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Franchising as a Corporate Form Can Protect

michael webster's picture
Posted Fri, 2009/02/27 - 13:15 by michael webster
An answer to protect international assets and firewall liability from cascading into insolvency may well be the corporate form of franchising. Take the example of Italian milk multinational, Parmalat, that covered up the losses of its South American operations by clandestinely diverting funds using offshore entities. The problem is that the principal-agent relationship exposed the brand to the misdeeds of its overseas offices.

Franchising should be recognized for its value as, a different corporate form, solving a number of the principal agent problems inherent in expanding service based firm, such as accounting, law, or some other consultancy.

Franchising, in general as a corporate form, provides for a centralized authority which protects the trademark, leaving local decisions to the individual franchisee. This is a very high level view, but we should not lose sight of its importance - asset insulation of individuals operating under a common trademark. - BizOp News

The key in franchising and limiting liability is to have the local interpretation of operating standards resolved by an independent mediation/arbitration firm. The independence is required, otherwise operational control will pierce the franchisor/franchisee veil and expose it to principal-agency liability.

Read the full analysis at BizOp News

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Kiwi Mark Bryers' protection of his Blue Chip fraud? by Les Stewart
Les Stewart's picture
Submitted by Les Stewart on Sun, 2009/03/01 - 09:57.
Michael, In New Zealand, there are 2,000 mostly seniors who have lost about $85-million in their investments with over 160 Blue Chip-related corporations. Mark Bryers, a disbarred lawyer, is reported to be in Sydney, Australia where he is working on Blue Chip V2.0. I have reported on Blue Chip frequently, the latest being Franchisor faces 100 criminal charges. Franchising insulates it's designers from claims very, very well. Perhaps too well for a sustainable, less bipolar marketplace. Les Stewart MBA FranchiseFool: Understanding Franchising

Les Stewart MBA FranchiseFool :: WikidFranchise

Franchising, like almost all other businesses, has nothing by RichardSolomon
RichardSolomon's picture
Submitted by RichardSolomon on Sun, 2009/03/01 - 11:57.
to do with morality. Any attempt to apply moral principles to franchising is misguided, because moral principles have no power to govern. What governs are commercial law principles. Equity is part of commercial law, but equity is not allowed to come into play as a form of relief where there is a remedy in damages. Where there is a theoretical remedy in damages, but its practical availability is remote, the person seeking relief is simply out of luck. While there is the occasional rare exception to this statement, the exceptions are of no use whatsoever to any practical problem's solution. It is important to note that "in the good old days" there was no more morality in business than there is today. People will always do what serves their own interests. Economic priciples are designed to accomodate every opportunistic variable, so that people who understand financial models can make measured decisions about what they want to do; how they want to do it; and when they want to do it. Anyone with a short term profit maximizing goal can so configure his agreements that his objectives are optimized. If people on the other side of his deals are unable to look at his agreement protocols and other relevant information and reliably estimate the risks of being put upon to their extreme detriment, they are simply fodder for his plow. Since the wealthy tend also to be the powerful, because they spread their wealth where it serves their purposes, legislation favors their interests, not the opposite interests, no matter what any measure may be entitled. Any act or rule labeled as investor protection is, upon competent analysis, in fact a limitation on investor protection. What we call warranties, for example, are actually limitations of liability. That is an ideal example of the use of language to beguile the uniniitiated. Where does that leave people thinking about investing in franchises? Neither God, nor the government, nor any principle of morality is available to insulate anyone from extreme business risks, including abusive business conduct. That is why the Lord, in her merciful generosity, created self help!

--

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


Richard Solomon, FranchiseRemedies.com,  has over 45 years experience with franchise litigation and crisis management. He is a graduate of The Citadel and The University of Michigan Law School
The problem Richard by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 15:28.

is lawyers are not taught anything about franchising in law school.  There is only a small sector of killer franchise lawyers.  BMM is only three years old.  I accidently fell about BMM and it was at the end of our business.  You have worked both sides like many killer franchise lawyers.  What chances did we have in 2006 when no one told us about BMM or when the lawyer we took the UFOC said it was standard.  That is all he said.  I would have been happy if he told us to take it to a franchise lawyer.  Even then there is no guarantee that they would give us the advice we needed. 

