The Wireless Toyz Case Has Ended Badly for the Franchisee

The case that the court had earlier dismissed and that was reversed and reinstated by the court of appeals has again ended favorably for the franchisor.

Trial began on Tuesday, and all discretionary rulings, plus several that were not discretionary, went in favor of the franchisor defendants.

By Thursday morning the court was again limiting evidence of multiple instances of false information on the point that each had to support the entire claim of fraud by itself instead of all being considered as a group of misrepresentations.

Plaintiffs (franchisee and family) had to make a decision whether to proceed and make a record for purpose of another appeal or stop the fight. They elected to stop the fight. Another successful appeal would have placed us back in the same trial court doing it all over again. The cycling of appeals, reversals and more appeals would have been endless.

The only good to come out of this is that (1) Thank God the franchisee could afford the loss and the expense; and (2) many franchisees came forward with tips and suggestions, trying to help. For the sake of reassuring those who tried to help, I never made a record of who they were or what they contributed.

This is another instance in which the plain and obvious message is that killer pre investment due diligence is truly your best protection, indeed your only practical protection, against franchise investment fraud.

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Trial Update

January 8, 2009 - The case between GRS as plaintiff and Wireless Toyz/Richard Simtob as defendants was dismissed in the 4th day of trial in front of the honorable Federal judge Kenneth Hoyt. The judge gave the plaintiff the ability to show all of there evidence to try and prove thier case however following a heated exchange between the judge and GRS lawyer in which the judge said repeatedly that there was no evidence of any material mis-representations and that NO damages were suffered from any wrong doing by Wireless Toyz/Richard Simtob. Shortly there after GRS approached Wireless Toyz to dismiss the case. Wireless Toyz agreed to dismiss the case with Prejudice which means this case is over and GRS did not succeed in trying to recover any damages.

Not quite right

See my blog announcement on the trial that was posted this morning

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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

uite right

Re: The Wireless Toyz Case Has Ended Badly for the Franchisee

I hate to say I told you so,but I did.

Look folks,litigation only favors attorneys.Another perfect example of that right here.It's bad enough the zee's lost money on their investments, but now they just threw good money after bad to sue their zor.Why,because some attorney told them they could.Sad but true, trying to make a buck off your misery.

MEDIATION is by far the best way to resolve issues between zors and zees..

Re: The Wireless Toyz Case Has Ended Badly for the Franchisee

I hate to say I told you so,but I did.

Look folks,litigation only favors attorneys.Another perfect example of that right here.It's bad enough the zee's lost money on their investments, but now they just threw good money after bad to sue their zor.Why,because some attorney told them they could.Sad but true, trying to make a buck off your misery.

MEDIATION is by far the best way to resolve issues between zors and zees..

Mediation

Mediation can work, and can be of value particularly in cases where the parties wish to preserve the relationship and/or the true issues are non-judiciable.

And as I understand from Prof. Spencer, mediation is provided for by code in Australia. Even there, franchisees can not get together and mediate as a group. So the franchisor is free to overreach so long as it remains not cost-effective for each individual franchisee to mediate singly. Meanwhile of course, the franchisor benefits from the aggregate of all those "small" overreachings.

However, mediation can only work where both parties are genuinely willing to be open to mediation. We have seen a number instances of franchisors who are simply interested in crushing franchisees, including Quiznos and Dunkin Donuts; in such cases mediation is a waste of time.

And where parties do compromise but one of the sides is not acting in good faith, the result can actually be worse than had litigation been timely initiated.

A notable example of this is the Cuppy's Coffee franchisees who bought into the sweet soothings of Morgan/Nabors et al. They ended up getting shafted, and in hindsight if they had gone into litigation and obtained a judgment at least the first few would have gotten their money...and dozens of future victims would have been spared getting fleeced.

To assert that "litigation only favors attorneys" is a statement which is as facially absurd as it is overbroad. Most people do not go and hire attorneys as a first avenue of recourse. Moreover, franchisors litigate all the time since the laws are written in a manner which overwhelmingly favors them.

A common misconception is that litigation is about getting to trial. Actually few litigations get to trial and even fewer litigations go up on appeal, back down to trial court, and get dropped in the manner of Wireless Toyz.

In most cases, at a very early stage of the litigation the counsel for the respective parties are required to attend a conference with the judge's clerk who tries to hash out a settlement if one can be reached. In my state, this proceedure is codified in the rules of court.

Unfortunately it is often necessary to file suit in order to convince the counterparty that you are serious. But once litigation is filed, most cases do settle prior to trial. And if your suit is strong and your pleadings reflect that, there is often a quick resolution. Conversely a weak case will quickly be seen as such, and the settlement will reflect that.

Resolution of disputes is ideally taken care of between the parties in an environment of openness and compromise. But in the real world, that does not always work and in such a case an attorney is an appropriate source of guidance.

To say that provision of such guidance is "mak[ing] a buck off your misery" is akin to saying that oncologists make a buck off your misery. The oncologist did not cause the cancer, and the attorney did not cause the financial debacle; they are only brought in to clean up the mess as best as possible.

Paul SteinbergFranchisee Attorney, New York City, Ph: 212-529-5400

Mediation and Good Faith

Paul writes: "However, mediation can only work where both parties are genuinely willing to be open to mediation. We have seen a number instances of franchisors who are simply interested in crushing franchisees, including Quiznos and Dunkin Donuts; in such cases mediation is a waste of time."

I disagree with this.  DD is engaged in an expansion, trying to replace single operators with multi unit operators.  If there was ever a situation that called for negotiation this is it - the litigation route is too expensive, too uncertain, and sends the wrong message to other franchisees.

Good faith has nothing to do with a successful mediation in this case.  DD simply cannot get what it wants primarily through the litigation process. 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"

Agreed

By "good faith" I was speaking in a narrow sense of conduct during the mediation; I meant that the parties were of a mindset conducive to trying to make the mediation process work and not of a mindset where the process is a sham.

I did not mean to suggest that productive engagement in the mediation process need be motivated by any sort of moral concern.

Pragmatism is just as good a motivator to act in good faith as any "moral" considerations.

Indeed an organization such as Dunkin may derive a perverse pleasure in abusing franchisees while thumbing its corporate nose at societal standards of behavior.... But when it comes down to the pocketbook, Dunkin is owned by investment groups which will mediate if that is in the investor's interest.

Paul SteinbergFranchisee Attorney, New York City, Ph: 212-529-5400

Mediation versus Litigation

Mediation can provide systemic solutions, solutions which are not available through the legal system.

But these dispute resolution mechanisms have to be tested and demonstrated to be better than either arbitration or litigation.

GM's relationship with their dealers employs a well constructed mediation service, but this is not the norm in franchise systems. 

Michael Webster, a franchisee attorney in Toronto, Ontario, publishes a website on business opportunities and franchises called "The BizOp News"