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Cases, news, issues and legal opinions impacting franchise law

When Crisis Management Representation Is Needed

Crisis Management Counseling: What is crisis management counseling?          

Crisis management representation is called for when it seems like the end could be near if drastic measures aren’t taken. Think of a situation so bad that everyone is over reacting – hand wringing, dire predictions, blame casting. Lots of bad language. This is a Bet the Company situation. 

Examples          

In franchising, a big franchisee decides to leave the system and not observe his covenant not to compete. He can afford the best lawyers. You can’t just buy the pot because your adversary is adequately funded.          

A large group of franchisees has hired a good law firm and they have serious disputes about their rights and options as your franchisees. There have been many recriminations and accusations, and they don’t think they have received adequate attention. You just received a demand letter or were just served with a very large lawsuit.          

California Superior Court Rules for Franchisor Mail Boxes Etc.

Franchise Agreements Were Not Violated When UPS Had Mail Boxes Etc. Stores Rebrand to The UPS Store

Summary RulingSAN DIEGO, Calif. (Blue MauMau) - California's Superior Court in San Diego ruled in summary judgment that the Independent Association of Mailbox Center Owners (IAMCO), a group of Mail Box Etc. franchise owners, could not prove that their franchisor Mail Boxes Etc. Inc. (MBE) violated any California commerce laws or terms of the franchise agreement when the franchisor required their franchise owners to upgrade trademarks to The UPS Store.

On October 18 Judge Linda Quinn ruled that the MBE franchisees (plaintiffs) had shown no breach by the franchisor of the franchise agreement or California commercial law. In a 5 page memo, the Judge replies to the charges in paragraph after paragraph, "plaintiffs cannot prove," "plaintiffs lack standing" and "there is no evidence."

A summary judgement is granted when a court makes a determination that a full trial is not necessary, often because of a lack of material fact.

Prospects and Attorneys Often Ignore The Pitfalls of Arbitration

Editor's note: Although Mr. Robert Tingler is currently the Franchise Bureau Chief with the State of Illiniois Attorney General Office, his comments are not meant as any official statement but rather to help franchise owners and their attorneys better understand the philosophy and issues behind arbitration and state legislation.

Question: Your insights into arbitration versus litigation would be helpful. Can arbitration be used to circumvent the intent of state legislatures?

Answer: Franchisees and prospective franchisees should be concerned about arbitration, but most prospects and even a few attorneys do not evaluate the pros and cons of arbitration versus litigation when a purchase decision is being made.  Those who seek legal advice will frequently ignore the downside of arbitration because their focus is on buying into, not exiting from or fighting within the system.  Most regulators are not involved in arbitration and the Illinois Franchise Disclosure Act permits franchisors to require arbitration in any state they choose, which coincides with court decisions interpreting the FAA and the states’ inability to restrict arbitration venue.

Bob Tingler

ACCC Chairman: Franchise Churning Does Exist

Australia's ACCC: "Yes, we have discovered that it (churning) does exist in some cases and we will take steps..."

SYDNEY, Australia (Blue MauMau) - Whilst being interviewed by radio 2UE about franchising issues and in particular churning, Mr Graeme Samuel, the Chairman of the Australian Competition and Consumer Commission (ACCC) stated “Yes, we have discovered that it does exist in some cases and we will take steps if we can to deal with that.”

The host, Glenn Wheeler, then stated “Interestingly though that the FCA (Franchise Council of Australia) says that it doesn’t exist”. To which Mr Samuel replied “I don’t think we can deny, I don’t think anyone can realistically deny that there are some rogue operators out there in the franchising world. It would be silly, it would be putting your head in the sand to suggest there are no rogue operators, of course there are.”

