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Law Franchise for Sale!

AmeriVestors, Inc. announced yesterday that it has commenced the preparation of legal documents to be filed with State and Federal Government agencies in order to offer franchise opportunities for Justice by the People . Upon filing of the UFOC, the company will file notice and fees with the Texas Secretary of State, so that it may commence the sale of franchise opportunities in the State of Texas. Justice by the People, Inc., a wholly owned subsidiary of AmeriVestors, Inc., serves consumers that wish to save hundreds, even thousands of dollars, in their simple, uncontested legal matters. The US legal industry is a $184 billion sector. The company offers approximately 80 legal documents for uncontested legal issues such as uncontested divorce, living trusts, incorporation, etc. The company has designed a model to create a national franchise chain providing high quality, accurate and affordable legal document preparation services for simple, uncontested legal matters. Justice by the People does not offer legal advice in the preparation of its clients’ uncontested legal documents. Now maybe there will be some “copy-cat” law franchises coming out soon. Can you submit some names? To start things off how about: “McMalpractice” or “Lawless & Lawless”

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UFOC Explained

What is the UFOC, and what does it disclose and why?  The following article from 2004 goes through the basics of a UFOC. Hey, get a clue! Find out why the uniform franchise offering circular has been a franchisee’s best friend for 25 years

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Franchisor Discretion

Several NYC outlets owned by franchisee of rat-infested Taco Bell closed A franchisor empowered with the discretion to purge poor performing or non-compliant franchisees is critical to the brand. For example, most everyone by now has heard of the KFC that had rats. The same franchisee with the rats also owned other Yum Brand franchises (they own 350 in total). Yum promptly shut down a few others temporarily, most likely for violations of the franchise agreement. What would the impact have been to innocent franchisees if the franchisee with rats continued to tarnish the brand? The franchisor needs this type of discretion.

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More Franchise Disclosure is a Good Thing, but Waiting another 30 years is Not.

In its first major overhaul of its franchising regulations in nearly 30 years, the Federal Trade Commission is finally calling for greater disclosure by franchisors. The FTC aims to insure that prospective franchisees “avoid harm” when considering a franchised business, the FTC said in publishing the revisions, which will become mandatory next year. Under the revised franchise rule, confidentiality agreements preventing current or former franchisees from talking about their experiences would have to be disclosed. Regulators often recommend that would-be franchisees contact former or current franchisees to get their take on a business. The FTC also wants franchisors to provide information about franchisee associations operating under a trademark, so prospective franchisees can learn more about the pros and cons of a system. Some examples of franchisee associations are: North American Association of Subway Franchisees NAASF, and Dunkin Donuts Independent Franchise Owners DDIFO. Franchisors will now have to reveal lawsuits they brought against their franchisees under the revisions; the FTC’s original rule only required that franchisors disclose litigation filed by franchisees. “The nature of the relations between the seller and the purchaser, as reflected in litigation, is of central importance” in assessing a major investment such as a franchise, the commission concluded. Other requirements include disclosure of exclusive territory. Often franchisees think they won’t have to worry about another franchise opening up down the street, only to find that they’re not protected. “Taken together, each of these amended disclosures … will enable prospective franchisees to better assess the quality of the franchise relationship, and their likely success as franchisees,” the FTC said. However, I am disappointed that the revised rule fails to require disclosure of a franchise’s financial performance. I think it’s very important to the future success of franchising that more franchisors make financial representations and I believe it …

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10 Common Mistakes of Prospective Franchisees

Another oldie but goodie article for franchisees from Inc in 2000, abbreviated below: 1. Not reading, understanding or asking questions about the disclosure document. As you read the document [UFOC], keep notes on those areas that are confusing and unclear. While you may want your attorney’s opinion, give the franchisor the benefit of the doubt and first ask its representatives to explain their understanding. Then check the remainder of your concerns with your attorney…. One of the most common problems between new franchisees and the franchisor is a misunderstanding as to responsibilities. Among other things, this can cause problems in meeting the schedule for Grand Opening dates. 2. Not understanding or having an inaccurate or incomplete interpretation of the franchise agreement and other legal documents to be signed. You and your attorney should carefully review the franchise agreement, the lease or real estate agreements, and any other contracts. First, make a list of questions to go over with your attorney, then present your concerns to the franchisor. Get the franchisor’s clarifications in writing. 3. Not seeking sound legal advice. Locate and retain an attorney, preferably one experienced in franchising. 4. Not verifying oral representations of the franchisor. You may want to tape-record all your meetings with the franchisor. If you ask permission to do so, it is generally admissible in court if the need arises later. It also lets the company representatives know that you are tracking their words…Send a registered letter to the franchisor and a copy to the representatives memorializing your notes with a request for their response to any items you want clarified. 5. Not contacting enough current franchisees. …find out whether the franchisor has introduced you to specific franchisees compensated for their help to solicit new franchisees. Ask them….has the franchisor held up its end …

