So Ontario, Canada is a worldwide franchise industry outcast? Okay then

August 11, 2010

Peter Dillon of Siskinds LLP is an expert in franchise law and a practicing franchise lawyer.

In this month’s  edition of Canadian Lawyer magazine an article entitled Ontario courts side with franchisees, Mr Dillon is quoted as believing:

…franchise law and its judicial interpretation by the courts of Ontario has created probably the most perilous jurisdiction in the world in which to conduct franchises,”

The Wishart Act and its appeal court justices have created the “most perilous jurisdiction in the world“?

Mr. Dillon is reported as having sent out this warning:

He concludes his memorandum by advising his franchisor clients that the courts have clearly demonstrated they are favouring the franchisees, which therefore “creates a high degree of risk and uncertainty that will put some franchisors out of business and will deter many others from commencing to do business through franchising.”

Taking it further, he’s quoted as having:

…spoken to many U.S.-based franchises “that want nothing to do with Ontario. In an era where franchising plays a large part in our retail economic engine, it’s a shame to have mechanics at work that seem bent on lowering the horsepower or spiking the engine altogether.”

These are not the first unsubstantiated claims made in rejection of even the most tepid legal franchisee protection provisions nor will they be the last.

Just simply the next new article I added to the WikiFranchise.org collection.


Trust in franchising? What a concept

April 23, 2010

Two people I trust in franchising.

I need to check in with the second next month although everyone has their role to play.

Resulted in the Arthur Wishart Act (Franchise Disclosure), 2000. Thanks to Bob Runciman who has gone onto his just reward.

BTW: This may be cryptic, but it is not unnecessarily so.

Some information requires care in transmitting and must be done in person. Words can hurt but iIf you don’t understand, that’s okay.

Trusting yourself enough to choose who to trust is 99% of the solution.


Sterns’ warning: Don’t do a half-assed job on disclosure reviews

April 9, 2010

Ontario’s 35,000 lawyers should consider themselves warned.This is not just outstanding peer-to-peer legal advice (which it is: both carrot and stick) but it’s also crucial information for all current Canadian franchise investors.

The benefit of collective franchisee action has never been more justified.

David Sterns of Toronto’s Sotos LLP writes in March’s Canadian Lawyer magazine an article called: Advising the purchaser of a franchise business.

Sterns’ bottom-line advice to lawyers? (especially general attorneys):

The harsh reality is that some franchises have a failure rate as high as or even higher than non-franchised businesses. When the franchised business fails, the results are often catastrophic for the franchisee. The legal advice provided by the reviewing lawyer will come under close scrutiny, particularly if the franchisee misses the rescission window because it was unaware of its rights…

Lawyers should allocate sufficient time and charge a sufficient fee to permit a proper document review and reporting to the client. Otherwise, they should decline the retainer.

Lots of implications for the general and franchise Ontario bar.

But, hey, huge importance for the 40,000 ON investors in a current franchise relationships who are organized. Disclosure requirements are not just for the entering but whenever a material change happens to the relationship (ie. during, at renewal: any time a material or “significant” franchisor decision is made).

Did you get proper disclosure documents the last time your franchisor decided to change the rules in the middle of the game?

These are the business risks I assigned and that appear in the WikiFranchise.org entry:

  1. Arthur Wishart Act (Franchise Disclosure), 2000, Canada,
  2. Buying an existing outlet even riskier than from scratch,
  3. Courts extremely picky about shoddy disclosure practices,
  4. Disclosure documents are deficient,
  5. Disclosure document: one, bound and delivered at the same time,
  6. Disclosure document certificate,
  7. Disclosure document must disclose all material facts,
  8. Disclosure document must include third party contracts (suppliers),
  9. Disclosure documents never given,
  10. Disclosure documents not given within proper timeframe,
  11. Duty of care,
  12. Franchise law being ignored,
  13. Independent businesses survive longer than franchised ones,
  14. Independent businesses much higher profit than franchised ones,
  15. Lawyer alert: advise only prospects with adequate legal due diligence budgets or risk being sued,
  16. Lawyers being threatened with lawsuits for speaking out,
  17. Material facts were not disclosed,
  18. Outstanding advice,
  19. Professional negligence,
  20. Refuses to take client,
  21. Rescission,
  22. Sue the lawyer,
  23. Unintentional or hidden franchises

This is an important article that I will visit again.


