Cyndi's specific concerns. Dean Ulizio, our Senior Vice President, Technology, Carolyn and Bob have continued to work with Cyndi since the trip to Phoenix. As a result of those meeting and conversations, the build we released this week addressed a number of Cyndi’s challenges. I am attaching an email from June 15, 2012, from Dean to Cyndi that outlines a number of the things we have done and continue to do to fix the problems that Cyndi has identified. Thanks again, Cyndi, for your hard work, perseverance, and insights. We will continue to work with you and your team.

System Functionality to Support Managed Care Contracts: BrightStar agencies are committed to providing the highest quality of skilled and non..skilled care and clinical expertise for each patient. Our Vice President Quality & Clinical Operations, Sharon Maguire, and Director of Corporate Clinical Services, Virginia Hebard, ensure that the highest quality standards for services are maintained throughout the system. The BrightConnect website is updated to maintain current skilled care information in areas such as treche case and wound vac management. Based on feedback from clinical training participants as well as discussions with DoN's and owners, our level of support for clinical management and oversight highly regarded and unmatched among our competitors.

From a systems/operations perspective, it is important to remember that our technology system to date has not been geared primarily towards skilled or managed care. This was true with ABS 1 and is the case at this point with ABS2. This is by design, as a very small percentage of franchisees to date have the vast majority of their business in skilled care. Franchisees are, however, encouraged to look for skilled care opportunities, subject to state licensure. In fact, the Arizona franchisees have done a very nice job in building that part of their business. At the same time, we realize that owners with a significant number of skilled care cases experience some difficulty with ABS· 2 as it now exists (no insurance tracking capabilities or integration with insurance billing clearinghouses, for example). But as we shared with owners when we discussed the design build and priorities for ABS 2, the skilled care priorities will fall in line behind other priorities. The bottom line is that we did hear Cyndi's comments in the meetings and conversations last year in which she shared her feedback regarding ABS 2. We just elected to focus on other priorities first due to the most immediate needs of the greatest number of franchisees. Cyndi's feedback continues to be important as it helped shape the build we just released this week and will be important as we now focus on the next set of priorities.

The Tempe Agency: We take very seriously your concerns about Brian. You acknowledge' that the conviction "was a number of years ago." In fact, it was in 1989, 23 years ago. The real issue is whether Brian is today what he was 23 years ago. I understand you all believe he has not changed and that nothing will change your minds based on everything you have experienced, but others may feel differently. A past felony conviction can be a difficult issue, but our society generally believes in second chances. We have to be mindful that taking drastic action against a franchisee who is "reformed" can damage the brand as much as allowing a franchisee with a past conviction to remain in the system. Significantly, in the state of Arizona an individual with a felony conviction may petition the board of fingerprinting for a finger print clearance card, and the board will issue the card if it believes the requirements for a good cause exception are met. Here, the board did issue a finger print clearance card, and the state bas issued a license to Brian. We have copies of these documents. We are also committed though to investigating further the remaining points in your email about Brian and will keep you appropriately apprised of those efforts, as I have not ruled out any potential solutions.

Infringement: You are correct, Cliff, that the Operations Manual identifies a default infringement payment of the gross profit margin of the business. Although this is the default payment, we reserve the right to review all of the surrounding :facts and circumstances in setting the amount of the payment, Here, we believe the 8% is fair and reasonable for a number of reasons, and as you know we applied the 8% factor to all owners, not just Brian. First, in many of instances the franchisee who experienced the infringement was not able to accept the case because they did not have the necessary qualifications to handle the work. An example of this is the VA work for which you and Lynn did not have the necessary VA approval. If Brian had not handled it, the work would have gone to a competitor. Second, the fact that in several instances there was verbal permission among several people, including one or more BrightStar representatives, rather than written permission is an important consideration. We will not automatically and unduly penalize any owner if the permission was verbal rather than written, Third, Brian spent many hours working with you and Lynn and with Steve and Candice in making introductions to key contacts in a way that benefitted you, all without any compensation. Fourth, we have indicated our willingness to contribute to the solution by adjusting the minimums of the affected franchisees. In particular, we have signaled our willingness to waive part of the minimum to compensate for the infringement and to permit the franchisees to reinvest other minimums due ba.ck into their business. A final point on infringement is in response to your comment that BrightStar has fallen short in protecting your territorial boundaries. Please keep in mind that the Operations Manual states that in the first instance it is the franchise owners themselves who are responsible for working together to resolve infringement issues. As to the timing of the payments, Cliff, I can assure you that we have spent many hours working hard to secure payments for you. As I noted earlier tonight, Brian has indicated that he was going to make another $3500 payment to you today.

