Franchising Needs Better Government Regulation

Discussion of legislation and political advocacy regarding franchising.

GOOD POINT, DALE

I think that if any intelligent folks come in here they will be somewhat put off by people who claimed in their applications to buy a franchise that they were people of education and business experience, made poor choices because they did things (like due diligence) that they hadn't the slightest idea how to do, committed investment suicide - - AND NOW --- whine and cry because they now claim they are in truth just a bunch of morons of whom evil businesspeople take unfair advantage.

When folks come in here, I think they have the notion that if you sign contracts you intend to be bound by the terms of the contracts. Hey - that's what they teach in business admin 101. But the folks whining their iddy biddy hearts out in here claim that it's unfair (whatever that means) for anyone to assume that they do intend to be bound to agreements they sign.

I suppose it is really rude of me to suggest that we get on with discussing things that are real, so that visitors to this site can get something of value by having meaningful discussions with people here who know what they are talking about and are willing to point folks in positive and helpful directions.

Why don't Richard/Debby come back when their little tempest is done and tell us how well/badly they did. In the interim, it would be nice to hear a lot less whining from people who sign anything with no clue about what they are doing, and people who sign contracts with covenants not to compete in them and then whine about the contract clauses being insisted upon by the opposite parties to the agreement. Get a lawyer - take your case to a court or arbitrator - then come back and tell us the result. We really don't need the songs and dances.

SAVE THE DRAMA FO YO MAMA!

  

Richard Solomonwww.FranchiseRemedies.com

Posted by RichardSolomon on July 7th, 2007

Death by Government -----The Onion ---Opinion--Patriot Express

Thanks, Dale, for providing me with that wonderful quote from the Onion Article: You are so kind to make my point for me. I quote:

"the consumer vigilance foregone owing to the false sense of security the promise of government protection induces."

Why is it that the Minister of Industry of the United Kingdom realizes this and the UK does not regulate franchising, and the USA does.

It must be that this was a deliberate subsidy of the franchise industrial complex that was disguised as government protection of prospective buyers of franchises.

This special treatment, THE PATRIOT EXPRESS LOAN, of course, presents an even stronger appearance of government protection to Veterans and their families who will become victims of the failure to reveal the true and real failure rate of the business opportunity being sold to them, by either the government regulators or the franchisors.

UGLY PUBLIC POLICY! To put those at risk and to sacrifice those who have already sacrificed so much for the policies of their country. A leg or an arm isn't enough, now they should put their houses at risk as colateral to get these SBA Loans that are available on vehicles for fraud that are registered on the SBA Registry.

How can you defend the indefensible?

on July 7th, 2007

No Solution to DD problem is Good Solution for ZORS

Obviously, Paul! The fact that there has been NO solution to the lack of or easy access to killer due diligence by millions of franchisees, this has been good for the franchise industry that grows to greater importance in our economy every day.

What is your solution?

on February 19th, 2008

No Solution to DD problem is Good Solution for ZORS

Obviously, Paul! The fact that there has been NO solution to the lack of or easy access to killer due diligence by millions of franchisees, this has been good for the franchise industry that grows to greater importance in our economy every day.

What is your solution?

on February 19th, 2008

STUPID CHILDREN

When I was a little kid, some free enterprise criminal talked me into eating Merita Bread because, so he said, The Lone Ranger ate it.

By the time I was 30, I could figure out that the Lone ranger ate fried chicken, drank beer and chased women.

Richard Solomonwww.FranchiseRemedies.com

Posted by RichardSolomon on July 7th, 2007

Private Cause of Action

Paul, I disagree with your conclusion that "this odd fixation that people have on the Franchise Rule as the be-all-end-all is too narrow a view."

More importantly, I am willing to make a wager on the matter: in the next seven years, we  will see more franchisee friendly decisions in Ontario - decisions that for procedural reasons would not be arrived at in the US.

Ontario has, what I call, a superplus FTC Rule - a private cause of action, an enumerated list of mandatory disclosures, and a basket clause requiring the disclosure of all material facts.

In my opinion, this is the minimum regulatory regieme that is needed to prevent franchise fraud.  And if I am right, then you can indeed "Blame it on Canada".

Michael Webster PhD LLB

Misleading Advertising Law

Posted by michael webster on May 17th, 2007

Juan

Juan:

No Stalking Here!  Just an innocent discovery of fact, which in hindsight was better left known than stated!

Believe & Succeed,DaleFranSynergy, Inc.Synergizing Franchising!

