tag:blogger.com,1999:blog-45787718677585986582024-03-13T06:02:22.305-04:00The Franchise Contrarian - Jim MeaneyFranchising and franchise law. After practicing in the franchise area for over 30 years - representing both franchisors and franchisees and everyone in between - it is time to share some random thoughts, views and discussions that may be topical, thought-provoking or downright controversial. These may not reflect my personal views ...but then again they may!Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.comBlogger68125tag:blogger.com,1999:blog-4578771867758598658.post-46931361281821933962020-12-03T12:24:00.003-05:002020-12-03T12:28:23.839-05:00AS THE WORLD TURNS<p> It has been a while since I last posted. In fact, it was at the outset of the pandemic, that post was <a href="http://franchisecontrarian.blogspot.com/" target="_blank">COVID-19 - Captain Obvious!</a> The theme of that post was that franchise systems - franchisors and franchisees - need to cooperate to survive the pandemic. So how is it going?</p><p>One of my favorite law professors, who, after 40 years, I still stay in touch with, passed on this article from the <i>Wall Street Journal: </i><a href="https://www.wsj.com/articles/the-franchise-relationship-that-powers-small-business-is-fraying-11606750990?st=yia3fwchjhqwnnn&reflink=article_email_share" target="_blank">The Franchise Relationship That Powers Small Business Is Fraying</a>. You can draw your own conclusion as to whether the headline is accurate... but everyone has to admit that all businesses are under strain at this time and, franchised businesses, are no exception. </p><p>In my practice, I have seen a few potential buyers decide that "the time just isn't right." Perhaps, a solid decision. And, I am aware of a number of franchisor clients who have struggled through the worst of it and developed strategies to survive. My guess is that the restaurant business is most effected. You can share your experiences by commenting on this post. (Please use the normal comment button at the bottom of the post as the image below is just a picture)</p><div class="separator" style="clear: both; text-align: center;"><a href="https://1.bp.blogspot.com/-lf2QtNYEtmI/X8j4g5RwMSI/AAAAAAAABLc/juFNeRit4c0RXz6yVxQ-68uLRgcIg6tkQCLcBGAsYHQ/s600/iStock_Comment-600x479.jpg" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="479" data-original-width="600" height="143" src="https://1.bp.blogspot.com/-lf2QtNYEtmI/X8j4g5RwMSI/AAAAAAAABLc/juFNeRit4c0RXz6yVxQ-68uLRgcIg6tkQCLcBGAsYHQ/w179-h143/iStock_Comment-600x479.jpg" width="179" /></a></div>Changing topics, I came across another <i>Wall Street Journal </i>article that caught my eye -- <a href="https://apple.news/AvwINeBFoQy2NxGW8MYsqzg" target="_blank">Big companies urge Biden, Congress to address climate change</a>. <div><br /></div><div>How is this relevant to franchising? Well, like the virus, I believe ALL businesses should seriously work on Climate Change matters. What can you do in your system? While we contemplate what 2021 may bring, think about Climate Change -- waste reduction and recycling-sponsored sites come to mind. Is it time for a call to action in your organization?<div><br /></div><div>I hope your business is striving or at least surviving in this time of challenge. Take some time to consider the contributions you can make to improve our future. It is truly a time for reflection.</div><div><br /></div><div>Wishing all a happy and healthy holiday season!<br /><div><div><br /></div><div><br /><p><br /></p><p><br /></p><p><o:p></o:p></p></div></div></div></div>Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com5tag:blogger.com,1999:blog-4578771867758598658.post-87336771859294668762020-03-29T13:04:00.000-04:002020-03-29T14:46:25.861-04:00COVID-19 - Captain Obvious!If you are sitting at home (working?), you likely need no further reminders about the pandemic.... multiple law firms, accounting firms, banks, and sundry other businesses have provided "public service" announcements just to tell you they care. To be sure this is a transforming moment; the question is: will it be for better or worse? I am going with better but ...<br />
<br />
The franchise industry is greatly effected and truly disrupted. Earlier this week, the ABA Forum on Franchising conducted a webinar: "Franchising in the Time of COVID-19: Managing Coronavirus-driven Disruption in Contracts, Supply Chains and More." It was informative and worth reviewing <a href="https://www.americanbar.org/content/dam/aba/administrative/cle/materials/2020/03/ce2003fgv.pdf" target="_blank">(you can review the materials here</a>). Some topics were obvious and while others insightful.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-O5vd24vcX3k/XoDWZ-mVU9I/AAAAAAAABGw/ECUhhjp5pCQxjvCdd2Aj7hDbXzRFPczkwCLcBGAsYHQ/s1600/coronavirus-world-1024x506px.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="720" data-original-width="1280" height="180" src="https://1.bp.blogspot.com/-O5vd24vcX3k/XoDWZ-mVU9I/AAAAAAAABGw/ECUhhjp5pCQxjvCdd2Aj7hDbXzRFPczkwCLcBGAsYHQ/s320/coronavirus-world-1024x506px.jpg" width="320" /></a></div>
So franchisors, franchisees, and franchise practitioners find ourselves in uncharted water. The most common refrain is "I have never witnessed anything like this in my lifetime!" When talking with colleagues in NYC, Chicago, and good-old Ohio, the word <i>surreal </i>typically surfaces ... empty cities, crowded grocery stores, closed parks, runs on toilet paper, and cancelled travel. (I was supposed to in Portugal this week) No clue on the toilet paper except perhaps it is used to fight off some of the BS coming from Washington as we ping-pong from one daily report to another.<br />
<br />
Whether it is a dire harbinger of economic Armageddon or sound financial responsibility, I read in the <i>Chicago Tribune</i> that McDonald's just borrowed a billion dollars. <a href="https://www.chicagotribune.com/coronavirus/ct-mcdonalds-all-day-breakfast-coronavirus-20200326-o2wun4y4yzh5vamvmsv3rto4aa-story.html" target="_blank">(read it here)</a><br />
<br />
The Forum presentation covered the most imperative topics (Chinese supply chain disruptions, Force Majeure, royalty waivers, importance of communication, and the like). But, looking back on it, not enough attention was paid to system <i>cooperation</i>. So here are some quick observations from Captain Obvious:<br />
<ul>
<li>Should franchisors provide affirmative help to franchisees? YES</li>
<li>Should franchisees be proactive in communicating with each other and the system officers? YES</li>
<li>Should franchisors consider royalty deferment or total abatement? YES</li>
<li>Despite the concern about "joint employment liability," should franchisors offer guidance about the recent emergency employment regulations and employee financial aide passed by federal and state governments? YES</li>
<li>Should franchisees look for ways to help franchisors? YES</li>
</ul>
<div>
Just like all of us practicing the new social guidelines, franchisees and franchisors (and those of us who support them) are in this together. Cooperate first, argue later.</div>
<div>
<br /></div>
<div>
Let's be careful out there! (<a href="https://www.youtube.com/watch?v=Jmg86CRBBtw" target="_blank">Hill Street Blues</a>)</div>
<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com11tag:blogger.com,1999:blog-4578771867758598658.post-16970748874752451842019-12-12T10:48:00.001-05:002019-12-12T10:52:16.932-05:00New FDD Cover Pages on 2020 Horizon<br />
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">The North American Securities Administrators Association (NASAA) represents state and provincial securities regulators in the United States, Canada and Mexico.</span></span><br />
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;"><br /></span></span>
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">So what do these guys have to do with franchising?</span></span><br />
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;"><br /></span></span>
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">Before the Federal Trade Commission (FTC) got in the franchise game, state securities regulators concerned themselves with franchise protections -- for instance, developing the old Uniform Franchise Offering Circular (UFOC). Today, NASAA still plays a role in franchising, offering its guidance to the 14 registration states (click here <a href="https://www.nasaa.org/industry-resources/franchise-resources/franchise-and-business-opportunities/">registration states</a>) and the FTC. As a practical matter, what is required in the registration states rules the roost, meaning Franchise Disclosure Documents (FDDs) typically incorporate what NASAA and the registration states require.</span></span><br />
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;"><br /></span></span>
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">Starting on January 1, 2020, NASAA guidelines require the use of new Cover Pages (click here <a href="https://www.nasaa.org/wp-content/uploads/2019/06/New-Frachise-State-Cover-Sheets-Instructions.pdf">new Cover Pages</a>). As a matter of franchise practice, all FDDs will then carry or require the new pages.</span></span><br />
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;"><br /></span></span>
<span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">In summary, the pages add to the State Cover Sheets portion of the FDD. The new (or revised) pages are:</span></span><br />
<br />
<ul>
<li><span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">How to Use This Franchise Disclosure Document</span></span></li>
<li><span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">What You Need to Know About Franchising Generally</span></span></li>
<li><span style="background-color: white;"><span style="color: #3e3d3d; font-family: inherit;">Special Risk(s) to Consider About This Franchise</span></span></li>
<li><span style="font-family: inherit;"><span style="background-color: white;"><span style="color: #3e3d3d;">Revisions to the State Effective Dates page</span></span></span></li>
</ul>
<div>
<span style="color: #3e3d3d;">All in all, the additions are positive, "buyer-oriented," and assist in understanding how to use these massive FDDs. The new Cover Pages call out the most basic questions a franchise-buyer may have and tells them where to find it. For instance, "How much can I earn?" directs the buyer to Item 19 along with the following commentary: "Item 19 may give you information about outlet </span><span style="color: #3e3d3d;">sales costs, profits or losses. You should also try </span><span style="color: #3e3d3d;">to obtain this information from others, like current </span><span style="color: #3e3d3d;">and former franchisees. You can find their names </span><span style="color: #3e3d3d;">and contact information in Item 20 or Exhibit [ ]."</span></div>
<div>
<span style="color: #3e3d3d;"><br /></span></div>
<div>
<span style="color: #3e3d3d;">Let's hope franchise-buyers take advantage of this new road map!</span></div>
Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-67477857012631592712019-11-18T13:40:00.000-05:002019-11-18T13:40:33.016-05:00Marijuana - Pot - Franchising UpdateThis pot post has been simmering since I attended the American Bar Association's 42nd Annual Forum on Franchising in Denver in mid-October. At the Forum, colleagues Mike Drumm and Caroline Bundy Flichter presented "FRANCHISING UNDER THE RADAR IN THE USA AND CANADA: HOW TO ENSURE YOUR CLIENT’S FRANCHISE DREAMS DON’T GO 'UP IN SMOKE.'” This is a pithy title for an overview of the sporadic legalization of "cannabis" in the US and Canada and the prospects for franchising a cannabis business.<br />
