How You Can Recover the Losses Caused by Your Franchisor
Mitchell J. Kassoff, Esq. (email@example.com 973-762-1776) is an attorney who deals exclusively in the litigation, business and corporate aspects of franchising and has been engaged in this specialized field of the law in all 50 states for more than 30 years. For complete information about Mr. Kassoff and to read the articles that he has published in Law Journals and other publications see www.legal-franchise.com/curricul. Mr. Kassoff provides complete services for litigation and all other areas of franchising.
You can reach Mr. Kassoff by email at firstname.lastname@example.org days, nights and weekends. You can also reach Mr. Kassoff by telephone 9 A.M. to 5 P.M. Eastern Time Monday through Friday at (973) 762-1776.
Unlike other attorneys and law firms who engage in many areas of the law, Mr. Kassoff deals exclusively with franchising. Which attorney or law firm would you want to represent you and your interests, an attorney or law firm that splits their interests and attention among many areas of the law or Mr. Kassoff who spends his entire time exclusively on franchise matters? In addition, unlike franchise companies and many other attorneys, Mr. Kassoff represents both franchisors and franchisees in Court and in Arbitration in all 50 states. Since Mr. Kassoff represents both franchisors and franchisees he knows the weaknesses of both franchisors and franchisees and can use them to best serve you in litigation and other matters. Mr. Kassoff keeps current as to all matters concerning Franchising.
This webpage contains many of the reasons why you as a franchisee might be able to obtain financial compensation and other legal relief from your franchisor. Mr. Kassoff encourages you to read the information contained on this webpage to ascertain what aspects apply to your situation. Obviously, the only way for Mr. Kassoff to determine if your specific circumstances might result in you obtaining a recovery from your franchisor is (a) for you to provide the reasons why you believe you are entitled to a recovery from your franchisor and (b) for Mr. Kassoff to review your Franchise Agreement.
To determine your potential litigation expenses Mr. Kassoff must first analyze your Franchise Agreement.
Mr. Kassoff’s fee to perform his analysis is $950, plus the bank merchant charge if you pay by a credit or debit card. This fee includes a telephonic conference with you.
Mr. Kassoff does not accept any cases on a contingency basis.
Mr. Kassoff does not represent customers or employees, he only represents Franchisees and Franchisors.
Mr. Kassoff will only accept cases in which your franchise fee, professional fees and costs to set up your franchise, amount of rent that will be due for the remainder of your lease and your losses total at least $100,000.
If you wish to immediately proceed with the analysis of your case against your franchisor, you should email a statement to Mr. Kassoff as to why you believe you have been wronged by your franchisor, your Franchise Agreement and the following information to pay for Mr. Kassoff’s analysis and telephonic consultation with you by your
Credit/Debit Card. By sending this information you are authorizing Mr. Kassoff to charge your Credit/Debit Card for the fee stated above. You should email (a) the type of card (MC, VISA, AMEX or Discover), (b) account number, (c) expiration date, (d) the three or four digit security number, (e) the billing address, (f) the name on your Credit/Debit Card and (g) your telephone number.
If you wish to send a hard copy (do not send the original) it is strongly recommended that you send it by FedEx (call 800-GO-FEDEX and they will come to your home or office to pick up the package) to Mr. Kassoff at Two Foster Court, South Orange, New Jersey 07079. After you call FedEx please email the FedEx tracking number to Mr. Kassoff at email@example.com. Do not send anything by U.S. Postal Service Express Mail, Certified Mail or Registered Mail.
The vast majority of franchisors are honest hardworking businessmen who honor their franchise agreements and diligently work with their franchisees to make the franchise a success. Unfortunately, in any business there are always some people who make errors or are not ethical. That is when an attorney who specializes in and exclusively practices Franchise Law in all 50 states is required. When you search an attorney to represent your interests be certain to ask if his law firm practices Franchise Law exclusively.