Ontario franchise law is +90% irrelevant

October 22, 2009

OntarioExisting laws are a result of a competition.

A competition of interests, normally between opposing groups.

Any statute exists because:

  1. some interest(s) wanted them,
  2. that group had the clout to push the political system to put it into place while
  3. defeating opposing views.

Franchisees face the combined strength of what I have defined as Big Franchising. The pathetic state of Canadian franchise law is the predictable result. Ontario, PEI, Alberta and (sort of) New Brunswick have specific franchise laws.

In Ontario, the relevant law is the Arthur Wishart Act (Franchise Disclosure), 2000.

I helped push for the first Ontario, starting in 1998. I was even an expert witness at the public hearings. The Wishart Act was sold to me as a “compromise” or as a “first step”. Those were lies and I believed them: then.

The Ontario government has refused to listen to repeated calls for improving the laws, from franchisees.

Privately, many MPPs know the score but Big Franchising blocks for their friends to the Premier.

The industry had a problem in the lat 90s: they couldn’t sell as many outlets because of very high profile nightmare cases such as Pizza Pizza or 3 for 1 Pizza and Wings.  They needed a fake law (McLaw: make-believe fairness) and they got it. The Ministry of Consumer’s reaction to  Country Style’s alleged dirty CCAA and the Grand & Toy mass terminations confirmed that.

99% of all abuse is never seen by Ontario judge (let alone a jury of citizens)

The high cost of litigation and the franchise bar’s “filtering process” sees to that.

The law needs to change to become relevant or be abolished.

Now.


Q: What will the grocers say to the politicians at the public hearings?

August 2, 2009

SecondOpinion

A: Whatever the fcuk I tell them to say.

This was my question to, and answer from, a Toronto, Canada lawyer before the hearings that lead up to the Arthur Wishart Act (Franchise Disclosure), 2000.

The real power behind established independent franchisee associations (IndFAs), is a handful of lawyers in North America.

All professionals will act so as to further and strengthen their current and future cash flows. This is not a huge insight.

But when the two objectives conflict (actually solving problems versus appearing to solve them) the professional’s needs are satisfied first because no one has the experience, knowledge or interest in challenging how the problem is framed.

Lawyers compel franchisees to deal with problems in the same way that denies the information/communication/internet revolution has ever happened. THINK: Would you want your doctor to treat you the same way the physicians did 100 years ago?

IndFAs never fulfill their potential because that would interfere with the dominant credence good providers’ interests (ie. the franchisee “Fixer” attorney). The credence good cheating problem is overcome by severing the attorney’s influence.

He is either allowed to do

  1. the diagnostic work (strategic planning) OR
  2. the proposed solution (actual litigation), BUT never both.

This helps to reduce the inherent conflict in being able to (1) frame the problem and (2) deliver the solution the the “problem”.

Any experienced IndFA executive knows that the lawyers have effectively captured almost all of the IndFAs. The litigation is a well-thought out puppet show between the industry’s legal titans.

  • This is the real reason that the American Franchisee Association is dormant: its attorney “supporters” want it that way.
  • Same why the AAFD so frequently put their foot into a warm pile of poo and lacks any credibility at all.

IndFAs are ineffective and usually deemed a “failure” because that  serves the most powerful stakeholders interests to do so.

The solution is to move toward a franchisee-centric model such as an Attorneyless franchisee network, AFN where no attorney can capture and disable the web-enabled massive power that franchisees have (Stewart’s Law of Group Power).

This is especially true when the franchisor is a publicly traded corporation in a mature industry that touches the public every day in a very intimate way in a rigid 24/7 product cycle.

The way out starts with one independent thinker asking for a 2nd opinion.


LCBO franchising: Where the government both regulates and profits from unfairness

July 22, 2009

LCBOThe Liquor Control Board of Ontario, LCBO is reputed the largest single purchaser of alcohol in the world.

It is the monopoly retailer for all liquor and, much to The Beer Store‘s chagrin, increasingly beer

The LCBO is a provincially-owned and -controlled agency that remits a type of profit or dividend to the government every year.

On $4.13 billion sales, the 2008 dividend to the treasury was $1.345 billion. That’s billion per year.

