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Insurance Entrepreneurs Wanted for Franchise Industry in Face of Joint Employer Risk​   January 20, 2016 http://www.insurancejournal.com/magazines/coverstory/2016/01/11/394052.htm Okay; maybe I’m missing something. The underlying purpose of insurance is to assess and manage risk. And, altho insurance companies many times prefer to establish insurance programs for situations in which there is there is little to no risk, creative, aggressive and successful underwriters are capable of building profitable programs in the face of tangible heightened risk. That’s how they made and make money, and that’s how the insurance industry historically evolved and competes. But, according to Mr. Betterley, this rule doesn’t apply to the franchise industry? As he states: “The reality is that insurers are becoming cautious because the exposure [due to joint employer franchisor liability] has changed,” Betterley said. “In the past if there was a request to add the franchise the underwriting assessment would be presumably that the risk is minimal and yes probably they would. Now they have to look at it and say, ‘No, wait a minute there’s real exposure here.' Well, can’t somebody re-assess the risks, cost it out, and build a program to reflect these new franchise industry realities and risks? Not according to Mr. Taffae who, in the article, stated “There’s just no way to underwrite it …” Hard to believe.  http://www.insurancejournal.com/magazines/coverstory/2016/01/11/394052.htm

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Franchise Fraud and the Wizard of Oz — Minnesota Franchise Lawyers Watch Out   1/20/16 The United States District Court for the District of Minnesota on January 12, 2016, in In Moxie Venture L.L.C., et al. v. The UPS Store, Inc., 2016 U.S. Dist. LEXIS 3603, hammered the final nail in the coffin of franchisee fraud claims under the Minnesota Franchise Act by ruling that as a matter of law a franchisee could not argue that it was misled by a franchisor’s fraudulent representations since the franchise agreement contained a franchise fraud disclaimer. Minnesota franchise lawyers should take notice; Minnesota franchise law is under attack.  https://www.linkedin.com/pulse/article/franchise-fraud-wizard-oz-jeffrey-m-goldstein/edit

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Perpetual Termination Jockeying In the Hotel Franchise World   Jan. 2016 By: Jeffrey M. Goldstein 202 293-3947 Seemingly, more than in other franchise niches, hotel franchises seem to be signed-up and then discarded by schisophrenic hotel franchisors. On any given day any particular hotel can be a ‘perfect fit’ for the brand, and, then, 6 months later, after initial fees have been paid to the franchisor, and after another newer or larger potential replacement property coincidentallybecomes available in that market, the initial hotel is deemed a ‘terrible fit.’ Usually observers justifiably focus on the negative financial impact of questionable terminations on the hotel owners (franchisees) themselves, without too much consideration regarding the impact on the hotel brands. Below, however, it is difficult, after reading the article, to come away with a good view of the franchisor, Ramada. Further, it looks like Ramada is having to get into the weeds itself to deal with the unhappy guests whose vacations have been scuttled by the termination. Why was the owner of the hotel allowed initially to purchase the brand? How realistic (financially and temporally) was the list of repairs demanded by the franchisor on the hotel owner? What assistance did Ramada directly provide to the owner to help it meet the chalenges? How swiftly did Ramada meet the requests for assistance that were made by the franchisee for assistance?   Resort ‘not up to scratch’ The Gold Coast Bulletin (Australia) December 9, 2015 Wednesday, GoldCoast Edition Copyright 2015 Nationwide News Pty Limited All Rights Reserved Section: NEWS; Pg. 3 Length: 432 words Byline: JENNY […]

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Three Common Franchise Myths A myth is an invented story, idea or concept. Sometimes myths are used to support and justify particular ideas, institutions, and traditions. In two recent columns I’ve identified and discussed three pervasive franchise myths, including: “If you buy this franchise, you’ll be our partner.” “If you buy this franchise, you’ll be rich.” “If you buy this franchise, you’ll benefit from our experience and expertise in successfully operating franchises.” As I previously noted, the first two myths are existentially mysterious in that, one would have thought that, over the course of history, as these myths were passed from one generation to the next, they would have been exposed and debunked. They have not been. And, with regard to the latter myth, incredibly, legal standards have evolved that allow and incentivize franchisors to perpetuate it. In essence, courts have refused to recognize a claim for franchisor malpractice. In this regard, given the force and nature of the “economic loss rule”, it is not likely that this myth will be discredited in the near future. Given the longevity and vitality of these myths, it is not surprising to learn that they cause incredible damage to franchisees, sometimes entirely destroying franchisees’ families, savings, and futures. If you believe that you’ve fallen for one or more of these myths, time is not in your favor. You should promptly seek the advice of an experienced franchisee lawyer who will be able to accurately devise a legal strategy to protect you and your […]

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Domino's franchise operators accused of uttering death threats will keep store… This is one way for a franchisee to hold down franchisee labor costs and at the same time side-step a franchise termination. Not sure, however, if the 'new big brothers' of franchisee organizations (big labor and the unions) would be happy with the result. JMG The operators of a Domino's Canada franchise in North Vancouver who were alleged to have exploited two former employees will keep their pizza store.  On Wednesday, CBC News learned a B.C. Supreme Court civil case, between brothers Keyvan Iranmanesh and Farhad Iranmanesh and Domino's Canada, was settled on Aug. 27, with the owners retaining the store.   The employees filed complaints with police and government, and also said at the time that they feared for their safety.  One of the franchisee employees told CBC News that his bosses said they would "cut his [Dearman’s] head off" and that "they're going to slit our throats and murder us." Domino's terminated the franchise, but the franchisees fought the termination in court. In so doing, the franchisee won a temporary injunction in BC Supreme Court to hold on to their business while the court case was pending. They also adamantly denied any assaults or threats.

