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Script for Defend Franchise Terminations
The Script for My 4/4/10 YouTube Video Vid-36: (including my list of 8 steps you can take)
Video Title: Defend Franchise Terminations as if a Foreclosure CEPersVid-36
I am Carl E. Person, an attorney for homeowners and small businesses, and in this video I am going to explain how you, the owners of a franchised or licensed business, should deal with threats to your business franchise or license the way a homeowner should deal with a threatened foreclosure. The similarities are remarkable. Here is how you should use foreclosure defense techniques to stop a termination of your franchise or license.
Also, for your information, I am able to represent homeowners or small businesses in a lawsuit commenced in any state in the US, through use of local counsel.
Here is the real problem: The downturn of the economy (nearing depression proportions for many) is creating a large number of franchisees and licensees who increasingly are unable to comply with the terms of their agreements, which were created in better economic times.
This video explains what can be done, and is intended for:
- Hotel or motel owners or others threatened with a termination of franchise for non-payment of royalties or other breach of agreement
- Franchisees or licensees burdened with excessive franchise or licensing fees or royalties.
- Franchisees or licensees threatened with forfeiture because of alleged failure to comply with terms of the agreement.
Similarities between Franchise Termination and Mortgage Foreclosure:
1. Bank or Franchisor supplies the capital or service (e.g. reservations) without which the homeowner or franchisee loses the home or business 2. Bank or Franchisor charges more than the homeowner or franchisee can pay (usurious interest and charges in case of the bank; and excessive fees and royalties in excess of what business can pay as to the Franchisor) 3. The Homeowner and Franchisee is stuck with the Bank or Franchisor, especially when unable to make the required payments; 4. The Homeowner and Franchisee are left trying to renegotiate their agreement (called a “modification agreement” or “forbearance agreement” as to the bank, and could be called the same thing with the Franchisor; 5. The Homeowner and Franchisee exhaust all of their money trying to meet the payment requirements, and only seek legal help after they run out of money 6. Intervention by the Court is the only way to solve your difficulty if you cannot reach agreement 7. Going into court yourself, as homeowner or franchisee, may cause the Bank or Franchisor to give you the modification agreement which they won’t give otherwise 8. Franchisors (as Banks are able to do in non-judicial foreclosure states) can terminate your interest in the franchise without going into court – so the remedies for a homeowner in non-judicial foreclosure states suggest what a Franchisee needs to do to defend the franchise.
Here is a game plan for franchisors (without considering what rights may exist under federal and state dealer-day-in-court and franchise-termination statutes):
- Hire an experienced, litigating attorney as soon as you see a problem arising; a strictly transactional attorney may not be able to do what you need (which may be to commence a lawsuit as quickly as possible)
- Determine from the franchise agreement and any guaranty whether arbitration is required and any special venue requirements
- Put together all of your evidence showing the ways in which the franchisor has been abusive to you (let’s call this “predatory franchising”), including fees and royalties not supported by the income generated from use of the franchise or license; include your franchise files; emails; notes; income records; records showing payment of fees and royalties; correspondence, demand letters, notices, etc.
- Gather information from the franchisor’s website(s) and SEC filings, and any “franchisor sucks” websites, complaints on internet, industry publications, and all filed lawsuits in federal court and reported lawsuits in states courts, to show problems that the franchisor may be having with its franchisees generally
- Before revealing what you intend to do to protect yourself, determine what you might be able to obtain from the franchisor such as statistics showing how other franchisees are faring, or any documents showing how they are supporting your business – talk this over with your attorney to see what kind of documents you might be able to get before starting anything adverse against the Franchisor
- Your attorney prepares a summons and complaint with various causes of action in support of your “predatory franchising” claims, including failure to comply with 16 CFR 436 – FTC Disclosure Requirements and prohibitions concerning franchising and business opportunity ventures; fraud and misrepresentation, special pleadings as to any arbitration provision, breach of the implied covenant of good faith and fair dealing; breach of contract, rescission, accounting for the moneys you gave to the Franchisor (some of these to be pleaded in the alternative). Also, you should determine if there is any “force majeure” or “Act of God” provision which might enable you to demand a modification of the agreement based on proof of a substantial recession or depression.
- Perhaps you will need an order to show cause to obtain a temporary restraining order (TRO) and preliminary injunction prohibiting the Franchisor from terminating the Franchise or License during the pendency of the litigation – warning: bond posting requirements
- The filing of the lawsuit and service of the summons and complaint and any order to show cause may cause the Franchisor to rethink its position on giving you a workable modification agreement, to be able to settle the lawsuit. Be careful in any settlement that you do not put yourself into a worse hole. Ask your lawyer what this means and make sure you can comply with the terms of any settlement agreement.
This, in a nutshell, is what every Franchisee should know before having any problems develop with the Franchisor.
I am always available to talk with you about your problem, and I am able, with local counsel, to represent franchisees in any state, in federal or state court.
My website is carlperson.com and my telephone number is 212-307-4444.