The LCBO is also a franchisor.

They run what they call agency stores: liquor and beer sales through rural grocery and convenience stores. These are franchise agreements as defined by Ontario provincial law.

However, the Ontario government exempts the LCBO (themselves) from protecting these franchisees when compared to the other 40,000 ON franchisees.

Section 2. (3) of the Arthur Wishart Act (Franchise Disclosure), 2000 reads:

Non-application

2. (3) This Act does not apply to the following continuing commercial relationships or arrangements:…

8. A service contract or franchise-like arrangement with the Crown or an agent of the Crown. 2000, c. 3, s. 2 (3).

The Ontario government knows perfectly well how franchising works. Franchisors take 100% of both:

  • the benefits (no capital, no risk, no litigation, no unionized workers, alternate distribution in case of labour strife, monopoly supplier) and
  • strip all legal rights from the retailer/franchisee.

Franchisees in the U.S. have had specific franchise law since 1956.

For the LCBO franchisees:

  1. No disclosure documents to make an informed pre-sale decision,
  2. No good faith obligations,
  3. No fair dealing,
  4. No commercially reasonableness standard,
  5. No right to associate,
  6. No right of rescission,
  7. No damages for breaking the franchise law,
  8. No protection from pre-sale LCBO misrepresentations:
  9. No thing.

To be fair, the operators can always privately sue this +$4-billion agency if they act in a negligent, reckless or in an opportunistic way. Good luck with that.

I was there when the Wishart Act was passed and there was no discussion, zero, zilch, not-a public discussion about this self-serving exemption.  Out of the blue…100% behind-the-door stuff…another cruel joke on the Ontario small business community and organized labour.

If there was ever a group that needed a franchisee association, it is these operators.


Sue the Leafs/NHL cartel in eMcKangaroo Court

May 10, 2009

nhlTorontoMapleLeafsThe law creates just outcomes only in some cases.

In franchise law, the justice is delivered to those that control access to the Courts and the political process. Only franchisors and large franchisees have that clout.

The latest proof of this policy and law bias, is that the NHL and the Toronto Maple Leafs should be sued in an Ontario Superior Court for their unfair dealings, racketeering and extortion activities.

That won’t happen because franchising and especially sports franchising is a monopoly game played by insider credence good cheaters.

But: Why not try the bastards in a virtual Court room? I propose a McKangaroo Court to ease our pain. A mock trial for a phony form of competition (ie. sports franchises).

Hockey Maniacs: In southern Ontario, pro hockey is a God. The Toronto Maple Leafs have been able to sell out every game for over 40 years by providing, at best, a fitfully mediocre product (eg. a competitive sports team). Think of the Big Auto before Toyota and Honda showed up.

The Leafs owner’s are monopoly players in the world’s most lucrative hockey market. A normal fan can only dream of attending a game with their kids anymore.

Jim Balsillie has been trying to bring another professional hockey team to southern Ontario for some time now. His most recent attempt is to offer over $200 million to rescue the Chapter 11 Phoenix Coyotes and move them to southern Ontario, Canada.

But other 30 NHL owners (franchisees acting like franchisors, 25 which are U.S.-based cartel) have other ideas. And the encroachment  kickback to the Leafs and Buffalo Sabres is extortion: plain and simple.

The Globe and Mail reports on legal action, taken by the current owner of the Phoenix Coyotes in an article, NHL acting like ‘illegal cartel’, Coyotes charge:

“The NHL is excluding competition and restraining trade in [the United States and Canada] through the application of unreasonable restrictions in its constitution and bylaws, which are preventing the relocation of the Coyotes from Phoenix, Ariz., to Hamilton, Ont.,” said the lawsuit filed yesterday in Phoenix.

The suit also takes aim at Maple Leaf Sports and Entertainment [MLSE], which owns the Toronto Maple Leafs, alleging it has colluded with the league for years to preserve “market power” in the Greater Toronto Area. Prohibiting relocation deprives hockey fans of “increased competition, lower prices, higher quality and more variety,” the suit alleged. WikidFranchise.org citation

Remember: monopolies are “bad” because they creates market inefficiencies and distortions that are manifested in these very real and pernicious anti-competitive practices:

  1. Predatory pricing,
  2. Tied buying,
  3. Short- or forced-shipping,
  4. Encroachment,
  5. Economic conspiracy and
  6. Refusal to deal and exclusive dealing.

