Support the Arbitration Fairness Act of 2009

Currently pending in the United States Congress is an important piece of legislation that all franchisees should enthusiastically support. The Arbitration Fairness Act of 2009 (Bill H.R. 1020 111th Congress 2009) recognizes that many years ago, when Congress initially approved arbitration as a way of resolving civil cases, Congress was assuming that the parties to an arbitration approached the dispute with equal bargaining power, and that both parties reached the same conclusion, i.e. that arbitration (instead of litigation in the courts) was desirable in their particular case.

The Arbitration Fairness Act of 2009 recognizes that in franchising, and in other areas of modern American business, the assumption of equal bargaining power leading to an intelligent, mutual and fair decision to arbitrate is no longer applicable -- not where the dominant party seeks to require arbitration of all future disputes as part of its non-negotiable form contract. Thus, this proposed federal law would prohibit franchisors from including provisions that require the mandatory arbitration of all disputes that might later arise during the term of the franchise agreement. In the event a dispute later arises, the franchisor and franchisee would be free to agree to arbitrate, but the franchisee could not be required to agree in advance (when signing the franchise agreement) to arbitrate any and all future disputes that may arise. (The same bill would also outlaw mandatory arbitration clauses in most consumer and employment contracts as well).

As a lawyer who has tried cases both in the courts and in arbitrations, I am qualified to say that it is possible to win in either forum, and that the presence of an arbitration clause in a franchise agreement is not the end of the world, and should never be allowed to discourage a franchisee from bringing a legitimate claim. In fact, there are some times when arbitration might be the better choice. However, the analysis of which type of dispute resolution might be better tailored for a particular dispute is best undertaken after the dispute arises. When we step back and look at the big picture, it is very clear that mandatory pre-dispute arbitration clauses (which the Arbitration Fairness Act of 2009 seeks to outlaw) unfairly tilts the scales of justice in favor of franchisors at the expense of franchisees. Therefore, it is not surprising that the International Franchise Association (which is largely funded by franchisors and their suppliers) is spending a great deal of money trying to defeat the Arbitration Fairness Act of 2009, as are other trade associations that seek to protect the advantages enjoyed by big business over small business, employees, and consumers.

Therefore it is essential that franchisees and dealers across the country educate themselves on this important issue and join this national debate. For franchisees and dealers in every system, starting with Dairy Queen, here are my top ten reasons, some of which overlap, why you should be writing your Congressional Representatives and Senators to strongly support the Arbitration Fairness Act of 2009:

1) Arbitration is arbitrary! In the court system, if the judge rules against a party on a question of law, the party can generally appeal to a higher court. Arbitration, by contrast, is designed to be “one stop” decision-making. If the arbitrator is wrong about the law, it is very difficult (often impossible) to have the incorrect decision reviewed by a court. Of course, no one, not even the smartest arbitrator, will always be right. By design, proponents of arbitration are willing to accept a certain risk of error.

Think about this. Let’s say that over the life of a franchise system, a franchisor might have 100 disputes with various franchisees. In calling for mandatory arbitration of each of those disputes, the franchisor is betting that any uncorrected errors in particular cases will even out, just as the possibility that an umpire may make a bad call on any given play will tend to even out over a long baseball season.

But this rationale plainly does not work from the standpoint of franchisees facing perhaps the one big case of their lives. There is no acceptable risk of error for someone whose business is at risk. Furthermore, even when one focuses on individual cases, the risk of uncorrected error is not fairly distributed, but instead to fall more heavily on the franchisee. In most franchising disputes, the franchisor is relying on the language of the parties’ agreement as allegedly permitting an action that the franchisor has taken (or wishes to take). The franchisee relying upon a legal right created by the common law (such as the duty of good faith and fair dealing) or a statute (such as a state law requiring “good cause” for terminations or the federal law prohibiting unreasonable restraints of trade) in order to persuade the decision-maker that the franchisor cannot do what the agreement might permit. Simply put, the franchisee’s argument is usually a bit more complicated, and often involves the application of a previous case (a precedent) to facts that are never exactly the same. This means that, as a general proposition, the franchisee usually has the greater risk that an arbitrator’s inherently arbitrary decision may be wrong. The arbitrariness of arbitration favors Goliath, not David.

