When I began private law practice upon leaving General Mills in 1972 I already had a well rounded understanding of what franchising was about. I understood, for example, that it involved practices and contract terms that were inherently restrictive in nature, but that had escaped antitrust censure because franchising was considered a "special relationship" at least in the antitrust case law. Then too, General Motors was about as large a franchisor as one could hope to work for, even though the history of dealer abuse by the auto manufacturers had produced special Congressional legislation applicable to automobile dealerships, The Automobile Dealer Franchise Act, also known as the Dealer's Day In Court Act. I remember when I first reported to work at GMC that in addition to my first actual work assignment I was handed a rather thick packet of paper entitled Chevrolet Dealer Selling Agreement and instructed to learn it and also to tell my boss whether the thing was an enforceable contract.
I think I made a favorable impression on that question when I told him that in my inexperienced opinion what constituted an enforceable contract was the document in the context of the substance of the transaction. It was obvious that the construct had worked effectively across a large network of dealerships in several brand configurations for many years. Everyone obviously understood his obligations and rights and the relationships that the document governed were almost all great financial successes. These factors also meant that hardly anyone would ever challenge the agreement or wish to risk losing the relationship that it served. Therefore its durability was assured even if some phi beta kappa moron might be able to nit pick it to find technical shortcomings here and there. Technical shortcomings, I would later learn, are often the bricks of a business litigator's professional edifice. Looking for minutiae is useless when one ignores the business stuff from which every situation is constructed.
As a law school exam question one is required to go through the thing and parse it for missing essential (price, for example) or internally inconsistent provisions. There are sophomoric contract construction slogans like "an agreement to agree is not enforceable" and "missing terms may have external mechanism references that when applied will provide the missing terms. etc ad nauseam. He seemed pleased, which I was told by others was not a frequent occurrence.
As I move into the franchising mid term specialization period of my law practice I think it appropriate to note that a continuing malaise of the franchise industry is that franchisors can put anything into their agreements, no matter how outrageous, and get away with it because their investors do not read the agreements anyway. Many of them hire "lawyers" to look over the documents, but the lawyers they hire do not read with comprehension and so provide worthless advice - "seems very one sided to me" -" I had trouble staying awake while reading it" - "some of the terms seem a bit tough" - etc ad nauseam. If asked whether the proposition is a good investment the standard lawyer response is "It might be if they are telling you the truth". All this is a useless waste of money. If you have a customer pool that will sign draconian contracts without understanding them or their actual operational aspects, you would be absurd not to take advantage of them - a fool and his money, etc.
These contracts are signed because the selling story is artful and largely misrepresentative. People from large corporations have no experience base for doing small business investment due diligence. But they do often have and have access to substantial sums of money.
Additionally, the Small Business Administration has a loan guaranty operation through which small business investors may obtain guaranteed loans from banks. This is touted by Congress and by the SBA to be a big help for new entrepreneurs, a total falsehood. The money goes (except sometimes for leasehold improvements) primarily to the franchisor. Look at Item 7 of any Franchise Disclosure Document (FDD) and see what they say the total initial investment is for that franchise - always understated because it does not include living expenses and only purports to cover the first 90 days of operations. No one hits break even in 90 days on a start up franchise. This is all smoke. The SBA is mainly a creature of the International Franchise Association (franchisors) and is linked umbilically to large franchise selling organizations.
These are the cornerstones of franchising. It has been ever thus. Little has changed other than perhaps style. The Minnie Pearl Chicken Systems fraud of the 60s is no different than the Dagwood Sandwich franchise fraud of the first decade of the 21st century. Illustratively, some rather substantial individual and corporate investors took franchise positions in Minnie Pearl. People who thought they knew how to do pre investment due diligence but failed to do it effectively. There were some insider social and political connections in the instance of Minnie Pearl. The head thief of Minnie Pearl was socially prominent and politically connected. For many years thereafter he caused Tennessee to be thought of as a place where franchise scammers were granted safe harbor. His connections caused some to consider him like a member of some club of decent business people and they didn't look at his proposition as closely as they ought to have looked.
