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The Enemy of My Friend Is My Enemy

Eric H. Karp, Esq.

This is not a story about the outcome of a clash between a franchisor and a franchisee, a scenario all too familiar to those of us who advocate for the rights of franchisees in courtrooms and on legislative committees. Instead, it is the story about a rare instance of a franchisor and its franchisees joining forces--as well as resources--to fight a common enemy.

More than 16 years ago, I was asked to help form the Vision Care Franchisee Association (VCFA), an independent association of franchisees of Pearle Vision.  Over that time, the relationship between the Pearle Vision and its franchisees has gradually evolved from strictly adversarial to a more balanced one. 

Enter: Vision Service Plan (VSP), the largest managed eye care insurance plan in the world.  Based in California, VSP has more than 38 million subscribers, more than 20,000 contracts, more than 2,000 employees and more that $1.8 Billion in revenue; one in eight people in the United States rely on VSP for eye care health coverage and more than ninety percent of members have access to a VSP doctor within ten miles of both work and home.

In 2001, VSP commenced a campaign to terminate the VSP memberships of Pearle Vision franchisees, most of whom are optometrists.  Many franchisees had been members of VSP for as long as 10 years and some derived as much as one third of their revenue from VSP patients. VSP took the position that due to the nature of their franchise agreements, Pearle franchisees had surrendered so much control over their optometric practices and their dispensaries, that they were no longer free to exercise independent professional judgment.  In reality, VSP’s desire to terminate all Pearle franchisees was nothing more than an attempt to reduce competition for its largely independent doctor base and also a response to the Pearle-sponsored managed care plan, which in may cases was in head-to-head competition with VSP.

The VCFA and we as its counsel made Pearle aware of VSP’s actions and pointed out that if these terminations were successful, Pearle would also suffer due to a permanent loss of royalty revenue from VSP patients that would no longer patronize Pearle locations.  Pearle management, to their credit, agreed to help the affected franchisee in the following ways: (a) surveying the entire franchisee base to determine the number of franchisees affected, (b) referring all affected franchisees to us for legal representation; (c) providing documents, sworn affidavits and oral testimony at the administrative hearings and in the subsequent litigation we brought against VSP, and (d) paying a significant portion of the legal fees incurred by the franchisees.

It is difficult to convey in words how unfamiliar it is for one who is usually in an adversarial posture to a franchisor to receive a call from a franchisee who tells you that she was referred by the franchisor or to receive a check for the voluntary payment of legal fees from a franchisor. Of course Pearle did all of these things because it made good business sense to do so. They were making an investment in the lawsuit as on the outcome hung a royalty stream that would otherwise disappear.

Suit was filed in the U.S. District Court in Massachusetts and last year a settlement was achieved with VSP on behalf of the franchisees then involved.  While the terms of the settlement agreement are confidential, the goal of the litigation was achieved: each of the franchisees who were parties to the lawsuit remains a VSP Member Doctor.

This unprecedented franchisor/franchisee cooperation is just as relevant now as it was last year.  Why? VSP has started a new campaign against another group of Pearle franchisees in the state of Michigan.  Pearle has once again agreed to cooperate in the prosecution of the new lawsuit that will be filed against VSP within the new few weeks and also to again subsidize the legal fees and expenses of the franchisee plaintiffs we represent.

As Yogi Bera might say, It’s like deja vu all over again.

Hopefully, there will be other opportunities for franchisors to step up and help franchisees deal with issues on which their interests coincide. 

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