Your quest for franchisee justice will lead you to a “white knight” lawyer who will betray you.

September 2, 2013

The franchise bar appears to 1st time user franchisees as fundamentally fair, adversarial and zero sumThat is a dangerous myth.

(c) Walker Art Gallery; Supplied by The Public Catalogue Foundation

The economic incentives for the “franchisee-friendly attorneys” are to give the pretence of a fair fight (definition: an attempt to make something that is not the case appear true OED) since your being sold-out can be easily explained. Franchisee stupidity and shortsightedness is the most cited, least reality-based reason given.

Answer:

Your franchisee attorney will defect on 100% of all large cases because the franchise industry is effectively a single-payer industry for legal services (franchisors: +95%). As in other human waste treatment systems, the franchise bar functions to let pass the little cases go to trial (to keep the payers fearful and motivated) but skims off the large chunks for the elite 2 firms.

Question:

Why would any franchisor pay out 100% of a massive claim to a group of franchisees for multi-year bad faith dealings when they could cut two cheques (1. their own lawyers and 2. your attorney) to manage the case to a “satisfactory conclusion”? Would 10 per cent of what franchisees are owed be a reasonably figure?

If you were a rational, profit-maximizing multi-decade career Big Franchising professional (who has their own very high sunk costs invested in the status quo industry practices and structure, btw), Wouldn’t YOU just keep your mouth shut, turn a blind eye and play along, too?

There are ways to deal with these perfectly explainable and rational, multiple-level credence good dangers but you may need to start serving legitimate authority instead of the posers that scatter when the light switch goes on the industry.

Sir Galahad:The Quest of the Holy Grail,  Arthur Hughes, 1870.


Les, you’ve been a disappointment.

May 15, 2013

An outstanding observation after 4 years of work with a franchisee association.

Vonnegut

Generally speaking, espionage offers each spy an opportunity to go crazy in a way he finds irresistible. Kurt Vonnegut Jr. 1922 – 2007


The franchisee is not to see where power lies, how it shapes policy, and for what ends.

April 28, 2013

Being sold out is the rule not the exception in all legal, consulting and association representation.

norm chomsky

Quote:

The public is not to see where power lies, how it shapes policy, and for what ends. Rather, people are to hate and fear one another.

Norm Chomsky 1928 -


Opportunity Knocks and Liars’ Loans: required reading to understand modern franchising

September 1, 2012

John Lorinc wrote the book on franchising from a franchisee’s investor viewpoint.

I’m glad to see it is still available to buy online and is in many Canadian libraries.

The hidden banking side is revealed in Chapter 4, The 90% Solution: Franchise Economics, some of which I excerpted in a WikidFranchise.org post.

What did the business press have to say about Lorinc’s work?:

  1. National PostOpportunity Knocks: The Truth about Canada’s Franchise Industry, is an impressively researched look at the myriad of franchises that mushroomed across the country in the past decade. An award-winning magazine journalist, Lorinc has produced an engaging account that charts both the spectacular successes of some franchisers and the utter failure of some franchisees. How franchises seduce those with the most to lose, Jennifer Lanthier, November 2, 1997
  2. Globe and Mail: At its worst, Lorinc says, franchising is a haven for the unscrupulous who prey on the unwary – typically recent immigrants willing to labour long hours in dreary businesses, unaware that those operations have little chance of prospering – using them as pawns in a shadowy real estate game. Rather than reflecting an insatiable consumer demand, he inquires acidly, is it possible that all those new doughnut shops may reflect a quiet understanding between landlords and franchisors that the best way to fill fallow commercial property is to sell franchises to credulous investors? Franchise book of interest to anyone who pays taxes, Ann Finlayson, November 1, 1997

Finlayson strikes a cautionary note, specifically about the hinted at misuse of the Canada Small Business Financing programCSBFP:

Does all this matter to you? Yes, it does. In 1993, in the wake of vigorous complaints by small-business owners that Canadian banks were reluctant to finance them, Ottawa raised the ceiling on loans guaranteed by the Small Business Loans Administration to $250,000 and its guarantee rate from 85 per cent to 90 per cent, sparking a bank lending rush to franchisees and shifting the risk of franchise investments onto taxpayers’ (your) shoulders.

The Risk: Only a fraction of the Liars’ Loans are ever claimed by the banks, thereby grossly understating Industry Canada’s default statistics (Franchised v. Non-Franchised loan performance). The franchisee thinks he signed a government-backed loan but it never gets registered as such. As their bankruptcy, loss of life savings, marital and family breakdown escalate over the life of their 12 to 18 month franchise career, the franchisee NEVER looks to Box 9 of the CSBFP loan application form (Projected Sales ) as the source of their trouble; where the lie is put into the “Liars’ Loan”. The proceeds of these engineered-to-fail loans is split upfront by the franchise banker with the bank, banker, franchisor and sales agent. If questioned, the bank shreds the paperwork and waits for the lawsuit.

And, seriously, how many of these Immigrants as prey losers could or would ever sue a Schedule 1 chartered bank?

The Return: Smashing quarterly earnings goals, record profits, high turnover in the small business division of each of the banks, and making franchise lending the most lucrative form of commercial lending in Canada. Private gain/public loss enabled by a criminogenic environment, moral hazard, regulatory capture…

Lorinc carefully mentions the “windfall profits” in this arrangement of churning:

What’s more, some banks and franchisors have put the SBLA program [predecessor government guaranteed loan program] to questionable use during foreclosure actions against franchisees, says one former owner who has been through the process. When a bank calls a loan against a non-performing franchisee, the 90% guarantee effectively relieves the bank’s receiver from trying to get the best possible value while disposing of the owner’s assets. With most of the loan covered by the Canadian taxpayer, the assets – fixtures, kitchen equipment, inventory, etc. – can be sold quickly at a deep discount, possibly below market value. This allows the franchisor too step in and buy back the property at better-than-firesale prices, thus generating windfall profit when the store is later re-sold to another franchisee.