I was fortunate to have represented the Ilitch family in putting together a comprehensive multi state franchise system right at the time when many states were adopting franchise regulations requiring securities law like disclosure and some with relationship management restrictions as well. Happily, my first real franchise work was positive for them and for me. The Little Caesar project was a most auspicious beginning for a franchise lawyer. It didn't hurt that I had just been appointed a Special Assistant Attorney General by the State of Michigan which was just then writing its franchise investment statute and implementing regulations, as well as put on the Attorney General's committee to write those regulations. I learned in that committee how the IFA fights to avoid any regulation at all. That the Michigan law had any teeth is miraculous, though it relies for those teeth upon private enforcement by injured franchisees, as do all the other states with franchise laws. Unfunded mandates give the appearance of assistance, but without enforcement resources specially allocated for the work it will remain up to the public itself to bring the litigation to make enforcement more than just an empty word. I was put on the committee to present the franchisee's side of franchising, and I made life long enemies by trying to get provisions adopted that would guide courts to more fair adjudication of franchise disputes with less artificial impediments thrown into the paths of those seeking redress of some rather grievous injuries.
There followed a series of seminars put on by the bar association to bring the lawyers up to speed on the matter of the new franchise law, and I got to speak at all of those. Those lectures helped me to establish myself as a resource for other lawyers to seek out when their clients had franchise problems. It should have been much more profitable, but I took seriously the notion of public trust associated with being an Assistant Attorney General and gave away an awful lot of help without compensation when people were in tough circumstances and without a lot of money to back their play. Throughout my practice I have always done that, even to this day. I call it psychic revenue, the satisfaction that I have helped people because it was the right thing to do even when payment was not available. Later I became a Certified SCORE Mentor and I spend a substantial part of my time helping people who are starting small businesses avoid franchise fraud proposals that would send them into bankruptcy. Unfortunately the franchise fraudsters have no sense of mercy and will gleefully steal the last resources of families at a time in their lives when it is too late to start from zero and try to rebuild retirement resources. Sadly, most of the time I am too late to prevent the disaster. They have already drunk the Kool-Aid because they could not understand the difference between metrics that can be corroborated - and how to corroborate them - and a sales pitch that is just fluff and misrepresentation.
My practice is changing again. Perhaps fifty years of experience as a business litigator has shown me so much of the stuff of which disputes are made that more people come to me as a dispute resolver/avoider, regardless of the kind of business that may be involved. This change began in 1980 when I got the chance to deal with crisis management situations, first in franchise companies and later across many business models. Now I handle far more crisis management situations than franchising disputes.
I find it much easier to resolve problems if I am there earlier on, as I can show people how to deal with their differences without having to be told by a judge, jury or arbitrator that one side is at fault and must pay for the whole thing, albeit maybe not as much as the "winner" hoped for.
The ability to offer professional guidance without charge in deserving circumstances requires that you have clients and work that provide resources to enable the generosity. When I first left General Mills and returned to Detroit to go into private practice, the ability to be magnanimous was somewhere off in the distance. Practice consisted of representing earthwork contractors in road building disputes (which paid the rent) and whatever else walked in the door that I either knew or could learn very quickly. I was blessed with one antitrust case that I took on a partial contingency fee arrangement; helping the Ilitch family get Little Caesars into compliance with the new franchise investment laws that were springing up around the country (still my favorite client of all time); a stock tender offer case that required a little bit of intellectualism and a lot of predatory instinct (fortunately for me my opposition was a silk stocking law firm that has no stomach for a real fight); odds and end business disputes and a lot of time on my hands.
It was in that period that I would leave the office in the afternoon and go to the suburbs to cook in a fairly good restaurant late into the night, just to make certain that the rent really would get paid. That was a happy period for me in large part because I needed to scratch and dig to make ends meet. I have usually done very well whenever I am opposed by someone who never had to go through that. Fighting with people for a living requires combative skills taught in no class room and in no large legal firm. What I call fighting with people is the opportunity to overcome staggering odds with opponents who believe they are so well protected and so well represented that they have little chance of exposure.
Franchise lawyers who represent franchisors usually tell their clients that everything supports their position in any dispute and that the draconian franchise agreement is enforceable. My greatest professional joy is in finding the chink in that armor and driving through it with enormous unanticipated force. Hearts and minds change when excruciating pain is experienced.
It cannot be otherwise until franchise agreements become more balanced in the relative prerogatives of the parties - this will not happen in my lifetime. Every time some franchisee wins something, franchisor lawyers draft around whatever the rationale of that award happened to be so that future cases on that point will go in favor of the franchisor. This process has gone on for at least 50 years in my own personal experience. I readily admit to having been part of that process, as I represent both sides of this industry. While you appreciate that many franchisors would never retain me because of my work on behalf of franchisees, many other franchisors prefer having access to a resource with command of both perspectives.
