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The Carol Cross Manifesto

November 9, 2009

This is a page for the comments of anti-franchising advocate Carol Cross.  Carol’s comments are generally moved here from other posts, since they are more general in nature and rarely address the specific post topic.

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Comments

39 Responses to “The Carol Cross Manifesto”

  1. Carol Cross says:

    Originally posted by Carol Cross on CURVES: Robert Lay’s Story
    Submitted on 2009/11/08 at 5:44pm

    Unhappy! Remember that “knowledge is power” ——Remember that the FTC only regulated franchising to begin with in 1979 to protect the franchisors and their franchisees who are still thriving within the system from those who believe they have been defrauded by mistatements and omissions, etc.. and who try to address the courts when possible in class and mass actions, etc.. Case law for the past 30 years favors the position of the franchisor whose systems are said to be vitally important to the economy by the special interests who benefit from the hybrid legal business model.

    Franchisors are protected by the FTC Rule that deems that there is no fraud or tort if the franchisor has disclosed in compliance with the FTC Rule, and even if he hasn’t, it is only the federal government or the state government who has the standing to sue the franchisor for the violation of the FTC Rule. The policy of the FTC Rule is that “There is no private right of action for violation of the Rule and there is no fraud if there is no violation of the rule and even if there is a violation of the rule, this is not fraud but merely an administrative violation for which the federal or the state government only has the standing to sue the franchisor.”

    You have excellent representation in the courts with your law firm but most of their victories were won through settlements and litigation in the State courts, where judges, perhaps, are not so tied to federal regulatory policy and goals. Your attorney does live a large and luxurious lifestyle but no larger than the big franchisor attorneys — because, obviously, the franchisors do engage in activities that certainly look like fraud to state judges who know what is going on and who might allow juries to look at the situation and find fraud and tort.

    If most of the lawsuits will now be heard in Texas, it will be the federal courts who will hear your complaints. The Class Action Fairness Act of 2005 that throws most class and mass actions to the federal courts doesn’t look like good news for franchisees. Read the Article “Franchise Regulation Realities —Deception or Patiotism” and the Article “Franchising Fraud –The Continuing Need for Reform” by the American Business Law Journal, 01 Jan 2003, for understanding of how the “flaw” (premeditated?) in the FTC Rule works to the advantage of franchisors.

  2. Carol Cross says:

    Originally posted by Carol Cross on Are LIBERTY TAX SERVICE Franchise Owners Happy? Submitted on 2009/10/17 at 6:59pm

    The truth is that the government, itself, stopped researching franchising back in 1988, when the Dept. of Commerce eliminated its research of the industry. Why the Department of Commerce itself stopped gathering these statistics is anyone’s guess–but it accompanied the “privatization” rationale of the business-friendly Congress. Private contractors run the government today to a great extent.

    It has been convenient for the statistics surrounding franchising to remain uncertain, especially as to franchisee failures. Most of the statistics concerning franchising are gathered by those with a conflict of interest who want to paint franchising as a highly successful means of self-employment, especially during recessions, with little risk.

    The truth is that franchisees, under public policy and rule and law, are merely resources for the franchisors and it is the franchise systems and their growth in the economy that is favored by the law.

    Uniquely, franchisors believe they can sell an investment product to the public with no obligation to disclose MATERIAL risk factors in their possession because of the FTC Rule governing franchise disclosure.

    Nothing wrong with being a resource for a franchisor if you make profits and return on your investment but good to beware of any franchisor who doesn’t make, at least, an earnings claim in their Franchise Disclosure Document (FDD). Why would they want to hide “profits” from new buyers?

    The comments on Liberty confirm that the conflict of interest between those franchisees who survive and thrive, and those who do not, always works to the favor of the franchisor —because the thriving franchisees bear witness to the courts that the franchise system has been proven to work for them and they were not fraudulently induced to contract.

    The point, of course, is that those franchisees who invested not knowing the percentage of failure of other founding franchisees or the chances of actual profits are shocked when they fail. They believe they were fraudulently induced to contract by the misrepresentations made outside of the contract and the FDD and by the omissions within the contract and the FDD that obscured the risk of the investment.