Mr. Kassoff has successfully taken action against Starbucks Coffee Company, Dunkin’s Donuts Inc., Domino’s Pizza LLC, 7-Eleven Inc., The Southland Corporation, Curves International, Inc., Mail Boxes Etc., Inc., Menchie’s Group, Inc., United Parcel Service, Inc., Big Boy Franchise Management LLC, Rita’s Water Ice Franchise Company, LLC, Jimmy John’s Franchise, LLC, Jimmy John’s Enterprises, LLC, Anytime Fitness, LLC, Red Mango FC, LLC, Panchero’s Franchise Corporation, Complete Nutrition Franchising, LLC, Great Wraps, Inc., MaggieMoo’s International, LLC, Tutor Doctor Systems Inc., I Can’t Believe It’s Yogurt Ltd., Candy Express Franchising Inc., Villa Pizza, LLC, Camille’s Franchise System, Inc. (a subsidiary of Beautiful Brands International, L.L.C.) Mr. Electric Corp., Wishwell International, Inc., Best Western International Inc., Days Inns Worldwide, Inc. (formerly known as Days Inns of America, Inc.), The Basement Store Franchise Corp., Firehouse Restaurant Group, Inc. (Firehouse Subs), Kahala Franchise Corp., HealthSource Chiropractic, Inc., Honig’s Whistle Stop, Inc., Keng Group LLC d/b/a Tasty Image The World of Your Chocolate!, CALLRN Franchise LLC (Assisted Living Locators franchise), Nissan North America, Inc., Shell Oil Company, Black Entertainment Television Inc., United Airlines Inc., The Hertz Corporation, Horizon Blue Cross, Blue Shield of New Jersey, LaSalle National Bank, Amerigroup New Jersey, Inc., Amerigroup Corporation, United States Internal Revenue Service, Attorney General of the State of New York, New York State Department of Taxation and Finance, Woolworth Corporation, Motiva Enterprises L.L.C., Allegiance Telecom Company Worldwide, Allegiance Telecom of New York Inc., Equilon Enterprises L.L.C., Equiva Trading Company, Venator Group Inc., Brice Foods Inc., Bajio, LLC, Bajio National, LLC, Bajio Franchising, LLC, Obregon, LLC, Abundant Brands, LLC, Open Road of Morris County LLC, Fremont Financial Corporation, Alliance to Save Energy, Public Service Electric & Gas and numerous other companies which are not nationally known.
Unless you request otherwise, it is Mr. Kassoff’s policy to aggressively and tenaciously prosecute your case against a franchisor that has acted improperly and harmed you.
If You are being Threatened by or Wish to Sue Your Franchisor
If you have been wronged by your franchisor and your franchisor will not compensate you for its improper actions, you must either accept defeat for all of your losses and the time that you have expended on your franchise by giving up, or sue you franchisor to obtain the monetary and other relief to which you might be entitled.
Mitchell J. Kassoff, Esq. handles Franchise Litigation in all 50 states. Since Mr. Kassoff deals exclusively with Franchise Law on a daily basis he is extremely familiar with Franchise Law. This means that there are many issues that he already knows that will not require legal research on his part, which is not true for attorneys who deal with other areas of the law. These other attorneys will have to perform legal research (and charge you for it) for work that Mr. Kassoff would not have to perform. Therefore, in many cases on a true cost basis, Mr. Kassoff’s hourly fee is effectively less than an attorney who has a far lower hourly rate.
It is possible that you are being threatened by your Franchisor and wish to have an attorney represent you to protect your rights, investment and interests before you say or do something that could cause you to lose your franchise without compensation. In fact, in some cases, the mere fact that you are represented by an attorney who is an acknowledged expert in Franchise Law such as Mr. Kassoff may cause the Franchisor to cease harassing you.
If you wish to sue your franchisor, it is highly recommended that you combine your efforts with other franchisees that have similar law and fact grievances by having them join your lawsuit and/or arbitration as plaintiffs against your franchisor. By doing this you will be able to pool your information and be in a position to have a greater chance of success as to the prosecution of your case. This will also reduce your litigation costs. Even though each plaintiff will have to pay his own full initial retainer, you will be able to divide the hourly billing rate among all of the plaintiffs.
