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Beguiling Heresy: Regulating the Franchise Relationship

"If men were angels, no government would be necessary," writes franchisee attorney Paul Steinberg, quoting a passage from James Madison in The Federalist. He concludes this about franchising, "Notwithstanding franchisor invocations of Jesus Christ, franchisors are no angels."

The then law student Paul Steinberg and the late Gerald Lescatre wrote a research paper for Penn State Law Review where a pattern of cases is laid out and organized that highlight the gaps in modern franchise law. Beguiling Heresy: Regulating the Franchise Relationship speaks brilliantly about the limits of franchise contracts as a tool to govern the franchise relationship.

The law is set up to favor franchisors.

"Franchisors will complain that relationship legislation, with its concern with good faith and fair dealing, will inject an element of uncertainty into the franchise relationsip. But there is already an element of uncertainty: it exists in the mind of the franchisee living each day with the knowledge that a capricious franchisor may rob the franchisee of a life's savings -- with an approving nod from the courts and regulators."

Steinberg concludes, "This may be legal. But is it ethical?"

Weakness: Although I wish the book had an index, it does have 1,150 footnotes of legal and franchise citations. Every assumption seems backed up by a researched fact, case or statistic. It is a law review, highly technical. It took 68 pages of the book to reveal what its title "Beguiling Heresy" is talking about. "Beguiling Heresy" refers to an English lawyer's argument against courts that rule against abusive contracts. It might be beguiling to the judge to seek "justice" but it is heresy, the lawyer argued, because it erodes at the pinning of contractual law to the point that the law itself becomes a whim. Despite the lawyer's argument to not interfere with contracts even when there is no good faith for the sake of the rule of law, common law and American law has long found it necessary to dismiss parts of contracts in certain cases and to regulate them. In its 152 pages, the book answers why regulating franchising is necessary.

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Fair franchising regulation

The California law was drafted and negotiated specifically because of that vile franchisor executive. It is no surprise that one of the chief proponents and negotiators of the bill is the independent Dunkin' Donuts franchisee association. After the law was negotiated with franchisers, who all withdrew their opposition, save one: Dunkin Brands,Inc. Bitter clinger to the end.

Regulating the franchise relationship

This law review article really is a brilliant dive into the relationships that makes up franchising. It was a pivotal piece that brought down one of the most notorious franchisor executives adept at using the legal system to rob franchisees of their life savings, using his own words to expose his lies to cover up his corrupt practices.

After the California franchise relationship legislation passes this year, and maybe is signed by the governor this time, I plan to re-read the article and weigh what ends up in the California law against it.

About Don Sniegowski

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email