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Quiznos lawsuits (Part 21,412,219)

This article is a few months old, but makes for a good reminder: The suit alleges Quiznos forces franchisees to buy food and supplies from the parent company, or its affiliates, at inflated prices, but sets artificially low prices for its products. That strategy makes stores unprofitable for franchisees, according to the suit. The franchisees further allege Quiznos unlawfully sells franchises by leaving out or misrepresenting facts about its business operations. The plaintiffs seek lost investment funds in the suit. Two similar suits against Quiznos, filed by Colorado and Arizona franchisees, were dismissed by Denver District Court judges in 2005. Those cases alleged Quiznos allowed franchisees to encroach on each others’ territories, overcharged for food and supplies, and misused advertising funds. A suit filed against Quiznos by 17 New Jersey franchisees last year remains open. Quiznos seeks the dismissal of this suit. Quiznos denies the charges.

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Promises of Business Leads

If a franchisee gets into a dispute with its franchisor, sometimes the only way to get results is through litigation. Everyone can save money if the matter is settled before trial, and each party can probably escape with legal fees of less than $10,000. Coverall North America was accused of making unfufilled promises to their franchisees. In late 2006, Coveral settled out of court with plaintiffs that claimed it had deceived 10 Massachusetts residents who had purchased cleaning franchises. Now more franchisees surface with claims: Awuah [franchisee] said in the suit that he agreed to pay Coverall $14,000 for a franchise in 2005 in exchange for its promise to provide him with $3,000 a month in commercial building cleaning business. However, Awuah said Coverall provided him typically with less than $1,300 a month. “I kept on complaining that I was not getting as much business as they had promised but they kept telling me to wait, that it’d get better but it never did so I gave it up,” Awuah said. Promises of national accounts and independent generation of business leads through sources like web sites usually turn out to be a fraction of what was promised.  Franchisees need to plan on generating leads and business on their own, and consider any leads from the franchisor to a lucky bonus if it materializes.

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Kansas Franchise Tax

The debate is on in Kansas on what to do with the franchise tax currently imposed on about 16,000 small businesses in the state.  Republicans see economic benefit in eliminating tax, while Democrats say cut jeopardizes funding obligations for discretionary and entitlement programs. Democrats argument: It’s unwise to cut taxes so much because of previously committed spending priorities for schools, senior citizens, the state pension system and roads. Republican argument: Eliminating the state franchise tax will boost to the economy, freeing businesses to expand, and would save businesses $44 million annually. Update 2-23-2007: to clarify this is in regards to the franchise tax which is currently a 0.125% tax imposed on net worths of $100,000 or more.

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PROJECT FAL$E HOPE$

Project FAL$E HOPE$ is a state and federal sweep by regulators and law enforcement agencies targeting bogus business opportunities and work-at-home scams. We’ve all see the bogus ads for quick money making opportunities (“Make $5,000 week from home working only 10 hours per week!”). This state enforcement list points out the franchisors who violated various state fraud and securities regulations. Some of these names are a surprise: Aussie Pet Mobile (consent order) Bio Performance, Inc (Petition for Temporary Restraining Order, Temporary Injunction and Permanent Injunction and Asset Freeze) Candy King (permanent C&D, administrative fine of $25,000 against Candy King and $7,500 against Gladstone, Candy King barred for five years from offering biz ops in Connecticut, Candy King must offer rescission for approximately $100,000 to affected Connecticut purchaser investors, Gladstone barred for five years from acting as an officer or director of any entity selling biz ops in Connecticut) Coffee Beanery Ltd (consent order) Coffee Heaven (final order to cease & desist) Daily Grind (agreement) Garagetek (summary order revoking registration – New York) GNC (consent order) KaBloom (consent order) Lady of America (order to show cause) Pet Products Delivery Regal Nails LLC (Stipulation and Agreement, payment of $3,000 fine for unregistered business opportunity sales in Connecticut) Tax Recovery Group (permanent C&D from sales of unregistered tax service biz ops and notice of intent to fine issued) Hat tip: “busmagroomer” in the discussion forum Update 2-14-2007: Read Michael Webster’s excellent Misleading Advertising Law blog for your daily dose of provocative Due Diligence for Income Earning Opportunities.

