Who profits when a $500-million Canadian class-action franchise lawsuit happens?

June 21, 2017

The least likely are individual franchisees.

That may or may not happen especially when 98% of all lawsuits never make it to trial and withstand an appeal.

The negotiations are held between the 2 lawyers. Franchisees are decision takers.

Parties:

  • Franchisor (defendent) – the only payer, repeat player, credence good monopolists, (happier to pay 2 law firms a lot rather than a little to hundreds of franchisees)
  • Franchisor’s Specialized Law firm – only one in Canada, repeat player, expert credence good provider, member of franchisor association
  • Franchisees (plaintiff) – one time player, only non-credence good player, unskilled but unaware
  • Franchisee’s Specialized Law firmonly one in Canada, repeat player, expert credence good provider, member of franchisor association

Both CDN law firms (one for the franchisor, one for the franchisee) at this level are businesspeople, first and foremost.

The two law firms act as rent seeking coercive monopolists.

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Tim Hortons operators might listen to Bob Purvin’s sage advice about franchisee associations

April 28, 2017

Legal advice is necessary but it should not lead ANY franchisee group. Do not allow any lawyer to capture control.

AAFD chairman and founder Bob Purvin

In a conversation with BlueMauMau.org, AAFD Chairman Purvin: Power of Franchisees in Bargaining and Cooperatives in Reducing Costs:

SNIEGOWSKI: Some franchisee associations, frankly, seem banded together merely as an excuse for a class-action lawsuit against the franchisor to resolve a grievance, or at least the threat to the franchisor of one.

PURVIN: Sadly, that is too often the case.

If a lawsuit is the only reason for a franchisee association to exist, it will disappear five years after its startup or until the next round of franchise contract negotiations. The successful associations do more.

The Griswold Healthcare Franchise Association [GHFA] is an example. Franchisees created a fabulous task force on best practices that worked with the company to put on seminars each month. They have great turnouts for their seminars, which are done by webinar. They are now getting involved in lobbying, especially around the issue of caregiver wages. Their legal fund is dedicated to working with various state and local agencies over the rights of caregiver business owners.

Griswold created a products committee, where the franchisee association is now getting involved in the supplier side in a collaborative way. It is not just the franchisor that is cutting a deal with this supplier [getting kickbacks] and mandating that franchisees use that product to enrich the franchisor.

Associations can be more about the supply side than about renegotiating the franchise agreement.

Let me repeatAssociations can be more about the supply side than about renegotiating the franchise agreement.

American Association of Franchisees and Dealers

Rule of Thumb: add together what you’re paying for royalties and ad fund (ie. 4 and 3 = 7%). As a franchisee that does not have a franchisee-led and -owned buying co-operative, you’re putting an additional 7 per cent of hidden cash into your franchisor’s pocket via product and equipment costs.

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TD Bank and franchisor sued over lending practices involving U.S. guaranteed small business loans

August 10, 2012


From Shane D. Gosdis at the franchiselawblog.net, on December 8, 2011 (Franchisees Sue Matco Tools and TD Bank Alleging Loan Fraud Scheme):

The plaintiffs allege that Matco Tools and TD Bank “in a loan fraud scheme to encourage unsophisticated borrowers to enter into risky business loans to buy Matco Tools franchises.”  According to the plaintiffs, the “scheme enabled Matco to sell more franchises and TD Bank to make risky loans without concern” because the “bank knew if the loans failed, the loans would ultimately be repaid by the United States taxpayers through the SBA guaranteed loan program.”

Copy of Verified Complaint and Jury Demand (download, 24 page pdf)

Moving attorney estimates a class action suit involving “between 150-to-200 plaintiffs” stretching back until at least 2004.

Other coverage:

Cross-posted on FranchiseBanker.ca


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