The only hope is get BMM's name out there so people will use this valuble resourse before they sign an agreement.  I hope there will be advertising all over the internet about BMM.  I hope they use you Richard. Your advice is priceless.

Franchise Agreement is Not Moral but Legal? by Guest
Submitted by Guest on Sun, 2009/03/01 - 13:57.
Richard Solomon says that moral principles have no power to govern! Is he saying, therefore, that immoral laws and regulations that covertly protect the wealthy (corporations) who buy the immoral laws and regulations are a given. and that there will be NO CHANGE as promised by President Obama? Isn't this immoral thinking?
Obama promised no such thing, and by RichardSolomon
RichardSolomon's picture
Submitted by RichardSolomon on Sun, 2009/03/01 - 15:47.
there is no such thing as immoral thinking in the law of the market place. Separate the sacred from the profane. Render to Caesar (the market place) what belongs there, and to morality what pertains to it. This aint new doctrine here, bro.

--

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


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
Render to Cersar (the maket place) by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 18:24.

what belongs there, and to morality what pertains to it.  Interesting.

Jesus got very pissed off when the temple was full of people trying to sell their products.  He knocked over things and yelled, " You made my house into a den of robbers and thieves."  Is that what you are trying to tell us?

If Jesus got pissed isn't it reasonable for people to get pissed off  by thieves and try to make things right?

Moral and Immoral Capitalism by Guest
Submitted by Guest on Sun, 2009/03/01 - 16:27.
Is Richard telling us that Capitalism, the "senior partner" of Republicanism and Democracy is not subject to review in any moral sense and that the Robber Barons of Capitalism have a blank check from government, their partner? We raise our voices to talk about our lst Amendment Rights, etc... and celebrate in song and verse the "freedoms" so many have died to protect. Yet, amoral attorneys protect immoral laws. Isn't the law in a democracy supposed to be a force for good? I think President Obama publicly indicated he would do something about ineffective regulation that doesn't serve the middle class. the great majority of this country.
No wonder main street has no trust in our government by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 14:58.

When contracts are enforced with obvious unreasonable clauses and the courts do not deem them as unreasonable than there is something wrong with our system. 

The clause in a franchise agreement that states, "Zees's do not rely on anything to sign the agreement but only what is written in the four corners of the FDD," is not reasonable. The fact is that everything outside of the FDD  entices a person to sign. That clause should be thrown out and not allowed.  It gives the zor the right to lie, steal and cheat people.

The clause that states they will give business advice when apporiate.  That gives the zee the impression that they will give us business advice.  That clause should state the truth in which what they are going to do.  It should state directly what they mean.  "We will give advice that is good for our main interest and not yours."  (Actions speak louder than words.}

The clause that states we are to arbitrate within 15 miles of our headquarters.  (If zees thought for a moment that they would end up in court they would never sign the agreement.)  That clause is unreasonable because they say it would cost us more to have an arbitration in the state the zee buys the franchise.  It is unreasonable because the zee's main witnesses are located in the state they want to arbitrate.  Is it because the state the zees bought has stricter laws than the state the zor lives?  Zee's need to stand up tell the the truth.  When stories are consistant and they were told the same things the zees need those witnesses.  What if the zor looses in arbitration?  The expense would be less if the zor and salesmen traveled to the state where the franchise was bought.

The zor knows the zee was fleeced by them.  They have limited funds.  Everything is in the main interest of themselves.

Words like may, shall, could, intend, estimate, projected should be thrown out of any disclosures and the agreement.  These are misleading words.  In other words they mean nothing and are not concrete. 