<br />
That paper and session was quickly followed by the American Bar Association's Forum on Franchising's Franchise Law Journal article by Danielle Hunt and Vanessa Williams-Hall: "A TALE OF TWO COUNTRIES: DOES CANADA'S LEGALIZATION OF CANNABIS GIVE IT THE FIRST MOVER ADVANTAGE IN FRANCHISING?" (Summer 2019) (I would link to these papers but the ABA copyright policies prohibit publication without permission; perhaps the authors may be able to provide a copy for anyone interested)<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-3fnCy2r6PzM/XdAhZIWgerI/AAAAAAAABE8/qm1wnAYMXEEIbg96x1ivJteIF36KvUOTgCLcBGAsYHQ/s1600/Cannabis_sativa_Koehler_drawing.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1600" data-original-width="1335" height="200" src="https://1.bp.blogspot.com/-3fnCy2r6PzM/XdAhZIWgerI/AAAAAAAABE8/qm1wnAYMXEEIbg96x1ivJteIF36KvUOTgCLcBGAsYHQ/s200/Cannabis_sativa_Koehler_drawing.jpg" width="166" /></a></div>
Both articles cover the now well-known obstacles to franchising a marijuana business, especially in the US -- for an overview of those issues search this blog for my earlier pot posts by searching "marijuana."<br />
<br />
The continuing primary obstacle to move a marijuana franchise business forward in the US is that marijuana remains illegal at the federal level; while a number of states have legalized recreational and medical use.<br />
<br />
My question to the presenters at the mid-October session was: are you aware of any pot businesses that have "franchised" across state lines? No, no one is aware that this has been attempted. This is confirmed in the article by Danielle Hunt and Vanessa Williams-Hall: Denver, Colorado-based ONE Cannabis has sold at least five retail outlet franchises in Colorado. Good reason exists for this one-state franchise system; no one wants to be prosecuted under federal law via the Commerce Clause of the U.S. Constitution and the federal Controlled Substances Act.<br />
<br />
But, as the Hunt/Williams-Hall article points out, will US companies poised for cannabis franchising flee to Canada to expand their businesses? I suppose time will tell unless the US federal government changes its tune. Likely the calculated loss of precious tax dollars will turn the tide - something that Illinois's governor JB Pritzker seems to have focused on to attack Illinois's financial woes. (Recreational pot use will be legal in the Illini state on January 1, 2020)<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-53556284285175918372019-10-02T05:38:00.000-04:002019-10-02T05:38:58.448-04:00I Love Whoppers ... I Hate Burger KingThis is not the first time I have ranted on this topic -- in a previous post I vowed "no more Burger King." see <a href="https://franchisecontrarian.blogspot.com/2015/06/brand-enforcement-redux.html">Brand Enforcement Redux</a>. That was 2015!<br />
<br />
So four years later I am craving, you guessed it, a Whopper. What to do but visit a Burger King ... yes I broke my vow. I think I was brain-washed by all those "Impossible Burger " commercials. And no I do not want a fake Whopper.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-iIoaXpjvyBE/XZH_q-SPdqI/AAAAAAAABEY/_rmPhsVfg4oN05g-RMgGayCZYoKCQg6TgCLcBGAsYHQ/s1600/whopper.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="128" data-original-width="208" height="123" src="https://1.bp.blogspot.com/-iIoaXpjvyBE/XZH_q-SPdqI/AAAAAAAABEY/_rmPhsVfg4oN05g-RMgGayCZYoKCQg6TgCLcBGAsYHQ/s200/whopper.jpg" width="200" /></a></div>
I visit my local Burger King late in the lunch hour, eye the drive-thru line, remember the "Hiring Now" post on the brand sign, and opt for dine-in. I should have turned around right then. Glancing to my left, I see five hungry working men fixated on the post-checkout service line. Drooling for my Whopper and seeing the hunger in their eyes, I fight against my better instincts and step up to order.<br />
<br />
A busy-manager-type takes my order as he negotiates bagging fries, shouting out pick-up orders, and exhorting the staff. Although doubtful, I figure how bad can it be? This is the self-deception one engages in when craving a Whopper. I order a Whopper with cheese, sandwich only, and cup for water. $6.10! I think wow the prices have really gone up since 2015. I look at my receipt to see if they charged me for water. Nope.<br />
<br />
A few more unsuspecting customers wander into the service black hole, as me and the five work men await our lunches. And we wait. Of course, under the circumstances, I expect to wait a bit. But after five minutes and, from the looks on the faces of the working men that suggest a collective jump-the-counter-bull-rush, I start timing the wait.<br />
<br />
My wait was 18 minutes! And, as I approach the counter with a "what-the-#%&#" look on my face, the manager-type looks at me and the order board and yells to the back "waiting on a DOUBLE WHOPPER WITH CHEESE." I hesitate, look at my receipt, and realize that DBL meant a double! I explain the error, fearful that any comment will cause further delay. Almost simultaneously a double Whopper with cheese lands on my tray and the manger offers a partial refund. With some quick mental gymnastics, a dollar is placed in my hand. At that point I would have taken a dime!<br />
<br />
Whew, at least I didn't have to pay for water.<br />
<br />
Need I say more Burger King? See you in 2023.<br />
<br />
<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com2tag:blogger.com,1999:blog-4578771867758598658.post-81095352717623374522019-09-26T14:30:00.000-04:002019-09-26T14:30:46.463-04:00SBA Overview and Key Considerations<div style="text-align: start;">
<span style="font-family: "times" , "times new roman" , serif;"><span style="text-align: justify;">Once again I have invited Bryan Jasin to be a guest contributor on this SBA topic - </span><span style="font-size: 16px; text-align: justify;"> Bryan leads the Franchise Specialty Banking Group at The Huntington National Bank in Columbus, Ohio and serves on the Membership Committee for the International Franchise Association. </span></span></div>
<span style="font-family: "times" , "times new roman" , serif;"><span style="font-size: 16px; text-align: justify;"><br /></span>
</span><br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-LRLGmeCjQuY/XYzA_PCclhI/AAAAAAAABEA/f2z3gLEKTrMqsCyMZlJR3cOZwLMzi67BQCLcBGAsYHQ/s1600/Bryan.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: "times" , "times new roman" , serif;"><img border="0" data-original-height="1600" data-original-width="1067" height="200" src="https://1.bp.blogspot.com/-LRLGmeCjQuY/XYzA_PCclhI/AAAAAAAABEA/f2z3gLEKTrMqsCyMZlJR3cOZwLMzi67BQCLcBGAsYHQ/s200/Bryan.jpg" width="133" /></span></a></div>
<span style="font-family: "times" , "times new roman" , serif;">The Small Business Administration manages a lending program to promote business ownership and entrepreneurship in the U.S. Think of the program as the government sets the rules to make a loan and if that loan goes bad, then the government will provide a guarantee for some of the debt. This encourages banks to lend into businesses where there may not be historical cash flow, sufficient collateral, or other considerations with the transaction. My goal today is to provide a high-level view of the three core programs and some key considerations.</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;"><b>The SBA Express Program</b>: This program is for loan requests up to $350,000 and offers a borrower a faster loan process with fewer collateral and loan requirements. The SBA does not require full collateral coverage in this program, but any individual bank may require full coverage. Most borrowers use this program to start a small business, expand a current operation, acquire a business or purchase a piece of real estate or equipment. The program offers a 50% guarantee on any loan loss to the bank after all collection efforts have been exhausted.</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;"><b>The 7(a) Program</b>: This program is generally for loan requests from $350,000 to $5,000,000 and generally used for a startup business loans, business acquisition loans and real estate purchase loans. Maximum terms generally cap out at 10 years or up to 25 years if real estate is involved. The SBA requires a minimum 10% equity into the transaction, but banks often may require more based on the loan structure, industry, and use of proceeds. This program offers a 75% guarantee. </span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;"><b>The 504 Program</b>: This program is generally a real estate acquisition and development loan program. The program requires a 10% equity injection from the borrower, a bank loan up to 50% of the real estate value, then a 40% secondary loan from a corresponding community development corporation (CDC) that is in a second lien position and then often sold to the investor market. The primary 50% loan cannot exceed $5,000,000 so often this program is used for larger real estate purchases. The maximum term and amortization is 25 years. </span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Key Program insights to remember:</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">•<span style="white-space: pre;"> </span>The maximum exposure to any one borrower is $5,000,000.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">•<span style="white-space: pre;"> </span>There are “credit elsewhere” tests to ensure the loans go to borrowers who need the support – if a bank can qualify the loan conventionally, it cannot go to the SBA program.</span><br />
<span style="font-family: "times" , "times new roman" , serif;">•<span style="white-space: pre;"> </span>Most loans over $350,000 require the bank to fully collateralize the loan which means the bank often will take all available personal collateral such as equity in your primary residence or other available collateral</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">As a former SBA leader once told me, “the SBA program does not make a bad loan a good one, but a good loan a great one!”</span><br />
<span style="font-family: "times" , "times new roman" , serif;">Happy Lending!</span><br />
<span style="font-family: "times" , "times new roman" , serif;">Bryan Jasin </span><br />
<div>
<br /></div>
<div class="MsoNormal">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Thank you Bryan.</span></div>
<span style="font-family: "times new roman" , serif; font-size: 16px; text-align: justify;"></span>Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-29056080696401792452019-09-09T14:32:00.000-04:002019-09-17T10:34:58.529-04:00Buying an Existing FranchiseThis topic was called to mind because, at the the moment, I am representing two franchise buyers who are looking to acquire existing, established franchises. This is not my first rodeo in this arena. But, these recent clients reminded me of the complexities involved.<div>
<br /></div>
<div>
At first thought, you might think purchasing an existing franchise location would be simpler than starting from scratch. Well there are pluses and minuses. </div>
<div>
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-XBJeot9BkMM/XXaRq0WIILI/AAAAAAAABDc/GUJ61QP5BgQyI45moijjpeBBcU6vPtXywCLcBGAs/s1600/business-woman-flow-chart.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="617" data-original-width="925" height="133" src="https://1.bp.blogspot.com/-XBJeot9BkMM/XXaRq0WIILI/AAAAAAAABDc/GUJ61QP5BgQyI45moijjpeBBcU6vPtXywCLcBGAs/s200/business-woman-flow-chart.jpg" width="200" /></a></div>