2) Arbitration is expensive. At the courthouse, taxpayers pay the judge’s salary and pay the freight for the courthouse as well. In arbitration, there are fees for the organization that sponsors the arbitration, additional fees for the arbitrators’ professional time, and often even more fees for renting the hearing room. (See the American Arbitration Association’s published fee schedule (www.adr.org) for an example of the administration fees, not counting the professional time of one or more arbitrators). The franchisee must typically pay one-half of these fees upfront before the hearing will begin, under pain of default if the fees are not paid. This burden impacts an individual franchisee more so than it does the franchisor, which has deeper pockets.

3) Arbitration is often in the franchisor’s hometown, where the franchisor may have considerable influence among the pool of potential arbitrators, and where, consciously or not, the arbitrators (and the arbitration organization) may be biased because they desire the franchisor’s repeat business. The franchisee, on the other hand, will have to absorb the expenses of travel, for both itself and often for its witnesses.

4) By agreeing to arbitrate, important statutory protections may be waived. State franchising acts such as the Illinois Franchise Disclosure Act often prohibit the franchisor from requiring a franchisee to agree to venue for a court case outside of the franchisee’s home state. However, in what is arguably an unfortunate legislative oversight, there typically is no corresponding provision to prevent an out-of-state franchisor from requiring an Illinois franchisee to arbitrate in a different state. Many national franchisors therefore use arbitration clauses to obtain for themselves the hometown advantage described above in point three.

5) Discovery is limited. In litigation, a franchisee can usually get access to key documents in the franchisor’s files, and can take the pre-trial depositions of key franchisor personnel and other important witnesses. In arbitration, discovery rights are much more limited, making it more difficult for the franchisee to uncover evidence before the hearing that may make the difference between winning and losing at the hearing. Once again, franchisors insist this is “fair” because the same restriction applies both ways, but once again, the answer is that the franchisee usually needs discovery more than the franchisor needs discovery. As noted, franchise disputes typically arise from written agreements that the franchisor’s attorney drafted. This necessarily means that the franchisor usually starts almost any case with some degree of advantage based on the language of the agreement, which the franchisee must strive to overcome. To agree, in advance, to arbitrate, and thus to waive one’s right to discovery under the Federal Rules of Civil Procedure (or comparable state codes of civil procedure) plays into the franchisor’s hands.

6) Other important legal rights are also usually waived. Many times, a franchisee or dealer will benefit by having his or her case heard along with a similar case brought by another franchisee, or as part of a class action on behalf of all similarly-situated franchisees (or through a lawsuit brought by the Association). Arbitration clauses in franchise agreements often seek to preclude these possibilities by mandating that the arbitration will be limited to the claims of the particular franchisee, with class actions or association lawsuits being precluded. Once again, the deck is stacked against the franchisees.

7) The “savings” from arbitration are often elusive. Fans of arbitration like to claim that arbitration is intended to be less expensive and less time-consuming than litigation (mainly because discovery is strictly curtailed and pre-trial motions and appeals are eliminated). Very often this is not true. Some reasons why the “cost savings” argument is often backwards include: (a) arbitration requires additional fees that are not required in the court system (point one above); (b) the parties to arbitration may agree to more extensive discovery (or pretrial motion practice, as well as post-hearing briefing) than provided in the arbitration rules, thus bringing the expensive parts of litigation into the arbitration format; (c) the parties to arbitration often wind-up litigating issues as to whether the arbitration was, or will be, fair; and (d) most lawsuits in the court system are settled before trial (usually after the parties conduct some discovery and thus have more knowledge than they did at the start). Where litigation is settled, as typically occurs, the end cost may be less than going to full hearing in arbitration (which is more likely to happen, in cases where there was less discovery or less motion practice).

8) Arbitrators are not necessarily better qualified. It is no secret that most companies fear juries. Proponents of arbitration have concocted the notion that it is better to have a case decided by a more experienced and trained decision-maker than left to an unpredictable jury. For franchisors, that argument is extremely self-serving. In reality, most arbitrators are former judges who retired to increase their income, or experienced practicing attorneys, often from larger law firms, whose experience with franchising is usually on the franchisor’s side. It is unusual to find an arbitrator who has spent significant time in his or her career representing franchisees or dealers. This is not to say that most arbitrators do not strive to be fair. They do. However, the “experience” that they bring to the table is not necessarily a plus for franchisees. Most often, a franchisee or dealer will find the best justice from a jury of peers.