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Lost the Game of Chicken

I lived in South Florida for about a year and regularly ate at the Chicken Kitchen (background article). The restaurant flame roasts chicken on a very large open grille for all guests to see, and then chops up the whole chickens for plates, bowls or burritos. The bowls were quite healthy, filling and reasonably priced. Chicken Kitchen was recently involved in a nail-biter law suit. One of its franchisees caused a serious auto accident. Who was liable? Only the driver and franchisee, or also the franchisor? Let’s do this law school style (all you lawyers know what I mean): Plaintiff (P): Joshua S, motorcycle rider hit; represented by lead attorney Ervin A. Gonzalez with assistance from Deborah Gander. Defendant (D): Chicken Kitchen USA LLC; represented by Frank Alloca and Bill Davis of the law firm Buchanan Ingersoll & Rooney in Miami. Facts: An employee of D’s franchisee was driving to make food deliveries for its restaurant. P was driving down the street in his motorcycle with friends. The franchisee’s driver hit P, causing severe neurological damage and the loss of his right arm. P’s Claim: The Miami franchisee was an independent contractor, and it was therefore not responsible for any of the franchisee’s actions and omissions. D’s Claim: Its franchisee was an independent contractor and therefore was not responsible for their acts and omissions Issue: Is a franchisor legally responsible for the actions of its franchisee’s employee when the employee crashes a stop sign and causes bodily injury? Holding: Yes. Reasoning: Chicken Kitchen USA is legally responsible for the acts and omissions of its franchisee because it controlled or had the right to control the day to day business activities of its franchisee pursuant to its franchise agreement and operating manual. The jury subsequently award Joshua S $2 million. I’m not …

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Independent Franchisee Associations

BusinessWeek documented Bhupinder “Bob” Baber founding of the Quiznos Subs Franchise Assn and its litigation soap opera.  The independent franchisee associations of Diary Queen, Subway, and few others are also mentioned along with their individual legal battles with the franchisors.  For example, Dairy Queen franchisees litigated over the new DQ Grill ‘n’ Chill concept, and Subway franchisees litigated over a potential loss of influence over an advertising fund.   Toasted Subs Franchisee Assn members pay $50 per store per year for membership – well worth it in my opinion.

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Domain Names that include Franchisor’s Name – OK?

Imagine this – You are a Subway franchisee and you are believe that you are being cheated by the franchisor over payments relating to the transfer of leases and equipment costs. So you set up a web site, SubwayUncovered.com to vent your frustration and tell the world of your experience. Subway, of course, will will try to protect its brand through the legal system. In this case, Subway is claiming trademark infringement from using the Subway name in a domain name. Trademark infringement complaints in these cases usually involve the claim that there is a strong likelihood of confusion in the reader’s mind that this may indeed be an official Subway property, and that confusion will dilute the brand’s goodwill. The final arbiter of domain names is usually the World Intellectual Property Organisation (WIPO), and the organization hasbeen permitting the use of trademarks in domain names when the site comments on the company. This Subway dispute happens to be taking place in the UK but the concepts are relevant in the US. The operator of PayPalSucks.com has some great advice for those of you interested in this topic. It gives good advice on how to setup a protectable “complaint” site with the company’s name in the domain, and it illustrates the point with the actual letters from the attorneys on both sides of the PayPalSucks.com dispute (which he won).