Posted by FranSynergy on March 27th, 2007

Unanswered allegation

Juan,You ask a very good question. I read on Hugh MacLeod's gapingvoid today about a very well-known blogger Kathy Sierra who canceled all her public exposure because of death threats and intimidation.I'd hate to see this  happen within the Blue Maumau community but see no logical barriers to it.Any suggestions?Les Stewart, MBAIndustry Investment AnalystFranchiseFool.com :: the Wise learn to say No

Posted by Les Stewart on March 27th, 2007

Regulators Read?

Hell, if they could read, they could get real jobs.

Hell the first page of every UFOC states

"TO PROTECT YOU, WE'VE REQUIRED YOUR FRANCHISOR TO GIVE YOU THIS INFORMATION.
WE HAVEN'T CHECKED IT, AND DON'T KNOW IF IT'S CORRECT.

While I agree that the FTC should do more to protect prospective franchisees, they
simply do not. I wrote the FTC a letter about concerns with the UPS franchisee ammendment offered in March 2003 with a deadline of March 21, 2003. Four years later they have not even acknowledged my letter.

I do think a company that franchises should be held accountable for willfully
giving incomplete or misleading information especially with the propensity of the franchisors asking the victims to take a leap of faith.

on July 7th, 2007

Summary: The Limits of Disclosure and Beyond

Correct me, please if I am misstating the important dialogue (TIF * 20ish) and Michael's commentary:

1. TIF is behaving rationally: entirely within the law and representing his shareholders' interests in a highly professional.

2. The potential franchisee is getting an accurate view but perhaps with only (maybe 10%?), of the photograph being visible.

3. The solution seems to be to reveal more via "more" or "better" due diligence (advisers, talking to ees, etc). If we work harder, we will solve many of the problems.

Time and Opportunism
The Rub is: When we add TIME (ie. one party can change the risk profile via opportunism)...

* ...doesn't that defeat ALL the gains made by improving pre-sale investigations? Aren't we only re-allocating future problems?

It seems to me that all roads lead back to in-relationship overreaching.

Doing "more" type of same style of disclosing is the definition of insanity (eg. doing the same thing over and over again while expecting a different result), isn't it?

I think we can do smarter work than that.

REPUTATION: Rewarding Sustainable Behavior
Behavior is caused, in this life (mostly). If you want "better" (higher quality, sustainable) action, reward the best and ignore the rest.

If you want to KEEP high quality, report back to the source of capital accurately, quickly and afford ably.

The present situation penalizes (lowers ROI) the best operators like TIF while allowing the other offerings to have an economically "unjustified" higher return.

The Solution?
I believe privately-run but publicly-supported expert software systems (ie. reputation, decision making models) can best deliver these quality improvements.

The government and financial institutions have a smaller but important role to play. They should insist on measurement tools and certificates of legal advice or no contract exists.

This capability needs a good home and needs to be taken care of by a party that has a longer term perspective and a level of widespread credibility.

Sustainability is the only issue: More information does not trump confusion.

Les Stewart

on February 5th, 2008

Never Fear.....Tinker's Here

Just wanted to let everyone know all's well in TinkerLand and peace has once again returned to the kingdom.

But seriously, although such tactics are something to be taken seriously, I don't believe there's any call for alarm.  However, I do want to thank those that voiced concern.  I stopped posting yesterday to allow myself a cooling off period as well as out of respect for our host here at Blue MauMau. You all can probably guess that I'll continue to voice my opinion like everyone else, however I hope we can all try to be more considerate of our host's hospitality.

Posted by Tinker on March 28th, 2007

Franchise lawyers

DD writes: That lawyer should of advised us to go to a franchise lawyer.

In fairness, I must say that I have dealt with many attorneys who were involved in their first franchise-related transaction and those attorneys did take the time to educate themselves and do a good job. I have also dealt with a few attorneys who have done so many franchise transactions that they don't pay attention to what they are doing anymore, and don't keep up with changes in contract and ADR law, let alone franchise-specific law.

And I would also note that many prospects don't want to hear bad news (from their lawyer, CPA, banker, or spouse). As I always say, the job of professional advisors is to tell you all the horrible things that can go wrong and how to minimize the risks. You don't go to those advisors expecting Tony Robbins, any more than you go to Tony Robbins expecting discourse on the dangers of walking on hot coals. As Solomon's rabbi says, to everything there is a season...

on February 20th, 2008

Quote from Spencer for Bubba Sparky from Ranter

The following is the quote by Elizabeth C. Spencer, Assistant Professor of Law, Bond University Faculty of Law, Gold Coast QLD 4229, Australia, 7 September 2006, page 10:

"It is interesting to note the point of view of the American Association of Franchisees and Dealers(AAFD); its chairman has alleged that disclosure was originally intended to protect the industry and not the consumer. His claim is that mandated disclosure was negotiated by franchisors to avoid accusations of fraud, and that the Federal Trade Commission agreed to allow franchisors to povide a disclosure statement to distance themselves from their oral representations. 20"

on September 22nd, 2007

Lessons learned from Quiznos-Bray Lawsuit

This comment has been moved here.

on February 21st, 2008

Bankruptcy --Rescission ---and the Coffee Beanery Case MD

The Coffee Beanery injustice possible under Maryland law and the federal regulatory policy demonstrates that Corporate Power. who have Fifth Amendment Rights, can use the tool of rescission to escape full restitution to those who have been injured by the fraud of misrepresentation in the process of selling a franchise.