    Would prospective buyers invest with odds of 30% failure, more and less, and 50% chance of profits? The odds are hidden because so often the odds would discourage new buyers of franchises. While past performance doesn’t always indicate future performance, it is an essential material risk factor that, uniquely, does not have to be disclosed by the sellers of franchises because of the FTC Rule.

    The criteria for a rating in Entrepreneur Magazine does not reflect the “churning and encroachment” of franchisees within the system and only looks at the growth and expansion of the franchisor and his gross sales —who may have grown because of churning and encroaching management practices.

    Franchisees do not fail in the first stages and all of the time franchisees are working hard to break even, they are counted as successes for the franchisors. If the franchisee eventually fails and the franchisor can acquire the hard assets and sales to continue in the service of the franchisor, it is certainly not a failure for the franchisor who has no capital investment in the hard assets of the failed franchisees.

  3. Carol Cross says:

    Moved from http://www.unhappyfranchisee.com/signworld-vp-jack-werner-fires-back-at-critics/
    xswoowner is RIGHT! If a franchisor discloses almost nothing in writing concerning any existing facts in the FDD and the contract, and the franchisee signs the contract with the acknowledgement and reliance clauses, the franchisor is protected against charges of of misrepresentation in arbitration and the courts when the franchisee fails and believes the franchise was misrepresented in the sales process.

    Uniquely, because the government especially regulated franchising, prospective franchisees have to try to do their due diligence with current and ex-franchisees instead of getting information from the seller of the franchise who will profit from the sale. The current and ex-franchisees (provided as references in Item 20) have no legal obligation to disclose to prospective buyers of the franchise, and if THEY misrepresent performance statistics to you, your damages are proximate to their misrepresentations and not to any misrepresentations made by the franchisor.

    Your Franchise Contract may be wrapped in the government mandated “disclosure document” – the FDD, but you won’t get any disclosure of the failure rate of the past ten years or any info on gross profits, etc.. on a UNIT basis. These MATERIAL facts concerning risk apparently can be withheld by the frannchisor from new buyers of franchises with impunity under the law because the FTC instead of the SEC regulated the investment in a franchise?

    Apparently, the FTC in its desire to promote competition between franchisors and in the effect of the FTC Rule permits the franchisors to recruit franchisees with hype and false advertising and oral earnings claims, and to withhold material risk factors in the written FDD’s and contracts that would kill the sale if disclosed to new buyers.

    Strangely! is against the law of the FTC Franchise Rule for the franchisor to make earnings claims or performance claims OUTSIDE of the FTC Rule disclosure regime or the State FDD’s but the only OPTIONAL disclosure of the 23 items of mandated disclosure is Item 19, the “earnings claim.” Obviously, franchisors make “earnings claims” outside of the FDD all of the time and there is no real enforcement of the prohibition of making earnings claims outside of the FDD by anyone in government.

    After 30 years of pre-sale disclosure to franchisees under the FTC Rule and the state FDD’s, 90%, more or less, of franchisors make NO earnings claims in their FDD’s and contracts.

    Even, when the franchisor fails to disclose in compliance with the law, this, apparently, isn’t fraud, but merely an administrative violation for which only the government has the standing to sue the franchisor –to protect the public? The franchisees are calculated sacrifices to stimulating economic activity in the economy.

    The effect of the “special” regulation of franchising 30 years ago, in 1979, has been to protect the franchisors from charges of fraudulent inducement to contract and to prevent a private right of action for franchisees in the courts by way of an “invincible” contract of sale (the franchise agreement) that becomes a malicious legal trap when the franchisee fails to thrive.

    Did government lie to the public when they said the purpose of the FTC Rule in 1979 was to require franchisors to disclose “essential” information that would permit prospective franchisees to assess the risk of the investment and compare it with other investments?

  4. Carol Cross says:

    moved from http://www.unhappyfranchisee.com/signworld-vp-jack-werner-fires-back-at-critics/

    It is you who don’t understand. Because SignWorld is “Not a Franchise”as you indicate, the only difference is: if Signworld did make false misrepresentations of fact or if Signworld is withholding negative material risk statistics in the sales and contract process that could have or should have been disclosed, there would be a private right of action for the buyer who could prove this was fraud to the court.!

