Representing Franchisors In Dispute Resolution - The Larger Client Environment

Author Richard Solomon is a conflicts and crisis management lawyer with four decades of experience in business development, antitrust and franchise law, management counseling and dispute resolution including trials and crisis management.

     

There is a difference in representing the franchisor from the circumstances associated with representing franchisees. The franchisor, especially when still led by the founder, is protecting her child. She wants access at three A M and she doesn't want to hear excuses. She has been accustomed to dealing with substantial law firms. They are OK for the office practice work. In litigation, however, she wants a marauder. Large firms lack that capability. They are template driven with no tactical skills fit for a real fight. They plod along, fiercely resenting new ideas, new approaches, guerilla tactics. They are gentlemen of refinement unaccustomed to having to fight in the gutter. That is for lesser beings. Fortunately, I fit their definition of lesser being.

It is easier to go to a meeting to be retained by a franchisor. You will have studied its FDDs for the last few years. You know its financial condition. You know how to parse risk management in terms of potential impact of any problem that presents. You also know ways to deflect assaults rather than confront when that opportunity presents.

Ultimately, it is far easier to show a franchisor risk metrics than it is to convince a room full of franchisees about metric considerations. Administratively, it is far easier to deal with one client than with 50. You are competing against a negative recommendation from its large regular law firm fearful of losing the account. The regular law firm also fears that accusations will impinge upon things they advised their franchisor client to do. They are inherently worried about their own image issues. The litigator who never represented the franchisor before has no such demons in his closet.

One of the most valuable aspects of early retention of the major case litigator is that, unlike the large firms, he can "prepare the battlefield". The big firms are called in when the lawsuit is served on you. They start from zero. They don't even know how to prep the battlefield because that isn't something they do. That starts the franchisor off at a big disadvantage compared to bringing in the major case litigator when the problems appear on the horizon. The value of being ready simply cannot be equaled by last minute scrambling.

The battlefield prep will also provide an advanced view of where the franchisor's exposure may lie. That enables much more intelligent and effective assessment of litigation risks well before litigation has to be faced as an existing fact. It enables tactical planning and, more importantly, it enables consideration of what accommodations might be considered in attempting to head off the litigation entirely. Done metrically, and not as a matter of some assumed "principle", this advantage is worth far more than the cost of litigation. If the accommodations are rejected, you have also created evidence favorable to the franchisor for use in the litigation/arbitration.

All businesses change over time. They are never the same as they were on the day ten year agreements were first signed. Often the real problems arise because of failure to adjust the relationship to deal realistically with the vicissitudes of your target market as they present today. Real time analysis trumps law school contract parsing every day. Contracts are intended to serve a commercial relationship. The relationship is not created to serve the contract. Market changes cannot all be predicted and accounted for in a single document over a ten year period unless the contract has big holes in it and those holes are the subject of objective protocols engineered to deal with changing market conditions. This is not new. I saw this in the early sixties in the dealer agreements used in the automobile industry. Franchise agreements have never been constructed like that. Reference to the operations manual are not sufficient to deal with what I am talking about. Perhaps that is why there are so many disputes after year five of the franchise relationship term. Pre lawsuit risk assessment by a seasoned major case litigator has the ability to provide the franchisor with adjustment options. The experienced litigator can do this in a few weeks and it only takes one person to do it.

How can that be? That can be done because the litigator knows who to work with in your company and where to look to find what needs to be found and accounted for. Insight goes right to the point(s). Sheer weight just plows through everything in the company using a scenario that if they don't evaluate everything, they can't account for the risks properly. That is nonsense.

With a seasoned litigator called in early, a franchisor can reduce potential litigation risks by more than 75%. That alone makes any other option seem absurd. I know that sounds like a big number, but I am relying upon my own experiences sorting out major difficulties before they erupt into total warfare.

Since it is a real coup for someone like me to get the opportunity to represent a franchisor in dispute mode, I make certain that the opportunity is well earned. No one who has not represented many franchisee groups can possibly bring the insights to the franchisor's side of a looming dispute better than a litigator with a substantial history of representing franchisees. The badge of having represented franchisees provides enormous comparative value to any franchisor. There are many bar stool stories about how that has worked specifically in past years, but those stories probably don't belong here.

No one can find weak spots in a franchisor's position better than a franchisees' lawyer. That's what we do year in and year out. It is far more than just analyzing contract language and giving law school exam answers to questions that call for business insights. No big law firm ever has any experience in "opposition" testing a franchisors issues. That whole area of valuable analysis is simply not available except from a franchisees' counsel. You really don't want to go into any fight that is preventable with reasonable metrics. You also don't want to go into one blind. Pre fight analytical blindness is one of big law's problems.

With a seasoned franchise litigator you don't have half a dozen people pouring over files trying to learn how things work from scratch, on your clock. He can sort things out much more quickly, succinctly and economically, and present you with outcome determinative assessments and options with sufficient rapidity that you have time and space to work through tough options on your own schedule. You can never do that reacting to emergencies that show up full blown on your desk some morning.

To be sure, there are tender spots that must not be pushed too hard too quickly. In most franchise companies where the founder is still the head honcho there have been years of hearing how great s/he is from all who work for the company. Suddenly a glitch appears on the horizon and the possibility that a former decision or program might not have been well thought out. Some of the names I have been called in those moments simply can't be repeated here. But I can handle the hate me now and thank me later scenarios. In a few instances the term sonofabitch was considered a compliment. To me only a livable result is acceptable. No one can be "right" if being right destroys the company. Everyone misses a step on any road. It is not a come down to be human.

Taking a company and its founder through a valley of threats and risks is not an easy trip. You can't learn it in a seminar or from a book. You simply must have done it and learned through experience which forks in the pathway to take - and they are many and frequent. The internal politics of the company during this voyage is a real submerged rolling boil. The counsel must also develop a sense for what is going on in that scene. You need these folks to teach you the ropes and help you find the right paths. When they perceive that they may be about to be fired, it is very difficult to get them to the point at which they will be useful witnesses who are not exaggerating in the hope of not being fired. They must be made cross examination proof. That means they have to be taught to trust you more than they fear the boss. How do you go about conditioning people in fear to the point at which they are competent testimonial resources under the obvious stress? That is another process for which the big law firms have no sensitivity. Preparing witnesses to be deposed and to testify at trial is the subject of another article in this series, in case you are really that interested. (PREPARING A WITNESS TO TESTIFY).

Knowledgeable availability is a real value. Clients want answers, not descriptions of projects that ought to be done to wend one's way to it. Institutional fear, uncertainty about what may be where you didn't know to look, inability to assess future use impact value of series of subtle but related factors all coalesce to impede the tactical usefulness of size. Sometimes one just needs to send in a rifle shot rather than carpet bombing.