What documents should a franchisee bring when meeting with a lawyer?
Typically in terms of document we like to see you bring when you meet with a franchisee lawyer, assuming you have what we call a Category 1 or Category 2 claim (again, Category 1 meaning the opportunity was oversold, can I get my money back; or secondly, there’s something about this ongoing relationship that needs to be addressed or fixed), we like to see: number one, the terms of the written agreement you have in place. If you’re a car dealer, we like to see the dealer agreement; if you’re a quick service restaurant franchisee we like to see the franchise agreement.
And in franchise situations, we also like to see (secondly) the franchise disclosure document, because there are certain categories of disclosures that have to be spelled out in that document – like a prospectus if you were buying a stock – that we’re interested in seeing what the franchisor had to say.
And then thirdly, on the Category 1 side, is there anything in writing that you were given with respect to revenues, expenses, cash flows, the number of stores that were going to be opening? That type of thing. Things that were material to you that got you to enter into the relationship that turned out to not be true.
Then the last thing I would say, in terms of maybe a fourth thing would be, we always ask “what’s your objective?” And then the follow-up question would be to bring in any documents you might have (e-mail exchanges for example) with respect to what your franchisor has sent or what your lawyer has sent on your behalf, about what you’ve done to try to affect the business resolution that you’re looking for so we can kind of have a sense of, as we think about what’s the best going-forward strategy, what have you tried already.
With those 4 categories of information, we have a good handle on whether we can tell the client with some reasonable degree of certainty that we expect we can be helpful. We like to say to prospective clients also: “Skip law school. If you want to know if something is unlawful, ask yourself ‘Is it unfair?’” We’ve made our living here, where people (franchisors) seem to say “Look, read the fine print here. It says we can do anything we want to you, whenever we want.” Well, that may be what the writing says, but there are other principles that can come into play to trump that writing, like a state franchise statute or common law principles of fraud or Good Faith and Fair Dealing.
If we can prove unfair treatment, in particular if we have some statutes or common law principles that are likely to be able to be successfully invoked, we have an outstanding chance to be successful.