    It was only the “franchise contract” that was effected by the regulation of franchising in 1979.

  5. Guest says:

    moved from http://www.unhappyfranchisee.com/signworld-vp-jack-werner-fires-back-at-critics/
    One problem, Carol.

    SignWorld is not a franchise.

    So nothing you’ve said is relevant in the least.

    Or are you against non-franchise business start-ups too? Maybe no one should open a small business and leave business ownership to the big boys, aye?

  6. Guest says:

    You wrote “if Signworld did make false misrepresentations of fact or if Signworld is withholding negative material risk statistics in the sales and contract process that could have or should have been disclosed, there would be a private right of action for the buyer”

    Oh, OK, you are saying that Signworld is a BETTER investment than a franchise because if they gave bad info you could take them to court.

    It sounded like you were being negative about the Signworld opportunity but now I see you were pointing out a positive selling point in favor of Signworld.

    Signworld… the non-franchise endorsed by Carol Cross!

  7. Carol Cross says:

    Yes and No! Signworld, as a licensor, probably uses the “acknowledgement and no reliance” clauses in their un-negotiable? licensing contracts, understanding that the protection for franchising developed under contract case law will extend to protection for licensors in arbitrations and in the courts.

    When the licensor makes no misrepresentations of current fact by making no representations at all in his written contract, he protects himself but the licensor, under law, is not prohibited from making an earnings claim OUTSIDE of the contract and therefore is not protected from common law fraud or tort for fraudulent inducement/fraudulent concealment as are the franchisors. The big difference is that a private right of action would be available to the licensee if the licensee could prove fraud to the court.

    Licensing is a cheaper way to go in terms of the pre-sale paper work required but, of course, franchising gives the franchisor almost complete protection from charges of fraudulent inducement to contract and makes their insurance cheaper, etc..

    The only difference between a licensor and a franchisor is the degree of control the franchisor has over the franchisee’s use of the tangible assets of the franchisee’s business. The tangible assets of the franchisee or the licensee, under contract, produce the gross sales upon which both the franchisor and t he licensor earn their profits.

    The Franchisor has all of the rights and advantages of an employer-owner of both his business and the franchisee’s business but escapes the risk and the expense of operating the physical business of the franchisee that produces the gross sales for the franchise system.

  8. Guest says:

    xswowner – Carol Cross has been banned from BlueMauMau.org and every other franchise related site because she clogs up the conversations with her anti-franchising anti-business pseudo-legalistic rambling lectures that, if you actually read them, make no sense. I don’t know why this site puts up with her.

    Read the last two comments. They’ve got nothing to do with Signworld and are just about her throwing around big words and pretending she something to say. She continues to ramble about franchising even tho this isn’t a franchise.

  9. Carol Cross says:

    I am proud that I have been banned from Blue Mau Mau and other sites for telling the truth. I understand why I am banned. The truth about what is going on will not encourage the sale of franchises or advertising for franchises on sites that survive because of advertising revenue from franchisors — not franchisees!

    You “Burn the Books” people like “Guest” above think that you can discredit me by personal attacks but it is hard to discredit “truth” The word is getting out and franchisees and licensees are catching on and it will be harder, perhaps, in the future to fraudulently induce licensees and franchisees when the word gets out. It may be that the sellers of licenses and franchises, both, will have to disclose the risk (known to the franchisors) (in terms of the unit performance of the system) to new buyers in the future, in order to sell their licenses or franchises.

    What a terrible prospect for the franchisors and the licensors- huh! They will have to look for really low IQ prospects when government doesn’t pimp for them with ineffective regulation that pretends to disclose the risk and instead protects the franchisor for NOT disclosing the risk.

    I have nothing against franchising or licensing as long as the risk –in terms of past and current UNIT performance — is disclosed to new buyers of the license or the franchise.