Apparently, a long lost Supreme Court Case "Fong Foo" protects corporations against double jeopardy and this is why the rescission that is negotiated by the State for substantive violations of the UFOC is the only bite out of the ZOR apple permitted by government. ZORS can't be punished twice by the State for the same offense. It appears, however, that the State wants to preserve its right to punish the ZOR in order to preserve the ZOR.

However, increasingly, individuals with little power are being subjected to government-corporate-judicial alliances that do subject citizens to double jeopardy for the same offense.

The quest for justice in the CB Case is not a disparate demand that should be ignored. Economic justice in democracy is a goal of our democracy that stands on the premise that its government is of the people, by the people, and for the people.

on February 21st, 2008

I ridicule you, you ridiculous Item 20 Ranter

Foolish, still unsubstantiated, unfounded and specious drivel posted again by the Item 20 Ranter.

The Truth shall set you free!!!

TIF

P.S. What about your five franchise picks worthy of consideration by franchise buyers?

Posted by Truth in Franchising on September 23rd, 2007

JD Nonsense ---He likes the status quo

Just nonsense, JD. The store ID Numbers, only, could be used. Don't tell me that you believe that the franchisors don't keep track of their stores by numbers and don't know the purchase price and the selling price of these stores.

You confirm by your posts that the Item 20 references of EX-ZEES aren't an effective means of doing due diligence on the risk of the investment and are really, together with the FA's, just an artifice to protect the ZORS from any suits concerning false inducement to contract while hiding the statistical risk of success or failure from franchisee investors. There is really no effective means of doing due diligence on the risk with the UFOC even if you interviewed each and every ex-franchisee who transferred and who terminated. The UFOC protects the ZORS by transferring all of the legal responsibility for determining the risk to the ZEES who cannot then prove in arbitration or in the courts that their damages are proximate to the hiding of the risk by the ZORS.

Franchisees DON'T have any recourse or recovery rights for the incomplete or inaccurate disclolsure of important information under the law because the UFOC doesn't require the ZORS to make complete disclosure in the UFOC's of the risk of success or failure as reflected by the success or failure of first-generation franchisees. The franchisors are never guilty of criminal behavior.

This is a travesty of justice and disgusting public policy. Are you a fascist, JD, and this is why you defend the right of the big interests to steal from the naive and inexperienced franchise investors to "prove" their so-called "proven plans." The ten and fifteen year contracts and the personal guarantees on leases are a premeditated and malicious contemplation by the ZOR of cheaply acquiring the assets of franchisees in failure, and for silencing ZEES who fade away into obscurity or bankruptcy.

Are you sure you aren't a paid agent of those who want to prevent new purchasers of franchises from knowing the true and actual statistical risk of success or failure as reflected by the SUCCESS or FAILURE of first generation franchisees?

Under SEC rules, these statistics would have to be disclosed.

Why aren't you and TIF out here recommending the Dwyer Group Franchises as an example of highly successful vehicles for investment for our veterans under the Patriot Express Loan Initiative. You have the opportunity to disprove all of my statements but you always want to indicate to the readers that it would be impossible for franchisors to disclose the failure and success rate of their first-generation franchisees.

This worries me!

on September 5th, 2007

Does it meant that...

FTC regulates franchises as well as the SEC regulates stock offerings?

Posted by Truth in Franchising on September 5th, 2007

When a lull in posting occurs we can count on the Item 20 Ranter

Your rhetoric is bankrupt, unimaginative and pointless. 

The advent of the new FTC Rule is for all practical purposes a non-event. Due diligence and carefull consideration are still de rigeur.

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on January 6th, 2008

FTC Is The SEC of Franchising?

Cool. So I can get me a copy of audited financials through the FTC's equivalent of the SEC's EDGAR, right? Show me the link to the filings. I want to start downloading hundreds to track profits by industry.

I'm hungry for information. HUNGRY...

on September 5th, 2007

Forbes in Ten Reasons NOT to buy a franchise Warns

Forbes warns that lack of legal recourse for franchisees and shameful neglect of FTC who investigates only 6% of the complaints that they get doesn't bode well for franchisees who can't defeat contract terms, etc...

The regulatory scheme is demonstrated by the fact that the Rule only provides that violations of the Rule can incur federal sanctions but provides no private right of action for violation of the rule.

