Do You Know These Secret Franchisor Winning Litigation Strategies?

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When I am contacted by a franchisee or a group of franchisees that believe that their franchisor is engaging in conduct that is hurting the financial performance and value of their business, it is practically always the case that they have already done something that is not in their best interests.

When someone is perceived to be hurting your economic interests, any normal person becomes enraged and wants to go immediately on the counterattack. They do this in a number of ways.

One of the first very bad things that they do is write an angry letter in which they vent their frustration, often accusing their franchisor of unlawful conduct or conduct that violates the franchise agreement, or both.

Frequently there is much in the letter that is aggressively accusatory and threatening, to put it mildly.

The threats customarily include reports to government enforcement authorities, lawsuits, group action by many franchisees, political action and publicity about the negative attributes that the franchisee(s) believe deserve exposure to the public eye.

Another of the bad things that franchisees do is that they call each other without thinking it through and try to stimulate some group cohesion for the purpose of sharing expenses and jointly addressing the grievances.

Another very bad thing that they do is to get involved with a lawyer who does not know much about how franchising works -- frequently a relative or some other lawyer who may have represented them in some matter totally different. Having no sensitivity about how franchise relationships work, the advice is usually awful.

The bad letter to the franchisor usually contains strong statements accusing the franchisor of violating duties that the franchisor really does not have. As such, it is insulting and not conducive to the achievement of positive results.

There are some very fundamental truths about franchise disputes that hardly any franchisees know about. For example, a franchisor may lawfully do just about anything that there is no contract or statutory prohibition against. The fact that whatever the action is may negatively impact upon the franchisee's business does not mean that the franchisee has any right to prevent it or to recover damages because of it. Some injuries are simply the product of other companies behaving rationally in a changing market (merging with competitors, for example).

In addition, there is no 'moral' duty in any commercial agreement. The parties are obligated to do what their contract says they will do, and to refrain from doing what the contract says they cannot do. Even those apparent absolutes are sometimes not as absolute as they sound. If the contract does not impose a specific duty to act or to refrain from acting, the duty probably does not exist.

No implied doctrines of good faith or fair dealing will supply provisions in a franchise agreement that the parties did not put there in writing in the first place.

Several courts have sought to insert good faith and fair dealing doctrines into franchising cases, mostly having to do with encroachment. These courts have either been reversed, or their rationales have not been followed in other cases. Congress has been holding hearings on changing the franchise legal relationship to include concepts like good faith and fair dealing. This has gone nowhere, and it will not go anywhere in the future.

Threatening the franchisor is always the worst first step in addressing any serious problem. The threat may be empty, either because the franchisor has the right to do whatever it is he is doing, or because there are not adequate resources to fund litigation/arbitration to redress the grievance.

Empty threats put everything on the worst possible footing. Everyone digs in his heels, and getting anything resolved peaceably is made doubly difficult or impossible.

Getting legal advice from some lawyer, who does not know what he is doing, either because he is a relative or because he is inexpensive, is always bad. If the gravity of the problem is not sufficient to justify spending a few thousand dollars to get really good professional help, it isn't worth starting a fight over anyway.

Today you can get on the Internet and find many experienced franchise lawyers who will evaluate competently whatever your situation may be and suggest alternative approaches in an order of priority calculated to make the worst and most expensive response a last resort. No competent lawyer will recommend litigation without first having analyzed the problem and done research to bring his knowledge of what the courts are doing with similar problems up to date.

No group action should ever be attempted without capable guidance from legal counsel about how to go about it. Rabble rousing always gets reported to the franchisor and makes people targets. Other franchisees will always think they can get an inside deal for themselves by ratting you out. How one goes about making group action happen is very important.

Often the angry franchisee(s) may have some dirt in their back yard also, and that may come back and bite you if you don't handle this activity very professionally. Get a lawyer who knows how to do this to show you how. Ask lawyers whether they have ever done this before and how they would go about it. Don't think that every franchise lawyer knows how to organize a revolt.

The goal of this approach is to preserve as many franchisee options as possible -- to burn bridges only when absolutely necessary. Angry confrontation often ruins the chance to resolve matters with a positive business solution. It may very well come down to angry confrontation. That should be done when other approaches are unrewarding and when there is a proper legal basis to wage war and the chances of winning are good.

Most franchisors can afford to defend bozo lawsuits.

Only a real, valid claim, competently presented to the court or arbitration panel, has a likelihood of changing anyone's mind or getting redress for injuries suffered. A seasoned franchise litigator can provide that kind of help. A document writer is not likely to know how to handle dispute resolution effectively.

There is a moment (and it may last for days or weeks) when nothing could make you angrier, when what is happening to your business is seriously injurious and is being done by your franchisor. It is in this moment that you must, for your own benefit, find competent counsel -- that you must, for your own benefit, keep a lid on your feelings while the right thing to do and the right way to do it is accounted for.

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Richard is speaking from deep experience.

If you are sharing information among other franchisees, remember:

"Rabble rousing always gets reported to the franchisor and makes people targets.

Other franchisees will always think they can get an inside deal for themselves by ratting you out.

How one goes about making group action happen is very important."

Think carefully about the kind of group you are interested in, don't aim to speak for all franchisees, and come prepared with alternative business plans.

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About this Entry

This page contains a single entry by Richard Solomon published on February 4, 2013 11:53 AM.

Why Some Franchise Buyers Always Make Mistakes was the previous entry in this blog.

How to Help the Foreign Investor Buy Your Franchise is the next entry in this blog.

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