Jitterswing News Swings One Way

There have been two articles regarding franchisor Jitterswing on Blue MauMau, and neither one of those addresses the actual complaint in a complete manner.

Regardless of how one feels about the parties involved, BMM is a respected website in franchising, and with that I believe comes a responsibility to accurately look at what the issues are with any particular litigation. Moreover, there are some lessons in this case of broader interest to franchisees.

The first BMM article was on Dec 1, 2009, and the second article was on March 27, 2010. The court has never reached the merits of the case, and the BMM articles have not addressed either those merits, nor the relief being sought.

In fairness, a cursory reading of the Plaintiff's complaint raises some interesting questions.

• A threshold issue is who are the proper parties. The case lists "Jitterswing LLC" as the Plaintiff. Yet the contract was signed by "Terry James" on December 11, 2006 and "Jitterswing LLC" was not even formed until March 29, 2007. The contract gives no indication that Terry James was signing in any capacity other than as a natural person. The check was written on what appears to be a personal bank account of Terry James and notes "Initial Payment."

Q #1: How would Jitterswing be a proper party and Terry James not? The Complaint contains no assertions which would create privity between the Defendant and the Plaintiff; perhaps such exists but one wonders why the court did not dismiss on that basis.

Q # 2: And even if Jitterswing is a proper party, since the $10,000 check is dated Dec 2006 and the suit was apparently filed on January 2009, doesn't this run afoul of the statute of limitations on any private right of action under Missouri law, which states in relevant part:

Any person, association, partnership, limited liability company or corporation who shall violate the foregoing prohibition of this section shall be guilty of a misdemeanor and upon conviction therefor shall be punished by a fine not exceeding one hundred dollars and costs of prosecution and shall be subject to be sued for treble the amount which shall have been paid him or it for any service rendered in violation hereof by the person, firm, association, partnership, limited liability company or corporation paying the same within two years from the date the same shall have been paid and if within said time such person, firm, association, partnership, limited liability company or corporation shall neglect and fail to sue for or recover such treble amount, then the state of Missouri shall have the right to and shall sue for such treble amount and recover the same and upon the recovery thereof such treble amount shall be paid into the treasury of the state of Missouri.

Parenthetically, one reminder here for BMM readers is not to commingle personal and business assets. Here it appears that Jitterswing and Terry James did not maintain that separation, and that may be an issue in any future litigation brought by another party (such as a franchisee seeking damages against Jitterswing).

• Conversely, the other party signing the contract was Christopher Conner, who signed in his capacity as a representative of an incorporated entity (Francorp). The contract also explicitly states that "under no circumstances" shall any of the officers of Francorp be liable.
• The Complaint is artfully drafted and while it alleges that "Defendants" prepared documents, it alleges that "Defendant" was paid a total of $25,000. The difference between the singular and the plural may be quite important here, given that this Complaint is based on statutory liability.

Q #3: Under what legal theory is an officer of an incorporated entity named as a party to the suit, particularly given the explicit disclaimer? Certainly an officer of a corporation may do things which give rise to personal liability, but once more the Complaint makes conclusory statements without providing any prima facie basis or an assertion of some information and belief warranting those assertions.

• The Francorp contract explicitly states--on the very page signed by Terry James--"All franchise documents and forms provided by Francorp that are required for compliance with state and federal law will be submitted to the Client's attorney for review and approval. Neither Francorp nor its employees can or will act as the Client's attorney."
• In another portion of the contract, it states that "Francorp will draft and submit to client's attorney for review and approval a Franchise Agreement..."

Q #4: Did Terry James have legal counsel? If not, why did he not retain counsel given the explicit language of the contract? If so, who was the legal counsel?

Q #5: Is Jitterswing still using the documents prepared by Francorp? Have they ever had those documents reviewed by legal counsel?

• It should be noted that the sole allegation in this litigation is that Jitterswing LLC paid $25,000 to Francorp and Bororian (and has a remaining contractual obligation of $20,000 plus interest if the contract is found to be valid), and that that $25,000 was solely for legal services--the only allegation is unauthorized practice of law. As discussed above, that statement is factually incorrect both as to who paid the money and who was the payee on the check. One might also therefore question the Plaintiff's truthfulness as to whether the only services provided were legal services; by all other accounts Francorp provided a package of services in past deals (albeit of debatable worth).
• The suit seeks as a remedy treble damages of the amount paid (3 times $25,000 for a total of $75,000), and seeks to have the contract voided.
• In other words, Terry James agreed to pay $45,000 for a package of services from a company. Now he alleges that he only got legal services and wants to pay nothing, get his money back plus an additional $50,000, and continue selling franchises.

Q #6: What services did Francorp actually provide to James/Jitterbug? Meetings? Consulting services? Marketing advice? Ad materials? What portion of the $25,000 was actually allocated to preparing the Offering Circular/FA; and were those documents transmitted to an attorney, to James, or to members of the public?

Finally...

What is really going on here?

Given that the Jitterswing website only shows 2 locations-- one at the Farmers Club Hall (on Wednesday & Friday) and one at the Moose Lodge (onThursday, right next to the Chuck E. Cheese) -- a reasonable assumption is that Terry James bought a line of bull from Don Bororian (by most accounts, Don is a master of the art)  and when James proved less adept at selling bull than Bororian, James wants to get out of his contract and get a nice payday for himself.

Fair enough. But let's be honest about what is going on.

The matter of unauthorized practice of law (UPL) is rather complicated, and often used more as a Lawyers Union Hall Act than for any protection of the public.

And allegations about Francorp engaging in UPL go back at least to March 2000 in the Francorp Inc v. Siebert suit (N.D. Ill, 1:00-cv-01248; Siebert was a former employee and now competitor of Francorp). But that is a topic for another day.

I would however note that UPL is apparently punishable by a $100 fine in Missouri, and Francorp may not have $100. In any event, Mr. Kircher may have an obligation under his state law to file a compaint with the cognizant regulatory body, and it will be interesting to know if that has been done and what the outcome will be.

As to the South Beach matter, I would observe that in that case my understanding that the allegation against Francorp is that it got involved in marketing the franchise to prospects, committed an act of omission which rendered the disclosure document deficient, and that in any event the court did not reach the merits of the UPL claim.

The Jitterbug case seems to simply be one of someone who got taken to the cleaners and is mad that they couldn't turn around and do the same to unsuspecting franchisees.

Seems like poetic justice to me.

The 2 articles on BMM deal with a procedural matter--venue-- and not the merits.

It is not terribly surprising that the Missouri court would want to retain jurisdiction of this case given that the sole cause of action is for a statutory violation--unauthorized practice of law--where the judiciary has a peculiar interest in asserting jurisdiction over acts allegedly committed within the venue.

Of course, the reason the Missouri court retained jurisdiction is because of the UPL claim. To the extent that any provision of services constituting UPL can be severed from the remainder of services provided under the contract, that remainder should be adjudicated in Illinois; otherwise the Missouri court is using UPL to circumvent the contractually-agreed venue provision.

A more interesting story will be to see if the Missouri court sees through the Plaintiff's case or if the home-field advantage proves decisive.