Apparently, the failure rate or the success rate of the franchise being offered for sale is of no interest to the FTC or the SBA or the State Regulators as long as the franchisors are in compliance with disclosure under the provisions of the Rule and the state UFOC's.

The courts, therefore, are only charged with interpreting the contract terms and not involved in determining whether or not the contract was falsely induced, etc.. or whether or not the franchise is a dud.

on November 6th, 2007

I don't understand Mr. BMM

What was wrong with my post. I was simply trying to explain how due diligence is a big part of my life. What was wrong?

on February 22nd, 2008

Paul stop trying to confuse Do with your logic...

i don't think it is fair of you to punish Do with all those pesky little realities.

on March 29th, 2008

Thanks

Paul.

on March 29th, 2008

Paul

You are a genious. Thanks for all you do for all of us newby's on BMM. Are you really an attorney and a Subway Franchisee? Do you help us newby's review our franchisee contracts. The attorney I talked to last week wanted $1,500.00 just to review it! I thought most of the agreements were pretty much the same. I like Submarina and I like their system. The franchisees say they are happys. #1500.00 to read a contract seems crazy. Thanks again.

on March 29th, 2008

Thank you Item 20 Guy!

You saved me from investing in a franchise. Now that I know that the true risks are not being disclosed I will keep my job instead of starting a franchise. I could hardly stand to read some of your messages about all the frnachise compannies out there that churn poor misbegotten unvestors.

You are doing God's work and I will pray for you.

God Bless you kind sir!

Ariel

on September 6th, 2007

So True!!!

I know many former zee's that are in desperation. The truth they feel like they got scammed. Because the government is allowing this to happen they have no hope. Life goes on allowing the bad zors to lie to the zee's. At first they are on a high about opening and having their own business. (Which is another lie!!) All the zor's have to say it is your fault you didn't do you due diligence. It doesn't matter the bad zor gave them a pack a lies. It is always the zee's fault. Right????

on February 7th, 2008

Buzz Off Item 20 Ranter

All the franchisees on that top ten list above must have sold product at a loss and made it up on volume.

You sir are a supreme idiot. 

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 9th, 2007

Flawed Model, Sweeping Statements

"It is the millions of individual little business men.. who produce the great profits for those higher in the chain." - Guest 

Your statements are a little too sweeping and not necessarily true. The big guys do not necessarily have a lower chain of owners - unless you are referring to managers as little business men.

on November 9th, 2007

Item 20 Ranter continues to avoid anwering questions

What is your background in franchising that qualifies your experience?

Were you or were you not a failed UPS Store franchisee?

The Truth shall set you free.

TIF 

Posted by Truth in Franchising on September 8th, 2007

Were you friends with the janitor in high school Item 20 Stooge

I think I remember you? 

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 9th, 2007

Everyone should want contracts to be enforceable and reliable

I know I do. 

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 10th, 2007

Is Z-Rube the general of the moron army?

I think it can be none other!

on August 24th, 2007

PUNCHING PEOPLE - A CIVIL WRONG?

Geez! Paul. Since when is punching folks wrong? Where do you live, anyway? How about the long standing common law doctrine "He needed to be punched"! Don't tell us you aint never punched nobody. 

Richard Solomonwww.FranchiseRemedies.com

Posted by RichardSolomon on July 2nd, 2007

Wrong again Item 20 Ranter

Your statement below is not true! There are franchisors that own and operate units. You need to stop lying Item 20 Ranter. 

"the franchisor has no ownership in the physical units that wear the brand name,"

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 13th, 2007

I disagree with your foolish premise

Your quote below is specious and lacks basis. 

"But, we, perhaps, introduced an exploitive and immoral business practice that can be improved upon. It is obvious that under our regulatory policy, our government has assisted the franchisors in their abuses because they have not required the franchisors to disclose past performance statistics on the franchises that are sold to the public. Our government has assisted the franchisors in obscuring the risk of the investment and the government UFOC is not an efficient disclosure document but rather a red herring that obscures the risk and protects the franchisors 100% from any charges of fraudulent inducement to contract once the franchisee puts his/her signature to the contract."

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 14th, 2007

Les, I agree that there are plenty of weak franchise investments

But Les tell me what concepts do you think are strong franchise investments?

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on January 19th, 2008

Truth in Advertising and the Law

Paul Steinberg's comments, above, indicate clearly that there is NO TRUTH IN ADVERTISING required from franchises because they can lie, and hype, and puff and fluff, to their heart's content and all of the lies and hype can be disclaimed in the government disclosure document and the contract the franchisee is brought to sign because he thinks there is some government oversight of franchising and that the contract can't be negotiated.