<div>
In a straight-up franchise purchase from a franchise company there are only two parties typically involved from the outset: the buyer and the franchise company. Sure, franchise purchases are complicated and should not be pursued without competent legal and accounting assistance. However, you are essentially starting with a clean slate; and you have time to assemble the complimentary pieces (training, leases, vendors, etc.).</div>
<div>
<br /></div>
<div>
When you buy an existing franchise, the players multiply: the selling-franchisee, the selling franchisee's lawyer and accountant, the current landlord, sales brokers, current customers, in-place vendors, lenders, the franchisor, and you, the buyer ... and hopefully your lawyer! More parties = more complications. Coordinating all these people and pieces usually falls on the buyer's shoulders.</div>
<div>
<br /></div>
<div>
As a result, the transaction process is multi-staged, and contingencies abound. Most of these deals are asset-based, meaning the buyer is acquiring the selling franchisee's existing assets, inclusive of the franchise rights. The first step is usually a Letter of Intent (LOI). This outlines the general terms and offering price but typically is not a binding contract. That follows in the form of an Asset Purchase Agreement, providing much more detail and conditions than stated in the LOI.</div>
<div>
<br /></div>
<div>
Assuming an Asset Purchase Agreement (APA) is executed, the fun begins! The APA should, among many other things, indicate that the deal is contingent on approval of the franchisor, the landlord, any lender. Each one of these buckets has its own hoops to jump through. For instance, the franchise company will want to qualify the buyer in the midst of everything else going on and the lender will want to vet the franchise company and the business offered for sale. Landlords want to qualify the new tenant! And you need to review and accept the franchise agreement, the lease, and any loan terms.</div>
<div>
<br /></div>
<div>
So where is the payoff Jim, the pluses? Although it may be less complicated to start from scratch, an existing franchise has existing customers or, at least, should have. Established customers mean instant revenue. The trade-off is that purchasing an existing franchise will generally be more expensive than developing from scratch, since you are acquiring the established goodwill along with the other assets.</div>
<div>
<br /></div>
<div>
A lot more could be written on this but you get the picture! Be careful out there!</div>
<div>
<br /></div>
<div>
<br /></div>
Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com1tag:blogger.com,1999:blog-4578771867758598658.post-72239402568505608382019-09-09T12:20:00.000-04:002019-09-10T09:44:25.272-04:00Franchise Purchase Financing<br />
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">To keep me from ranting
about the Antonio Brown saga, I have invited Bryan Jasin to be a guest
contributor to The Franchise Contrarian today. Bryan leads the Franchise
Specialty Banking Group at The Huntington National Bank in Columbus, Ohio and
serves on the Membership Committee for the International Franchise Association.
On Antonio Brown, I must say one thing: Antonio, you have given me one more
reason to hate the New England Patriots!<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">With that, Bryan take it
away:<o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">As
a lender in the franchise industry, I have been party to thousands of deals.<span style="mso-spacerun: yes;"> </span>I will not claim to have seen it all, but I
have seen my fair share, then some.<span style="mso-spacerun: yes;"> </span>At
Huntington, we’ve seen the traditional start up with husband and wife manning
the new venture, the seasoned multi-unit operator opening their 10<sup>th</sup>
or 15<sup>th</sup> location, as well as silent partners looking for returns
with an industry operator.<span style="mso-spacerun: yes;"> </span>Sometimes we have
seen new businesses grow year over year and then some businesses that never get
off the ground.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"><br /></span></span></i></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-_imKSTZQqXM/XXZDvlkG8jI/AAAAAAAABDE/9YYuY_w5QtsgedAGRZRnkUX9KtDksi0LACLcBGAs/s1600/Bryan.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="1600" data-original-width="1067" height="200" src="https://1.bp.blogspot.com/-_imKSTZQqXM/XXZDvlkG8jI/AAAAAAAABDE/9YYuY_w5QtsgedAGRZRnkUX9KtDksi0LACLcBGAs/s200/Bryan.jpg" width="133" /></a></div>
<div class="MsoNormal" style="text-align: justify;">
<i><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">The
volume of deals have provided a number of insights. In working on transactions both big and
small, there is comfort zone in the process.
Whether it is a million-dollar loan or a multi-million-dollar deal, the
lender and franchise buyer must establish a trusting, supportive relationship.
Trust breeds comfort. I always try to
remember that when working with a new franchisee, this is the biggest financial
investment they are ever going to make. With any investment decision, you want
to ensure you work with partners that have been through the loan process. </span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">What
should you look for?<span style="mso-spacerun: yes;"> </span>Work with a bank that
has experience in your industry and a loan structure based on your
experience.<span style="mso-spacerun: yes;"> </span>A large ground up
construction financing request may play well in one institution and poorly in
others.<span style="mso-spacerun: yes;"> </span>Are you looking for capital to
start your venture? Not every bank has the risk appetite to lend into projected
revenues and startups.<o:p></o:p></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><br /></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">So
vet your lender just as you would your new franchisor!<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"><br /></span></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Often
your franchisor has relationships with banks that have experience underwriting
loans for your brand.<span style="mso-spacerun: yes;"> </span>Because the bank
probably has closed many loans for other franchisees, the loan process should
be efficient and not too difficult. I
also encourage you to see how your franchise peers structured their loans to
get started or grow.<span style="mso-spacerun: yes;"> </span>You can learn who
is good, who is not, and some good insights into loan fees and interest
rates.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"><br /></span></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Lastly,
ask lots of questions throughout the process.<span style="mso-spacerun: yes;">
</span>Your due diligence can kill a bad deal for you or make a good deal great.<span style="mso-spacerun: yes;"> </span><o:p></o:p></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<i style="mso-bidi-font-style: normal;"><span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;"><span style="mso-spacerun: yes;"><br /></span></span></i></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="font-family: "times new roman" , serif; font-size: 12.0pt; line-height: 107%;">Thanks Bryan! You can
reach Bryan at 614-331-8478 or <span class="MsoHyperlink"><a href="mailto:BryanP.Jasin@huntington.com">Bryan.P.Jasin@huntington.com</a></span>
<o:p></o:p></span></div>
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-39459378445170766802019-09-02T10:28:00.001-04:002019-09-04T08:25:16.999-04:00When is the Best Time to Engage a Franchise Attorney?Franchise Buyers: Is there a right time to engage a franchise attorney?<br />
<br />
Based on my experience, some people wait too long to engage a franchise attorney (Well, at least most of those folks still hire counsel before they buy). I suspect that those who do delay are concerned about incurring legal fees before they select the "right" franchise. That may not always be the case.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-4zZ9CuOGNwM/XW0dOvRBGKI/AAAAAAAABCg/LdomITan-Gc8GYxL03_IPCt-IY3DCflAACLcBGAs/s1600/lock-in.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="765" data-original-width="1020" height="150" src="https://1.bp.blogspot.com/-4zZ9CuOGNwM/XW0dOvRBGKI/AAAAAAAABCg/LdomITan-Gc8GYxL03_IPCt-IY3DCflAACLcBGAs/s200/lock-in.jpg" width="200" /></a></div>
I cannot speak for all lawyers who represent franchise buyers but my belief is that most franchise lawyers are happy to conduct a preliminary call BEFORE you are locked into a specific system. Helping buyers, by providing general, early guidance, creates a fair amount of credibility; in essence, reinforcing the idea that you have contacted the right lawyer. Screening the lawyer may be as important as screening the franchise system.<br />
<br />
So how can this early connection help? First, counsel may simply outline the best way to work together going forward. That is, offering general guidelines as to when counsel can become effectively involved, offering the chance to ask questions along the way, and steering the potential buyer to resources to build their own "searching skills." Also, by simply directing a franchise buyer to look for the most important items in a Franchise Disclosure Document. A franchise buyer can also determine the fees that will charged once the clock is turned on. All in all, it makes you a more intelligent buyer!<br />
<br />
On the resources, for instance, I provide potential buyers with a copy of my e-Book,<a href="https://www.smashwords.com/books/view/118327"> How to Buy a Franchise</a>. There are many other resources online and in print. Buyers should take advantage of these resources. <a href="http://www.fddlawyer.com/">My website</a> provides a Resource section, that leads to many online guides, including information from the Federal Trade Commission, various franchisee associations, and franchise consultants.<br />
<br />
Finally, the franchise attorney you contact may have prior experience in the category you vetting (i.e., daycare centers, home care, fast food, etc.) and may be able to offer early warning signs or guide you to a reliable franchise company.<br />
<br />
So make the call, get on the right track, and take advantage of the resources.<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com1tag:blogger.com,1999:blog-4578771867758598658.post-2805715920183022422019-08-28T15:58:00.000-04:002019-08-28T15:58:22.830-04:00Want to Own an NFL Franchise?A few years ago my daughter invited me to play Fantasy Football with her college friends. I scoffed at the thought...and did not sign up. But my wife did! Because she had a conflict on draft day, she asked me sit in and make the picks. Since the draft is web-based and I questioned my computer skills, I protested. But being a dutiful husband I complied...with my daughter's help.<br />
<br />
From that first day I was hooked! And, my wife let me "assist" that first season. I was <i>forced t</i>o get my own franchise the second year.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-aDsbx8Gw1Go/XWbOtzvcShI/AAAAAAAABB0/dyKd4kBy_EQPIUGslBqijN3a-rz5HKOcQCLcBGAs/s1600/Mahomes.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="551" data-original-width="980" height="179" src="https://1.bp.blogspot.com/-aDsbx8Gw1Go/XWbOtzvcShI/AAAAAAAABB0/dyKd4kBy_EQPIUGslBqijN3a-rz5HKOcQCLcBGAs/s320/Mahomes.jpg" width="320" /></a></div>
Unless you are a billionaire, this is the closest you will come to "owning" an NFL franchise.<br />