An important work that, depressingly, is as relevant in 2012 as it was in 1995.

______

Disclosure: My lol pecuniary interest here and here. Cross posted on FranchiseBanker.ca.


The franchise bar works to reduce legal claims for franchisors

September 22, 2011

The 2nd Trap for the Trusting is sprung in the “franchisees’” attorney office.

Perfectly good franchisee claims are misdirected, thwarted and sabotaged if they raise disturbing questions.

Remember the hazards of credence good providers?

  • There is a defense against that defense.

[Monty Python, Meaning of Life]


Isn’t a resident 2nd opinion a waste of $ once you lawyer-up?

December 7, 2010

No: actually an independent business consultant is needed during legal action.

It is wise to avoid a franchise lawyer for at least a year (commercial, slander, etc. are fine). Lots of reasons but mostly groups need to mature and build trust before any professional can really help them. Leaders especially need a type of de-programming.

Franchisors understand one thing: power. In 2010, predators understand only actionable legal threats. There are therefore 2 stages: pre-first legal claim and post-first claim.

Pre-first Legal Claim: It takes 1 to 2 years and a one-time investment of $500,000 for a franchisee group to develop a susttainable independent franchisee association.

Only after that investment can you decide whether to sue your franchisor or not. No shortcuts: it takes time, experience and money. Most franchisees have never been in a group before and many choose to free ride on the dues paid by others. Frequently, only 10 to 15% of franchisees pay, while all of the benefits are distributed to 100% of the franchisees.

What happens most times is that the early professionals end up subsidizing the creation and early survival of the group. These are obligations or accounts receivable that consultants like me have accumulated over the years.

First Legal Claim: Once the legal card is played, the dynamics change. It has little to do with the honesty of the attorney: it’s just the way it is when their is such an imbalance of information between client and professional.

Every attorney is a credence good provider: their services are difficult to determine as far as quality and quantity are concerned.

Problem: The risk of low quality or excessive quantity of services is very real. Groups of franchisees are at the mercy of monop0ly legal service providers once the papers are filed (see The Price of Law: How the Market for Lawyers Distorts the Justice System).

The best solution is for the consultant to remain as a resident 2nd opinion during the life of the lawsuit.

What is fair compensation (accumulated A/R and ongoing services, who does what) should be determined in a transparent way before the writ flies. Not only is it fair to pay your obligations, it’ s being a long-term, shrewd businessperson.

Lawsuits should not be about franchisors paying out cents (now) and then clawing back $ (later).

The destruction of the independent franchisee association should not be an option on the table as settlement time happens. Its survival should not be acceptable under any terms.


Lawsuits are simply a sign that franchisees are maturing and choosing life

November 17, 2010

They’re learning to separate illusion from reality.

With proper protections in place, healthy people naturally choose reality (even when it hurts like hell) over fantasy, childish notions and denial.

It’s called being mentally healthy.

Other franchisees choose otherwise and get buried.

[Flavor Wire]


Want to Sue? Get an independent 2nd opinion

October 30, 2010

Wise in medicine. Critical in franchise law.

Independent consultants ensure their honesty from pre-trial evaluation (before 1st interview) to settlement.

Any CDN lawyer who can’t work with me is saying a lot about themselves.

Don’t trust in non-verifiable monopoly services.

TEST: How’s your one franchisor: one franchisee relationship working for you?


Do franchisee attorneys cheat at settlement time?

October 6, 2010

Attorneys provide services that economists classify as credence goods which are quite susceptible to fraud.

Franchisee attorneys sometimes act on their own self-interest because only the elites know the game and they mostly keep their mouths shut. After the confidentiality agreements are signed, there is very little danger of client complaints.

Here is one perspective on the U.S. Quiznos class action lawsuit settlement process that resonates.

If you were a conspiracy theorist, might you suspect something like…..

The lawyers for both sides colluded to end the case in a manner that got the franchisees nothing; cost the franchisor nothing other than its legal fees (because the debt written off was worthless anyway); the “benefits” to the franchisees are illusory and valuless; the judge would sign off on anything just to clear the case from his docket so long as he had some/any piece of paper in the record saying that the franchisees were getting real value; and they found a valuation “expert” with a degree in alchemy.

NAH! THEY WOULDN’T DO THAT.WOULD THEY?

Richard Solomon has over 40 years of franchise law experience in the United States and his Franchise Remedies site is an important resource.


Go ahead and choose your executioner: call a franchise expert

February 2, 2010

Rules of franchise groups:

1. A dead association is worth more than an alive one.

2. The owner of the logo pays someone else if they cannot execute themselves. The hooded one is either the charming outsider or the loud insider.

3. Franchise lawyering insists on a quick kill rather than a future, recurring cash flow/life cycle.

4. As an association executive, you’ll go along with the game or become a defendant.

5. A token truth added, infinitely strengthens the Big Lie.

6. 99.5% of visible U.S. independent franchisee associations are Potemkin villages (valuable to the status quo as franchisee false hope, example: FranchiseeAssociationManagement.com).

7. Leaders act as a doctor would because franchisees are in a type of daydream. Democracy is a noble concept but achievable only when debtors break their chains.

8. There is a narrow path but it requires patience, self-reliance, trust and one franchisee.

Call for a meeting.


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