The franchisors know this and this emboldens them. The FTC controls the advertising on the Internet and they have declared open season, with the changes to the rule, on the public who will be induced into purchasing bad investmernt vehicles directly from the inducers out on the Internet. Franchisors are the only business men/women in the country who are not held accountable to Truth in Advertising Laws and who can misrepresent and mislead as much as they want to as long as they get the signature of the innocent franchisee on the binding contract.

The FTC has a lot of nerve to call a franchise an investment and to pretend that they are regulating the investment in the interests of the franchisees. The UFOC or FDD is really just a malicious legal trap that leads innocents into bad relationships with predator franchisors, and that provides cheap labor and cheap venture capital for franchisors to try and prove their concepts -- over and over again.

The government ought to do their "due diligence" investigations on the franchisors and clean up franchising in the interests of representative democracy and the American Public and American business.

Government understands that the naive franchisee depends upon the integrity of their government and relies on their government to protect them.

I think Paul Steinberg is wrong! The inexperienced potential franchisee doesn't understand the implications of the "no reliance" clauses and relies on the visibility of the franchise in the FDD and the community, and the knowledge that all of these "standing" brand units have signed the same franchise agreement.

The FDD is, in my opinion, just a red herring that permits the "risk factor" of failed and successful first-owners to be ignored and not disclosed. Item 19 and 20 were a DEAL made with the IFA by the FTC.

What is the purpose of the FDD if not to protect the potential franchisee from purchasing as pig in a poke? Obviously, the purpose of the FDD is to permit franchisors to sell franchises at any rate of failure of first-owners to the unsuspecting public to reduce THEIR RISK and to maximise THEIR profits by growing chains rapidly with the resources of franchisees instead of the resources of corporate.

on April 1st, 2008

Government regulations have nothing to do with franchising?

In the topic posted by Nick, he indicates he is willing to talk about the new rule for "sellers of franchises" and how does one talk about franchising without talking about the lack of effective retgulation that makes franchising such a bad choice for so many franchisees?

How can you have an inviting "Round Table" when you start with the premise that there is nothing wrong with government regulation?
When you start with the premise that there is nothing wrong with government regulation, you are just applying bandaids and ignoring the deep and infected wounds of those who are injured by franchising and destroyed financially and emotionally.

What is Nick selling? Happiness?

on September 26th, 2007

Dale Cantone and SBA Franchise Registry --Rescission

Apparently, as long as a franchisor is on the SBA Franchise Registry, no matter how great the failure rate of first-generation franchisees may be, the State and Federal Government policy will work NOT to endanger that franchisor when DLA Piper represents the franchisor. DLA Piper and a few other large law firms together with the IFA and the FTC have developed the policy surrounding franchising.

This may be because if Coffee Beanery franchisees, D&R and the other franchisee, were offered both Rescission and a Private Right of Action in Maryland, it could have destroyed the CB network because this would have set a precedent for actions in other states where CB violated the UFOC and who have a private right of action for franchisees under State Statutes.

The status quo and federal policy developed by the rule and the law surrounding franchising is to ensure the survival of the franchisor who feeds the economy, even when franchisees fail. In my opinion, it is obvious that there is cooperation by the government, the FTC, the IFA, and the business media to obscure the very high risk of investment and the low ROI in franchised business opportunities.

If, of course, Coffee Beanery had been required to disclose the failure rate of the Cafe Concept under law, nobody would invest in this concept. It is, apparently, because the failure or the success rate of the first-generation franchisees, who provide the capital and the labor to build the physical units, is not required to be disclosed under law, and in the UFOC, that Maryland allowed CB to ammend their UFOC and to continue to sell franchises in Maryland. Is CB compliant with the Maryland UFOC today and is CB still on the SBA Franchise Registry and qualified for a "quickie" loan and a Patriot Express Loan to VETS, Active Duty, Reserve and National Guard, or their families? Quiznos, The UPS Store, CSC, Sona and others with very high failure rates of first-generation franchisees are on The SBA Franchise Registry.

Apparently, no matter how small the success rate or no matter how high the failure of the franchised concept may be, as long as the franchisor is compliant with disclosure under the Federal Rule and the State UFOC, they are allowed to sell their concept to innocents. You can understand that the ALE (Alternative Law Enforcement Program) is another effort to protect franchisors from network destruction because of violations of the Rule or the State UFOC.

The government and the franchisors cover themselves legally with the FA's and the UFOC's that tell franchisees there is risk and no guarantee of success and provide prospective franchisees with Item 20 references that are supposed to be the means for Zees to conduct due diligence to assess the risk. The real and actual risk that is demonstrated by the failure/success of first-generation franchisees in the Network is obscured in the Item 20 columns, and not required to be disclosed by the franchisor under law to either the prospective franchisees or the regulators. Inexperienced investors translate the transfers as being successful sales of the franchise.