Alan Eagleson a disbarred agent/NHL power broker is THE poster boy for all credence good experts to this very long-suffering Leafs fan.  Wikipedia, WikiFranchise.org

Argument: The Arthur Wishart Act (Franchise Disclosure), 2000 governs all franchise commercial relations in Ontario, Canada.

  1. MLSE is acting as a “franchisor’s associate” under Section 1.1 (“franchisor’s associate, a. and b.).
  2. As a “franchisor’s associate”, Wishart treats MLSE is treated as if it were the franchisor (the same duties and responsibilities as the “normal” franchisor, in this case, the NHL).
  3. Section 3 creates an obligation by all parties:  “a duty of fair dealing in its performance and enforcement.”

I think the citizens of southern Ontario deserve to have their pro hockey fix met by the appropriate franchising corporations.

The Maple Leafs and the NHL  show their contempt for their real customers (ticket holders) by continuing to run their robber baron scam. For these offenses, they deserve to be sued.

And I bet there some CDN hockey nut franchise legal beagles that’d love to write up the arguments.

In this way, the problems that non-billionaire business format franchisees endure can be explained to the public while showing where the real weasels live.


Michael Webster: Defining legal relationships in Ontario and Problem solving

April 30, 2009

bizopcaDr. Michael Webster has an interesting background.

Michael runs a very influential weblog called the The Bizop News: Misleading Advertising Law. Some of the topics he covers are: fraud, ponzi schemes, franchising, lawsuits, business opportunities, MLMs, due diligence, and recovery of losses. He is very active cornerstone member of Blue MauMau and the AAFD.

Many people, however, fail to appreciate how deep Michael’s fraud and contract knowledge goes.

Recently he helped me out by drawing attention to a very worthwhile charity I am involved in, The David Busby Street Centre in Barrie, Canada (see Get a Date with Paul Henderson).

Legal Relationships: There are only 3 types of commercial relationships in Ontario, Canada and their related branch of laws. NOTE: 100% of all relationships are one of these three, there are no exceptions:

  1. employer/employee (labour law),
  2. independent contractor (contract), and
  3. franchisee/franchisor (Arthur Wishart Act (Franchise Disclosure), 2000).

Each of the 3 are defined in specific statute and regulation or British common law practice.

Some organizations do not have a very clear idea which of the 3 classes they are involved in in a specific situation. This can be done intentionally (as an advantage to the dominant party, acting opportunistically) or unintentionally (they’re just ignorant of the law).

However, even if an organization is ignorant of the law, their directors can be held liable for breaches of any of the three classes of law.

If the office holders are acting outside of their duties, the liability falls on them as individuals.

In 1998, I founded the Canadian Alliance of Franchise Operators, CAFO which worked to help Ontario’s 40,000 franchisees. Some franchise systems ignore the Wishart Act by misrepresenting themselves as independent contractors, licensees, dealers, etc. The penalities for showing contempt for the Ontario law (when challenged) are very substantial.

Michael and me: Michael served on CAFO’s board as Chief Counsel for several years. His generosity, support and ability to instruct (PhD & LLB) have always been very appreciated. As a franchise lawyer he is often called upon to diagnose what category a specific relationship is actually under Ontario law.

Documents may say one thing but the actual day-to-day duties may actually suggest the relationship is something else. For example, a document may say it is an independent contract but the duties and funding may be judged to be an employee/employer relationship.

Michael is also an excellent mediator and his former partners know a good deal about Ontario labour law, I recall. I always look forward to working with Michael and recommend him to anyon in a legal pickle.


Lawyers are Rats: A top legal scholar exposes the corruption of his profession

January 14, 2009

Maclean’s which started in 1905, is Canada’s first weekly newsmagazine.

In an August 2007 interview, journalist Kate Fillion interviews Philip Stayton, write, former corporate lawyer and dean of the law faculty at my alma mater (The University of Western Ontario).