  10. Guest says:

    The topic is Signworld, Carol. Are you familiar with the program?
    You’re obviously online… quick, can you answer any of these questions?
    Do units operate under the Signworld name?
    Does Signworld have any control over how they operate their business?
    Does the home office have any way to collect financial data from the locations?
    Do locations pay royalties?
    You don’t get banned because you speak the truth, you get banned because you say the same offtopic crap no matter what the subject.

  11. Carol Cross says:

    Guest: — Why are you pushing Signworld on a site intended for unhappy franchisees and named Unhappy Franchisee.com?

    Thanks for pointing out another advantage of franchising for franchisors and another difference between licensors and franchisors. The franchisors under the usual malicious contract do have access to the POS software and to the gross sales and to the business tax returns of their franchisees — and the licensors do not have this access.

  12. Guest says:

    moved from http://www.unhappyfranchisee.com/signworld-vp-jack-werner-fires-back-at-critics/

    “Why are you pushing Signworld on a site intended for unhappy franchisees”

    It’s obvious that you don’t even read the articles where you paste your repetitious nonsense. The subject of the article is Signworld.

  13. Carol Cross says:

    Makes you wonder why the Commerce Department, itself, STOPPED gathering objective statistics on franchising in the late 80’s —doesn’t it? This was almost ten years after the federal regulation of franchising

    How can you trust those SBA statistics that are used to advise the banks of defaults on small business loans, when the real failure of the “founding” franchisees is hidden through government-enabled churning that subsidizes this business model on behalf of the franchisors and the other special interests?

  14. Chris Cross says:

    Carol,

    So let me see if I get your position right, all franchises. licenses, distributorships, dealerships and resellers are to be avoided because they all have agreements that puts the owners of these various distribution models/systems in a superior position to those who buy at the unit-level?

    Chris Cross

  15. Sally says:

    To Guest,
    By trying to put Carol Cross down you are only showing how stupid you really are. I don’t need to stand up for Carol as she does that on her own but after reading your post I was so disgusted I felt I had to say something. You show no logic in any of your posts and should go back under the rock you crawled out from under. Everyone has an opinion but you sir are a prime reason why abortion is legal and it’s too bad your mother didn’t pull the plug on you at conception.

  16. Guest says:

    Chris Cross said “Carol, So let me see if I get your position right, all franchises. licenses, distributorships, dealerships and resellers are to be avoided because they all have agreements that puts the owners of these various distribution models/systems in a superior position to those who buy at the unit-level?”

    Carol is against any form of indirect distribution unless the licensees/franchisees/distributors are told ahead of time what they will earn. I would imagine she is against all small business ownership unless it comes with a crystal ball.

    Her family business failed so she’s anti-small business. Period.

    Sally said “you sir are a prime reason why abortion is legal and it’s too bad your mother didn’t pull the plug on you at conception.”

    Wow. To wish death upon those you disagree with. Classy! Can you say… psychopath?

  17. Sally says:

    guest says Wow. To wish death upon those you disagree with. Classy! Can you say… psychopath? Ya I can and you are one!!!!!!!!!!!!

  18. Carol Cross says:

    Guest doesn’t like my message and misrepresents what I said. Of course, nobody can tell you ahead of time what you will earn –BUT the franchisor should disclose the “earnings history” of the units in the system and as the seller who profits from the sale of the franchise, the franchisor should have the obligation under the law to disclose these material UNIT earnings statistics to new buyers of the franchisor.

    Get educated and read “Franchising Fraud – The continuing need for reform” in a Google Search) If the unit performance statistics indicate that profitability is low or nil and that a high percentage of “founding” franchisees have failed, new buyers, of course, would not invest their life savings in these franchises. This failure to disclose unit performance to new buyers is the flaw in the FTC Rule that encourages “fraudulent inducement to contract.”

    In the Article “Freedom to Defraud – Making Michigan Safe for Fraud” (do a Google Search) the author, Howard Yale Lederman says: “By definition, fraud in the inducement involves precontract fraudulent concealment or representations that are contrary to or different from the contract provisions. Indeed, fraud in the inducement involves enticing prospects with promises when the promissor intends to keep the promises out of the contract. Few fraudulent inducement claims can survive execution of a contract containing an integration provision.”