You mention a "final resolution" at the end of your email. We are talking about issues that have been festering for some time. As a result, the final resolution will not be a simple solution. As we have shared with Brian, the biggest obstacle right now to maximizing success in the Phoenix market place is the breakdown in the relationship among area franchisees. Although we have heard your concerns; we have concluded that the breakdown is not attributable to ill will or any bad motive on the part of any franchisee. The breakdown is the result of a lack of trust. Our challenge as a group (BrightStar and the franchisees) is to attempt to restore some level of basic trust among the area franchisees. If trust is not possible, then we need to explore some level of coexistence without acting or saying things that destroy one another or the brand.

Restoring trust or establishing coexistence is not going to happen overnight. It must be a process. We are obviously not at this point yet As I said, this will be a process. But we remain fully committed to looking at all options to find solutions. We also remain fully committed to helping you grow your business and resolving the other issues we have on the table with each of you (minimum fees, Joint Com.mission and others). Bob will reach out to each of you next week to schedule a call to address those issues, as I know they are important to resolve.

Thanks again for your patience. I look forward to our call next week or the following week.

Have a great weekend.

Brian

 

Brian B. Schnell

CHIEF OPERATING OFFICER AND CHIEF LEGAL OFFICER
BrightStar Franchising,  LLC - PLEASE NOTE OUR NEW ADDRESS!
1125 Tri-State Parkway; Suite 700 I Gurnee, Illinois 60031
PHONE NUMBERS REDACTED

Blue MauMau took the original image of the email and converted it into text by software, which may misread images and leave behind typographical errors.

(Lack Of) Character Matters

I'm sure Prokupek knew the kind of person he was climbing into bed with when he signed on as Smashburgers CEO so he shouldn't be surprised to wake up with fleas. The fact he would do the dirty deed with Schaden raises legitimate questions about him and his business ethics. After all you are judged by the company you keep.

BrightStar 2014 FDD, Item 3 Has No Brightstar v Brian Duncan

The following* is BrightStar's accounting of its litigation history as contained in Item 3 of its April 2014 filing of its Franchise Disclosure Document to the state of Minnesota. There is no mention of Brightstar Franchising vs. Brian Duncan Enterprises.

LITIGATION

Starcatcher Healthcare. LLC vs. BrightStar Franchising. LLC and Shelly Sun, (No. CV 1302051-PHX-MEA) filed on October 8, 2013 in the United States District Court for the District of Arizona. Starcatcher Healthcare,LLC ("Starcatcher"') is a franchisee that operates two BrightStar healthcare businesses.

Starcatcher alleges breach of contract and the implied covenant of good faith and fair dealing, negligent misrepresentation, common law fraud, violation of the Arizona Consumer Fraud Act and violation of the Illinois Franchise Disclosure Act.

These claims are based on alleged deficiencies with the software, failure to prevent encroachment of another franchisee and failure to expend the general marketing fund in a manner to benefit Starcatcher. Starcatcher seeks declaratory judgment, rescission of the agreements between the parties, unspecified damages, and costs and attorneys' fees. On November 26, 2013, we filed a motion to dismiss the Complaint. Should that motion be unsuccessful, we will file an answer in which we will deny the allegations of the Complaint, and will vigorously defend this action on the merits.