The SBA Default List on franchise loans is not a public document easily available to prospective franchisees. Any damages that franchisees may suffer due to purchasing a very high-risk franchise can be found as proximate to their not doing due diligence with the Item 20 information and the damages are therefore not proximate to the flawed busines plan with the high failure rate of first-generation franchisees. Franchisees invest after being told in the FA and the UFOC that there is RISK and no GUARANTEES and it is the franchisees failure to do their due diligence on Item 20 that permits arbiters and judges to find that their damages are not proximate to any failure of the franchisor to comply with the terms of the binding contract and the UFOC.

If this were an ethical and moral free-market capitalistic practice, the actual failue rate or success rate of first-generation franchisees would have to be clearly disclosed by the franchisors under the law as material to the risk. The FTC was given the mandate by Congress to develop a Rule that would permit the prospective franchisees to assess the risk. Apparently, the IFA convinced the FTC that they needed the DEAL of Item 20 Transfer Columns to continue the sale of franchises to stimulate the economy and to give government deniability as to the real failure rate of first-generation franchisees.

If ZORS had to disclose the failure rate of their first-genertion franchisees under law, we wouldn't have the thousands and thousands of franchisees investing in franchise networks with very high rates of failure of first-generation franchisees and market forces would work only to support those franchisors with good franchises with viable business concepts and low rates of failure of first-generation franchisees. Franchisees would risk their houses and their 401's and their 403's while KNOWING the true odds, the true risk of their success or failure with the "proven" franchised concept.

This is ugly policy and a status quo that can only be investigated and changed by The Congress of the United States who could require the FTC to require the franchisors to indicate the reasons for the termination and the transfers in the UFOC's through amendment of the Rule. Or, as our PhD has suggested, the ZORS could indicate the purchase price and the sale price by store number, etc...and this would provide a true picture of the risk of the investment and the possibility of a return on the investment.

on September 12th, 2007

FranData has new tool for franchisors and franchisees! Wow!

FranData has a new tool that they indicate will help both the franchisor and the franchisee. Finally, they are going to provide some real help for prospective franchisees, I think.

Now that the UFOC is going to be named the FDD, maybe this means that franchisors are going to be pushed into disclosing past and present performance statistics in terms of the individual units who compose their networks and "franchise disclosure" won't be an oxymoron.

I'm not sure whether or not the Unit Performance Data will be a voluntary action of the Franchisor but those who would not agree to provide the information for the Unit Performance Data to Fran Data would then stick out like sore thunbs.

Why don't the experts on Blue Mau Mau get out here and talk about this?

on November 16th, 2007

Dale Cantone ---CB and Stretch Grow ------Policy! Maryland

You can see by reading the Rescission and Consent Decree, etc.. that it is the same kind of rescission that was offered to CB franchisees, EXCEPT that THIS RESCISSION made Stretch Grow indicate that the Rescission was only an Administrative Action and that the franchisee did not give up their rights to a private action under Maryland Law. This Rescission, again, would not make those who set up new stores for Stretch Grow whole because they would merely get the franchise fee and the inventory, etc... as damages, and not the return of the money for the tangible assets and buildouts, etc.. that were necessary to set up the franchise.

They would, of course, like the CB franchisees, be free when accepting a Rescission to de-identify from the franchisor and to control their own tangible assets, maybe? depending on their ability to maintain their lease. They could terminate without being asked for liquidated damages under rescission. The costs of de-identification are bourne by the franchise and even with the Rescission, most franchisees could and would be thrown into bankruptcy because the Rescission would not protect them from their creditors. I'm sure, under Rescission, they can compete with their assets if this is feasible, and they can save themselves from bankruptcy.

When franchisees reject a rescission, they are returned to their original position under contract with the franchisor, and forced into arbitration.

In my opinion, The franchisor for Stretch Grow knew of course that if the franchisees didn't accept the Rescission that the arbitration terms in the contract, the binding Franchise Agreement, would then become controlling and that the violations of the UFOC, that the State indicated could be cured by going to school, would or could be found NOT to be proximate to any additional damages beyond what was offered in rescission, because the franchisees didn't due diligence and the ZOR has not violated any of the terms of the Franchise Agreement. The State of Maryland doesn't care that Stretch Grow may be an unviable concept and only cares that this franchisor be compliant with MD's UFOC and the federal rule. If franchisees buy failing of failed franchise concepts, it it their responsibility and not the responsibility of the state because the state has given ZEES the information on which to conduct their due diligence.