Arbitration against your Franchisor
A large percentage of Franchise Agreements provide that disputes between the franchisor and franchisee must be resolved by arbitration. This is usually stated in a paragraph near the end of the Franchise Agreement usually labeled €œarbitration€ or €œdispute resolution.€ You will also be able to determine if arbitration is to be employed for dispute resolution in Item 17(u) of the disclosure portion of the Franchise Disclosure Document, which is placed first in the Franchise Disclosure Document.
It is strongly suggested that you contact other franchisees to join the arbitration. By doing this you will be able to pool your information and be in a position to have a greater chance of success as to the prosecution of your cases. This will also reduce your litigation costs. Even though each franchisee will have to pay his own full initial retainer, the franchisees will be able to divide the hourly billing rate among all of the claimants (plaintiffs).
Lawsuit against your Franchisor
If there is no arbitration provision in your Franchise Agreement you must sue your franchisor in court.
It is strongly suggested that you contact other franchisees to join the lawsuit. By doing this you will be able to pool your information and be in a position to have a greater chance of success as to the prosecution of your cases. This will also reduce your litigation costs. Even though each plaintiff will have to pay his own full initial retainer, you will be able to divide the hourly billing rate among all of the plaintiffs.
If you are Sued by your Franchisor
In this case for Mr. Kassoff to defend you and protect your rights as a franchisee, your investment and the time you have spent on your enterprise all work must be paid on an hourly basis at his usual hourly rate, plus disbursements.
You should note that if you have been improperly wronged by your franchisor you can counterclaim against your franchisor if you are sued with your franchisor proceeding in either an arbitration proceeding or a lawsuit. This counterclaim takes place in the same proceeding as the arbitration or lawsuit initiated by the franchisor. In this case the entire amount recovered from the franchisor will belong to you.
It is strongly suggested that you contact other franchisees to join the lawsuit by way of Counterclaims. By doing this you will be able to pool your information and be in a position to have a greater chance of success as to the prosecution of your cases. This will also reduce your litigation costs. Even though each franchisee will have to pay his own full initial retainer, you will be able to divide the hourly billing rate among all of the franchisees.
Actions by a Franchisor that Might Provide
Justification for a Franchisee to Sue his Franchisor
The following is a partial list of actions that might give rise to a successful lawsuit by a franchisee against his franchisor:
1. The franchisor did not provide a properly drafted Franchise Disclosure Document to the franchisee.
2. The franchisor did not properly file and have its Franchise Disclosure Document approved by your state prior to the time it offered the franchise for sale to the franchisee.
3. The Franchise Disclosure Document was not given to the franchisee at least fourteen days prior to taking any money from the franchisee.
4. The Franchise Disclosure Document was not given to the franchisee at least fourteen days prior to having the franchisee execute any agreements.
5. The franchisor exaggerated any aspect of the franchise to the franchisee in order to induce the franchisee to purchase the franchise.
6. The franchisor lied to the franchisee in order to induce the franchisee to purchase the franchise.
7. The franchisor provided inaccurate written or verbal statements as to the profitability, costs, capital requirements or initial expenses pertaining to the operation of the franchise.
8. The franchisor provided inaccurate written or verbal statements as to the need for specialized training required for the operation of the franchise.
9. The franchisor provided inaccurate written or verbal statements misrepresenting that certain industry leaders are affiliated with the franchise.
10. The franchisor provided inaccurate written or verbal statements as to the success rate of the franchise.
11. The franchisor had a lack of support and/or continuing assistance as to the franchise.
12. The franchisor did not provide the services, assistance and/or products that were promised to the franchisee.
13. The franchisor opened company owned locations and/or other franchised locations near the franchisee’s location. This action in some cases will still be actionable against the franchisor even if the Franchise Agreement did not provide an exclusive territory to the franchisee.
14. The franchisor stopped offering a product and/or service for sale.
15. The franchisor required the franchisee to sell a product and/or service.
16. The franchisor required the franchisee to purchase goods and/or services from specific providers, even though the same quality items were available from other sources at lower prices.
17. The franchisor used the funds taken for advertising from the franchisee for other purposes.
18. The franchisor terminated the franchise without good cause.
19. The franchisor wrongfully terminated the Franchise Agreement with his franchisee.
20. The franchisor terminated the Franchise Agreement with his franchisee ostensibly because of improper quality control or other reasons, when the real reason was to take over that particular location.