<br />
The NFL season is right around the corner and there are many ways to play - ESPN Fantasy Football, Yahoo Fantasy Football, and NFL Fantasy. All are free but your league may voluntarily request "entry fees" to fund year-end prize money.<br />
<br />
My league uses ESPN Fantasy Football and it is amazingly thorough, user-friendly, and informative.<br />
<br />
If you are already an NFL fan, fantasy football will take you to another level. You don't pick a team, you pick offensive players and a defense to form a team. If you are a "franchising fan," jump on board too - there is branding (name your team), uniforms, strategic planning each week, trademarks, personnel management, and so much more.<br />
<br />
Take a break from the office and get your own NFL franchise! Go Eagles!Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-43377176433048237062019-08-21T11:32:00.000-04:002019-08-21T11:32:06.927-04:00Why I Love Mediation and You Should Too!The majority of franchise agreements that I come across or create these days have a mediation clause. For those of you who have no clue what I'm talking about, when a dispute arises, the disagreeing parties have only a few options: do nothing, file a lawsuit, go to arbitration, or sit down and try to work it out a/k/a MEDIATION.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-Y8pvTXin444/XVFwJTaG93I/AAAAAAAABBc/DozUGktuI0YRadfQvHM3WrzHz9IxHFCMgCLcBGAs/s1600/Mediation%2Bphoto.JPG" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="640" data-original-width="480" height="200" src="https://1.bp.blogspot.com/-Y8pvTXin444/XVFwJTaG93I/AAAAAAAABBc/DozUGktuI0YRadfQvHM3WrzHz9IxHFCMgCLcBGAs/s200/Mediation%2Bphoto.JPG" width="150" /></a></div>
This is not the first time I have addressed this important topic and you can find earlier posts <a href="https://franchisecontrarian.blogspot.com/search?q=mediation">here</a>. And, full disclosure: I serve as a mediator when selected by the parties or their counsel.<br />
<br />
But, here is why I love mediation and you should too! To help your clients or your company resolve disputes before spending a fortune.<br />
<br />
Litigation and arbitration can burn up a very large sum of money. Remember it is a battle. The courtroom or the arbitration room is the battleground and counsel are the warriors. Let's not get too carried away here but some of these disputes run from tens of thousands of dollars to over hundreds of thousands of dollars.<br />
<br />
Mediation is a process that allows parties to work together, usually with the help of a trained and experienced mediator (often a lawyer but not universally), to settle a dispute before an action is filed and sometimes after. Mediators come in all types (ex. commercial law, domestic disputes) and styles (ex. objective neutrals, aggressive, evaluative). But the hallmark of an effective mediator is keeping the parties engaged, keeping them talking and negotiating. Also, an astute mediator may offer "creative" solutions that the parties did not consider.<br />
<br />
So counsel, if you have a long-standing client, wouldn't you want to save them time and money? Wouldn't it be the best advice you can provide under the circumstance? Besides, litigation or arbitration is always on the table but why not think of it as a last resort?<br />
<br />
Company officials or franchisees, not only could you save those precious funds, but you may find a solution that preserves the relationship. The earlier you seek resolution, the more latitude you have.<br />
<br />
Of course some disputes cannot be resolved through mediation but, even when there is a small chance of resolution, it seems like a wise investment.<br />
<br />
And, as any commercial lawyer knows, whether a litigator or transactional lawyer, serving our clients' needs is our top priority.<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-30544014767703293142019-08-14T09:01:00.000-04:002019-08-14T09:01:05.404-04:00Liquidated Damages - Friend or Foe? (Part Two)In <a href="https://franchisecontrarian.blogspot.com/2019/08/liquidated-damages-friend-or-foe-part.html">Part One </a>of this topic, we discussed what Liquidated Damages are, how they may be a "penalty," and the potential risks involved in a franchise setting when there is no cap on damages upon an early termination.<br />
<br />
This part, as promised, addresses why some franchise companies may want to use Liquidated Damages to their advantage and why franchisees may want to negotiate for a Liquidated Damages clause (even though it may sound counter-intuitive). Post-termination damages in franchise matters is complex and we will just scratch the surface here. (More detail can be found in this 2016 <span style="font-family: "times" , "times new roman" , serif;">ABA Forum on Franchising's Annual Meeting article - </span><span style="font-family: "times" , "times new roman" , serif; font-style: italic;"><a href="http://www.ohiofranchiselawyer.com/resources/articles/2016%20Final%20Paper%20-%20Show%20Me%20the%20Money.pdf">Show Me the Money! </a></span><i style="font-family: times, "times new roman", serif;"><a href="http://www.ohiofranchiselawyer.com/resources/articles/2016%20Final%20Paper%20-%20Show%20Me%20the%20Money.pdf">Maximizing Monetary Recovery in Franchise Cases</a> </i>- authored by Bethany Applebee (Subway's General Counsel) and me<span style="font-family: "times" , "times new roman" , serif;">).</span><br />
<br />
First, the idea of "legal damages" is to make an injured party whole without injecting speculation into the equation. When a franchise company seeks a wholesale remedy of "lost future royalties" for an extended term (let's say 5 years or more), it may be getting more than necessary. That is, many franchise systems seek to replace a terminated franchisee as soon as possible - akin to replacing a terminated tenant on a lease. And, as is the case with a lease, a franchisor has a duty to mitigate its damages by finding a replacement. The real measure of damages is the period of time it takes to find a replacement; so how do you calculate this in advance without some speculation.<br />
<br />
Some excellent franchise-lawyers (Rupert M. Barkoff (recently passed away) and Christopher P. Bussert), posited this in their 2009 article: <i>Can a Franchisor Recover Lost Future Royalties? The Debate Goes On</i>, 12 The Franchise Lawyer 2 (Spring 2009):<br />
<blockquote class="tr_bq">
<span style="font-family: "arial" , sans-serif; font-size: 11.0pt;">In fact, when informally asked what "should" be
a "fair" settlement of a lost future royalties dispute, many attorneys suggest
that two or three years would be an appropriate level of compensation. These
opinions may be anecdotal in nature, but they do demonstrate to some level what
is considered reasonable in the franchise community on this issue. In addition,
when franchise agreements provide for <i>liquidated
damages</i> if the franchisee improperly terminates, two to three years of
royalties is often offered (and upheld by courts) as a reasonable compromise.</span></blockquote>
The Barkoff-Bussert thinking was based on a reasonable time to replace a terminated franchisee. Not only is this a fair approach, on the franchisor-side, it eliminates arguments about speculation, lack of mitigation, and other defenses a terminated franchisee may raise. Thus, franchise companies may want to consider this shortcut to damage calculations... and as a means of keeping franchisees from seeking bankruptcy protection.<br />
<br />
And, if a franchise company does not build a Liquidated Damages clause into its franchise agreement, should a franchisee negotiate for one? In states where courts have or may award damages for the FULL remaining term, it seems logical for franchisees to pursue this stop-gap clause. To determine if it is wise for a franchisee to negotiate for a Liquidated Damages clause, seek out an experienced franchise-lawyer in your area, preferably a member of the <a href="https://www.americanbar.org/groups/franchising/">American Bar Association's Forum on Franchising</a>.<br />
<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-18309138166737779022019-08-07T11:14:00.000-04:002019-08-07T11:14:32.074-04:00Liquidated Damages - Friend or Foe? (Part One)This topic has only been mentioned tangentially in this blog some time ago -- <a href="https://franchisecontrarian.blogspot.com/2016/05/franchisees-damages-warning-lost-future.html">Franchisees - Damages Warning: Lost Future Royalties</a> (see the last paragraph of that post)<br />
<br />
In my experience, Liquidated Damages are most commonly found in construction contracts, where damages can be imposed for delays in completion or other material breaches. But we jump the gun. What are Liquidated Damages and what the heck do they have to do with franchising?<br />
<br />
Simply stated, Liquidated Damages is the amount of money that both parties in a contract agree upon if a breach of contract occurs or legal action arises as a result of a contract breach. That is, if there is a breach by one party, instead of arguing about the potential actual damages that may result, the parties agree <i>in advance at the time of the contract is signed</i> that the damages will be predetermined. Sounds simple enough ...<br />
<br />
But, Liquidated Damages has a checkered past and, if applied in a punitive or excessive manner, can be challenged as an unenforceable "penalty," even though the parties "agreed" in advance. Therein lies the rub: <i>agreed</i>? Oftentimes Liquidated Damage provisions are <i>imposed </i>by one party and, when that occurs, the "penalty" argument ensues. Although there is more legal nuance to how Liquidated Damages work, let's turn to how Liquidated Damages are used in franchising.<br />
<br />
The post mentioned above <a href="https://franchisecontrarian.blogspot.com/2016/05/franchisees-damages-warning-lost-future.html">Franchisees - Damages Warning: Lost Future Royalties</a> summarizes the hazards that can ensue when a franchise agreement is terminated by a franchisee prematurely (i.e. before the full contractual term is fulfilled) and the franchise company seeks damages in the form of "lost future royalties" and other lost fees the company expected. If there is no Liquidated Damages clause, some franchise companies believe they are entitled to the lost royalties and fees for the entire remaining balance of the contract term (think: a 20-year term with 10 years left to go). This can be a hefty amount! And some courts have granted these types of damages. Very bad for franchisees.<br />
<br />
Of course, the higher the amount sought, the greater the likelihood that a franchisee will fight or perhaps seek the shelter of a bankruptcy court. This increases the franchise company's legal fees and may leave the company holding an empty bag. Very bad for a franchise company.<br />
<br />
So there are risks on both sides.<br />
<br />
Stayed tuned for Part Two of this post where we will discuss how some companies may use Liquidated Damages to their advantage and why franchisees may want to negotiate for a Liquidated Damages clause (even though this may sound counter-intuitive).<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-22240055511269937832019-08-01T09:33:00.000-04:002019-08-01T10:11:16.160-04:00Marijuana - Pot - Cannabis ...the Bud TurnsSome of the MOST popular posts on this blog have concerned franchising and marijuana. (See "<b>Franchising Marijuana</b>"<a href="http://franchisecontrarian.blogspot.com/2015/01/franchising-marijuana-part-one.html"> <span style="color: blue;">Part One</span></a><span style="color: blue;">, <a href="http://franchisecontrarian.blogspot.com/2015/02/franchising-marijuana-part-two.html"><span style="color: blue;">Part Two</span></a>, <a href="http://franchisecontrarian.blogspot.com/2015/02/franchising-marijuana-part-three.html"><span style="color: blue;">Part Three</span></a></span> and<a href="https://franchisecontrarian.blogspot.com/2016/03/franchising-marijuana-part-four-new.html"> <span style="color: blue;">Part Four</span></a>)<br />