    Obviously, with the integration provisions and, now, the reliance clauses in contracts and the new case law that makes scienter more difficult to prove and plausability an issue in summary judgments, the franchisors and the licensors feel very confident that they can commit torts and fraud under cover of regulation and contract law.

    Under SEC law, information is considered “material” if, when disclosed, it would prevent the buyer from making the investment. Under FTC Regulation, the franchisors believe they can withhold this material information under cover of regulation with immunity under the law because of the integration, acknowledgement, and reliance clauses that are routine terms of franchise and distributor contracts. Under SEC law, there is a private right of action for violation of SEC rules. Under the FTC Regulation of Franchising, there is no private right of action when the Rule is violated.

    Unfortunately for franchisees and licensees, it is not just Michigan that has been made safe for fraud. Those who are interested should look at the Coffee Beanery Litigation in Michigan and the Peaberry Coffee Litigation in the Appeals Court in Colorado. Amicus Briefs have been submitted to the Appeals Court in Colorado to support the positions of the Plaintiffs and the Defendants.

    http://thegreatfranchisingrobbery.blogspot.com/

  19. Chris Cross says:

    Carol –

    We’re waiting for your brilliant reply. Where are you?

    Chris Cross

  20. Guest says:

    Carol claims the “franchisor should have the obligation under the law to disclose these material UNIT earnings statistics to new buyers of the franchisor.”

    Frandata reports that 35% of all franchisors voluntarily provide financial performance information in their FDDs. IL & MD reports 40% of those registered in their states provide that info. See http://www.bluemaumau.org/7899/elusive_earnings_claim

    If Carol was truthful about her real intentions she would praise the 40% who provide the info she says is important and warn against the 60% that don’t. But she does not praise the 40% or even acknowledge them because really she is against all franchises and the franchise relationship in general. Why does she call for a government mandate of financial performance when she is still against the 40% that provide it?

  21. Carol Cross says:

    Guest: Even if Frandata’s statistics were correct, this would mean that after more than 30 years of regulation, 65% of all franchisors are still not picking up their option to disclose material UNIT earnings statistics to new buyers of franchises.

    As for Frandata’s statistics — Frandata is a private for-profit(?) corporation who sells franchise data to the public and who, under contract, manages the SBA Franchise Registry for the SBA. The most important mandated criteria for listing on the SBA Franchise Registry is a contract with the Integration and Reliance clauses in place and the completed FDD.

    The federal government itself, the Commerce Department, for some reason stopped their comprehensive and objective research and statistics on franchising in the late 80’s and therefore, no objective statistics are available on the failure rate of either franchisees or franchisors, except for the grim statistics offered by academics and available on the Internet.

    The consensus appears to be that 50% of all small businesses (franchisees and franchisors included) will fail at sometime within the first five years. Public Policy is made that ignores these statistics in order to push short term goals to stimulate the economy. These statistics are obscured in the hype of franchising in the status quo and the risk is hidden in the red herring of the FDD’s.

    Your response, guest, is disingenuous. Why don’t you provide a list of those 40% who do make at least an “earnings claim” in their FDD’s. Maybe Frandata would provide you with this list. I’m sure you know that even an “earnings claim” that is based on averages can be skewed and is not the same as full disclosure of the unit financial performance of the system. (Read NOLO’s Ten Good Reasons Not to Buy a Franchise and Donald Trump’s (Prof. Parker) Seven Disastrous Reasons Not to Buy a Franchise in a Google Seach)

  22. Guest says:

    Carol Cross says “The consensus appears to be that 50% of all small businesses (franchisees and franchisors included) will fail at sometime within the first five years. Public Policy is made that ignores these statistics in order to push short term goals to stimulate the economy.”

    So you are saying that the Federal government is intentionally suppressing small business failure statistics because having people opening and closing businesses stimulates the economy?

    Is that correct?

  23. Carol Cross says:

    You said it, guest! I couldn’t say it any better!