Interview with Philip Slayton

Ex-Bay street lawyer talks about how lawyers became greedy, unprincipled enablers of the rich

Question/Answer [my emphasis]

It’s hard to imagine a book titled Lawyers Gone Bad: Money, Sex and Madness in Canada’s Legal Profession (Penguin) is going to be popular with your colleagues. Why did you write it?
I know lawyers are going to say, “Come on, he’s talking about 15 or 20 members of a profession that has 90,000.” But in telling these stories I’m trying to extract general ideas: the amoral nature of legal practice, the gross deficiencies of the regulation of lawyers, the sense of misery that pervades the legal profession.

Do you think most of the lawyers you write about started off bad, or did the practice of law change them?
Why do people end up doing things they shouldn’t do? Their upbringing, their background? The point is, I don’t think there’s anything in the legal profession now that restrains people’s bad impulses, I don’t think there’s a generally accepted code of conduct or a vibrant disciplinary system.

This isn’t just a Canadian problem, either. On my desk I have an editorial from a South African magazine which begins, “Let’s face it, our legal system has effectively collapsed …  One of the more obvious reasons is the culture of greed, pride and self-indulgent arrogance that pervades the legal profession.” Then there’s this gem from the South China Morning Post about a client who asked for a breakdown of his legal bill, which included a charge for “recognizing you in the street, crossing a busy road to talk to you to discuss your affairs, and recrossing the road after discovering it was not you.”

As you point out, in 2004 only 44 per cent of Canadians said they trusted lawyers, whereas two years earlier, 54 per cent said they did. Why do people dislike lawyers so much?
Lawyers are seen as greedy, and in good measure I think that’s a justifiable criticism, and also unprincipled. Thirdly, and this is perhaps the most important point of all, the average person has no real access to lawyers, to the legal system, to justice. It’s all right if you’re very poor and have the kind of problem that legal aid will help with, but most Canadians have middle-class incomes and simply can’t afford to hire a lawyer. The chief justice has spoken out about this, but very little is being done to rectify it. It’s fundamentally undemocratic. It’s as if somebody tried to pass a law that said you can’t vote in a federal election unless you have an income of $100,000 or more. Well, there would be a revolution.

How has the legal profession changed in Canada over the past few decades?
In very general terms, it has become a business: interested in profit, not interested in making judgments, not interested in providing access to poor people or even middle-income people. The old ideas — that lawyers have something to do with justice and fairness, and are part of an important system that provides a stable, safe, law-abiding society — have, to the extent that you can generalize, been lost by members of the legal profession.

You taught law for 13 years, both at McGill and the University of Western Ontario, where you were the dean of law. Is there something about legal training that nudges lawyers toward amorality?
Yes, I think so. Law students are taught and lawyers subsequently believe that it is not their job to pass judgment on their clients as people, or to pass judgment on what their clients want to do. Lawyers are enablers. They are there to try to do what their client wants, and are in many cases paid handsomely for it. The whole question of the values behind the rules of the legal system is not on the whole of great interest to law schools or the legal profession. And there’s an additional point: lawyers are taught to manipulate the rules in favour of their clients. If you’re a manipulator of rules, then you can’t respect the rules as such or believe that they incorporate important values.

What kind of ethical dilemmas does the average lawyer face?
The average lawyer in a big firm practice faces the requirement to put aside whatever kit bag of values, principles and ethics he may personally subscribe to and concentrate on making it possible for clients to do what they want to do. No client comes into a lawyer’s office and wants to have a discussion about whether it’s a good thing or socially desirable to do this, that, or the other. And they’ll seek another lawyer if you try to have that discussion.

There’s a big incentive for lawyers to pad their bills, isn’t there?
Yes, and it’s common practice. It’s easy to round up. It’s easy to reflect on what you’ve done during the day and say you’ve worked for seven hours rather than six.


Why are lawyers so miserable?
If you practise law you’re plunged into what is by its nature a highly competitive, highly stressful environment that sucks up most of your time at the expense of things that most people think go a long way toward making life worth living, such as spending time with family, or reading a book.