It is kind of a legal trap. If, after arbitrations, where the arbiter has ruled that the Franchisor hasn't violated substantive law or provisions of the franchise agreement that are proximate to the ZEES damages, how will franchisees financially support litigation under the State Franchise Laws? And, how will they do with the court when both a federal arbiter and a federal judge have already ruled against them? Will attorneys take the State Case on contingency with the hope that they can convince a jury, under the rule of caselaw/contract law, that their clients were damaged because of fraud? I think that it is federal/state policy that there be only one bite out of the apple and that a second bite is very doubtful.

We hope the CB Mess and Dale Cantone, when brought to the attention of the Senate Judiciary Committee, will spur the Senate Judiciary Committee to do their duty under the Constitution of the US and work to see that franchising is regulated as well as securities are regulated by the SEC, and that franchisees are given the equal protection of our laws.

The original sin of permitting franchisors to obscure the failure rate of first-generation franchisees in the transfer columns of the UFOC's may have a price? The truth is hard to contain!

on September 12th, 2007

Fairness Arbitration Act---How will it help franchisees?

I assume the above is from D or R from Coffee Beanery and that you are hoping that this Bill will somehow clean up franchising in some way that will prevent others from going through what you have gone through.

I hope this is true. But, can you tell us what this fairness in Arbitration Act Bill will do for the franchisee. Will this mean, if theis Bill is passed into law, that franchisees could determine whether or not they wanted to go to court or arbitrate? Would franchisees have a choice and would the State Franchise Laws then be available to franchisees? Would franchisees then NOT be forced to arbitrate their contracts under franchise agreements and have access to the courts?

How will this bill work with Rescission, which is a tool of the State, when there are violations of the UFOC or the Rule that are considered either substantive or technical by the State AG's and Administrative personnel? Would franchisees then be able to accept rescissions and go directly to court if rhe rescissions didn't make them whole? Wouldn't a State Rescission be proof in itself that franchisees had been damaged and would juries be permitted to decide the extent of the damage? Would this then promote settlements out of the courts?

If franchisees continue to believe that the government UFOC's that accompany the written franchise agreements are not negotiable and if franchisees sign these franchise agreements that indicate that they have been told there are no guarantees of success and thus 100% risk of losing their investments, how will this help franchisees in the courts? That is, if there is no settlement, will franchisors still be protected by the franchise agreement in the courts?

Won't it still come down to "justifiable reliance" in the courts? Won't the UFOC and the franchise agreement continue to protect the franchisors who will continue to be permitted to sell their franchised concepts with no past performance history on which franchisees can conduct due diligence and at very high failure rates that are obscured from the public?

If you had understood the past history of the performance of the Coffee Beanery Cafe Units, would you have invested three quarters of a million dollars in a proven failure? Would the court then permit a jury to decide whether or not you relied on the UFOC and the ommissions and misrepresentations in the UFOC and to claim this is why you were misled into investing in a flawed business plan that damaged you?

Or, would the court indicate that under the law of contracts you agreed when you signed the contract that you did not rely on the UFOC; that you invested at 100% risk of failure; and that you were only justified in reliance on that which was clearly spelled out within the four corners of the contract to which you put your signature?

I think you really do not clearly understand that the UFOC and the signed franchise agreement together are a calculated means to protect the franchisors from claims of fraudulent inducement and not a means to divulge the risk or to protect franchisees from risky investments.

The FTC broke faith with you and me and thousands of other franchisees when they compromised with the IFA back in the late 70's to allow franchisors to sell their franchised conscepts withnout clearly disclosing the material risk of the investment as demonstrated by the success or failure of their first-generation franchisees (first owners) who would provide the capital and the labor to build the physical units thnt wear brand names.

It is federal policy to stand up the franchisors, even at the expense of franchisees, because it is the franchise networks who feed the economy asnd the fires of development in American communities.

Franchisees are KNOWN and CALCULATED sacrifices to the concept of the "greater good" and the status quo of the law protects the greater good. Predator franchisors are enabled by the state of the law to sacrifice first-generation franchisees as a management tool to build visibility and viability of their networks. If this were a moral and ethical free market practice, the past performance statistics in UFOC's would work to prevent bad franchisors from selling their product to the public and we would not have "high risk" franchises residing on the SBA Franchise Registry.

I have to disagree with your comment that the laws are okay and that they just have to be enforced. I think the UFOC needs to be improved upon and that Item 20 needs to clearly reveal the successes and failures of the transferors to enable prospective franchisees to perform effective and efficient due diligence. I think the FTC has to get out of bed with the IFA and protect the American Consumers of franchises and that franchise disclosre should be corrected to provide franchisees with the same degreee of protection that is provided by the SEC to unsophisticasted investors in securities.

on September 27th, 2007

It's only been a less than a month!!