9) Arbitration impedes the development of the common law. The American legal system was adapted from the English “common law” which evolved over centuries, one case at a time. Important legal doctrines such as the implied covenant of good faith and fair dealing and the doctrine of unconscionability (that some contract clauses are too unfair to ever be enforced) find their roots in the common law. Further development of the common law, to adapt our laws to the issues of today and tomorrow, quite obviously depends on having judges and juries continue to reach their decisions one case at a time, and to have their decisions published for all to read, to stand as precedents for future cases. In arbitration, the law is essentially frozen in place. Cases decided in arbitration usually do not have the same precedential value that comes from a judicial decision. This is much more than an abstract problem. If a national franchisor were to lose a case with system-wide implications in a court of law, the precedential effect on that franchisor – and other franchisors – will be much greater than if the franchisor were to lose in arbitration. In other words, a franchisor can “afford to lose” more so in arbitration than in the courts. This means that franchisors have less incentive to settle in arbitration than they do in the courthouse. Their incentives in arbitration are instead to grind the franchisee into submission with all of the costs and burdens of travel, and the burden of standing alone in the fight.

10) Jury trials promote democracy. Arbitration does not. Jury trials are conducted in open court, with members of the press and fellow citizens free to observe and comment, and with six or twelve randomly chosen citizens empowered as jurors to render the verdict on the facts of the case. Because this process is so essential to our democracy and to our liberty, the right to trial by jury is enshrined in the Seventh Amendment to the United States Constitution and most if not all state constitutions. When we allow franchisor to impose mandatory pre-dispute arbitration clauses, we are not only agreeing to a proceeding that will be conducted in secrecy, without participation by our fellow citizens, and where the playing field has been tilted in favor of big business. We are squandering an important constitutional right that our forbearers fought for and we are leaving less democracy for our grandchildren.

For all these reasons, both personal to the good health of your franchise and to the good health of your communities and indeed our country, your vocal support for the Arbitration Fairness Act of 2009 is vital!

(Originally published by Dairy Queen Operators' Association/Dairy Queen Operators' Cooperative in September 2009 and reprinted with permission)

Comments

Arbitration Fairness Act

Carmen,

Thanks for the thorough summary.  Recent indications are that heavy lobbying has the franchise provision of this legislation in great jeopardy.  All franchisees, particularly those that may have horror stories about experiences with mandatory arbitration are urged to step up and be heard.  There is a group that is headed to Capitol Hill next week to talk to members of the subcommittee in an effort to ensure that franchise agreements are not excluded from the law.  Any stories that the franchise community can relate here or to my inbox would be greatly appreciated.  Contact your representatives NOW!

To contact your representatives visit

https://writerep.house.gov/writerep/welcome.shtml

Thanks for such a detailed breifing on this Arbitration Fairness Act. Don't wait it's time to act.

What subcomittee is hearing this? List of reps?

Thanks. I'd like to participate and write to my congressman.

"Fleas can be taught nearly anything that a Congressman can."
---Mark Twain

More Info on Contacting Your Congressman

This is a House bill, not a Senate bill, so call your Rep (Congressman), not your Senator. If it passes the House and goes to the Senate, that's when contacting your Senator will count.You can find your U.S. Representative by going to http://www.house.gov/ and entering your zip code. The name of your Congressman will come up. Clicking on their hyperlinked name will take you to their website where you can find their local and Washington phone numbers, a form for contacting them by email (if you send an email from your regular email client instead of using this email form, you’re likely to have the email returned or maybe even ignored) and their fax number. Phone calls are said to be the most effective. I’ve already made my phone call and my Congressman’s staffer became attentive and interested.Another way of reaching your Congressman by phone is to call the U.S. Capitol switchboard, (202) 224-3121, and ask for your Congressman (if you know their name).

The first thing you need to say to your Congressman’s staffer (you’re almost surely going to get a staffer, not the Congressman) is the bill number and title (H.R. 1020, The Arbitration Fairness Act of 2009), and state clearly right off the bat that your want a yes vote for the bill and no exemption for the franchise industry (the DDIFO warns that removal of the franchise provision is imminent). Don’t forget to tell them that the International Franchise Association is lobbying against the bill, but that regardless of what the IFA says, it is not speaking for franchisees.Most of us know that the IFA is an organization for franchisors and that its franchisee “members” (mostly no, but sometimes cheap, dues) are just window dressing so that it can confuse groups like Congress by saying it represents both zors and zees, right? It’s worked like a charm for years, and even many franchisees have swallowed the spinmeisters' line. But whenever any conflict of interest comes up between zors and zees, such as this arbitration bill, the IFA always shows its true colors by backing zors at the expense of the zees.