<br />
Franchise lawyers have been nipping around issues concerning the ultimate franchising of cannabis-related businesses. With the passage of more and more state laws legalizing medical and recreational pot, franchising and marijuana is a hot topic. (<a href="https://chicago.suntimes.com/cannabis/2019/6/25/18716000/illinois-legalizes-recreational-marijuana"><span style="color: blue;">Illinois is a recent entrant</span></a>)<br />
<br />
In 2016, an article appeared in the American Bar Association's <i>Franchise Law Journal</i> that I mentioned in this blog: <span style="color: blue;"><a href="http://www.millernash.com/files/Publication/dd9ea1e2-ea2e-465e-8827-c7e8cea974b6/Presentation/PublicationAttachment/ef4761c7-e3f5-4ea7-ba9c-cb9cfa7b3598/FLJ%2035-3%2002McCarthy-Newton.pdf"><i><b><span style="color: blue;">Franchising a Marijuana Business: It's not Quite Mission Impossible</span></b></i></a>.</span> <b>Shannon McCarthy</b> (a partner with Miller Nash Graham & Dunn, LLP in Seattle, Washington) and <b>Dawn Newton</b> (a partner with Donahue Fitzgerald, LLP in Oakland, California) provided a comprehensive treatment of the legal issues and challenges.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-wQkPVx8ZRHc/VvBGcMq4hpI/AAAAAAAAApo/hfDmE8u3n2Ax_8OiyYT1WTIePWWvHYF6Q/s1600/pot%2Bleaf.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="111" src="https://2.bp.blogspot.com/-wQkPVx8ZRHc/VvBGcMq4hpI/AAAAAAAAApo/hfDmE8u3n2Ax_8OiyYT1WTIePWWvHYF6Q/s200/pot%2Bleaf.jpg" width="200" /></a></div>
This month, <a href="https://www.dwt.com/people/s/spandorf-rochelle"><span style="color: blue;">Rochelle "Shelley" Spandorf </span></a> added to the legal literature with "<i><a href="https://www.greenentrepreneur.com/article/337323"><span style="color: blue;"><b>Cannabis Entrepreneurs: Know the Perils of 'Accidental Franchising</b></span></a>." </i><br />
<br />
Shelley is a franchise-colleague of mine from the American Bar Association’s Forum on Franchising. She is a partner in the Los Angeles office of Davis Wright Tremaine. A certified specialist in franchise and distribution law in California, she has dedicated her legal practice to representing primarily franchisors, suppliers and other brand owners expand through trademark licensing. She is the first woman to chair the American Bar Association’s Forum on Franchising, the nation’s preeminent association of franchise attorneys, and has twice chaired the Franchise Law Committee of the California Lawyers Association.<br />
<br />
In other words, Shelley knows what she is talking about! Her article shines a bright spotlight on the subject and it is worth a read. Thanks Shelley!Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com2tag:blogger.com,1999:blog-4578771867758598658.post-70335014689893999562019-07-24T14:03:00.000-04:002019-07-24T14:03:33.772-04:00Franchise Purchasers Entitled to Written SubstantiationHey Franchise Purchasers here's a tip for you.<br />
<br />
The Franchise Disclosure Document contains 23 items of information for your benefit and should be provided to you by all franchisors before a sale is consummated.<br />
<br />
One important item is Item 19 (Financial Performance Representation) -- under the <a href="http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule">FTC Rule</a> -- Item 19 "permits a franchisor to provide information about the actual or <i>potential</i> financial performance of its franchised and/or franchisor-owned outlets, if there is a <i>reasonable basis</i> for the information, and if the information is included in the disclosure document." (See my prior post for more more background on Item 19 - <a href="https://franchisecontrarian.blogspot.com/2016/09/franchise-disclosure-document-dissected.html">Franchise Disclosure Document - Dissected - Part Four</a>)<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://1.bp.blogspot.com/-2VqBjKtRC9c/XTX4D-Ksy4I/AAAAAAAABAg/3NSiq83k33ggrUdOnrr3QJLdBznGtAbKQCEwYBhgL/s1600/money.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" data-original-height="360" data-original-width="640" height="112" src="https://1.bp.blogspot.com/-2VqBjKtRC9c/XTX4D-Ksy4I/AAAAAAAABAg/3NSiq83k33ggrUdOnrr3QJLdBznGtAbKQCEwYBhgL/s200/money.jpg" width="200" /></a></div>
But the tip concerns some "hidden" information you are entitled to receive <i>upon request</i>.<br />
<br />
If a franchise company makes a Financial Performance Representation in Item 19 (this used to be called an Earnings Claim) you are entitled to know more: a franchise company must have "written substantiation for the representation at the time the representation is made." The trick is though that the substantiation will be made available only <b>upon reasonable request.</b>" The FTC Compliance Guide notes that written substantiation means that the franchise company must have "supporting data underlying any representation..."<br />
<br />
Now in my experience many franchise purchasers are reluctant to ask for this! You should ask for everything you are entitled to receive when making this large of a financial investment. Also, on a few occasions, when I do convince a purchaser to ask for the written substantiation, some franchise companies indicate that they DO NOT have the information. This is a violation of the FTC Rule and a major red flag. Would you buy a franchise from a company that does not comply with the law?<br />
<br />
Franchisors: if you make an Item 19 Financial Performance Representation, be sure to inform franchise prospects that they are entitled to receive the "written substantiation for the representation at the time the representation is made" and make certain you are prepared to produce it.<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-85714970909167078632019-07-19T12:23:00.002-04:002019-07-19T12:32:53.908-04:00Unintended Consequences - Joint Employment Revisited<span style="font-family: "times" , "times new roman" , serif; font-size: large;">The Contrarian is BACK! Sorry for the long absence but life intervenes and my posts require some motivation i.e. something interesting!</span><br />
<span style="font-size: large;"><span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Well some of my franchise colleagues have delivered! In a recent article in the American Bar Association's <i>Franchise Law Journal</i>, "Drawing Lines in Franchisor Support--Is It Necessary and Where Are the Lines to Draw in Today's Joint-Employment Environment?," some of franchising's leading lights (Joyce Mazero, Karen Boring Satterlee, Eric H. Karp, Leonard H. MacPhee, Jess A. Dance & William W. Sentell), discuss the unintended consequences from the joint-employer debacle. </span></span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">(For some background check out these prior posts: <a href="https://franchisecontrarian.blogspot.com/2015/09/nlrb-decision-joint-employers-not.html">NLRB Decision</a> and <a href="https://franchisecontrarian.blogspot.com/2016/12/joint-employer-controversy-trumped.html">Joint Employer Controversy...Trumped?</a> There are updates generally available but we don't have the room here)</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Most striking about the article is the reporting from a survey the authors and the International Franchise Association conducted. The results show that a "substantial majority of brands... report reducing or eliminating certain services." What does this have to do with joint employment? Well franchisors are trying to avoid being tagged as the "joint employer" of its franchisees' employees. So the reduction or elimination of franchisor guidance and services that deal with "employees" is one way to say "Hey, we don't have anything to do with franchisees' employees, that's the franchisees' job!"</span><br />
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Now for the result of the survey (quoting from the article):</span><br />
<span style="font-size: large;"><br /></span>
<br />
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Eighty-six
percent of the franchisors and fifty-three percent of the franchisees indicated
that training provided to franchisee employees had been
reduced or eliminated.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-size: large;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Sixty-six
percent of the franchisors and sixty-seven percent of the franchisees indicated
that the franchisor had reduced or eliminated providing operations and
performance standard recommendations.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-size: large;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Eighty
percent of the franchisors and fifty-three percent of the franchisees indicated
that franchisor-supplied advice/guidance regarding staffing and scheduling had
been reduced or eliminated.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-size: large;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Forty-six
percent of the franchisors and fifty percent of the franchisees indicated that
franchisor-supplied advice/guidance regarding personnel manuals and human
resources had been reduced or eliminated.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-size: large;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Seventy-three
percent of the franchisors and sixty-seven percent
of the franchisees indicated that franchisor-supplied
advice/guidance regarding compensation to employees had been reduced or eliminated.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-size: large;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Thirty-three
percent of the franchisors and sixty percent of the
franchisees indicated that franchisor-supplied advice/guidance regarding employee
benefit programs had been reduced or eliminated.<o:p></o:p></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-size: large;"><br /></span></div>
<div class="MsoNormal" style="line-height: normal; margin-bottom: .0001pt; margin-bottom: 0in; mso-layout-grid-align: none; text-autospace: none;">
<span style="font-family: "times" , "times new roman" , serif; font-size: large;">• Fifty-three
percent of the franchisors and forty-three percent of the franchisees indicated
that franchisor-supplied advice/guidance regarding employee
standards/performance or assessments had been reduced or eliminated.<o:p></o:p></span></div>
<span style="font-size: large;"><br /></span>
<span style="font-size: large;">Wow, the "joint employer" advocates caused some changes in the franchise world...but not the ones they intended!</span>Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-61778589783286624152017-02-24T05:09:00.000-05:002017-02-24T05:09:03.585-05:00Don't Forget about SBA Franchise RegistryThe Franchise Registry is an important tool for franchisees and franchisors - <a href="http://www.franchiseregistry.com/sba_eligibility/">eligibility information is available here with a click</a>.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-7WLy-cej6nE/WLAFPtc6p3I/AAAAAAAAA2c/NyG_v42t8vMytwJDxuvfI57FeYuj1pCkQCLcB/s1600/FranchiseRegistry_logo.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://4.bp.blogspot.com/-7WLy-cej6nE/WLAFPtc6p3I/AAAAAAAAA2c/NyG_v42t8vMytwJDxuvfI57FeYuj1pCkQCLcB/s1600/FranchiseRegistry_logo.png" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-kchb8Le9Xtw/WLAFJr3GSuI/AAAAAAAAA2Y/u65C-A9VlP4PV9GCcOEtItCHoETxgE3OwCLcB/s1600/SBA.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://2.bp.blogspot.com/-kchb8Le9Xtw/WLAFJr3GSuI/AAAAAAAAA2Y/u65C-A9VlP4PV9GCcOEtItCHoETxgE3OwCLcB/s1600/SBA.png" /></a></div>