An example:  "We intend to use the advertising fees for branding the names. (When you read down the page you will see it can be used for business travel or corporate expenses.)  You can bet the money will go to help run corporate expenses and business travel and not branding of the name."  Very misleading.      

Franchise Agreement as binding contract! by Guest
Submitted by Guest on Sun, 2009/03/01 - 15:23.
If it is public policy to protect franchisors and those franchisees who thrive from those who don't thrive, the binding contracts must be upheld by the courts who see their first duty as the protection of promises made by parties under the provisions of contract law. The courts have a duty to uphold order in the commercial markets ---that have become disorderly as of late because of ineffective regulation that enables fraud. The courts don't promulgate the laws ---the legislatures and the Congress make the laws, and in franchising, "failed franchisees" are a premeditated sacrifice to what is rationalized as "the greater good." Obviously, the courts would rather not look at franchise disputes and fraud and prefer that the arbitrators determine whether or not franchisees have been fraudulently induced to contract. The Supreme Court Decision in 2006 confirms that arbitrators have the first duty under the Federal Arbitration Act (that trumps state and federal law) to determine whether or not franchisees have been fraudulently induced to contract when the arbitration agreement is legal and constitutional! They interpreted this as the Will of Congress.
Then we need more representation by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 15:38.

in Congress.  People need to know what is happening in the world of franchising.  They need to know that thousands are being mislead and fleeced of everything they have worked for.  It is lawyers that write the contracts and lawyers in congress.  We need educated people to represent us who are not lawyers.  Something has to change.  Will it happen?  I hope so.

There are zees winning in court.  I hope they continue to win and the bad zors will have to change or stop doing business all together.  Stop the fleecing and make people feel safe when they go in business with a zor. 

Do: The moment you think by FuwaFuwaUsagi
FuwaFuwaUsagi's picture
Submitted by FuwaFuwaUsagi on Sun, 2009/03/01 - 19:40.
Do: The moment you think Government is the answer is the moment you have lost - period. Has it ever occurred to you that as people have ceded more and more of their life to the Government is precisely why people are being taken advantage of? Not so long ago you would have looked to your neighbors, your local business community, and seniors for advice and guidance, in so doing you never would have fallen for such shenanigans as postulated in most FAs, not so much that they would have read the FA but they would have known people who had be defrauded or they would have laughed at the basic premise of the concept. The problem is people want benefits without attachment, they do not want the strings that may come attached to looking for assistance from faith based organizations or their local communities, they want to be free to pursue their proclivities unabated, no matter how debase of perverted. As a result the Government has provided that which at one time was locally provided. And in so doing, the bonds between neighbors, friends, and extended family have been weakened, in so doing you are depriving yourself of the council of your elders and those who have walked the path before. In every community I have seen there are bankers, lawyers, and businessmen all who are readily available at no fee for quick counsel to friends and family. Over the years people have foolishly stepped away from their neighbors and extended families and looked to the Government for what they think are no strings attached solutions to their needs. You do understand that the true value of an Ivy league education is the connections you make, that are retained for a lifetime, not the scholastic. Notice the behavior of those who have amassed wealth and look at the counsel they keep. The common man will never find a solution in Washington. Some of the most evil vile individual aspire to make law, precisely because they are soul-less individuals who want to use the power of vested authority to bend others to their will. The worst of these, then go on to Government positions.

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers." 

FuwaFuwaUsagi

"Never underestimate the power of stupid people in large numbers." 