Coffee Beanery Franchisees Testify for Arbitration Fairness Act

Williams: "Our Dream Was Trampled Upon by Binding Mandatory Arbitration"

WASHINGTON, D.C. (Blue MauMau) - Last Thursday, Deborah Williams and Richard Welshan, franchisees of Coffee Beanery, went before the House Subcommittee to tell their story of how mandatory arbitration in franchising contributed greatly to their demise. In Deborah Williams' testimony she stated, "I am 54, bankrupt and on the verge of being homeless, all because of a binding mandatory arbitration clause." Williams and Welshans are supporting the “Arbitration Fairness Act of 2007, Bill  H.R. 3010, sponsored by Rep. Hank Johnson, D-GA., which would ban pre-dispute mandatory binding arbitration, in which consumers. . . give up their rights to sue and agree to enter arbitration instead." U.S. Reps. Elijah Cummings, D-Baltimore, and John Sarbanes, D-Towson, are co-sponsoring the bill.

Although franchisees do not come under the "consumer" label, some advocates for the bill are adding franchising to their message. Paul Bland, staff attorney for Public Justice, said in his testimony, "H.R. 3010 would ban the use of pre-dispute binding mandatory arbitration in consumer, employment, franchise and medical contracts." His article, Yesterday's Hearing on Arbitration, for Public Citizen gives highlights and testimonies of the hearing. 

Brokers Under the New Rule

The View of a Litigator on the FTC's New Deletion of Broker Disclosure by Franchisors

Every time a disclosure rule change is made/ contemplated/ suggested, there is a hue and cry from franchisors that the disclosure process is already too cumbersome and another hue and cry from the franchisee community that many more specifics are needed to protect the public from deception and abuse. Having been on both sides of just about every franchise issue for lo these many years, I am becoming somewhat jaundiced concerning the fine tuning of “rules”.

Disclosure requirements are beneficial for investment worthy franchisors. They actually help sell franchises. Disclosure requirements hurt fewer “bad” franchisors than people think, because the miscreants don’t make effective disclosure of the factors that make them bad investments, no matter what the rules say.

I have been involved in many cases where outside sales facilities were used by franchise companies prior to this new rule that disclosure about brokers is no longer critical. Those experiences have made me very cynical.

A Lawyer's Candid Discussion of Legal Challenges Franchise Operators Face

At the ABA Forum: A Discussion of Franchise Ownership in America with One of the Country's Premier Franchise Attorneys, Andy Selden

Reporter’s note: I sat down for a one-on-one interview with one Andrew Selden at the 30th Annual American Bar Association’s Forum on Franchising in Phoenix, Arizona. Selden was the chair of the ABA’s Forum on Franchising from 1985 – 1989. He is a shareholder of Briggs and Morgan, P.A., out of Minneapolis. To improve clarity and cohesiveness, my original interview has been supplemented with information from other articles and resources concerning Mr. Selden, which I then verified with him.

Having been involved in franchise litigation for over 37 years, Selden speaks candidly on the plight of franchisees, independent franchise associations, regulation and the new FTC franchise rules.

Don: As I have attended the Forum on Franchising workshops, I’ve noticed that the discussions overwhelmingly focus on franchisor perspectives. If a franchisee were here, I think they might be overwhelmed by how much thought is going into the franchisor side of the equation in contractual law and how little to the franchisee. Am I off base in what I'm seeing?

Mr. Selden: If the franchisee figures out that he as the little guy is represented by vastly outnumbered and overworked franchisee attorneys, then attending this forum would be helpful and instructional for him (or her). Think of the legal dimensions of franchising. The other side’s lawyers wrote the contracts. They wrote it unilaterally. They didn’t negotiate it. They probably won’t negotiate it, or not very much.

If It Does Not Have Feathers, Wings, Beak and Legs ...

International Franchise Law: Australian Courts Weigh-In On What Is A Franchise

MELBOURNE, Australia (Blue MauMau) - In today’s judgment in ACCC v Kyloe Pty Ltd [2007] FCA 1522, the Federal Court in Australia examined a drink machine distribution arrangement and concluded it did not fall within the definition of ‘franchise agreement’ in clause 4 of the Australian Franchising Code of Conduct (the Code). Clause 4 (below) provides a cumulative set of criteria that must be met before an agreement may be caught under the Code.

4 Meaning of franchise agreement
(1) A franchise agreement is an agreement:
(a) that takes the form, in whole or part, of any of the following:
(i) a written agreement;
(ii) an oral agreement;
(iii) an implied agreement; and

Franchise Regulation

Regulation History