AFA Launches New Web Site  WWW.FRANCHISEE.ORG

Log on to the newest internet tool for franchisees and their advisors—AFA’s recently updated and much improved website at www.franchisee.org. Background information on the AFA along with answers to the most Frequently Asked Questions About the AFA are included on the site. You can also read the current issue of AFA’s Blast Fax  or check out the archive of prior issues.

Calendar of Events
The website Calendar will keep you informed on upcoming events (including our May 5 Franchisee Leadership Summit and May 6-7 Franchisee Legal Symposium, both scheduled in Hilton Head, South Carolina). You can buy the AFA’s videotape, Why Form an Independent Franchisee Association on-line or even download a membership application if you’re not already an AFA member.

Lawyer Directory
Looking for legal help on franchise contract matters? Just click on the AFA’s national directory of Affiliate Member lawyers and others who can help.

Legislative Action Center
The Legislative Action Center is one of the newest features of the AFA website. The Legislative Action Center has a sample letter you can use to write your Congressperson and Senators to gain their support for legislation like HR 4841, the Small Business Franchise Act of 1998. (A summary of HR 4841 is available online in the Legislative Action Center.) Just type in your name and address and complete the other “fill-in-the-blank” sections and you can either e-mail your Member directly from the site or print out the letter on your letterhead and mail it to your Member in Washington, DC.

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Happy Anniversary to the AFA

On February 3, 1993, Susan P. Kezios and the leadership of ten independent franchisee associations held the first organizational meeting of the American Franchisee Association (AFA) in San Francisco, California. At the time, franchisee leaders felt they had limited avenues to affect change in their franchise systems to benefit franchisees. They did not want to be involved in lawsuits.

The original intent of the Founding Members of the AFA was twofold: 1) to create a safe climate for small business investments by changing the rules and laws that govern franchising and 2) to utilize the media to educate the public and others about the issues and concerns of franchisees.

Six years later we are beginning to see the benefits of the Founding Members’ efforts. Last October Congressmen Howard Coble (R-NC) and John Conyers (D-MI) introduced the Small Business Franchise Act of 1998 (HR 4841). Ten other Republican and Democratic Members co-sponsored the legislation with Mssrs. Coble and Conyers. The bill will be reintroduced in 1999.

Congratulations to staff and membership for reaching this important milestone on the 6th anniversary of
the AFA.

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How many multi-billion dollar businesses in America self-regulate?

True False
The Defense Industry  X
The Automobile Industry  X
The Tobacco Industry  X
The Railroad Industry  X
The Insurance Industry  X
The Franchising Industry X

Isn’t it time the huge franchising industry was made safe again for investment by small business entrepreneurs eager to create new jobs in the U.S.? Write Congress to Support HR 4841

Multi-Unit Operators Retreat
(MORE) A Success

Franchisees averaging 100 units each from over a dozen different chains in the U.S. and Canada met in Carefree, Arizona February 19-20, 1999 at The Boulders Resort for the first AFA Multi-Unit Operators Retreat (MORE). The Multi-Unit Operators Retreat (MORE) was designed to exchange information and insights regarding the future of franchising in general and owner-operators’ businesses in particular.

Discussion focused on franchise contract trends, how to work with lawmakers and many informal conversations sharing experiences regarding a variety of operational issues. “It was a captivating exchange of insights on franchise operations, growth and contract negotiations,” said Paul Silver, President of Paul Silver Inc. dba SUPERCUTS, one of the MORE attendees.

Sandella’s, Inc. a franchisor of gourmet soups and pita wraps based in West Redding, Connecticut and Zarco & Pardo, P.A., a franchisee law firm in Miami, Florida co-sponsored the event. Robert Zarco, Esq., addressed attendees on franchise contract trends—what to watch out for in renewal contracts and what franchisors could do to make their contracts more “user friendly” to franchisees. Sandella’s President, Mike Stimola and Vice President, Bruce Major participated in these and other discussions with the owner-operators during the two day event.

All of the participants agreed that the MORE was invaluable and suggested the event be scheduled again within the next six months—late July or early August. Owner-operators of eight or more franchises will be invited to attend. Call the AFA if you would like to receive an invitation to the late summer MORE.

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Calendar of Events

Welcome!
New Affiliate Member Shawn Perry

Shawn Perry, Principal in the Minneapolis-based law firm of Perry, Perry & Perry, joins the AFA as a new Affiliate Member. Shawn has considerable experience in franchise matters involving a variety of issues including product sourcing restrictions, advertising fund misuse, encroachment, deceptive franchise sales practices and
terminations.

Shawn is one of the lead attorneys in the Little Caesar’s class action suit which is one of the few cases to be successfully certified as a class action in the last 15 years. In the course of that litigation which has been pending since 1993, he has represented several franchisees in that system and also worked closely with one of its franchisee associations. He has also represented franchisees in other systems in both litigation and counseling matters.

Contact Shawn at 612-332-8100.

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Pressured Association Leaders Fire Their Attorney

What happens when a franchisee association buckles under to threats from their franchisor? We’ll find out soon enough. The TCBY Franchisee Association hired a lawyer in the summer of 1998. Six months later their franchisor told TCBY franchisee leaders to “lose” their legal counsel—or else. The association’s counsel was relieved of his duties, much to the dismay of some TCBY franchisees. And what about the franchisor? Did they fire their legal counsel in order to level the playing field? Of course not. Certain franchisors like having a heavy upper hand. And certain franchisees allow them to use it.

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Legal Brief
Arbitrator Awards Damages for Wrongful Termination and Breach of Covenant of Good Faith and Fair Dealing

In the matter of  Dar v. The Southland Corporation, a former 7-Eleven franchisee operating in a Chicago suburb for 13 years, alleged in an arbitration proceeding against the franchisor, among other things, that Southland wrongfully terminated his franchise and that it breached its covenant of good faith and fair dealing. On the termination claim, the franchisee alleged that Southland failed to extend its lease option for his 7-Eleven store through the year 2000, when the franchise agreement was to terminate. The franchisor thus effectively terminated the franchisee, but did so in a manner which was not consistent with the procedures outlined in the parties’ 1992 franchise agreement. The franchisee alleged that the franchisor had therefore violated Illinois law which requires good cause for termination of a franchise. The arbitrator awarded approximately $200,000 in damages to the franchisee on this claim.

The franchisee also alleged that the franchisor failed to provide a final accounting and pay to the franchisee what was due to him within 60 days of the termination of the franchise. The arbitrator held that this constituted both a
breach of contract and a breach of the covenant of good faith and fair dealing and awarded $10,000 to the franchisee.

Marc N. Blumenthal, an AFA Affiliate Member based in Chicago, Illinois, represented the franchisee in this case.

This month’s LEGAL BRIEF was prepared by AFA Affiliate Member Michael Einbinder.

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Tricon Breaks Out the Big Guns

Tricon, parent company of Taco Bell, Pizza Hut and KFC, is pulling out all the stops. They have two extra lobbying firms on retainer in Washington, DC just to work against  the Small Business Franchise Act of 1998 (HR 4841) and its progeny. According to our sources, Tricon is fearful of getting painted with the same brush as certain bad actor or fly-by-night franchisors. Hey, Tricon, the way to be viewed as a “good” franchisor is to work with your franchisees to craft legislation that promotes equitable franchising practices. (And keeping your word about staying out of Iowa this year would have helped, too.)

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They’re Back—In Iowa

In July of 1992 the Iowa Franchise Act (Iowa Act) was signed into law.The Iowa Act is the most comprehensive piece of legislation protecting the investments of small business franchisees anywhere in the country. The
Iowa Act affects those franchise contracts entered into, amended or renewed after July 1, 1992.

Each year since 1992 certain franchisors and their lobbyists have worked hard to repeal or at least dismantle parts of the Iowa Act. Each year since 1992 these same people have claimed that franchising will cease in Iowa because of the Iowa Act. And in fact, in 1995, franchisor lobbyists were successful in making several modifications to the Iowa Act to the detriment of franchisees.

However, the sky has not fallen in Iowa! Franchising and small business are alive and well in this Midwestern state.In fact, the state’s economist says that each year since 1992 Iowa has seen sales tax receipts increase, unemployment decrease and there’s a surplus each year in the state treasury. In addition, the U.S. Small Business Administration (SBA) reports that more loans to franchised businesses were made after the Iowa Act became law than before.

Don’t confuse certain franchisors (and their lobbyists) with the facts, however. McDonald’s, Tricon and other large franchisors—along with their trade association—are back in Iowa this year to try once again to repeal
all or parts of the Iowa Franchise Act.

The AFA is working with the Iowa Franchisee Association again this year to ensure they do not succeed. If you
can help, contact Samuel Crawford at the AFA (312-431-0545).

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Congress is waiting to hear from you
re: HR 4841, The Small Business Franchise Act of 1998 (see December Blast Fax).

Below is a sample letter for you to use when writing to your Representative and both Senators. If you have mailed a letter to them and not received a response, call them for a meeting to gain their support on HR 4841. (NOTE: Please FAX copies of your letters to the AFA.) Our lobbyist has been working on Capitol Hill. Constituent pressure is now needed—we need to do our work at home.

Date

The Honorable (name of Representative)
OR The Honorable (name of Senator)
United States House of Representatives   United States Senate
Washington, DC   20515    Washington, DC   20510

Dear Congressman/woman (last name):   Dear Senator (last name):

I am writing to discuss something that is very important to me as a small business owner in your (state/district). I own a (number) (name of franchise) in (town). Annual revenues are approximately ($$$$) and I employ (XXX) full-time and part-time employees.

I am looking for your support on HR 4841, The Small Business Franchise Act of 1998, which was introduced in the 105th Congress by Congressmen Coble (R-NC) and Conyers (D-MI). HR 4841 will be re-introduced in the 106th Congress with companion legislation in the Senate.

Enclosed is a summary of HR 4841. Its purpose is to promote equitable franchise agreements, to establish uniform standards of conduct and to restore freedom to contract between the parties.

Little recourse has been available to small business franchisees at the Federal Trade Commission, the designated oversight agency. As a result, successful franchisees often find themselves in courtrooms litigating with bad actor franchise corporations that have not operated in good faith with their franchisee partners.

I would like to talk with you and your staff about HR 4841 and the issues that small business franchisees currently face. I also would like to see you co-sponsor similar legislation in 1999.

Very truly yours,

Your name
Your business name
Your city, state, zip
Your telephone number

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 AFA PAC
Personal Contribution Form

YES, I want to fund candidates who support issues important to small business franchisees. I understand that my contribution is not tax deductible and that a corporate check cannot be accepted. You may proceed to our on-line secured contribution form or print and fax/mail our form.

Print to Fax/Mail Form Or Print to Fax/Mail Form

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