The same could be said of many jobs, like banking or even journalism.
No doubt. But I think there’s more to it for lawyers than simply stress. If you’re a doctor, you may have a hell of a day, but at least you can be comforted by the idea that in some small way you improved the general state of society. I don’t think you can believe that if you’re a lawyer. I hasten to add that legal practice is very diverse, and there are lots of different kinds of people practising law, and this is not true of all of them. But it’s true of a lot of them. You come home at the end of the day and say, “Why did I bother doing that? What I’ve really done is make rich people a little bit richer, maybe, and as a result of that I can send them a big bill.” This is not a good way to spend your life. After you get over the initial drama of this high-stakes environment, you’re left with the feeling that this is a pointless occupation and you should find something more worthwhile to do.

Why did most of your students go into law?
A lot of people don’t like lawyers and would be horrified if their child came home and said, “I want to be a lawyer.” But it is a profession, and one with the potential of generating a significant income. It gives its members a certain power, the power of knowing something that other people don’t know [credence good provider]. And there is a kind of glamour associated with it. Look at all the television programs that deal with the law — people are fascinated with this process, even though they’re deeply suspicious of lawyers. And I think in many cases, certainly this was true in my case, people went into law because they couldn’t think of anything else to do.

Is there something else you should have done?
Oh yes, but I’m not going to tell you. I find myself increasingly in the role of critic of the legal profession, but I’ve spent my life as a lawyer. I went to law school in 1966, I’ve been in the legal profession one way or another for 41 years, it gives me no pleasure at the end of all that to look back and say, “Oh God, this was not a good way to spend my time.”

Is this book your penance?
[laughs] No. Do I think it will lead to some kind of significant reform of the legal profession? Of course not. It’s beyond any one person’s ability to do that. Do I think some kind of significant rethinking of the profession is in order? You bet I do.

So many of the lawyers you write about wound up stealing from their clients or bilking their firms. But greed wasn’t always the motive, was it?
No. I first got interested in this whole subject in 1989 or 1990, when I was a junior partner [at Blake, Cassels & Graydon]. The most prominent partner, Bob Donaldson, a nationally if not internationally respected lawyer making lots of money, was suddenly found to have had his hand in the till. That was a startling fact in itself, but here’s the thing that puzzled me most of all: the amounts of money involved were relatively minor. It wasn’t as if millions and millions had disappeared, it was more on the order of using money improperly to buy airline tickets to go to Bermuda for the weekend, penny-ante stuff by his standards. Why would somebody risk everything — reputation, friendship, professional status, even potentially freedom — for that? It certainly wasn’t greed. And in nearly every case I write about, the lawyers didn’t do it, for the most part, for money.

Well, is it self-destructiveness or is it arrogance?
Arrogance is part of it. If you’re taught how to manipulate rules, you lose respect for them, and that leads to a kind of arrogance: I’m bigger than the rules, I’m not the average man on the street who needs to be law-abiding because I know how to get around the rules. And there may be just a touch of the more common form of arrogance, too, which is “I’m smarter than they are, they’ll never catch me.” But you can be arrogant and still have a healthy sense of what’s good for you, and what dangers you shouldn’t run. I have some speculation about why people behave this way, and one reason is simple boredom. When people are bored, there’s a tendency to take risks.

What happens to lawyers who steal? How is the profession regulated?
The disciplinary process of the law societies in this country is deeply flawed. Lawyers are disciplined for breaches of professional rules, but it’s like so much in Canada: everything depends on where you live. What can get you disbarred in Alberta won’t have much effect on you at all in, say, Nova Scotia. The first difficulty with the disciplinary system is that if you’re a lawyer who’s alleged to have stepped afoul of the rules, you’re investigated by the law society. If they decide you’re a transgressor, they’ll prosecute you, they’ll hire a lawyer to do that, and the disciplinary committee itself is the law society. So you have the investigator, the prosecutor and the judge all essentially representing the same institution. I thought in this country we had a fundamental principle, that the person who investigates and prosecutes isn’t the same person who judges.

Is yours a widely held opinion?
I haven’t heard people rising up to complain about this. In the United States, by the way, disciplinary matters in just about every state are heard by courts, not by panels of the bar association, which is how it should be. I think Canada really has to get its act together. Look at the reforms in the U.K., which woke up some years ago to this problem and [adopted] quite sweeping reforms that largely removed self-regulation from the legal profession. Why in heaven the same sort of reforms are not under consideration in this country I do not know, except that self-regulation is regarded with quasi-religious fervour.