Interesting Fuwa by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 20:09.
We live in a lonely society.  People are more and more keeping to themselves.  I can see a difference growing up in the fifties, sixties and seventies.  Extended families are spread out.  We do not have the support people had before.  People do not get personal anymore. You can go to dinner parties and people stay on a superficial level. What else do we have but ourselves and government? It is a sad state we live today.  I believe in building a  sense of community.  If everyone is to themselves it is hard to bulid a sense of community.   It is sad because even baby boomer's children do not pay attention to their parents.  (Not all of them but a good majority do.)   
More educated representation in Congress by Guest
Submitted by Guest on Sun, 2009/03/01 - 16:37.
I think you are exactly right, "Due." It is the attorneys, who work for the lobbyists, and who go back and forth between government and the private sector, who educate the Congress to the lobbyists' point of view. Obviousely, franchisees don't have a PAC because they don't know that they need one until after they sign the contract that is a malicious legal trap designed by attorneys like Richard Solomon. Both the Bible and Shakespeare, I think, told us not to trust attorneys. I think Richard Solomon referred to the biblical scripture in one of his early posts on Blue Mau Mau.
Where do you get that Richard Solomon by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 18:13.

wrote the contract that is a malicous legal trap disigned by attorneys?.  If this was so why is he writing about due diligence services?  YOu do not make sense.  His writing is about stopping people from signing a contract that is a trap.

If there is misrepresentations before you sign an agreement and it can be proven with material facts, zees can win in court.  In contract law it is very clear about that. It is obvious the bad zors do not care about their zees all they want is their  $$$.  They do lie, steal and cheat thousands of zees.  They are destroyers.  People's life savings, marriages and the zees have to start all over again.

There is also the emotional damage after getting fleeced.  It is going to be very hard for them to trust anyone again.  Without any element of trust people will not do anything in business.  What happens is our country will not prosper.  The state of our country is people are afraid to spend a dime.  Stores are closing down and many other businesses. Our middle class is dissappearing. When it happens it will be the end of the greatest country that ever existed.      

Lawyers "like Richard Solomon" ---- by Guest
Submitted by Guest on Sun, 2009/03/01 - 18:55.
I think Richard Solomon explained that "parole" evidence that CAN, with the discretion of the judge, be presented to the court, and that indicates that there were misrepresentations and even "earnings claims" OUTSIDE of the contract and in the SALES process, does not negate the terms of the final "written" contract. That is, if, in the written contract that you signed, you acknowledged that you weren't promised anything that wasn't in the contract and weren't relying on anything that wasn't in the contract, the mispesentations outside of the contract are moot. Franchisors generally never disclose anything within the contracts concerning the performance of the franchise, itself, and aren't held responsible for what is promised, implied, and hyped outside of the contract if fraudulent inducement/concealment cannot be proved. Unless, of course, you can prove all of the elements of "legal fraud" or breach of contract, the written contract stands as written. (Richard and Paul and Michael all indicate this) Proving all of the elements of legal fraud is difficult indeed because of the FTC Rule and its provisions that appear in practice to protect franchisors and their franchisees who thrive from those who don't by protecting franchisors from "fraudulent inducement/fraudulent concealment" claims in the courts and in arbitration as long as they disclose in compliance with the FTC Rule. Even when they don't, as evidenced by the Coffee Beanery Case, The FTC declares federal regulatory policy when they indicate that there is NO PRIVATE RIGHT OF ACTION FOR A VIOLATION OF FEDERAL REGULATORY POLICY, and, in effect, franchisors only can be punished for fraudulent inducement by state actions and state negotiated recissions that will not destroy the franchisor and his system. The Coffee Beanery Case illustrated the tension between federal law and state laws that do appear to provide a private right of action for fraudulent inducement to contract. I just read an article by an attorney on the Internet who was pushing licensing and distribution law versus franchising, which was so expensive, etc.. who indicated that franchising is regulated uner securities law and NOT under contract law, and that it was smarter to avoid franchising and look at licensing. (clarification, please, Richard Solomon) Apparently, under Securities Law, and not under franchise contract law, franchisees are considered "sophisticated investors" (because they incorporate themselves) who are responsible to do due diligence on Item 20 and discover that the franchisor is not disclosing "material" information that is necessary to assess the risks and the rewards of the investment in a franchise. Richard, of course, knows that FRANWADS are not sophisticated enough to understand all of this, and cheap, as well, and are just sheep to fleece and he very candidly advises that they can only be saved by doing due diligence before they sign the contract.
The lawyer pushing licensing as a substitute for franchising by RichardSolomon
RichardSolomon's picture
Submitted by RichardSolomon on Sun, 2009/03/01 - 22:41.
doesn't know what he is talking about. If the facts of the contract meet the facts of the definition of a franchisee, you cannot evade the franchise laws and regs by calling it a license. Many have tried word gaming the system. It doesn't work.