Only drastic market upheaval will bring about franchise relationship balance, because at this writing franchise investors and their attorneys have no insight into how to do pre investment due diligence. What passes today for legal assistance to potential franchise investors is pathetic. In this mode it is not difficult to sell cats and dogs as lions and tigers.
Other than representing Little Caesar's in my early franchise private practice, a really big break came my way in the mid 1970s in an already ongoing case in Federal Court between AAMCO and nine of its Detroit area franchisees (affectionately referred to by AAMCO as The Dirty Mine). AAMCO had decided that big markets were insufficiently populated and began doubling the number of franchised locations in those markets. This brought howls of outrage from their existing franchisees in those markets who engaged in all kinds of reactionary tactics. These Detroit franchisees filed suit against AAMCO alleging violations of everything their lawyers could think of. Most of the claims were absurd, and AAMCO's big firm lawyers reassured their client that victory was all but assured. The case came to me because the original plaintiff's firm was in over its head and eventually recognized that a specialist was needed.
I revised the complaint drastically, leaving only the tie in and breach of contract allegations because they had some possibly viable chance and because that allowed me to go first in the presentation of my case. The case was tried to the court with no jury. When I first came onto the scene it was before Judge Philip Pratt in whose court I had some respectable experience already. Then a new judge was appointed to that court and the AAMCO case was transferred to him. He had been a federal prosecutor. It was a real crapshoot from then on. AAMCO's attorneys for reasons unknown decided it would be a good idea to brag around town that they would "mop the floor with me", an opening gambit that I truly appreciate.
I prepared and tried that case with David Mason, a promising young lawyer just out of law school. AAMCO had its own lawyers plus one of Detroit's big law firms used to having its own way and willing to do anything and everything, without limitation, to get it.
To make a long story short, AAMCO won $ 450,000 in unpaid royalties (averaging $ 10,000 per shop after taxes), less than their cost of suit. Despite their claim that they had won 28 straight cases against their franchisees, they lost on the covenant not to compete; their trade secret claims; their unfair competition claims; and their trademark infringement claims. We were home free, out of AAMCO and free to do business free and clear of any franchise impediments. The judge wrote an omnibus opinion that is still to be found in footnotes to franchise legal seminars today. I suddenly was invited to speak at franchise law seminars all over the country, from several of which new franchisor clients retained me to help them deal with their own franchisee break away litigation.
All in all, I think I was retained in over 45 other cases as the result of the AAMCO litigation. My being invited to speak all around the country on the subject of franchise breakaway litigation brought in so much work all around the country that at one point I had over 20 cases pending on the west coast, several in Georgia, several in Florida, and several more scattered around here and there. On top of that was trial work in other kinds of matters based in Detroit for the most part. Our total litigation docket for over three years was never less than 45-50 cases at a time. I assigned one team each to work on the major franchise group cases. One franchisor in Texas was seriously under attack after having lost a case in Georgia. Losing a franchise case can cause inundation for the franchisor, as the franchisees recognize after all that trouble that the old bull may be vulnerable after all. Some of the stories would be hilarious were it not for all the lives torn apart by the circumstances that led up to them.
Most law firms have great fear of disagreeing with a client that is very upset about a dispute. Clients have usually gone through a vast amount of name calling and confrontation before someone finally lawyers up and files suit. Heels are dug in firmly and "matters of principle" are at stake on every issue. Fearing loss of the account, lawyers give these very upset client false assurances of the rectitude of their positions. Face it, the revenue from large commercial litigation is nothing to sneeze at. I have come so close to being fired so many times for telling a franchisor client that his position is not as impregnable as he thinks it is and has been reassured by his prior counsel that it is. But you have to bring clients into reality mode if you are going to be able to represent them really well in difficult cases. They think that all they have to do is go on the witness stand and that everyone in the room will be overwhelmed by the rectitude of their position. Their views are so skewed because no one has confronted them with their own files that so often tell a different story. Often the damning documents have been written by the big boss himself. On one particular instance a franchisor told a franchisee that he could not get support on some new technology because that was not within the scope of the franchised business - and then sued the franchisee for going into that business as an independent without paying royalties on those sales. And that is not the most blatant illustration I encountered.