You talked to quite a few lawyers who’ve been caught doing something wrong. How many of them actually expressed remorse?
On the whole, there was not a whole lot of remorse expressed. I don’t think these were penitent people who were terribly ashamed of doing a bad thing. Take the case of Martin Wirick, the B.C. lawyer who was involved in a massive real estate fraud, I think it’s the single biggest legal fraud that Canada has ever experienced. It wasn’t as if he was stockpiling money to run off to South America. The most he ever got out of it was payment of very ordinary legal bills, and in fact I don’t think the client ever even fully paid them. So he didn’t do it for money. When I talked to him, he said things like, “Oh, I was just so tired, I just didn’t give a shit, I was unhappy, I hadn’t had a vacation in years.” What he did not say was, “When I think back on what I did, I’m so sorry about it, I’m so sorry about people who lost money as a result of my activities.” I think he was hapless, a bit of a schlemiel, and his client was a charismatic, glamourous person.

Is it common for lawyers to become enamoured of their clients?
Oh yes, very much so. I think lawyers can have a hero worship of their clients. Think of the whole Conrad Black trial, that poor Mark Kipnis who will probably go to jail because he did what the boss told him to do. It’s [a case of] the dull old lawyer with the charismatic client who says “Do this, do that,” and does the lawyer say, “Just a minute sir, this is not right”? No, of course not, because dull people can easily fall under the sway of charismatic people. I think quite a lot of that happens in the legal profession, though I have to emphasize that there’s a lot of difference between [a big firm] at Bay and King in Toronto and the single practitioner in Goderich. If you have an important client, a Conrad Black or somebody like that, who says he wants to do something but you refuse, he’ll just say, “Fine, I’m sure the law firm across the street will do it.” If your important client, who is also a big source of revenue for your firm, walks out the door, well, it’s not going to be good for your career. It takes a very strong and principled person to do that, particularly when you consider that the law is very complicated, and it’s not always absolutely clear what’s right, what’s wrong, what can and cannot be done. That makes it easier to say, “Well, let’s try it out and see what happens.”

Who stands out in your mind as being the worst of the bad lawyers you wrote about? I’m guessing you’re going to say Ingrid Chen, the Winnipeg lawyer.
There’s no doubt that she behaved abominably. She’s now in prison, because it was established that she hired enforcers to beat up clients who upset her, along with a whole variety of other things. But the behaviour was so bizarre, so manifestly self-destructive and likely to lead to catastrophe, that you can’t just say she’s a bad person who got what’s coming to her. It’s more that she has some deep problems that need to be sorted out. An interesting case is Michael Bomek, a criminal lawyer based in Flin Flon, Man. with a largely Aboriginal clientele, who was thought to be a creative and gutsy lawyer who fought against an RCMP detachment that was thought to be racist, and indeed there was subsequently a government commission that found it was racist. He was a notable figure and something of a hero, almost. And then it turned out that he had been having sexual relations with some of his male Aboriginal clients. The RCMP accused him of sexual assault and indeed he pled guilty, went to prison and was disbarred, though for other reasons. I went to Flin Flon and to the reserve and I wound up feeling sorry for him, I found him quite an engaging character. I wrote [an article] about him but subsequently he got into all kinds of other trouble. He got out of prison and was running a hot dog stand in Prince Albert — where’s Monty Python when you need them? — but he wasn’t just selling hot dogs, he was selling marijuana. The police busted him. But then the whole thing took a sinister turn, he was charged with further sexual transgressions involving children and was convicted of some of them. You look at this guy and there’s a lot, dare I say it, to admire, certainly in his early career. But perhaps, as the Crown attorney who prosecuted him the first time around told me, he’s a psychopath. I’d be very surprised if he had the slightest little bit of penitence in him.