P.S. Just noticed that the House Subcommittee on Commercial and Administrative Law is about to remove franchisee protection from mandatory arbitration from this bill. The DDIFO has the Subcommittee members’ names and phone numbers listed. Now is the time to call any of them that represent your district (for voter clout), but call any others in your state, a neighboring state or all of them. It's crucial that you call right away to let these members know how franchisees feel about mandatory arbitration and the crushing of their constitutional Seventh Amendment rights.

Thank you - I appreciate the specifics

As I noted, my Congressman is clueless. I hope every franchisee takes time to support this legislation. I have drafted a concise letter explaining why this is so important and could benefit the taxpayer enormously.

House to Senate

Dave;

If the bill goes to the Senate with the franchisee protection removed, can the Senate put the franchisee protection back in?

legislative process -- public support for Arbitration Fairness

Michael-

The final bill, if there is one, will be the product of the House/Senate conferencing after the bill passes both houses and then goes to the President for signature.   So, yes, franchisees are in the game until the final bill emerges (assuming that a final bill does in fact emerge).     

But nothing is going to happen if franchisees remain silent.   The U.S. Congress needs to hear from as many franchisees/dealers as possible.   Everyone who reads this web page should be doing everything they can in their own networks to generate letters to their Representatives and Senators.

Carmen Caruso

Arbitration Fairness and Recent Law Review Research Paper

Carmen, terrific article.  What is unfortunate is how few franchisees have responded regarding the IFA's attempt to remove franchisors liability to this law and how they continue their manipulation of information by trying to pass themselves as representatives of franchisees to Congress.

I attached a link below from a Notre Dame Law Review article regarding Mandatory Arbitration and Fairness published May 2009.  I am not claiming this to be the end all and be all of arbitration's fairness, I thought it might be of interest to the attorneys on this site and provoke some discussion.

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401469

Arbitration Fairness Fallacy...Rusty Oldsword Crap

I get upset over consumer contracts of adhesion that require mandatory arbitration, however franchise agreements are not consumer agreements and once again you are wrong.

Kalik Sheik Mohammed was just afforded more rights than I

have in my franchise agreement. When you think about things from a different perspective - you see the sad irony of law.

To the extent that franchise

To the extent that franchise agreements are non-negotiable, they are in fact consumer agreements.  As a matter of record, I have heard many franchisors, including mine, refer to their franchisees as their "customers".  Simply stated,

No person should  be compelled by contract to give up fundamental rights unless consent is freely given and an adequate quid pro quo is substituted for the right to jury trial. Given the one-sided nature of the franchisee/franchisor relationship, no adequate quid pro quo is available or offered in franchise agreements.

If a franchise agreement is not a consumer agreement, how would you choose to categorize it, Frank the Franchisor?

Franchise agreements are commercial contracts

that are quite different from credit card agreements, cellular telephone contracts, home mortgages or personal auto loans.

What some stupid franchisor calls its franchisees/licensees other than franchisee/licensee is irrelevant. I've heard franchisors refer to franchisees as franchise partners and I believe we'd all agree that franchisees are not partners in any legal sense whatsoever.

Just because franchisees are sometimes first-time business owners and are consumers of all manner of products and services does not make them a consumer when they sign a commercial contract with a franchisor.

Frank the Franchisor

Re: Franchise agmts, comm. contracts and arbitration laws

Frank, what is amusing is that all I did was post a research report published in the Notre Dame Law Review regarding arbitration and the methodology used in previous studies to support their respective conclusions.  I specifically stated that it is not the end all and be all of the argument - merely, that it is something for the professionals on this site to review and contemplate.  Whether this study's conclusions are correct, whether the conclusions of the previous studies are correct or whether the answer lies somewhere in the middle is for the professionals to ascertain.

What should be disconcerting to all on this site is your fear of public distribution of information that does not comport to your view that franchising, the way it is currently structured, is perfect.  If it is OK to you for families losing their life savings to franchisors who manipulate and lie then have the ba--s to say it.  If, however, you believe that franchising needs to weed out the scams and have the truly profitable franchise systems survive then you shouldn't be so afraid. 