I got a lot of work because previous counsel didn't see the real problems, or saw them and failed to confront the client with them, and was really making a mess of the case while getting nowhere close to negotiated resolution. You can't resolve really tough disputes if you have no leverage. Why don't people appreciate that? Contracts so often do not reflect the realities of relationships. When that happens contracts are not reliable indicators of what a reasonably expected result will be.
Many franchisors are used to speaking to a small group of people and always getting instant agreement with their views. Surrounding yourself with yes men does not indicate that others who do not depend upon your good graces for their paychecks will think you are not a bloody crook or worse. Mock trials as a way to train future litigators are similar to that idiocy in trying to train litigators using canned transcripts and maybe hiring some evidence professor who never tried a case in his life to act as the mock trial judge.
Dealing with franchisor/franchisee clients who simply cannot keep their mouths shut or resist a request for an interview is another murderous issue. One client for whom I was handling about 18 cases at a time had that weakness. He would agree with me to stay mum and before I could get back to the office a reporter was on the phone asking me to confirm or deny what the client had said about the situation. Other clients simply could not resist going to their club and bragging about what was going to happen in the case being discussed, sending telegraphed tactics to the opposition through some kind of scotch infused grapevine. You get to the point at which you must avoid telling the client specifics about his own case if you are to have any benefit from privately keeping your golden eggs in their basket until the right moment comes along to spring them and go AHA! to the opposition (so to speak).
In one case I won a $ 250,000 jury verdict against a franchisee who walked on the franchise agreement and then lost half of it because my client walked on the lease of the same store. To him, somehow, his contract with the landlord could be ignored, but his franchisee agreement was different in its binding effect. This guy had an MBA and over 20 years management experience. He was furious that we lost the landlord case after winning the mirror image of it. Asked why he thought his franchisee could not walk away from a contract while he could do the same thing with impunity, he became furious and almost fired me.
In another matter, my client's franchise agreement was so badly drafted - as the result of cut and paste changes over a period of seven years - that it fought with itself on numerous critical issues. And yet a competitor had managed to hijack one of his franchised stores and was using those vendor relationships to buy for his competing stores. To him the case had to be brought or his house of cards might collapse altogether. I had to find a non-contract claim on which to attack the problem or lose the case. Although we won on that non contract claim and got rid of the offending operator, the federal judge could not resist critiquing the contract, pointing out that "While it is obvious that Plaintiff tried to cover absolutely every base in his franchise agreement, like Marvelous Marvin Thornberry, he missed them all." Sometimes you wonder whether you can survive a victory like that. My client's general counsel was in charge throughout the period when their franchise agreement became a bloody disaster. When he read the opinion he was furious. How dare an Alabama judge tell someone from California that he is unable to create a workable franchise agreement?
In those days I was into motorcycling like a fiend. I rode one out to California and just left it there. Whenever I got off a plane my bike was in the airport parking lot. I got to spend a lot of time in the wine country and in the Sierras. I did the same thing in Florida and the northeast. It was nothing for me to ride from Houston to Boston or Chicago for work. I would send an associate and the files on ahead. My good clothes went by Federal Express. Since I was head of the firm and brought in almost all the business, no one dared criticize me for taking so much time to get from one place to another. Clients got charged what it would have cost had I just flown there. They paid no penalty. I had about four Honda V-65 Sabres stashed around the country. Everyone knew I was doing that, and it added to my reputation for being a wild man. One client's people referred to me as Mad Dog.
Eventually I moved to Texas, and that was like dying and going to heaven. Business was exceptionally good and it took a while before I decided to close the Detroit office. I am a much better fit in Texas than I ever was in Detroit. In the thirty years I have lived in Texas only one opponent has suggested that he was going to beat my brains out, mano a mano. In Detroit it happened about a dozen times, several of them actually going to real fisticuffs.
I met perhaps my favorite clients of all times, except maybe for the Ilitch family, Bob Kesler. Bob was a WW II marine who fought hand to hand across the Pacific. He was hell on wheels. His local lawyer in Warsaw, Indiana remains a friend of mine to this day. Bob's company was sued for trademark infringement by a Flint, Michigan company that once did well, but was then in the hands of the idiot son and sinking fast. Not much goes on in Flint, Michigan, and even the federal judge was one lazy sonofabitch. Recognizing that we might not live long enough to get to trial, we decided to settle the case very favorably. As the result of the relationship built up with Bob and his lawyer, I got all his company's litigation from then on out, no matter where the case was venued.
Bob started to modify vans in his garage in the early 70s, and by the mid 80s he was approaching $ 400,000,000 in gross sales. He was a management genius who was always present and always attentive to everything going on in the business. His results were so far ahead of any yuppie MBA type that it was hard to believe. He never had any debt! He had other manufacturing businesses as well, all of which did very well. His wife Doris was the most charming person you could ever hope to meet. They both adored Belinda, so I often took her along on the good trips. This was before she became bogged down with so many animals that travel became a management impossibility. The results we obtained for Bob were 100 % good. A trust was built on that to the extent that he once insisted I go from Houston to Billings, Montana for a one day turn around deposition rather than have someone else handle it. It was soon after that deposition that the opposition gave up and we settled that RICO Bank Fraud case for a swap of releases.
By 1993 I was travelling so much to litigate that I was totally exhausted. I either had to take a sabbatical or collapse. I took a year off and came back like a new man. It took only a little while to get business almost back up to where it had been, and life has been good to me from then to now in 2015. Of course, I have Belinda to thank for this. Having someone you really love in your life helps you stay happy and live longer. I don't party as much as I used to, but no one could keep that up without ruining his health eventually. In those heady days it was not unusual to go speak at a legal seminar put on by the ABA or the IFA and then host a cocktail party in the hotel bar for several hours. I would walk out with a $ 20,000 bar tab and $ 300,000 in new business. You don't get new business that way anymore. People don't drink and party as hard as they used to. My favorite saloon in San Francisco, The Washington Square Bar and Grill, closed down for the stated reason that people would rather exercise than drink, which was ruining their business. It was the best martini on the west coast.
Bob's trademark infringement case and his other cases that I handled taught me that to look simply to franchising as the scope of my practice was perhaps to miss many great bets. The difference between "Normal" business and franchising is that franchising is, due to the opportunities for fraud and abuse inherent in its system, permeated with valid claims worth suing over. When an area of commerce is almost wall to wall in fights over the same/similar abuse and fraud issues, that business segment is fundamentally flawed. Normal people don't go around defrauding others as a system of doing business. Franchising is rife with that. Normal people lack the abuse opportunities, and therefore abuse is less problematic in normal business models than it is in franchising. There are good things that can be said about franchising, but good practices and good faith usually don't provide so fertile a field for conflict. There was a national recognition of this back in the 1960s when state governments and the federal government decided the abuses and fraud were of sufficient virulence to justify regulation. The franchisor lobby was able to take most of the teeth out of that, so that those dealing with franchisors didn't have hardly any of the protection they were made to believe they had. Remediation was left to private litigation. Funds for enforcement of regulations weren't provided for meaningful action. Enforcement agencies went after the little offenders that couldn't afford to fight back. That enables the regulators to show Congress good statistics each year when budget considerations time rolls around, and thereby "justify" their existence. The entire mechanism is ineffective.
Franchising one's business is an expensive decision that is sold to potential franchisors as an opportunity to have others provide capital investment and pay you roughly 50 % of their net for the privilege of flying your brand. Promises are made in sales pitches that are not reliable per se. Performance figures are greatly misrepresented. Contracts are draconian. The potential franchisor can be shown a spread sheet of opportunities to rip into the franchisees' cash flow that make them positively drool. Moreover, the direction of regulation over the intervening years has been in favor of the abusive franchisors rather than their victims. Small Business Administration loan default statistics on loan defaults by franchise companies back this up.
Anyway, Bob's cases opened my eyes to the ability to take my trial skills honed in franchise and antitrust litigation into crisis management and "bet the company" litigation. I had seen so many franchisors back themselves into almost inescapable positions, and managed to get them through these events with relatively minor injury that there now opened before me this much wider field of helping the occasional desperate business through the consequences of bloody awful mistakes.
Life is much better now that my every moment is not consumed in dealing with the franchise industry. The unorthodox tactics I had to use representing small business people who were being ripped off by wealthy companies work much better in conventional business litigation. I think of it as irregular warfare in a world of large law firms that are still fighting battles in the Napoleonic era.
Combine that with the fact that I have as perfect a home life as ever a man could wish for and it would take a surgeon to get this smile off my face. I have so much to be thankful for.