Licensing, Technology Transfers,
More Franchise Articles
One of the more humorous dialogues among franchisees are those between franchisees and the lawyers they retain to form franchisee associations, and the things that those “Let’s form an association so the franchisor will listen to us” lawyers tell them about the others among us who are litigators. This is going to be somewhat sarcastic and, hopefully humorous, but the subject and the message could not be more serious. In case you haven’t figured it out yet, I am a litigator. I know what it takes to cause someone who has a contract he has been told makes his position the right position, no matter what, to come to terms with difficult major problems that are unreasonable economic impositions upon the franchisees.
Many years ago I published several articles about franchise associations; how to form them; how to run them; why they are needed; and how they are to be supported if they are to have any value at all.
What I then cautioned against, and still do, is the thought that a franchisee association is to be formed and operated as one might do with a social club. Franchisee associations are not supposed to be like the Elks Club. Very few have had the good sense to follow that advice. The consequence has been that normally good people who hate the idea of confrontation are suckered in by Chatty Cathy franchise lawyers to form what are really no more serious than local social clubs. They elect officers. They have “committees”. They set up a web site with interactivity so that they can “share their thoughts” regarding the problems du jour. They hire a Chatty Cathy lawyer who assures them that s/he, like civilized people, will lead them through constructive dialogue to a better and manageable relationship with their franchisor who only needs to be addressed in proper fashion in order to cause him to “see the light”/”change his ways”.
All of those things are bad for them. The reasons why are provided in other tutorials I have written about franchisee associations over the years.
Some of these lawyers have grouped franchisee associations into larger confederations of franchisee groups. That “American Association for the Liberation of Enslaved Franchisees Throughout the Known World” has its own web site and puts on meetings every year at which others of their ilk are invited to speak, reassuring all and sundry that civil discourse is the way of civilized people to reach consensus regarding the iniquitous practice of some franchisors who insist that their franchisees comply with the terms of their franchise agreements. Then they go home in a state of franchisee association grace anticipating another year of useless “study” of the perceived problems and how best to present the justification and the methods to rid the world of the tentacles of “greed” that are strangling the life out of them, all to no avail.
I am not suggesting that litigation should be the first thing to do – far from it. On the other hand, franchise disputes have been around for so long that lawyers who know what they are doing can grasp the issues and formulate tactics to deal with them in two weeks. It doesn’t take the formation of a formal association, the election of officers, the establishment of committees and an interactive website to get to the bottom of it all. All that foolishness is just fee enhancement exercises. A franchise lawyer who know what s/he is doing can sort it out within two weeks, including presenting an appropriate discussion agenda to see whether negotiation is likely to bear fruit. Discussion with the franchisor should require no more than two days once a discussion date is set. You should know whether you have been given believable responsiveness within a few days after the first meeting with the franchisor. He is not stupid either. Anything longer than a week is a definite NO.
After a few years, the membership begins to dwindle as those whose eyes have been opened realize that the franchisors have either frustrated the operation of their association through various tactics or given their representatives audiences that concluded with promises to take the demands/requests into serious consideration in the formulation of future policy within their system. Of course, nothing changes, which I why people start to leave. They recognize that they have been paying dues for absolutely nothing more than the payment of legal fees to some useless bozo lawyer who accomplishes nothing.
In the old days you couldn’t tell franchisees about realities. You had to pretend to agree with them about the usefulness of long term associations giving them time to morph into a litigation group. Nowadays, the handwriting is on the wall. Those who can’t deal with obvious realities are simply not “clients” within the meaning of that word.
These groups usually have two sub groups – those who still have resources to do something if the business is worth saving, and the rest who through the application of economic triage, must be disregarded for all purposes.
The first group separates themselves from the others because they rightly perceive that the bottom tier is unlikely to contribute proportionately to the cost of what must be done, but most certainly will demand equal voice in everything going forward, free riding on the leaders. That they might write some checks in support of the effort is seen as not worth the cost of including them. Moreover, these lower tier folk are the most likely to tell all plans and tactics to the franchisor, hoping to be favored in some material way. They are never worth inclusion in any group that intends to do something effective.
If one were to posit some formula for proportionalizing payment of expenses of the agenda, it would become obvious immediately that only the top tier of franchisees can constitute an effective pre litigation group. Yes, pre litigation group! The time for chatter is over. You either take action, if you have the right to take action, or you forget about trying to change anything and just sell your franchise for whatever you can get for it in order to get out of the franchise agreement, except of course for the covenant not to compete that cannot be obviated through sale of the business. If the plan is to continue in the business as independent dealers, the covenant not to compete must be defeated in some way – by a litigated result or by settlement of litigation of potentially valid claims – usually the latter.
One thing is for sure. No lawyer who does not regularly try cases and no lawyer who has never or rarely tried a franchise case, is ever going to get the franchisor to consider any terms of resolution that work for dissident franchisees. There is no reason for someone who has been told his contract gives him all the advantages to yield any beneficial position. There are no exceptions to this rule. One may, however, count about three systems that changed over the years where there was a strong association of franchisees. But there was also a history of forceful litigation in that mix.
The sad thing is that in most instances, unhappy franchisees have spent tons of money on some Chatty Cathy lawyer who accomplished nothing tangible before they realized that no solution can come out of socializing. Eggs must be broken to make an omelet.
I have had the pleasure to have been a fly on the wall when members of a franchisee association committed to “negotiating” inform association counsel that they are talking with a litigator and considering taking a more forceful approach. The information is met with a look of abject horror. In his mind’s eye he sees the advancing end to his easy money ongoing dues/fees revenue. After some stuttering and gagging, Chatty Cathy goes into a paroxysm of opprobrium about the evils of being associated with the chosen litigator. He is described as a “bomb thrower” (their favorite expression) and a person with a highly negative reputation in the franchise industry who is respected by no franchisor and loathed universally. That’s when you know you have finally found the right lawyer!
While it is more likely than not that litigation must be instituted before good things begin to happen, occasionally the whole world changes when the experienced litigators show up. No matter how much sense it makes for the franchisor to make adjustments, preparation for a fight must be made. One can never just assume peace will be made quickly. If it happens that way that’s wonderful. But you can’t afford to get caught unprepared for the initial conflict that usually happens. The cost of readiness pales in comparison to the cost of not being ready. Most of these fights end rather promptly, as soon as the completion of discovery provides a fairly good picture of how this will end if not immediately resolved. Some must go to trial.
The ultimate truth is that no one is going to hand you a get out of jail free card just because it seems to you and yours that it would be the right and proper thing to do. Chatty Cathy is like showing up at a fight unarmed.