Whether it be commercial or consumer, this is one of the largest investments (yes, that is exactly what it is) an individual can make - especially since it binds most, if not all, of the individual's assets into the purchase - and having it more of an open, honest transaction should be agreeable to all - except, of course, the scammers.

Rusty Oldsword are you still beating your wife?

I think FTF can be against Arbitration Fairness Act in franchising and be against franchisor and franchisee fraud in franchising.

Now answer my question - are you still beating your wife?

Re: Shedding light on mandatory arbitration

Again, I posted a law review published research report performed by an independent party who questioned the conclusions of previous reports regarding arbitration.  The author found fault with the methodology used to support prior studies' conclusions regarding the fairness of arbitration.

Frank the Franchisor, instead, tried to humiliate the messenger rather than seriously discuss the message.  If there is nothing to hide then why would there be such concern by the IFA to remove mandatory arbitration?

If Frank, or anyone, has complaints regarding the study and it's own methodology then let him state them.  It is rather lengthy and detailed so it would have been impossible for him to read and respond so quickly.  Rather, he chose, as did you, to revert to name calling as opposed to discussing forced arbitration and how the study concludes that, with a more thorough examination, arbitration benefits the franchisor much more often.

TRUSTY Oldsword

But again Rusty Oldsword are you still beating your wife?

When do you think it will be time for people to act like grown-ups and be responsible for their actions.

Re: When will it be time for Guest to act like a grown-up?

Yes, when, indeed, should scammers be responsible for their actions, be accountable for their lies rather than cower behind mandatory arbitration and general release forms?  When, indeed, do franchisors police their own to rid the system of rogue franchisors rather than put up roadblocks preventing exposing scams to the public? 

Instead most franchisors count on potential franchisees to find legal advice that it is unfamiliar with the pitfalls of franchising so they are unaware of the full legal ramifications of the contracts.  Ahh, but let the buyer beware, right?  So, while you claim you want to rid the system of the "rogue" franchisors, you actually fight for lack of disclosure and lack of legal recourse. 

Mr. Oldsword

In the franchise system where you were a Zee were any of the Zees successful? How long has the Zor been franchising? How many Zees have been robbed? How have they been able to scam Zees without any consequences? How can we stop these scammers?

Respectfully yours,

Juan

Re; Juan

1.  Define successful?  Breaking even? Making $50,000 a year after investing $300,000-$500,000?  From that standpoint, based on "break-even" gross revenue information provided by the franchisor and based on gross revenue production of all franchisees (again, provided by the franchisor - after signing up), 40%.  Those actually making a good living (figure $80,000+) is much smaller than that.  (And these numbers were during the "good" years PRIOR to the recession.)

2.  Several decades.

3.  Last year between 20-25% of all franchisees either closed or sold their businesses - that's just last year.  Those that sold, a substantial number were between $1 (one dollar) and $30,000 - for a franchise whose opening costs are stated above.

4.  General Release form, verbal earnings claims and having a third party (outside loan consultant) provide revenue projections.

5.  Full earnings disclosure.  These are supposed to be proven, successful business models.  If less than 50% (again, franchisor's numbers) are not even hitting break even then do you think a prospective franchisee, knowing this, would buy into it?  The scams stop when individuals are able to make truly informed decisions.  By the time franchisees realize what they invested in, there is little money left to pursue legal claims even if you can get around the release forms.

Wow!

So this scam franchisor has been franchising for decades and they have been so good at covering their tracks that you could not find out they were a scam franchisor?

How is it possible that you could ignore all the failures and transfers in their FDD?

When you called franchisees what did they say about their return on investment?

If you did a simple Google search on this franchise wouldn't evidence of a scam turn up?

Frank the Franchisor

Re: Wow! (or should I say SHAM Wow!)

This thread is about arbitration but I'll answer this last query and only speak to arbitration here from know on which we all agree we should do.

There are no negative comments on the web.  Legal authorities here that know my franchisor are very aware of their litigious nature.  Franchisees are afraid.  So afraid that when I called around to not only those franchisees the franchisor recommended but a sustantial number of those they didn't, I received only one negative response - and the franchisor blamed the franchisee for being incompetent (gee, franchisees have never heard that one before!!).