<br />
<span style="font-family: inherit;">As noted on the Franchise Registry site (powered by <a href="http://www.frandata.com/">FranData</a>): "The Franchise Registry lists franchise systems whose franchisees enjoy the benefits of a streamlined review process for U.S. Small Business Administration (SBA) financing. Loan applications for franchises on the Franchise Registry can be reviewed and processed faster and more efficiently by the SBA and its lenders because the respective franchise agreements do not need to be reviewed in each individual franchisee situation." </span><br />
<span style="font-family: inherit;"><br /></span><span style="font-family: inherit;">And, for current FDDs and Franchise Agreements it is important to remember that a new</span> <a href="http://www.frandata.com/wp-content/uploads/2016/01/Addendum.pdf">Addendum </a>to Franchise Agreements is available. Initially, the new Addendum (one-size fits all) was made mandatory by the Small Business Administration (SBA) but a recent change allows franchisors to use their previously-approved 2015 or 2016 SBA Addendum. <a href="http://files.constantcontact.com/a325a7c5001/be56aff7-e0c5-48df-b17d-7db6acc1b34a.pdf">You can find the updated policy here.</a> It is important however to let FranData know which option you will use so lenders can be alerted to the choice.<br />
<br />
After reviewing the new Addendum and comparing it to some of my clients' previously-approved 2015 or 2016 SBA Addenda, the Addendum seems far simpler with little-to-no downside. But, each franchise system needs to review this choice with franchise counsel.<br />
<br />
Good luck with your SBA financing!<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com2tag:blogger.com,1999:blog-4578771867758598658.post-90741912620105649862016-12-30T10:10:00.002-05:002016-12-30T13:19:32.226-05:00Goodbye 2016! Bonus Included for You<span style="font-family: "times" , "times new roman" , serif;">Well 2016 was certainly an interesting year ... most of my comments would likely cause some controversy (isn't that what a contrarian lives for?) but I will refrain and say only that 2017 could be even MORE interesting! And, it would be even better if I improve in Fantasy Football and the Eagles have a winning season.</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-oEHJWj9OI-c/WGZ3afzudVI/AAAAAAAAAu0/kJUk63NlirkYP2lbIhCEJ1sHU1ySBsc_wCLcB/s1600/cork.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: "times" , "times new roman" , serif;"><img border="0" src="https://4.bp.blogspot.com/-oEHJWj9OI-c/WGZ3afzudVI/AAAAAAAAAu0/kJUk63NlirkYP2lbIhCEJ1sHU1ySBsc_wCLcB/s1600/cork.jpg" /></span></a></div>
<span style="font-family: "times" , "times new roman" , serif;">Thank you readers ... for some unexplained reason visits to this blog have increased dramatically over the last few months (have I been discovered?) -- this month alone there were over 7,100 views and all-time visits just topped 19,000! Again thank you.</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Some quick news: my ABA Forum on Franchising colleague and VERY good friend, <a href="http://www.krautharris.com/Counselors/Kenneth-P-Milner.aspx">Ken Milner</a>, just reported a "Holiday Present for Franchisors in PA" via the ABA Forum List-Serv. This is another chink in the "joint-employer" stance. The Pennsylvania Supreme Court let a lower court's decision stand that held that a franchisor was NOT a joint employer of an employee of a Saladworks' franchisee, at least in regard to being liable for workers compensation payments. (lower court decision: <i>Saladworks, LLC, et al v. WCAB (Gaudioso), et al, </i>No. 1789 C.D. 2014, decided October 6, 2015) Thanks Ken! As noted in my last post (<a href="http://franchisecontrarian.blogspot.com/2016/12/joint-employer-controversy-trumped.html">Joint Employer Controversy ... Trumped?</a>) , perhaps 2017 will see the demise of this ill-begotten theory (at least in the franchise context).</span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">And here is a "Holiday Present" for you -- this year I had the privilege of working with <a href="http://www.wiggin.com/Bethany-L-Appleby">Bethany Appleby</a> (<a href="http://www.wiggin.com/index.aspx">Wiggin & Dana, LLP</a>) in presenting our paper at the ABA Forum on Franchising's Annual Meeting in November - <span style="font-style: italic;">Show Me the Money! </span><i>Maximizing Monetary Recovery in Franchise Cases. </i>If you are interested in that sort of thing -- <a href="http://www.ohiofranchiselawyer.com/resources/articles/2016%20Final%20Paper%20-%20Show%20Me%20the%20Money.pdf">here's a copy for you</a>. </span><br />
<span style="font-family: "times" , "times new roman" , serif;"><br /></span>
<span style="font-family: "times" , "times new roman" , serif;">Wishing you a Successful 2017!</span><br />
<div>
<br /></div>
Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-79442582246427809882016-12-13T08:32:00.001-05:002016-12-13T08:32:29.886-05:00Joint Employer Controversy ... Trumped?Wow ... I admit to falling off the blog wagon of late! No real excuse except ABA Forum on Franchising burn-out (as author/presenter), college football, pro football, and, oh yeah, a number of client-litigation matters!<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://2.bp.blogspot.com/-owHqeCLvsUA/WEwLdoPYQ0I/AAAAAAAAAuc/rNj143cL9IE9qL07ceLpLgYbYvf2r3WNACLcB/s1600/wagon.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="306" src="https://2.bp.blogspot.com/-owHqeCLvsUA/WEwLdoPYQ0I/AAAAAAAAAuc/rNj143cL9IE9qL07ceLpLgYbYvf2r3WNACLcB/s400/wagon.jpg" width="400" /></a></div>
First, thank you for visiting this blog ... there have been over 14,000 visits since starting this effort in January 2015 and over 4,000 visits last month - maybe I should post LESS frequently!<br />
<br />
Many of my posts are stimulated by new franchise cases, striking client-experiences, and hot franchise topics. I think my "stimulation" has been dampened by the Trump-election and the litigation matters mentioned above (they become obsessions!) But let's talk Trump and the joint-employer controversy for a moment ...<br />
<br />
I have posted on the joint-employer issue a few times (<a href="http://franchisecontrarian.blogspot.com/2015/01/nlrb-ruling-impacts-franchising.html">here</a> and <a href="http://franchisecontrarian.blogspot.com/2015/09/nlrb-decision-joint-employers-not.html">here</a>) and have advocated to "relax" ... let the courts sort it out. In the meantime, franchisors have gone into protective-mode, changing their procedures, agreements, and manuals. Now even the Small Business Administration has gotten into the act - issuing a new mandatory <a href="http://www.frandata.com/wp-content/uploads/2016/01/Addendum.pdf">Addendum </a>to Franchise Agreements for franchisors seeking SBA financing for franchisees via the <a href="https://www.franchiseregistry.com/">Franchise Registry</a> that includes the following provision: <b>EMPLOYMENT - Franchisor will not directly control (hire, fire or schedule) Franchisee’s employees. </b>(tip of the hat to Edith Wiseman with <a href="http://www.frandata.com/">FRANdata </a>for passing it along) WOW, this certainly smacks of one government-agency feuding with other government-agencies (NLRB and DOL).<br />
<br />
So what does this have to do with Trump? Since the election, a number of my ABA Forum on Franchising's colleagues have been commenting on the Forum List-Serv that Trump's election may derail<span style="background-color: white; white-space: pre-wrap;"> the efforts to hold franchisors jointly liable for their franchisees’ employment law violations; noting that the NLRB will likely become Republican controlled and the leadership at DOL is destined to change as well. By the by, the joint-employer session at this year's Forum's Annual Meeting had one of the largest attendances. (Authors: Joe Fittante, Justin Klein, and Karen Marchiano, with "pinch-hitter" Shelly Spandorf).</span><br />
<span style="background-color: white; white-space: pre-wrap;"><br /></span>
<span style="background-color: white; white-space: pre-wrap;">So stay tuned ... Trump's election may have a silver-lining for some segments of our world.</span><br />
<span style="background-color: white; white-space: pre-wrap;">PS - Ohio lost its favorite son last week - "Godspeed John Glenn."</span>Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-32094914077599751572016-10-24T15:02:00.000-04:002016-10-24T15:27:53.158-04:00Recent Decision - Lost Future Royalties Denied<div class="MsoNormal" style="margin-bottom: 4.5pt;">
<br /></div>
<div class="MsoNormal" style="margin-bottom: 4.5pt;">
<span style="font-family: Arial, Helvetica, sans-serif;"><span style="font-size: 12pt;">Tip of the hat to Bruce Schaffer at </span><a href="http://www.franchisevaluations.com/" style="font-size: 12pt;">Franchise Valuations </a><span style="font-size: 12pt;">for
reporting on this case in his "</span><a href="http://www.franchisevaluations.com/newsletters.html" style="font-size: 12pt;"><span style="color: blue;">The Franchise
Valuation Reporter</span></a><span style="font-size: 12pt;">." Bruce is colleague from the American Bar
Association's Forum on Franchising who focuses his expertise on valuation and
damages, cyber crime, expert testimony, and tax nexus.</span></span><br />
<div style="margin-bottom: .0001pt; margin: 0in;">
<div class="MsoNormal">
<span style="font-family: Arial, Helvetica, sans-serif; line-height: 107%;"><br /></span></div>
</div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-gXi4BAwIcEY/WA5gnyxsj_I/AAAAAAAAAt4/TBDunEqOgTsrHZrV3zRgFWi3YxEeddUxQCLcB/s1600/Mster%2BSoftee.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="173" src="https://4.bp.blogspot.com/-gXi4BAwIcEY/WA5gnyxsj_I/AAAAAAAAAt4/TBDunEqOgTsrHZrV3zRgFWi3YxEeddUxQCLcB/s200/Mster%2BSoftee.jpg" width="200" /></a></div>
<span style="background-color: white;"><span style="color: #4c3f36; font-family: Arial, Helvetica, sans-serif;"><span style="color: #4c3f36;">Our topic for this post is </span><b style="color: #4c3f36;">Lost Future Royalties</b><span style="color: #4c3f36;"> - this has been
the subject of my earlier posts:</span><span class="apple-converted-space" style="color: #4c3f36;"> </span><a href="http://franchisecontrarian.blogspot.com/2016/05/franchisees-damages-warning-lost-future.html" style="color: #4c3f36;"><span style="color: blue;">Franchisees
- Damages Warning: Lost Future Royalties<span class="apple-converted-space"> </span></span></a><span style="color: #4c3f36;">and</span><span class="apple-converted-space" style="color: #4c3f36;"> </span><span style="color: blue;"><a href="http://franchisecontrarian.blogspot.com/2016/03/franchise-valuation-through-damage.html"><span style="color: blue;">Franchise
Valuation through Damage Analysis</span></a><span style="color: #4c3f36;">.</span></span></span><span style="font-family: "arial" , sans-serif;"><o:p></o:p></span></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: #4c3f36; font-family: "arial" , sans-serif;">The case is <em>Mister
Softee, Inc., Mister Softee Sales and Manufacturing, LLC, and Spabo Ice Cream
Corp. v. Reza Amanollahi,</em> 2016 WL 5745105D. New Jersey. Civ.