Post-Termination Enforcement

D. Cameron Rose. Jr. & Danielle M. Rose, M.D.. v. BrishtStar Franchising. LLC File No. 13cv-0Q149(N.C. Jan. 18, 2013)

BrightStar Franchising. LLC v. D. Cameron Rose, Jr. & Danielle M. Rose. M.D.+ Case No. 65 Y 114 00212 11 (American Arbitration Association Feb. 5, 2013)

BrightStar Franchising, LLC v. EPN Enterprises, LLC and Edward P. Navales. No. 12-cv-00838 (U.S. Dist. Ct. N.D. 111.) (the "Federal Court Action"). BrightStar Franchising. LLC v. Edward P. Navales and EPN Enterprises. LLC. No. 51 114 Y 00134 14 (American Arbitration Association) (the "Arbitration"), and Edward Navales and EPN Enterprises. LLC v. BrightStar Franchising, LLC. Shelly Sun, and NMRR. Inc.. No. 14-00266 (Sup. Ct. of Cal.. Contra Costa Ctv.) (the "State Court Action"). On February 6. 2014. BrightStar commenced the Federal Court Action bv filing its complaint against EPN Enterprises. LLC ("EPN"). a former franchisee, and Edward P. Navales ("Navales"), the owner and guarantor of EPN. whose franchise agreement BrightStar had previously terminated for cause. In the Federal Court Action BrightStar sought preliminary injunctive relief enforcing certain of EPN's post-termination obligations. That same day BrightStar initiated the Arbitration by filing its demand for arbitration against EPN and Navales BrightStar Franchising, LLC FDD 2013 to recover damages caused by EPN'coaches of its franchise agreement and the resulting termination of its franchise agreement, and by tMavaivJ ^reaches of his guaranty. On February 11, 2014, EPN and Navales commenced the State Court Action, seeking declaratory judgment against BrightStar, Shelly Sun, and another franchisee. EPN's ana ^vales' allegations against BrightStar included violation of the California Franchise Investment Law rCFILH. California Unfair Competition Law, common law fraud, negligent misrepresentation, breach of contract and defamation and trade libel. Ms. Sun is named only to the claim for alleged violation of the CFIL. On February 21. 2014, EPN and Navales voluntarily dismissed the State Court Action as to BrightStar and Ms. Sun. On February 25, 2014, BrightStar voluntarily dismissed the Federal Court Action. Dismissal of the State Court Action as to BrightStar and Ms. Sun and dismissal of the Federal Court Action was by agreement among the parties to bring all of their respective claims in the Arbitration. Consistent with that agreement, on March 14, 2014, EPN and Navales refiled the claims previously asserted against BrightStar and Ms. Sun in the State Court Action as counterclaims in the Arbitration.

Other than the 3 actions listed above, no litigation is required to be disclosed in this Item.

It should be noted that in its filing a month earlier, March, BrightStar simply declared one line in Item 3 of its Franchise Disclosure Document, "No litigation is required to be disclosed in this Item." There was no other text. The quoted text above for its Item 3 was added in its April 2014 amendment.


*Note: Blue MauMau used an OCR reader for pulling the text out of the pdf image so some typographical errors occur.

Jim Coen's picture

That picture was intense!

I understand that the picture was inappropriate in that it had nothing to do with Radio Shacks current problem.

But it was an amazing picture! Cataclysmic, almost as if Zombies were going to come out of the Shack.

It was almost like I've seen it before in a Sy-Fy movie or one of the Ape movies.

Very dramatic. It's obvious why you first chose it. But jd was right, and you responded correctly.

Good for you Mr. BlueMauMau.

 

 

A Cook Needs Good Ingredients

The bad taste from a Ric Schaden cook begins with the ingredients. The kickbacks the landlord pays out to Rick for leases that overcharge the franchisee, force binding arbitration on the franchisee, and leaves the signee responsible even after the restaurant is sold or churned. The buildout is one kickback after another with franchisees over paying for building materials, equipment, and workmanship. The supplier is a Schaden owned entity that sells food and supplies at inflated prices and no one can ever figure out where all that advertising money went. And now Ric has whole territories, not just individual restaurants, to burn and churn. Prokupek ran this operation for Ric and he says the books are cooked. Given Ric's past history....