When I was a franchisee I received three calls from prospective franchisees.  I laid out all the financial information and none of them had heard it before even though they spoke with a number of franchisees before me.  Two never bought (I believe because of the info I told them but I am not certain).  The third did buy - and emailed me about a year later to apologize for not listening - he was getting ready to close up shop and declare bankruptcy. 

The sad part is, this system is not that much of an exception.  Franchisees are unwilling to come forward and most important, are too involved trying to avoid business failure to be concerned about BMM or going public with their info.

Rusty now that you've explained it I guess you're a victim

Rusty Oldsword you were frauded.

And who could argue with your conclusion that your franchisor is likely the rule and not the exception? There must be massive franchise fraud in the US and wouldn't a good first step to stop this nefarious frauding be to pass the Arbitration Fairness Act? I even have a new terms you can use for fraudulent franchising "FranFraud" and "FranFrauding"

Guest, Arbitration, and Franchise Fraud

How about reading the study and educating yourself?  At the very least, see if the author's argument holds water (which is all I asked for readers to do in the first place)?  If the author is correct (and I am not saying he is), then mandatory arbitration will most evidently not be the way for franchisees to prove their case.  That is, of course, if you are for exposing fraudulent franchisors and scamming instead of just trying to make fun of people who have lost everything including their homes and families (but it is sooooo funny, isn't it Guest?!!)

As for the "first step", how about it being one of the steps that are needed.  Yet, franchisors keep fighting every step, don't they?  Every recommendation, suggestion, request for more information is met with ridicule and derision by franchisors and their apologists - and more money to Congress to defeat any movement to greater disclosure.

 

Rusty Oldsword it is your exalted victmhood I detest

It is unfortunate that you lost your investment in your franchise business, but it is not alright for you to blame everyone save for yourself.

You provide no facts about your experience and yet you expect everyone to believe you. You seek revenge.

RE: TRUSTY Oldsword fighting for the victims

This is not, nor has it ever been, about me.  The same scam is done in many multiple systems and I am trying to make people aware.  As a franchisor, just how many of your first year franchisees are profitable?  How about not just profitable but actually reach the numbers required by the SBA (should they have received an SBA loan)?  How many systems do you want mentioned whose first year franchisees don't meet the SBA numbers - yet the franchisor has numerous franchisees taking out SBA loans, locking unsuspecting families into financial disaster?

And then, they stick them into an arbitration system that is highly questionable as to its impartiality?  I speak out to inform non-franchisors that in most cases the numbers are fictitious at best.  Why not, instead of calling people names, you let us know the numbers from your system, since you are not subject to a lawsuit like I would be as a franchisee - which you are well aware of.

Rusty Oldsword - Why would you be subject to a lawsuit?

What do you tell prospective franchisees when they call you?

Re: Lawsuits

How about providing info yourself.  You've done nothing but hide this whole time like a little child.  As for lawsuits, franchisors will slap one on a franchisee just to wreak havoc and cost the franchisee money even though it is baseless.  As a franchisor you are all too well aware of it.  Doesn't matter if the zee is telling the truth, they still have to hire an attorney to defend themselves.  One more way the franchisor tries to wipe out the finances of the franchisee.

Time for you to own up.  Or is all you can do is repeat the name calling.

So Rusty Oldsword you have nothing stopping you except fear?

You could do a service to others by sharing the name of your franchisor and duplicitous loan broker but you choose not to do so.

Re: Nothing to fear

So could you by providing your company's info.  In fact, since you can't be sued it would be easier for you.  Answer the questions and for once provide some details.  It would be a refreshing change from your incessant and puerile name calling.

Since it is obvious my financial situation is on the verge of collapse it is quite telling that you are so willing to try and place the last nail in the coffin.  Typical franchisor, only concerned about yourself and very willing to destroy franchisee families.  You must be so proud.  And, again, it must be soooo much fun for you.  I'm sure the readership is noticing as well.

Rusty Oldsword you are making claims about your situation

It is you that needs to back them up with facts, moreover if you really wanted to help others you would offer guidance, sadly you choose not to do so.

I thought Oldsword's questions were quite reasonable

but I didn't expect you to answer him  So I'll answer yours and then you answer his.  His franchisor was Barry Guest from Hire a Guest and his broker was John Guest but apparently they weren't related.  Your turn .......