21. Even if the franchisor followed the terms of the Franchise Agreement, he did not act in good faith with his dealings with the franchisee.
22. The Franchisor did not follow the appropriate state and federal laws.
Your contract may state that you are required to sue your franchisor in his home state. However, some state statutes and courts will not uphold this provision, which will allow a franchisee to sue his franchisor in the franchisee’s home state (see www.legal-franchise.com/NYSBAChoiceofForum.pdf).
Analysis of the Franchise Agreement
Ambiguity of your franchise contract
It is possible that your franchise agreement is either confusing or ambiguous. This is the case if the franchise agreement is reasonably susceptible to two or more different interpretations. A contract does not become ambiguous merely because the Franchisor and franchisee differ as to what it means, the differing positions must each be reasonable.
The task of contract interpretation is generally defined as determining the intent of the parties as revealed by their written language. Of course, this task is much more difficult when the parties had different, even adversarial intentions, a situation that invites the courts to impose their view of what a reasonable man would have intended in light of the words that were chosen.
An agreement provides that the franchisor shall not open any competing locations within a defined franchise territory. Is the franchisor barred from soliciting Internet sales in the territory? Mail order sales? What do the words shall not open a location really mean? Does precedent regarding older technology provide a clue toward interpreting what the parties agreed to regarding the Internet? An agreement provides that the franchisee is licensed to conduct business at a specific location or within a specific territory? The word exclusive is not mentioned. How is the question of exclusivity decided? Is it automatically not exclusive? Even if it is not exclusive, can the franchisee argue that any degree of territorial protection is expressly or impliedly created the Agreement? An agreement provides that the franchisor agrees to furnish national account leads€ to the franchisee. What does it mean to furnish a business lead? How is a national account defined, absent a definitional clause elsewhere in the agreement? Is the duty to furnish national account leads impacted by the question of whether the franchisee has a defined territory in which it might attempt to service a national account?
An agreement provides that the franchisor may designate the sources of supply. From this language alone, is the franchisor able to derive a profit in the form of supplier rebates? If the rebate is permitted, because among other things it was disclosed in the Franchise Disclosure Document, is there any limit on the amount of the rebate, or the price that the franchisee may be charged?
An Agreement contains an integration clause that provides that the written agreement is the complete agreement and that there are no other oral or written agreements between the parties. Does this language preclude the franchisee from arguing that he was fraudulently induced to sign the agreement by the franchisor’s pre-contractual representations? Does your answer change if the Franchise Agreement provided that there are no other oral or written agreements or understandings between the parties? Exactly what is an understanding when included in an integration clause?
How could reasonable men disagree on the meaning of a written agreement?
One party or the other might have preferred to leave the agreement ambiguous for it feared an adverse result if the issue was clarified in the process of negotiations. In other words, no one would sign the agreement if they knew what I really meant. Or, the drafter might have failed to anticipate the real life situations that might arise in the life of the franchise, leading to questions about what the contract meant. An agreement may become ambiguous over time, when business conditions change, witness the confusion created by the Internet as applied to pre-Internet agreements.
How do courts or arbitrators address cases of confusing contracts?
The first task is to determine whether the agreement is, in fact, ambiguous. The stated test is whether the agreement (or the disputed portion of the agreement) is reasonably susceptible to two or more different interpretations.
Judges, not juries, decide whether an agreement is ambiguous
There is no perfectly clear standard for applying the test of whether an agreement is reasonably susceptible to two or more interpretations. On this point, there is a distinction between intrinsic ambiguity (which is established based upon the four corners of the Franchise Agreement) and extrinsic ambiguity, whereby the agreement is ambiguous by reference to an extrinsic fact, such that the contract would make no sense if it were interpreted literally. The parties may seek to introduce such evidence for the purpose of establishing ambiguity, as opposed to the usual purpose of introducing evidence to resolve ambiguity. The danger is that judges may place themselves in the position of ultimate fact-finder and resolve ambiguity in favor of one party or the other, in the guise of declaring that an agreement is not ambiguous.