No. 2:14-CV-01687(KM)(JBC) - As noted, the case involved a claim for lost
future royalties and the decision followed the well-known but controversial
decision in<span class="apple-converted-space"> </span><i>Postal Instant
Press v. Sealy<em>, </em></i>43
Cal. App. 4th 1704 (1996)<i>. <em> </em>Postal
Instant Press v. Sealy</i> and cases that adhere to its rationale, hold
that a franchisee cannot be liable for lost future royalties when the
franchisor ELECTED to terminate the relationship even though the franchisee's
act (ex, failure to pay royalties) gives rise to the termination.</span><span style="font-family: "arial" , sans-serif;"><o:p></o:p></span></span></div>
<div style="margin-bottom: .0001pt; margin: 0in;">
<span style="color: #4c3f36; font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: #4c3f36; font-family: "arial" , sans-serif;">After
reviewing New York case law, the judge in <em>Mister Softee</em><span class="apple-converted-space"><i> </i></span>concluded
that summary judgment would be denied on Mister Softee's claim for lost future royalties</span><span style="font-family: "arial" , sans-serif;">:
"</span><span style="color: #4c3f36; font-family: "arial" , sans-serif;">Here,
Mister Softee decided to terminate Amano's Franchise Agreements because Amano
moved his trucks out of the Manida Street Depot and stopped making payments
under the Truck Notes.<span class="apple-converted-space"> </span>Mister
Softee faced a choice: terminate the Agreements, or remain within the
Agreements and sue for the ongoing unpaid royalties. It chose the former."</span><span style="font-family: "arial" , sans-serif;"><o:p></o:p></span></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="color: #4c3f36; font-family: "arial" , "helvetica" , sans-serif;">So
mark one up for FRANCHISEES on this controversial topic! (even though Mister Softee brings back many childhood memories while growing up in south Jersey) Thanks Bruce!</span></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><br /></span></div>
<div style="margin: 0in 0in 0.0001pt;">
<span style="font-family: "arial" , "helvetica" , sans-serif;"><span style="color: #4c3f36; font-family: "arial" , sans-serif;">If
you are planning to attend the American Bar Association's Annual Forum on
Franchising in Miami on November 2-4 don't forget to drop into<span class="apple-converted-space"> </span><i>Show Me the Money! Maximizing
Monetary Recovery in Franchise Cases,<span class="apple-converted-space"> </span></i>where
I will join Bethany Appleby (Wiggin & Dana, LLP) for an informative
session.</span><span style="font-family: "arial" , sans-serif;"><o:p></o:p></span></span></div>
<div class="MsoNormal">
<br /></div>
</div>
Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-15079671443030498742016-09-07T09:22:00.001-04:002016-09-07T09:22:57.827-04:00Franchise Disclosure Document - Dissected - Part FourNow for the wrap-up of this series of posts. (If you missed<span class="apple-converted-space"> </span><a href="http://franchisecontrarian.blogspot.com/2016/07/franchise-disclosure-document-dissected.html" style="font-family: Times, "Times New Roman", serif;">Part One</a><span style="color: blue;">,</span><span class="apple-converted-space"> </span><a href="http://franchisecontrarian.blogspot.com/2016/08/franchise-disclosure-document-dissected.html" style="font-family: Times, "Times New Roman", serif;">Part Two</a>, or <a href="http://franchisecontrarian.blogspot.com/2016/08/franchise-disclosure-document-dissected_12.html">Part Three</a>, you can click on the hyperlinked text)<br />
<br />
<a href="https://4.bp.blogspot.com/-N0vF9CwBmac/V86xquJjOiI/AAAAAAAAAtc/avL-FT4n9v0Sh26SFYA0sp9oI3LCD_xowCLcB/s1600/Wrap.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="141" src="https://4.bp.blogspot.com/-N0vF9CwBmac/V86xquJjOiI/AAAAAAAAAtc/avL-FT4n9v0Sh26SFYA0sp9oI3LCD_xowCLcB/s200/Wrap.jpg" width="200" /></a>Although we could focus on many of the remaining FDD Items, <b>Item 19</b> - <b>Financial Performance Representations</b> deserves our attention. Franchisors need to get it right and franchisees need to understand their right to additional information.<br />
<br />
Before 2007, this item (under the old UFOC format) was labeled "Earnings Claims" and was much stricter than today's version. To encourage more franchise systems to provide financial performance information, the rules were loosened. Now, the <a href="http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule">Amended FTC Rule</a> "permits a franchisor to provide information about the actual or <i>potential</i> financial performance of its franchised and/or franchisor-owned outlets, if there is a <i>reasonable basis</i> for the information, and if the information is included in the disclosure document." As a result, this disclosure has been given a wide berth.<br />
<br />
When we dissect the language, we see that the information can simply be "potential" performance if there is a reasonable basis. Now the <a href="http://www.ftc.gov/tips-advice/business-center/guidance/franchise-rule-compliance-guide">FTC Compliance Guide</a> carries a section on the "Reasonableness of a Financial Performance Representation" (p.135) that I will let interested readers review on their own; but I want to focus on another requirement of Item 19.<br />
<br />
To make a proper disclosure in compliance with the Rule, in addition to having a reasonable basis, a franchise system must have "written substantiation for the representation at the time the representation is made." However, in the FDD, a <b>statement</b> indicating that "<b>written substantiation for the financial performance representation</b> will be made available to the prospective franchisee <b>upon reasonable request</b>," need only appear. The FTC Compliance Guide notes that written substantiation means that the franchise system must have "supporting data underlying any representation..."<br />
<br />
Much more could be said about the Item 19 requirements (see the <a href="http://www.ftc.gov/enforcement/rules/rulemaking-regulatory-reform-proceedings/franchise-rule">Amended FTC Rule</a> and the <a href="http://www.ftc.gov/tips-advice/business-center/guidance/franchise-rule-compliance-guide">FTC Compliance Guide</a>) but the take-away here is: franchisors must have the underlying data ready to produce and franchise-buyers should ask for it.<br />
<br />
Although I must say in my years of practice, I have found that franchise-buyers are hesitant to request the information even when counseled to do so! Why? They don't want to appear uncooperative or distrustful. Maybe franchisors should be more aggressive in offering the data? After all, its supposed to be the reasonable basis on which buyers are encouraged to buy into the system!<br />
<br />
The End!<br />
<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com1tag:blogger.com,1999:blog-4578771867758598658.post-35578131203121733702016-08-12T10:07:00.001-04:002016-08-12T10:07:56.774-04:00Franchise Disclosure Document Dissected - Part Three<div class="MsoNormal">
We
pick-up our observations about the Franchise Disclosure Document (FDD) with<span class="apple-converted-space"> </span><b>Item 11<span class="apple-converted-space"> </span></b>- Franchisor's Assistance. If
you missed<span class="apple-converted-space"> </span><a href="http://franchisecontrarian.blogspot.com/2016/07/franchise-disclosure-document-dissected.html" style="font-family: Times, "Times New Roman", serif;">Part
One<span class="apple-converted-space"><span style="color: blue;"> </span></span></a>or<span class="apple-converted-space"> </span><a href="http://franchisecontrarian.blogspot.com/2016/08/franchise-disclosure-document-dissected.html" style="font-family: Times, "Times New Roman", serif;">Part
Two</a>, you can click on the hyperlinked text. </div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
Item 11 is the most comprehensive in the FDD - and an important one for both sides
of the franchise equation. Just a few insights here on some of the topics covered
in Item 11:<br />
<br /></div>
<span style="font-family: "times" , "times new roman" , serif;">
</span>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-ukNA9TubFLA/V6njFhfug2I/AAAAAAAAAsY/DL_4DRbHh9Utbhebq-wMLVa8Jq9VHDKxwCEw/s1600/COVER%2BFINAL%2B-red%2BKindle.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><span style="font-family: "times" , "times new roman" , serif;"><img border="0" height="200" src="https://4.bp.blogspot.com/-ukNA9TubFLA/V6njFhfug2I/AAAAAAAAAsY/DL_4DRbHh9Utbhebq-wMLVa8Jq9VHDKxwCEw/s200/COVER%2BFINAL%2B-red%2BKindle.jpg" width="154" /></span></a></div>
<div style="text-align: justify;">
<span style="font-family: "times" , "times new roman" , serif;"><b style="font-family: inherit;">Operations Manual </b><span style="font-family: inherit;">- nearly every franchise system has an operations manual. The manual is the "bible" for the operating system - operational requirements are enforced through the franchise agreement. Item 11 mandates <b>two alternative disclosures </b>regarding the manual: either the Table of Contents must be provided <b>OR</b> the buyer must be given the opportunity to review the manual before purchasing. Few franchisors offer the opportunity for review and only provide the Table of Contents. TOC's are typically generic and offer little insight into the manual. Few franchise-buyers go further and rely on a cursory TOC review. This is an important piece! Franchise-buyers should request access to the manual and serious franchise systems should grant greater access (protected by a non-disclosure) before the sale. Little is gained by looking at the TOC.</span></span></div>
<div style="text-align: justify;">
<span style="font-family: "times" , "times new roman" , serif;"><b><br /></b></span>
<span style="font-family: "times" , "times new roman" , serif;"><b>Training </b>- another important item is training. Item 11 discloses the Training Program in a Table format, covering the subject, hours in the classroom and on-the-job, and the training location. A generalized description of the program is usually offered and the instructional materials, along with the instructors' experience. Here is the observation: many times franchisors do not fully disclose required information about the instructors. It is not acceptable to simply refer back to Item 2 ("Business Experience" of the main officers). The name of each instructor and their length of experience "in the field" and with the franchise system is required. So franchisors, be proactive and offer the full information; franchise-buyers, make sure you get all the information.</span></div>