Has anyone noticed that this blog was about Arbitration and this guest has once again distracted from the topic of another blog.  It would not be sabotage would it?

Re: Ray, reasonable questions about arbitration

Ray, you are correct, this story is about arbitration.  Again, this is the link to a very important research paper about arbitration.

Notre Dame Law Review published this article questioning the validity of reports claiming arbitration is fair.  Here is the link:

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1401469

Contracts of Adhesion

It seems to me one of the linchpins for Arbitration Fairness Act to include franchise agreements is the imperfect premise that franchise agreements are contracts of adhesion.

Your Verizon Cellular agreement is a contract of adhesion. Contracts of adhesion tend to turn on bargaining power in negotiating the agreement...you have no bargaining on the various Verizon plans.

Franchise uniform agreements are negotiable and while the prospective franchisee may or may not get the changes requested in the negotiation that does not make a franchise agreement a contract of adhesion.

Just because an agreement may be a contract of adhesion does not make it bad or unenforceable.

Frank the Franchisor

Re: Contracts of Adhesion

Frank, thanks for your response.  I believe the issue the article itself was raising was whether arbitration was fair to franchisees.  From there, the conversation evolved into how the IFA and franchisors were trying to have franchising exempted from this law and then into having franchisees contact Congress to show support for the new law.

My post was simply to provide access to a report questioning the validity of previous studies on the fairness of franchising.  Whether these are contracts of adhesion doesn't matter.  If franchisees feel they have been abandoned in the arbitration process then they have every right to contact their Congressman and have their voices heard just like franchisors do.  The article was to bring about discussion regarding whether arbitration is indeed a level playing field when compared to the court system.

Oh but Oldsword it is important to note the premise...

The arbitration fairness act was primarily designed to address contracts of adhesions that consumers regularly sign with all manner of retail and service providers and it is an end around to include franchise agreements. If you are going to include franchise agreements you should include all manner of contracts that any person or company/entity signs.

Further evidence that it IS a consumer agreement....

From the FTC's own website.....Note the heading.

Buying a Franchise: A Consumer Guide

 

When you buy a franchise, you often can sell goods and services that have instant name recognition, and get training and support that can help you succeed. But purchasing a franchise is like every other investment: there’s no guarantee of success.

The Federal Trade Commission, the nation’s consumer protection agency, has prepared this booklet to explain how to shop for a franchise opportunity, the obligations of a franchise owner, and questions to ask before you invest.

 

 

Contracts of adhesion....

Can anyone explain why any franchisee would not be in favor of the inclusion of franchise agreements in the Arbitration Fairness Act? Is there a franchisee alive who prefers mandatory binding arbitration?
If not, can you explain why an organization like the IFA that loudly claims to represent so many franchisees can be aggressively lobbying to exclude franchise agreements from this legislation?
What am I missing here?

It seems that Frank the

It seems that Frank the Franchisor is spouting the IFA company line as delineated on their website and elsewhere in amicus briefs.

"The legislation would have the effect of rendering a significant provision in many of franchise agreements void, and the International Franchise Association is strongly opposed because such action would be a significant and unwarranted intrusion by Congress into existing contractual agreements between businesses. In a contract with dozens of specific provisions, each term or obligation in a franchise agreement and in the agreement as a whole reflects a careful and balanced calculation of the rights and responsibilities between business partners; and it is dangerous for Congress to interfere in contracts between private parties."

"Unlike many of the examples of arbitration abuses in consumer contracts cited by the bill’s sponsors, the purchase of a franchise is not a business to consumer transaction. It is a business to business transaction, and it is incorrect to assume that franchisors have disproportionate economic power. Not all franchisors are large, and not all franchisees are small and unsophisticated."

So, in essence for the purposes of the argument that it is a commercial contract, the IFA and Frank the Franchisor want to categorize the franchisee as a "business partner" for legal purposes, while dismissing the notion that they are actually "partners" in reality.

The notion that franchisors and franchisees are negotiating the terms of these contracts at all, let alone from an equal power level is both disingenuous and absurd.

Franchisees are not partners and not equal they are franchisees

Franchise agreements are negotiable. On rare occasions I have negotiated an agreement.

Franchise investors always have a choice to sign or not sign a franchise agreement, in fact they can even shop various franchises in order to find what they believe is best for them.

Frank the Franchisor