  24. Guest says:

    So this is a much broader conspiracy than franchising. In fact, franchising is pretty insignificant compared to all small business ownership. The statistics were posted here the other day that only 3-4% of the nearly 30 Million small businesses are franchises so, according to you, the monumental fraud is being perpetrated on all small business owners not just franchise owners.

    What’s the solution? Should the Federal government declare a moratorium on all new business start-ups until they can get them accurate information?

    Should there be a mandatory small business class required before anyone can start a new business and they have to pass a test on their likeliness to fail?

    Should the government publish unit performance statistics on every type of independent business so prospective owners will be informed?

    What’s the solution to the bigger, non-franchise problem, Carol? Or don’t you do solutions?

  25. Carol Cross says:

    Guest:? Obviously, the solution to the known failure rate of small businesses startups is not for the government to publish unit performance statistics on every type of independent business so prospective owners will be informed.

    Aren’t you being disingenuous? We are talking about franchising here and about the “special” regulation of the sale of franchises to the public, the 1979 FTC Franchise Rule, that enables franchisors to omit to disclose material risk factors under cover of government regulation.

    The independent startup persons have fully investigated their “venture” and understand the risks and the rewards. The independent business startup is a true entrepreneur who knowingly takes the risk with the view of the great rewards of being successful. The angels who provide the venture capital for true independents are willing also to take the risk for great rewards. The banks and the lenders have to protect their stockholders and insist on collateral and/or government guarantees to make the loans to independent entrepreneurs.

    The franchisee is not an entrepreneur but merely the resource of the franchisor who is the entrepreneur who wants to use the cheap labor and venture capital of franchisee to grow the chain organization. Obviously, it would be harder to access this cheap labor and venture capital of prospective franchisees if the risk, as known to the franchisor, was disclosed prior to closing.

    Nothing wrong with being a franchisee if the risk of the purchase and the long-term investment is disclosed in terms of the unit performance statistics of the system that the franchisee is joining.

    As to solutions to the flaw in the franchise rule, how about disclosure of the historical unit performance statistics of the system? How about a private right of action for violation of disclosure and failure to disclose material risk factors to new buyers?

    As for the “solution to the bigger, non-franchise problem” I’m not sure that public policy initiatives that ignore the odds of sustainability long-term of startups hasn’t contributed to the problem we have today. But, do the short-term solutions to stimulate the economy only make the next recession even worse?Is it a coincidence that the concept of the “entrepreneur” as the savior of our economy has been pushed since the arrival of the global economy where so many of the jobs produced by big American Industries have been shipped out of the country??

  26. Guest says:

    “The independent startup persons have fully investigated their “venture” and understand the risks and the rewards.”

    Actually, prospective franchisees are in a much better position to evaluate how well their business will perform than an independent start-up. If I were to open an independent pizza place, the business would be unique and there would be no feasible way to market test the name, product mix, recipes, marketing, etc. While evaluating a franchise I could travel around the country, evaluate the exact same operation in similar markets, see how the product is received, how the marketing performs, speak to franchisees & evaluate P&Ls with the exact same costs and parameters of the proposed business.

    You act as if unit performance information is not available to prospective franchisees, which is false (and “disingenuous” of you to imply). 40% provide financial performance information (according to the state examiners, not FranData). However, the full information is available in 100% of the franchise chains by getting this info directly from franchisees. There is absolutely no restrictions on franchisees sharing their historic financial performance with prospective franchisees.

    If franchisors are the evil greedy SOBs you make them out to be, why would you want them being the gateway to the financial information? Franchisees can get this information simply by doing their homework.

  27. Carol Cross says:

    Guest! You continue to defend what is indefensible, in my opinion! Who are you and where do you stand. Are you a franchisor, a broker, a franchisee, or what?

    If you are suggesting that Item 20 of the FDD is an effective means of due diligence, why don’t you just indicate this? I’m sure you know that in recessions, prospects invest in franchises because they feel they are proven venture with little risk that will deliver a job and profits, as well. Item 20 is not an efficient or effective means of doing due diligence as has been indicated by attorneys to the FTC in public comments about t he FTC Rule. The flaw in the FTC Rule was pointed out to the Congress in hearings and in many public comments. Item 20 is an artifice that protects the franchisor from making any representations about what he is selling to the public and t his, together, with the integration and reliance clauses in the “invincible” contract of sale, the so-called franchise “agreement”, protects the franchisors for all of the inducements made outside of the contract.