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Gas Station Franchise Termination — In Swaziland Fuel Franchisor: “Your gas station franchise is terminated and you must vacate the premises immediately.” No; this was not a petroleum franchisor in the USA, but a gas distribution franchisor in Swaziland. After the gas station franchise termination in Swaziland, the franchisee lawyer for the gas station, in a discussion with the press and in his pleadings, made arguments almost identical to those that would have been, and are made, by franchise lawyers in the USA: “He is arguing that he feels like he has been given a raw deal in the sense that he is now made to lose the business and property without compensation.” “The Supreme Court merely made an assumption that the franchise agreement was for a three year term ignoring the words used in the clause and thereafter ordering the ejectment of the applicants without compensation.” The franchisee’s lawyer said in an affidavit: “The court failed to an interpretation of Clause 6.1 of the agreement.” “He spent E6.5 million in the business so he was pleading with the court to let him continue operating the filling stations. He said if the court ruled in favour of Galp Swaziland, he should be compensated or at least be given an opportunity to sell his businesses.” “He said the respondents of the matter displayed a lackadaisical attitude in this regard because they believed the applicants had no ownership over the business but they were just mere managers of the filling stations they operated.” […]

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http://consumerist.com/2015/08/14/chick-fil-a-franchise-owner-pays-employees-during-5-month-renovation/ Labor costs no different than franchise remodel. Chick-Fil-A Franchise Owner Pays Employees During 5-Month Renovation — When there’s a good location and strong market demand even counterintuitive business decisions are possible. In the land where franchisee costs are rendered irrelevant; this is sort of a self-imposed franchise remodel. If a franchisor had foisted this labor cost increase on franchisees, they would scream more loudly than they would if they were forced to carry out a franchise remodel. 

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  Constructive Franchise Termination Claims are Not Dead. This case provides good advice for franchisors on devising and embracing a franchise impact policy; the problem is that very, very few franchisors follow this advice. Short run profit goals of franchisors, along with terribly thought-out court decisions like DRX Urgent Care, leave franchisees with no place to turn in the face of ongoing franchisor encroachment. This opens up franchisors to viable claims by franchisees of constructive franchise termination. The attached article written by a franchisor lawyer surprisingly shows some compassion for the devastating effects of signficant encroachment on a franchisee's ability to turn a profit, even a meager one.   http://www.thelegalintelligencer.com/id=1202733653046/Encroachment-and-Franchisee-Claims-of-Constructive-Termination

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Constructive Franchise Termination Claim Upheld by Florida Court: HRCC, LTD. v. HARD ROCK CAFE INTERNATIONAL (USA), INC, 2015 WL 3498610 (June 2015):  The Florida federal court ruled that a de facto or constructive franchise termination “‘applies where one party unilaterally modifies the terms' of a contractual relationship in a manner that ‘substantially interferes with the other party's ability to obtain the benefits of the contract.’“ Bert Smith Oldsmobile, Inc. v. Gen. Motors Corp., No. 8:04CV2666T–27EAJ, 2005 WL 1210993, at *2 (M.D.Fla. May 20, 2005) (quoting Banc One Fin. Servs., Inc. v. Advanta Mortgage Corp. USA, No. 00 C 8027, 2002 WL 88154, at *10 (N.D.Ill. Jan.23, 2002)). In so holding, the Court rejected the franchisor’s argument that: Defendants claim that a cause of action for constructive termination requires an express or implied mandate via legislation which governs the relevant franchise relationship. See Cooper Distrib. Co., Inc. v. Amana Refrigeration, Inc., 180 F.3d 542, 553 (3d Cir.1999); Petereit v. S.B. Thomas, Inc., 63 F.3d 1169, 1182 (2d Cir.1995) (requiring the controlling state law to endorse a constructive termination cause of action), cert. denied 517 U.S. 1119 (1996). For a more complete discussion of franchise termination in general see: /wrongful-franchise-terminations/

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Franchise Termination based on franchise menu price fixing http://www.bluemaumau.org/14588/steak_%E2%80%98n_shake_granted_summary_judgment_colorado Franchise termination based on franchisee's refusal to fix franchise menu prices approved by court for franchisee's refusal to fix menu prices as ordered by the franchisor. The court decision also stated the record amply demonstrated that the franchisees were well aware that their actions were in contravention of the franchise agreement, and thus were committed "knowingly" for purposes of the termination. With regard to the franchisees' counterclaim for fraud, the court agreed with Steak 'n Shake that the claim failed as a matter of law because the franchise agreement contained an integration clause that preempted any claim based on statements made prior to the agreement.

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