Jd, once again crying over spilled milk

That's right Jd you show'em. Let's forget how you come on here time and again attacking franchisees who have lost everything due to fraudulent sales practices and how you essentially call them pathetic losers for not doing their "due diligence" even though its been proven that the franchisors have hidden the real financial information. Let's forget the Wall St Journal article from a few days ago once again showing the disgraceful failure rates of franchises and Bloomberg today following suit with their story. Let's forget that each of those failures is a family within our own U.S. borders that has been devastated due to a franchisor's lies about their "proven successful business model".

No, that is unimportant. What is important to Jd is a picture of a franchise site. Tell me, does the cause of the site's destruction really matter, Jd? Why not talk about the family that lost everything - most important, how about all those franchisees whose stores are shuttered due to a bad business model. The "financial storm" that devastated them is far worse than losing it to an act of God. Perhaps, Jd, instead of fighting over the storefront picture, you might want to ask why aren't there pictures of the franchisees and their families that have been destroyed by the Radio Shacks of the world. Now THAT would be a picture to cry over.

Don Sniegowski's picture

Joplin photo removed

Done. The photo was inappropriate. Thank you for bringing that to my attention.

Bad Choice of Picture

I'm requesting that you remove this pic.  Odds are this was a Radio Shack that was destroyed by an EF5 tornado that hit Joplin, MO a few years back that killed over a hundred people.  Type Radio Shack Joplin Tornado and you'll see a YouTube video that most likely shows this store. 

I know you are trying to show that the company is in disarray and that they've let their stores have had fiscal declines, but showing a tornado ravaged store is not the way to do it.

Breaking Bad

Dic Schaden is cooking again.

Can You Smell What Rick Schaden Is Cooking?

David Prokupek says the books are cooked. No reason to doubt Prokupek. If anyone knows it's him. And it's a smell we've sniffed in the past. But franchisees should ask themselves why. History, Quiznos history, gives us the answer. Smashburger profitability relies not on retail sales but sales to well off franchisees who have high net worths and are stuck with terrible agreements that leave them at the mercy of Rick Schaden. It's Quiznos on a bigger scale, overcharging for food and supplies, using the ad fund money for bogos and giveaways, and then churning whole territories when franchisees are bankrupted. Then using Schaden math to siphon off billions of dollars to stockholders with the promise of prettying up the books and selling what's left to Wall Street investors for millions more at the end of the run. That's why Prokupek wants in. That's why you don't.

JJ Franchisee Association Now

The history of franchising should make clear to Jimmy John franchisees the importance of a strong franchisee association. Subway, Dunkin Donuts, and Little Caesars have strong associations. Their franchisees make money. Quiznos franchisees never did and Rick Schaden took full advantage. Don't be a Quiznos. Unite now.

Jim Coen's picture

Jimmy John's Franchisees FORM AN ASSOCIATION NOW!

They should start planning one, NOW!

It's critical for franchisees to be organized prior to or just after the sale.

You never know who will buy the franchisor, and the clauses in the franchise agreement that Jimmy John's hasn't enforced and or implemented, maybe enforced and implemented by the new owner.

You need to have a voice at this time. Maybe not when the founder was running the company, but there are no guarantees the new owner when pressed for an ROI won't start implementing those fees or directives that may in included in the franchise agreement.

Save Your $

Smashburger uses Schaden math. Ask the former CEO Prokupek about the honesty of the numbers used to figure his severance. He's suing for millions. Besides, Schaden controls the purchasing system and the advertising pool. He took the Quiznos franchisees for millions, ratcheting up the costs over a period of years, using the ad budget to pay for franchisor seminars and bogos; making profitable restaurants bankrupt and then churning them until the well ran dry. He founded, grew, and then bankrupted Fitness 123. He's the definition of a bad operator. Remember, you can't be first but you can be next.

RE: Smashburger ROI

You seem to know a lot about Smashburger. Are you employed by or invested in Smashburger? I would like to know more about Smashburger, including what the ROI is. Can you provide it? I love the concept, I'm in an area that is open, and I've got money to invest but have seen a lot of negative articles and posts recently about Mr. Schaden and it makes me hesitate. Are they true?