Why are lawyers now so instrumental in money laundering operations?
There’s recently been a whole spate of national and international rules about money laundering, trying to get rid of it because it promotes organized crime. In Canada, lawyers have resisted, successfully, application of those rules to the legal profession. To simplify, they’ve said, “You cannot oblige us to report cash transactions to a government agency” — which, by the way, banks are now obliged to do — “because to do that would be a fundamental violation of solicitor-client privilege.” Meanwhile, those who know anything about this, like the auditor general of Canada and various high officials in the RCMP, have said that partly because they’re largely exempt from these rules, lawyers can become, and some have become, agents of money laundering. You go to your lawyer with cash because he’s exempt from these rules. The law society will say, “No, no, no, we have rules about this, any cash transaction over a certain amount has to be reported to the society.” But there certainly isn’t the full oversight by federal authorities that you find in all other areas where financial transactions happen. I think invoking solicitor-client privilege is nonsense. If you’re a lawyer, and somebody walks into your office and says he’s going to buy a house and needs to put a $50,000 deposit down, and here’s a briefcase full of cash, would you not think, Hmmm, this is very unusual? It’s not some massive encroachment of solicitor-client privilege to address this issue. It’s just plain common sense.

How can the average person protect herself from being cheated by a lawyer?
Do not be overawed, and feel free to question both the advice and the bill. Before the Internet, lawyers were gatekeepers, really the only ones, to this vast store of legal knowledge. Now, anybody can go on the Internet and get any Canadian statute, regulation, or case, easily. But people don’t seem to be doing that in the same way they do it with medicine, where if you have a pain in your toe, you go on Google.

The successful implementation of the Information Sharing Project ISP, would:

  1. translate franchise legalese into investor-friendly common English terms,
  2. provide hundreds of real-life examples of common problems from newspapers, public hearings, magazines, internet, etc.,
  3. use an easy-to-use, adult-oriented self-taught search format (think: Google for franchising),
  4. allow an innocent to become a pro very quickly (flattens learning curve by harnessing network effect of the internet),
  5. demonstrate that franchising (rent) has over 200 unique business risks versus non-franchised small business (ownership),
  6. create a true, franchisee-driven Web 2.0 forum by harnessing wikinomics and the inevitability of the Free! market in franchise information,
  7. demonstrate that franchising is practiced identically around the world,
  8. bypass the franchise bar’s monopoly gatekeeping function (cases forwarded on merit not whether or not they support the industry elite’s purposes) ,
  9. allow low-cost [free maybe] worldwide education and self-diagnosis which is independent of the legal profession’s monopoly power on information,
  10. improve access to justice by lowering costs by creating a competitve expert market (supplants franchisebar/legal only with legal, expert system software and  non-legal consultancy markets),
  11. create an opportunity to aggregate resources to fund precedent-setting litigation which is currently suppressed by credence good monopolists who cheat,
  12. separate diagnosis from treatment within the repair cycle (proven to minimize credence good opportunism problems), and
  13. move to solve the lawyer:client opportunism and the don’t-switch-horses-in-the-middle-of-the-race (sunk costs) dilemmas.

Paper-based, 19C linear technology (the law) being electrocuted by hundreds of dissident franchisee blogs, each with an ISP icon that instantly makes the [current economic rents (payments over what is justified: gouging) of a jealously guarded monopoly on information], drop instantly to next-to-zero.

If my analysis is correct, the appropriate regulatory and administrative law response would be to acknowledge and receive an individual citizen’s opinion, but if inaction in the face of demonstrative wrongdoing by “winners” in brokering industrial interests plead either:

  1. resource poverty or
  2. legislative incapacity.

With the passing of the Ontario Arthur Wishart Act (Franchise Disclosure), 2000 (2) was off the table so the only option left was 1.: lack of resources. Mr. Allan MacDermid of the now ironically and historically frequently renamed Ministry of Small Business and Consumer Services played that card: love to help but our hands are tied (no $).

Funny thing is: I never asked the Ontario government for economic help, having determined that this must be a private sector solution. [free download of 2003 ISP Proposal].

BTW: Industry Canada played exactly the same game when I defined Predatory franchise lending in my 2005 paper called, Franchising Opportunism. In 2006 (I intentionally waited 365 days to followup), Mr. Peter Webber said to a consulting proposal I wrote (that he suggested I send to him) that: not enough money to fund any new audit activity.

Mr. Webber suggested that I check back in 5 years when the Canada Small Business Financing Act, CSBFA and Regulations would go up for it next statutory review.

Perspective: In 2005-06, Industry Canada loan program paid out $72.5 million in total claims and my audit service proposal was for $23,200 plus GST for this theoretically self-funded federal program.


Solicitor-client relationship: When does it start?

December 23, 2008

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.


%d bloggers like this: