Solicitor-client relationship: When does it start?

looselips1Congratulations.

You’re just finished your initial meeting with a franchise lawyer. You chose the baddest ass, most franchisee-friendly sob you could find. He was “kind” enough to give you 30 minutes of his time and you told him your whole story. The great man asked a few questions (actually a fair number about your net worth) but alas…unless you can rally another 9 other losers: Too bad, so sad; you’re shit out of luck.

Great bed side manner…regret to inform how weak the law is…best to put this all behind you (my most favouritest thought-terminating cliche).

You’ve just shot your mouth off to an industry insider that may very well use that information against your best interests. What?

I’ll explain with a real-life example.

1. Seven distributors walk into the most “pre-eminent” CDN franchisee lawyer’s office and tell him their story. His response: No case here go bankrupt. No if ands or buts: Do not pass Go…

2. The Group of Seven wants a second opinion. They call to me, I meet the group at their home and talk to a then-independent 2nd lawyer (just new into franchisiing but quite keen). We conclude: Excellent case. U.S. franchisor was too lazy to give disclosure documents after the Arthur Wishart Act (Franchise Disclosure) was passed in 2000. These are franchisees not distributors and therefore they can rescind their contract, dissolve their relationship and get their money back. Easy peasy.

  1. One set of case facts PLUS
  2. one Ontario law EQUALS
  3. 2 irreconcilably, diametrically opposed legal opinions?

How is this possible? Simple it has to do with duty and the timing of when a solicitor/client relationship is formed.

Fiduciary Duty: I am not a lawyer and the Upper Canada Law Society website wasn’t much help so here is a definition from the Canadian Encyclopedia.

The legal system recognizes a multitude of special relationships in which one party is required to look after the best interests of the other in an exemplary manner. These relationships, which include solicitor/client, physician/patient, priest/parishioner, parent/child, partner/partner, director/corporation and principle/agent, are called fiduciary relationships.

Fiduciary relationships entail trust and confidence and require that fiduciaries act honestly, in good faith, and strictly in the best interests of the beneficiaries of such relationships.

Solicitor/client Relationship: This relationship ONLY starts when you formally enter into a contract for legal services. The signs are when you cut the cheque for a retainer, sign an agreement, etc.

Anything that you say to a lawyer before you are his client (when you or the relationship is consummated) does not have this legal protection (ie. the information you provide can, and in franchising is, be used against your interests).

This is how an internationally known franchise lawyer can give you knowingly false advice at the first meeting:

There is no legal duty for him to do so because the solicitor/client relationship has NOT been created yet (before contract for legal services started).

But why turn away work? The franchisees were steered away from defending themselves because there were (and still are) literally hundreds of franchise systems in Ontario that are ignoring the Wishart Act. These are called accidental or unintentional franchises (true franchisors who don’t want to bother with some stupid provincial law) .

The first lawyer knew that by exposing the Group of Seven’s franchisor  in public (ie. in Superior Court) he would be very unpopular at the next franchisor-only national trade association golf tournament. (Please don’t tell anyone but this is why this organization [ie.] has an Ombudsman program [ie.]: To have you come in and be convinced you have no case. Skim off the biggest floaters. That’s why the banks are the biggest sponsors based on the theory that they have the most damaging facts to conceal, like, Predatory franchise lending.)

  • It would be bad form for the franchise law expert to showing the other 32,000 Ontario lawyers (the unwashed masses: 99.9% of the province’s lawyers who are not in the cabal) where the juicy billable hours are.
  • Let alone the risk of dozens of copy cat lawsuits against franchisors, banks, sales agents, lawyers, etc.
  • And the inconvenient lawsuit against the franchisor’s lawyer for contempt of a provincial law that he is, as an Officer of the Cour, duty-bound to respect (should have dropped his masquerading client if they refused to self-identify accurately).
  • This would not do when the franchise bar pays so lucratively when run as a credence good monopoly (see Winand Emons, Credence Goods: The Monopoly Case).

hermanngoeringWhen you hear these words together: You should use an expert franchise lawyer

…you should “reach for your gun

(Hermann Goering’s advice when you hear the word culture).

Yes you should trust your lawyer. But you should qualify him or her first. Trust but verify is a very good idea.

Since being a lawyer means having to survive in business to practice another day, you should determine where the vast bulk of his future earnings are coming from (franchisee, franchisor or non-franchised commercial law).

  • Based strictly on economics (95% of legal services paid for by franchisors and friends and credence good cheaters who are run as a monopoly), a franchise expert lawyer should be the last person a franchisee talks to.

I always say talk to a 60-year old regional commercial lawyer with his name on the building. Anyone else is more than likely to torpedo your perfectly watertight case.

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2 Responses to Solicitor-client relationship: When does it start?

  1. Carol Cross says:

    When attempts have been made by those who understand the injustice of franchise law to change the law concerning franchising in the US Congress, the big law firms of the ABA and other interests who make such an excellent living from franchising and franchise disputes always come forward with testimony to the Congress that indicates that prospective franchisees and franchise owners DO get a fair treatment under the law, and that NO CHANGES in the law are necessary.

    In testimony, the ABA BIG law firms always lean heavily on the fact that franchisees who complain are those who have not performed adequate “due diligence” and they tell the Congress that the franchisees have only themselves to blame. Caveat Emptor is the battle cry that covers the deceit embodied in the FTC Rule and the deceit that is apparent in the FTC’s published “purpose” of the promulgation of The Franchise Rule.

    Of course, there is no talk and no education of the US Congress about the constructive fraud of the FTC Rule/FDD and the boilerplate non-negotiable franchise agreement that comes in a package, and that tends to mislead and disarm even sophisticated investors in retail franchises. (This is why the Minister of Industry of the UK determine that the UK would NOT ESPECIALLY REGULATE FRANCHISING because this would lull buyers into a false sense of secutity.)

    In reality, the FTC Rule and the FDD, in my opinion, is a premeditated red herring to divert the attention of buyers of franchises from material risk factors that are known to the franchisors but that are not required to be disclosed to the buyers of retail franchise opportunities under the current status quo of the law. Risk factors such as failure of other first-generation franchise owners and unprofitability on a unit basis are not required to be disclosed to new buyers by the franchisor, the seller of the franchise, under the law. After almost thirty years of the Franchise Rule in the US, only a very small percentage of franchisors disclose any unit performance statistics whatsoever because they enjoy an option NOT to disclose any unit performance statistics.

    When the other special interests, i.e., the franchisors, of course, the banks and the lenders, the Landlords, the developers, and federal, state, and local governments join with the ABA, any legislation that may treat franchisees fairly is easily defeated. Only a very small percentage of franchisees survive failure/unprofitability, etc.. with the resources to fight in arbitration or the courts. Most failed franchisees fade away into obscurity and silence and those who survive cannot always match the financial resources of the franchisors who are favored by law, process and procedure

    There must, however, be at least an APPEARANCE (a facade) that franchisees can seek and receive justice in the US courts and in arbitration, and the ABA cooperates to provide this appearance of “equal treatment” under the law in arbitration and the courts.

    In reality, however, the federal regulatory policy that deems that franchisors and successful franchisees will be protected from failed franchisees (who have been fraudulently induced) for the “greater good” of lively commerce does rule the day. There is, of course, NO PRIVATE RIGHT OF ACTION for violation of the Federal Rule that does in reality and practice therefore protect only the franchisor and not the franchisee when the franchisee fails to thrive.

    The Federal Rule/FDD anticipates that franchisors cannot withstand successful prosecutions for fraudulent inducement in mediation or in the courts and the Federal Rule, by intent. generally removes franchisors from the purview of the common law fraud statutes of the states so that entire franchise systems will not be destroyed by franchisees who might win fraudulent inducement cases in state courts under state statutes.

    Did the Federal Rule anticipate that franchisors would be selling unviable franchises with high failure rates of first owners under cover of the FTC Rule? Did the Federal Rule anticipate that franchisors would “churn” first owners and builders of franchise units as a management strategy? Did the Federal Rule anticipate that the SBA would subsidize franchisors whose first generation owners would have high rates of failure?

    However, to provide an appearance that franchisees have access to the courts, etc.. and justice in arbitration, there must, of course, be a franchiSEE Bar that are recognized as experts and there must be some “stars” within the franchisee bar who receive greater notice and enjoy better reputations for favorable results for franchisees.

    This “dance” that the Bar engages in becomes necessary because, as indicated by Robert Purvin of the AAFD and author of “Franchise Fraud” franchising was regulated to provide a safe harbor for franchisors from charges of “fraudulent inducement/concealment, etc.” by franchisees who would fail to thrive and who would feel that they were fraudulently induced to contract because success and profits were promised and impled outside of the contract while the known risk of the investment, in terms of historical unit performance statistics, would not be required to be disclosed by the franchisor to the buyer before the binding, non-negitiable, boilerplate contract was signed by both parties. And, the franchise contracts themselves would routinely contain franchisor disclaimers that ANY success or profits were promised to the new buyers of the franchises. i.

    Apparently, the “powers that be” in Congress and in the Executive Branch feel that franchising cannot withstand true and complete disclosure of the risks involved, as revealed by unit historical performance statistics, to new buyers of franchises, or to the investors in the franchisors, because this would somewhat inhibit franchising in the economy and indirectly impact on franchisor “paper” that is sold or traded in our free markets.

    If you research the case law that is available, you will come to the opinion that, as Les Stewart says “franchisee litigation is like trying to revive a corpse” and is more often than not the second victimization of the franchisee.

    If you must dance with a franchise attorney, remember that you will always dance to music that is provided by the franchisor and played for the arbitrator or the judge who understands the public policy introduced by the FTC Rule and who will prefer always, if possible, to dance with the franchisor who is generally protected by the contract and public policy in arbitration and in the courts.

    Public policy deems that franchisees are merely expendable resources and sacrifices for the “greater good” of commerce and will have no recourse for failure to thrive unless there is a breach of the contract terms that can be proven to the arbitrator or the courts. Since franchisors promise nothing in their adhesory unbargained contracts, proving any kind of a breech is almost an art form.

    Franchisee attorneys must fight upstream against great odds with the hope that only one “oar of the law” will enable them to overcome the conflict of interest that is presented to arbitrators and courts because of public policy and captured regulatory policy that greatly favors franchisors.

    Do the arbitrators and the courts understand that the franchisors KNOW they have immunity and impunity under captured regulatory policy to indulge in fraudulent inducement and fraudulent concealment of material facts and other abusive practices and that they ABUSE this immunity routinely to enhance their bottom lines?

    I think they do! I think everyone understands the “dance” except those franchisees who have been tricked by false appearances into signing adhesory contracts that are meant to defeat them in arbitration and the courts.

    Like

  2. Carol Cross says:

    In 2007, when The Congress of the United States approved the new initiative of The Patriot Express Loan guarantee, did they have any concern or reservations abpit using the “troops and their families” to try to stimulate the economy in the coming recession?

    Does The Congress of the United States and the FTC believe that the troops and their families are “sophisticated” investors who, when they incorporate themselves, do not have to be given true disclosure of the risks of the investment they are making?

    The Patriot Express Loan guarantees were said to be for the purpose of honoring the veterans. Isn’t this disengenuous, just like the government’s explanation for the promulgation of the Franchise Rule in the late 70’s?

    Like

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