The Implied Covenant of Good Faith and Fair Dealing
The role of the implied covenant of good faith and fair dealing cannot be ignored in any discussion of ambiguous or confusing franchise agreements. In almost every jurisdiction, the implied covenant of good faith and fair dealing is implied as a matter of law in every contract absent express disavowal. The implied covenant may not replace express terms in the contract, but it may supplement the express terms. Where a party to a contract retains discretion as to performance of contract terms, the covenant requires that party not exercise his discretion arbitrarily, capriciously, or in any manner inconsistent with his co-party’s reasonable business expectations.
These are just some of the many aspects as to this area of franchise law.
Possible Results of a Franchisee Suing his Franchisor
Each situation between a franchisor and his franchisee is different. The following is a partial list of results that a franchisee who has retained an attorney that specializes in and exclusively practices Franchise Law might obtain from a franchisor.
1. If desired by the franchisee, the franchise relationship between the franchisor and the franchisee is terminated.
2. The initial franchise fee is returned to the franchisee.
3. The initial costs and expenses to set up the franchise is paid to the franchisee.
4. The franchisee is compensated monetarily if the franchisor opens company owned locations and/or additional franchises in the vicinity of the franchisee’s area of operation, even if this is allowed by the Franchise Agreement. This is usually calculated by the amount of lost profits that the franchisee has incurred.
5. The franchisee obtains monetary compensation from the franchisor for the financial losses that have been suffered by the franchisee.
The franchisee obtains the profits that he would have made in the franchise for the life of the Franchise Agreement (usually ten years) if the franchisor had not committed his improper actions.
Actions that a Franchisee Should Take to Protect his Rights as a Franchisee
Although no franchisee wishes to concern himself with the possibility of entering into litigation with his franchisor, the possibility does exist. Accordingly, you should be aware of your legal rights and the legal strategies for: (1) resolving the problem, (2) avoiding termination and (3) recovering compensation in the event the franchisor has acted in a manner that has caused injury to your franchise or business.
If any problems begin to arise between you and your franchisor, you should not hesitate to immediately contact an attorney that specializes and exclusively practices Franchise Law. You do not wish to retain an attorney whose practice includes multiple areas of the law, thus reducing his knowledge and time commitment to Franchise Law. This is when you most need to consider seeking competent legal advice to plan a future course of action.
The worst possible thing a franchisee can do when problems arise is nothing. Too often, when problems arise (due either to the external business environment or some act of the franchisor), the franchisee has a feeling of helplessness and disbelief. These feelings of helplessness and disbelief often lead to inaction and the loss of valuable rights. The longer you wait, the more difficult it will be to recover the monies that are due to you that you could obtain in court. If the franchisor wishes to act quickly, the franchisee can lose everything with in a matter of days. Accordingly, once a problem begins it is extremely important that the franchisee immediately seek an attorney that specializes and exclusively practices Franchise Law.
If you have fallen behind on your royalty payments and/or other sums due to the franchisor, be wary of the potential of receiving a default notice. Your franchise agreement is a contract and you must always expect the franchisor will act in accordance with that contract against your interests, including the termination of your franchise. There are ways of avoiding termination. First, the franchisee can negotiate a written solution to the problem, such as a written extension of the due date and written payoff schedule. The franchisee must be certain not to accept oral promises and must never execute a release without first speaking with an attorney that specializes and exclusively practices Franchise Law. If your franchise agreement is terminated, it will be very difficult to prove the oral promises. In addition, most franchise agreements expressly exclude any reliance on oral promises or representations.