--

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


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
Re: The lawyer pushing licensing as a substitute for franchising by zor1
Submitted by zor1 on Mon, 2009/03/02 - 00:39.
I hate to admit it,but I agree with Richard.
The three legs of the stool in franchising by Guest
Submitted by Guest on Mon, 2009/03/02 - 18:18.
Apparently, the three legs of the stool are: At least $500.00 franchise fee, the use of the brand name or logo, etc., and the control over the operation of the business and the tangible and intangible assets of the business in both success or failure of the franchisees. Of course, the control can be abused AFTER the long-term contract has been signed and can continue the entire term of the relationship with little or no recourse by franchisees. Those who push for relationship regulation have little chance. But, perhaps the States who have little FTC acta will eventually be instrumental in changing the law to make it fairer for franchisees.
Subway loses around by fayaz karim
Submitted by fayaz karim on Fri, 2009/02/27 - 21:00.
News Sponsored by: 12/02/2009 Enforcing US arbitral awards in Germany against local franchisees In a recent decision the German Court of appeal refused to enforce a US arbitration award against a German franchisee. The Court felt it was unreasonable to force the franchisee to travel to New York to attend the arbitration. The franchisor was a Dutch subsidiary of Subway. The franchise agreement was subject to Liechtenstein Law and contained a New York arbitration clause. When a dispute over the payment of franchise fees arose the franchisor obtained a US arbitration award for payment. The German Court refused to enforce the arbitral award as it unreasonably favoured the franchisor. The Court based its decision on the principle of reasonableness applicable in Liechtenstein law. Liechtenstein has a reasonableness test when it comes to reviewing standard form contracts. Standard term contracts which are unreasonable are invalid. The Court concluded that an obligation on a German franchisee to attend an oral hearing in New York is not justifiable when the place of performance of the franchise agreement is Germany, especially since the franchisor had a network of consultants for its German franchisees and engaged a German lawyer for its German affairs on a permanent basis. The lesson to be learnt for franchisors US Franchisors should be careful when they choose the governing law of their franchise agreements in Europe. Any jurisdiction which applies a reasonableness test may open up the door for a review of the franchise agreement. If arbitration is chosen as the dispute resolution mechanism, franchisors should not choose a venue out of mere convenience, but consider if a venue closer to the franchisee's place of business (such as London or Zurich) would be acceptable.
Franchise Agreement by Barbara Jorgensen
Barbara Jorgensen's picture
Submitted by Barbara Jorgensen on Sun, 2009/03/01 - 13:47.

"Reviewing standard form contracts.  Standard term contracts which are unreasonable are invalid." In Germany.

"Any jurisdiction which applies a resonableness test may open up the door for  review of the franchise agreement." A warning guest writes to zors.

The franchise agreement is unreasonable.  If Germany has this should the great USA have the same attitude? 

Every jurisdiction in the great USA should review all franchise agreements.  If they have already, I am ashamed of our country.  Anything unreasonable should be invalid. Business done in good faith would have clauses to protect both parties.  Contracts signed in a certain state should be arbitrated in the state it is signed.  Anything written that you have to go close to their headquarters is unreasonable.  This is another factor to discourage people from defending themselves.  Every person should have a right to defend themselves.  It is unconscionable to have  bombshell clauses in any contract.  Franchise Agreements should be under scrutiny in every jurisdiction to give people the right to defend themselves. If everything is written in favor of the zor, it should be deemed a contract that is unconscionable in every jurisdiction. and not enforceable.