I am not a negative person. I beleive in the power of positive thinking. In our case all the positive thinking and working with our customers didn't change the fact that our working capital was eaten up by the build out. I would of done a better job at negotiating with the landlord. I am all for people to be a sucess. I'm going through the process of loss. Why do the zors not explain the process of due diligence. If I were a zor I would. Because I know I wouldn't have anything to hide. It just seemed one bad thing happened after another. Doesn't everyone want to be happy? As soon as we get this monkey off our back we will settle in and be happy. I am on a mission to inform new zee's what this franchise world is about. The UFOC and due diligence. Most of all I have to inform them they are not buying their own business. It's the Zor's business.

on February 8th, 2008

Item 20 Ranter are you out yout mind?

This comment has been moved here.

Posted by Truth in Franchising on January 25th, 2008

Bull Scat ---FTC and SEC not in same line of work--For Sure!

You got that right, Nick Bibby. Of course, Richard Solomon is exactly right but both you and Richard know that many prospective franchisees view the long-winded UFOC as required government disclosure and protection, etc. for the franchisee. The government does say "TO PROTECT YOU....."

Those prospects who are buying into very visible franchises in our country often do not pay for expensive due diligence because the visibility together with the UFOC that they believe underlies a NON-negotiable contract lulls them into a false sense of security.

You and Richard know this and the FTC and the IFA know this and yet the DEAL of Item 20 continues and big networks are allowed to hide failures in the UFOC's and to sell unviable and flawed franchise opportunities to the public and maintain their "TOP" ratings in Entrepreneur.

The red herring of the UFOC diverts the attention of the buyer from the actual performance statistics of the franchise offering (that are not required to be disclosed under law) that might or might not be revealed by Item 20 references and the binding franchise agreements protect the thieves 100% in the courts --because they disclaim everything.

The FTC should get out of bed with the IFA and regulate franchising at least as well as securities are regulated by the SEC. The FTC Rule breaks faith with the American public and the FTC does not accomplish the purpose of the rule and permits franchisors to sell unviable products to the public.

on September 29th, 2007

Hey Item 20 Ranter! How about your top Five Franchise Favorites!

We are dying to know which five franchise concepts you think are worthy of prospective franchisees' consideration.

Are you finally going to man up or are you going to let everyone continue to think that you are full of contempt, bias and prejudice for ALL of franchising?

The Truth shall set your free!

TIF

Posted by Truth in Franchising on September 30th, 2007

Even Failed ZEES have happy days

Yes, we had happy days when we were dealing with the customers and anticipating that we would someday break even and get a pay check and those profits, etc..!

We enjoyed our contacts with the customers and hiring youg, good kids to work for us, and to know that they were getting pay checks from us that would help them.

But, as the months passed and grew into years and as we tried everything to try to bring in more sales, we realized, finally, that we had to face reality and get out.

It was only after the failure and the dealing with the hard and mean and dishonest (but legal?) tactics of the ZOR that I started to research franchising. Our ZOR has a famous and well respected brand name and I just couldn't believe that their ugly behavior toward us was part of American Business.

What I believe to be absolutely true has not made me happy. The truth is sometimes brutal but must be faced. Those who will not face it or talk about or debate my truth by countering it with their truth about all of my misconceptions are just protecting their innocence, perhaps.

Decent people have to try to protect their innocence because the malice that is enabled by ineffective regulation is truly something that decent people can't live with. Instead, they have to deny it while warning with books and essays and comments about due diligence and fraud and posts ---And, perhaps they, like the others, believe that the lack of effective regulation does serve the greater good.

on February 8th, 2008

ABA Forum is a diverse group of Zee and Zor attorneys

Carman (Item 20 Ranter) you were a single unit UPS Store failed franchisee having little or no valuable insight into franchising other than your own sad circumstance and to suggest that the ABA Forum on Franchising is all about perpetuating your wild franchsing conspiracy theory is absurd. 

You may have a new name but you are same old Item 20 Ranter with the same old tired and pathetic rhetoric.

The Truth Shall Set You Free!

TIF

Posted by Truth in Franchising on November 28th, 2007

SEC / 33 Act

JD wrote: So, the SEC doesn't read the company's filings prior to them being publicized either, just like the FTC doesn't read a UFOC

Based on my limited experience with IPOs a few years back, the SEC not only went over the red herring with a fine-toothed comb, but (while the SEC didn't publicly admit this) where the offering was of dubious value,  the SEC would just keep delaying and making the issuer jump thru hoops. So while it is true that as a legal matter the SEC did not pass on the merits of the offering, as a practical matter it was much easier to get a legit company thru the registration process than if you were pitching some scam.

I'm not suggesting that regulators should do the same with UFOCs, but it would be interesting to know which states (if any) give a harder time to franchises of questionable merit. 

on September 13th, 2007