<div style="text-align: justify;">
<span style="font-family: "times" , "times new roman" , serif;"><b><br /></b></span>
<span style="font-family: "times" , "times new roman" , serif;"><b>Time Limit to Open </b>- Item 11 discusses the amount of time franchise buyers will have to secure a lease and open the business. Everyone is interested in opening as soon as possible. But, some of the time-frames are too short, too unrealistic. In some markets getting a lease alone can take 6-12 months. This is really a negotiating point for the franchise agreement - seek to expand the deadline. Most franchisors are flexible on this point ... because they realize it may well take more time than they estimate.</span></div>
<div style="text-align: justify;">
<span style="font-family: "times" , "times new roman" , serif;"><br /></span></div>
<div style="text-align: justify;">
<span style="font-family: "times" , "times new roman" , serif;">Hopefully, one more part upcoming to finish the dissection!</span></div>
Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com1tag:blogger.com,1999:blog-4578771867758598658.post-24333370978588094792016-08-08T11:34:00.000-04:002016-08-08T11:34:05.317-04:00Franchise Disclosure Document Dissected - Part Two<span style="font-family: inherit;">We continue our review of <span style="background-color: white; line-height: 18.48px;">Franchise Disclosure Documents (FDD) from a few insights that have come my way over the years. Insights that may be of value to franchise purchasers and franchise companies alike. If you missed <a href="http://franchisecontrarian.blogspot.com/2016/07/franchise-disclosure-document-dissected.html">Part One, you can find it here</a>. We will not cover every FDD item but focus on the highlights.</span></span><br />
<span style="font-family: inherit;"><span style="background-color: white; line-height: 18.48px;"><br /></span></span>
<span style="background-color: white; line-height: 18.48px;">Today let's start with FDD Item 5:</span><br />
<ul>
<li><span style="line-height: 18.48px;"><b>Initial Fees</b> - this item covers the amount of money or fees paid directly to the franchise company at the beginning of the process. Typically referred to as the "initial franchise fee," this amount should be clearly indicated in Item 5 and <b>match </b>the corresponding amount or amounts disclosed on the Cover Page. On the Cover Page, the franchise company should have at least two amounts disclosed: the total estimated investment required that corresponds to the Item 7 chart (Estimated Initial Investment) and the amounts that must be paid to the franchisor to get started (Initial Fees), again matching the Item 5 amounts. If there is a development agreement fee or other initial charges due to the franchisor, those amounts must be disclosed and accurately reflected on the Cover Page. If the amounts don't match something is wrong.</span></li>
<li><span style="line-height: 18.48px;"><b>Estimated Initial Investment</b> - Item 7 is arguably the most important item in the FDD. It is supposed to inform readers of the total expenditure to get started (so it should repeat the Item 5 amounts plus a variety of other expenses) and identify the working capital needed for at least the first three months. Franchisors are wise to draft this section <span style="line-height: 18.48px;">carefully </span>and review it on an annual basis to ensure accuracy. Although it is an "estimate," grossly understated amounts could lead to disputes when a franchisee's experience is negative and the start-up estimate was below par. Franchise buyers should not stop at the Item 7 estimate. Asking other franchisees about their actual start-up cost and how it compared to estimate, is highly recommended. As an example, sometimes smaller items such as professional fees (attorneys and accountants) are under-estimated. Franchisees need to conduct due diligence on this important item. Finally, if there is a development program, a separate estimate should be provided for that.</span></li>
<li><span style="line-height: 18.48px;"><b>Financing</b> - If the franchise company offers financing for start-up costs (including inventory and equipment) or assists with securing a loan, it should be explained in Item 10. Here is something I have encountered, especially with new franchise systems: no disclosure or indication of financing is provided in Item 10 but "to make a deal" a franchisor enters into an installment payment arrangement with a franchise purchaser for some of the initial fees or costs. This is financing! And the terms of any financing MUST be explained in Item 10.</span></li>
</ul>
<div>
<span style="line-height: 18.48px;">More later!</span></div>
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-12576640219711608562016-07-26T10:23:00.001-04:002016-07-26T10:23:19.941-04:00Franchise Disclosure Document Dissected - Part OneAfter reviewing hundreds of Franchise Disclosure Documents (FDD), writing and developing dozens of FDDs, and practicing in this area for 30 years, a few insights have come my way. Insights that may be of value to franchise purchasers and franchise companies alike.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-GGl9rXiFEfk/V5IxkN_9O0I/AAAAAAAAAr8/E9c-4cWF7r8bylwZQVZMxYwSFL4cLVmJACLcB/s1600/micro.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="133" src="https://4.bp.blogspot.com/-GGl9rXiFEfk/V5IxkN_9O0I/AAAAAAAAAr8/E9c-4cWF7r8bylwZQVZMxYwSFL4cLVmJACLcB/s200/micro.jpg" width="200" /></a></div>
<br />
<span style="text-align: center;">It is hard to fit them all into this space so I will address this in a series of posts and hit the highlights:</span><br />
<br />
<ul>
<li><b>The Trademark</b> - arguably the most important "asset" in a franchise system, the primary trademark is required to appear on the Cover Page and to be discussed in Item 13. Franchise systems should always make sure the correct PRIMARY mark is used on the Cover Page. It would seem that the primary mark should be one that is registered on the USPTO's Principal Register. I see FDDs that display a registered mark in Item 13 but it is not the one on the Cover Page. Is this because the "registered" mark is not the primary mark or because the mark on the Cover Page is the primary but unregistered mark? Either way it is confusing. Plus, franchise buyers should be more comfortable when the primary mark that they will do business under is registered.</li>
<li><b>Business Experience </b>- FDD Item 2 requires disclosure of the business experience or "job experience" of the the main officers and directors - <i>but only for the last five years</i>! Franchisors that tell us where the officers went to high school and add flowery business accolades reveal an amateurish knowledge of the requirements, may face push-back from franchise-registration-state-examiners, and, in some states, create an unwanted "technical" violation. This five-year limit, however, should not stop franchise buyers from investigating the officers and directors. In the age of the internet, there are many sources for the background of individuals and businesses.</li>
<li><b>Litigation</b> - FDD Item 3 deals with certain lawsuits that the franchise system (parents, predecessors and affiliates) and its main officers are or have been involved in (different disclosure time-frames apply to different types of litigation). Some lawsuit descriptions, however, end with the statement "This case was settled by confidential settlement agreement" -- meaning, the reader is not informed of the outcome of the suit. Since the 2007 adoption of the Amended FTC Rule, this practice is not permitted. According to the Rule, settlement terms must be disclosed regardless of whether the agreement is confidential (unless the settlement was entered into before the company started franchising or before July 1, 2007). Again for franchise companies: push-back from state-examiners and unwanted "technical" violations may result. For purchasers: press for the information that is required by Rule,</li>
</ul>
Enough for now!Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0tag:blogger.com,1999:blog-4578771867758598658.post-19216426232267498362016-07-07T09:11:00.000-04:002016-07-07T09:11:10.419-04:00Franchise Resources at Your FingertipsSo from a franchise news perspective - or a franchise news perspective that <i>inspires me to write a blog post</i> - it has been a slow summer. Guess we all need a break from the routine ... and slow news gives me more time to focus on clients ... and uh to swim and ride my bike!<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://4.bp.blogspot.com/-L5QBhNl2FvY/V35NtVWJX_I/AAAAAAAAArM/_IvDeNfnAMEIZ8ASWgdDHZCuPwz_V9MiQCLcB/s1600/help-sign-post.jpg" imageanchor="1" style="clear: left; float: left; margin-bottom: 1em; margin-right: 1em;"><img border="0" height="174" src="https://4.bp.blogspot.com/-L5QBhNl2FvY/V35NtVWJX_I/AAAAAAAAArM/_IvDeNfnAMEIZ8ASWgdDHZCuPwz_V9MiQCLcB/s320/help-sign-post.jpg" width="320" /></a></div>
Well this may be a good time to blow my own horn while passing on a valuable resource to you.<br />
<br />
In addition to this blog, I maintain a website at <a href="http://www.fddlawyer.com/">www.fddlawyer.com</a> and at <a href="http://www.ohiofranchiselawyer.com/">www.ohiofranchiselawyer.com</a>.<br />
<br />
While this site talks about my background and services, it also provides a <a href="http://www.ohiofranchiselawyer.com/resources.php">Resource Page</a> that you may find helpful.<br />
<br />
There are links to most franchise and business opportunity laws, state administrators, legal resources and franchise associations. In addition, there are articles written over the years by yours truly. Feel free to bookmark the page and take advantage of the resources ... and best of all it is FREE!<br />
<br />
Enjoy the summer! I'm off for a swim.<br />
<br />Jim Meaneyhttp://www.blogger.com/profile/03855281963631727753noreply@blogger.com0