Smashburger ROI?

Interesting. So what is the return on investment for a typical Smashburger? If you do not have that, how about disclosing the net cash flow for an 3 year old Smashburger location so we can know the worthiness of the investment.

Regarding Quiznos, I thought Schaden was out. How's your new CEO Matthis? Is he making things better for you?

Translation: Schaden is being

Translation: Schaden is being sued again. Smashburgers is a bad investment and so is Quiznos.

I'm a proud tool

"So you better hike royalty rates, so the IFA can get more lobbying money from its franchisors to support their lobbying efforts."

Yes. That's right. Besides new royalty rates, other fees can be hiked as well.

The principle for new franchisors to understand is that franchisee profits need to be slim so that owner-operators work very hard. Look for signs that they are becoming too wealthy. Forming franchisee associations and lobbying for their own laws is one sign among many that more fees for franchisees need to be put into gear by the franchisor.

The good news is that not all of the extra fees need to go for IFA lobbying efforts. A lot of the increased fees paid by franchisees can be kept by the franchisor. It's a double win. A win for the franchisor and a win for the IFA's lobbying efforts.

Prokupek Lawsuit Indicates Business As Usual

And his lawsuit raises some major questions about how Smashburgers does business and whether his accusations of cheating go much deeper than some stock options.

Franchisees need to ask themselves; if Mr. Schaden would cheat an employee what is he doing to them?More importantly they need to decide now to form a strong franchisee association. Smashburger franchisees need strong co-ops and control over the distribution system and the advertising fund to prevent them from being profit centers for the franchisor.

As for suing franchisees won't have a choice. Mr. Schaden's anti-association feelings are well known to former Quiznos franchisees who saw how Schaden used intimidation and the legal system to try to put organizers and supporters out of business. Mr. Prokupek's lawsuits make clear Rick is using similar tactics at Smashburgers that he used at Quiznos. Franchisees, unite and fight before it's too late.

You're a tool

Extra cash is the devil's tool for idle franchisees because they funnel it to lobbying efforts. Wow, that's just a dumb comment.

So you better hike royalty rates, so the IFA can get more lobbying money from its franchisors to support their lobbying efforts.

Attorneys looking for work

Visitor: "My advice is to organize an effective franchisee association and sue Schaden for recognition"

What has forming an effective franchisee association have to do with suing? Why should an association sue Schaden for not "recognizing" the franchisee association?

I take it that this must be an attorney looking for work. You are the kind of person that gives independent franchisee associations a bad name, sir.

Wake Up Franchisees

This should be a wakeup call for Smashburger franchisees. Rick Schaden is being sued again, this time for cheating a former employee. At Quiznos he and Q were sued for cheating US franchisees, Canadian franchisees, suppliers, landlords, and his own family. He and Q lost or settled virtually all of them. My advice is to organize an effective franchisee association and sue Schaden for recognition while you can before he uses the purchasing system, the advertising pool, and those oppressive agreements you signed to take you for everything you own. After all, you can't be first but you can be next.

Extra cash is the devil's tool for idle franchisees

Goldstein, "In situations where such obvious propaganda flows freely, money becomes the intellectual currency. Accordingly, franchisees and their organizations, which traditionally are cash-short, will continue to be the probable losers"

This is exactly why franchisors need to adequately hike royalties to franchisees. If the franchise owner has extra cash, he can spend it on associations and the like to defeat the lobbying efforts of the franchisor. Extra cash is the devil's tool for idle franchisees.

quiznos default

more needs to be done to expose Rick Shaden and his current company (Smashburger) before he takes those franchisees down the same path he created for Quiznos. It would be helpful to expose him now and not later when taxpayers are stuck with more defaulted loans!

Must Be A Mistake

Dic accused of cheating an employee out of millions of dollars? I thought he did that to franchisees, suppliers, landlords, wives, family, friends, banks, governments, and investors. Can't wait to see the financials, although Prokupek may be sweating that one as well. As the old saying goes: He that lieth down with rats shall rise up with fleas.