Sometimes, as part of negotiating a problem (or in granting a franchisee a franchise renewal), the franchisor will request that the franchisee execute a release of claims. This release usually states that the franchisee agrees to release (i.e., give up) all rights to sue the franchisor for past acts which may have caused harm to the franchisee. The release will usually include all acts of the franchisor and his agents. The release will prevent you from suing the franchisor in the future for any losses that you incurred. Therefore, if you execute a release, you may be giving away valuable legal rights. For instance, if sales at your franchise are depressed due to encroachment, signing a release may prevent you from ever recovering from the franchisor for any damage (past, present or future) caused by the encroachment. Thus, if your financial problems are caused by something that the franchisor has done, signing a release may act to prevent you from ever recovering for the harm caused to you by the franchisor. This should never be done without first consulting with an attorney that specializes and exclusively practices Franchise Law
Although nobody wishes to think about the possibility of having problems with their franchise and franchisor, the prudent franchisee knows his legal rights and prepares for the possibility of one day having to deal with such problems. Accordingly, a franchisee should at least educate himself in advance, as to what to do and what not to do, in the event a problem does arise. In this way, if a problem ever does arise, the franchisee will have given himself a fighting chance.
Actions a Franchisee Should Take to Protect His Investment in His Franchise
Pay attention to how the franchisor runs his business.
Whatever happens to your franchisor will sooner or later affect you. So stay in close touch with the home office. Develop a personal relationship with someone on the inside. That is usually your best route to obtaining straightforward information that can be very important.
Get a copy of each year’s Franchise Disclosure Document. The Franchise Disclosure Document will report important information that must be disclosed, such as the number of franchises sold, bought back or terminated and the details of any lawsuits pending or settled. By comparing the Franchise Disclosure Document data from year to year you can get a current snapshot of how contented your fellow franchisees seem to be and what, if any, major problems they are encountering. This will alert you to issues that may confront you in the future.
Pay attention to the company newsletter, even if it’s mainly a gossip sheet. See whether there’s an exceptional number (more than 15% a year) arriving or departing employees in middle management. This often signals that something is amiss at headquarters, such as a lack of consistent direction, little management consensus or financial distress.
If you do spot signs of instability, depending on the severity, you may want to put expansion plans on hold or even consider selling out before trouble drives down the price of your investment.
Equalize the odds.
Even if your relationship with your franchisor is idyllic, never forget that his power is greater than yours, and you should always do whatever you can to strengthen your position.
You should always ask for everything he says in writing and save everything you get. Even documents that seem innocuous can be useful persuaders in the future.
Deal with problems right away.
Speak up immediately if there are any problems. If you are a new franchisee and your location is not producing the traffic you need. Ask your franchisor to use his influence to negotiate a better deal with your landlord or a swap for another property. Once poor traffic has pushed you into the low-volume category, you will have less influence with your franchisor.
Guard your territory.
Some franchisors make their profits primarily by selling products and services through franchisees, so it is in their interest to see individual businesses grow. Others make most of their money by selling franchises, which makes individual growth less important or not important at all, so you must protect your territory zealously.
Once another franchisee opens up shop nearby it will be just about impossible to remove him. You must be on the alert for sings of expansion in you area. Make friends with local real estate salesmen and lenders who can alert you to inquiries from would-be franchisees. The instant you hear of one, protest in writing to the franchisor immediately. Even if the infringement does not violate your contract you may have a strong position. You should immediately consult an experienced an attorney that specializes and exclusively practices Franchise Law.
Keep a sharp eye on contract renewals.
When business is prospering, a franchisee can easily ignore the fact that he owns a limited license, not a perpetual right. That can be a mistake, sometimes a fatal one, at contract renewal time. This is particularly important when a franchisor wants to eliminate a contentious franchisee or to earn higher royalties. Your best defense is a strong offense.
Join with other franchisees to settle disputes.
If your franchise has an independent franchisees’ association become an active member. There is strength in numbers. It’s hard for a franchisor to claim that you are a poor businessman if you can prove other franchisees are similar problems.
If your franchise lacks an association, consider starting one. This should be done with an attorney that specializes in and exclusively practices Franchise Law
Make contingency plans for your future.
No matter how well things are going, do not ever forget that what you primarily own is a license, not a business. That is why it is only prudent to develop alternative plans for your future, just in case your contract is not renewed or you become unhappy with the franchise or the franchisor.
If you have learned business skills, made useful contacts and have set aside spare earnings, you have a solid foundation for your next move. But it is also wise to draw up a plan of what you would do if forced to make a change. There are no gold watches being awarded in corporations anymore. Do not count on your franchise being forever either.