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KFC Has the Right Idea

KFC is shifting its design strategy to more upscale. Here is the experience from one franchisee: The restaurateur has spent more than $3 million renovating all the restaurants, but only a location in Claremore and now the southeast Tulsa store boast the new image. “The idea was to bring KFC up to casual dining,” Schoenhofer said. “We’ve gotten away from the fast-food look.” KFC and its parent company, Louisville, Ky.-based Yum! Brands Inc., are in step with an evolution inside the quick-casual food industry — new images for many longtime chains, including fast-food giant McDonald’s. “It’s a trend and, obviously, it’s working,” Schoenhofer said. At KFC, hard plastic seating, bright primary colors,and old menu boards and lighting have been replaced with high, open ceilings, glazed tile floors, padded booth seating, upscale tables and chairs, and improved restrooms and lighting — all in a Tuscan color scheme of gold, rust, blue and brick red. The restaurant also features a colorful, revamped menu board above the service counter. With inflation, “We’re asking people to spend more money on food, and we want to give them the environment they want,” Schoenhofer said. “We want it to be a nice experience for them.” KFC is also making its menu healthier. …And after the renovations, business soared, he added. “Since we took the stores over, our sales went up 150 percent.” Most of the fast-food chicken brands such as Popeye’s, Church’s, Boston Market, El Pollo Loco, Pollo Tropical, Bojangle’s Chicken, Chick-Fil-A, and Chicken Kitchen, have relatively common cheap chair/booth style look. Improving the quality of the food and restaurant design is a smart, and very likely to be successful strategy. One strategy to capitalize on this new initiative is to buy an existing KFC franchise from an owner who does not have the cash …

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When Blogs Attack – Cuppy’s Coffee & Java Jo’z

While some claim any free PR is good PR, that doesn’t hold true in the franchise world. I would wager that the vast majority of people before they become franchisees do some searches on the Internet (or their loved ones will do it for them) about the franchise. Blogs come up high in search engines because, in part, to frequent postings and incoming links. They serve as a powerful self-disinfecting spotlight. But, this spotlight can be abused by franchisees who failed because of their own fault. Nevertheless, franchisees will flood towards franchisors that are committed to ethically maximizing both for themselves and franchisees. The Java Jo’z / Cuppy’s Coffee story There has been a lot of negative blogger buzz with shark ferocity surrounding Cuppy’s Coffee and Java Jo’z. Apparently, Cuppy’s Coffee (formed in May 2006) purchased the assets of Java Jo’z Coffee & More, LLC. Allegedly, Java Jo’z orally promised a return of the $20-30,000 franchisee fee if the franchisee did not build out. However, things turned bleak – the CEO was sent to the pokey for tax issue, the assets were sold to Cuppy’s Coffee, and now there is supposedly no money to return the franchise fees. The Franchise Agreement does not provide for a refund of franchise fee, but allegedly oral promises were made to franchisees by Java Jo’z and its CEO, Roy Snowden. The asset sale under impending bankruptcy is suspiciously ill-timed and no one has released dollar amounts to determine whether fair value was paid. And if it was, where is the money? Should people be concerned about the ethics of Cuppy’s? Probably not at this point. Many details are unknown and just because people lose money does not mean anything unscrupulous occured. I have a few questions: 1) Why did Aaron Weinstock from a …

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When Franchisors Compete Against their Franchisees

What happens when your franchisor sells in alternative sales channels that chip away at a franchisee’s sales? You’re screwed. For example: A Blockbuster franchisee filed suit in federal court claiming that because Blockbuster now allows customers to buy and rent videos online, the group’s local franchise agreement has been undercut. This was on top of the “no late fee” promo Blockbuster was running. What’s a franchisee to do? Well, there is not much you can do. Most franchisors expressly provide in the Franchise Agreement that they are authorized to sell their products online and in other venues that encroach on your territory. Another example – The Dippin’ Dots franchisors reserve an exclusive rights to sell their goods online, at special events and venues no matter where a franchisee is located.

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Mexican Pesos OK For Dallas Franchise

About 60 percent of Pizza Patrón customers and 45 percent of the franchisees are Latino. As a convenience to its mostly Latino customer base who often have have leftover pesos from Mexico, Pizza Patron will accept foreign currency in exchange for pizza. On an unrelated note, did you know that Patron tequila (which I love almost as much as Casa Noble) also co-founded Paul Mitchell, the haircare products company?

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