    Why should the buyer of a franchise not get full disclosure from the seller of the franchise who profits from the sale from the first day the franchisee opens his business until the last day —even if there is never a dime of profit for the franchisee?

    I have never indicated that aLL FRANCHISORS ARE EVIL GREEDY SOBs —I have only indicated that they have the ability to be evil greedy SOBs and commit fraud and torts with immunity under the stacked deck of regulation and the law.

  28. Guest says:

    “…prospects invest in franchises because they feel they are proven venture with little risk that will deliver a job and profits, as well.”

    Anybody who thinks that either didn’t do their homework, have serious mental problems or are idiots. Or all of the above. It’s a business “venture,” and who doesn’t know that starting a business means risk?

    There are websites like this one that show what the risks are. Do they visit them? They get lists of franchisees with their phone numbers. Do they call them? There are plenty of franchise attorneys who will review the contracts beforehand. Do they hire them? Only after they go into business and want a do-over.

    Carol, you have a couple valid points (repeated over and over and over), but like most liberals offer no feasible solutions. Zero. Zip. Nada. Nothing you propose is gonna happen. So you must just like the sound of your own voice.

    You want the wolves to be nicer to the sheep? You want the wolves to give sheep more stacks of papers they won’t understand and are too lazy to read? Great solutions. The only solution is for the sheep to stop being sheep and take responsibility for contracts they sign.

  29. Chris Cross says:

    Guest,

    You see Carol can’t even bring herself to accept that even The UPS Stores has successful franchisees. She will try to convince everyone that the ONLY way you can be successful with The UPS Store is to buy a failing store on the cheap.

    It is my belief that Carol has written the same thing so many times she just pastes and recycles her message.

    Chris

  30. Carol Cross says:

    Guest! I notice you won’t tell me your interest in franchising and why you defend the status quo and the constructive fraud of the package of a government mandated disclosure(?) document (the lie) with its obvious flaw and the “invincible” non-negotiable contract that invites and condones the massive fraud in the sale of franchises. This, of course, is your right and I thank you for talking to me and giving me your point of view.

    Those who are complicit in the trickery in the sale of franchises to the public and hiding the “known” risk from the buyers of franchises always want to defend their position by indicating that it is the victims who have failed and that the sheep deserve to be sheared and silenced — for the public good, of course!

    Public policy in the past has supported slavery, child labor, strike breaking, and other undemocratic practices, usually for economic reasons, and the courts have endorsed these practices until the conscience of the people brought forth the pressure to change public policy.

    If the sheep really understand what is going on and they spread the word, this can bring change because, of course, there are more sheep than lambs involved in franchising.

    The Internet and sites like “Unhappy Franchisee” may make it harder to lead the sheep to slaughter and harder for the franchisors and the special interests to lobby the Congress and our Courts for special treatment under the law.

    I continue my march!

  31. Carol Cross says:

    Chris Cross: You know that I do not discuss our terrible experience with the The UPS Store out of respect to my husband’s wishes but I, personally, wouldn’t recommend that anyone buy a The UPS Store Franchise, except a “used store” whose owner could and would disclose and honestly prove that the business is viable and making enough of a profit to compensate for the increasing competition from the US Post Office and elsewhere.

    On a personal note! When I write the check each month to cover some of the debt incurred for startup costs for this franchise that was advertised as an “unprecedented” opportunity for security and profits, I wonder how it is that we will be subsidizing the operations of a multi-billion dollar corporation for many years until we get our house out of hock. The second owner got our store for pennies and maybe he can survive? Churning and advertising will get you everywhere. We, of course, are old will be dead by the time we pay our house off for the second time, and none of this will matter.

    http://thegreatfranchisingrobbery.blogspot.com/ Read: “Buying a Franchise. The Great Franchise Hoax! A Business of Your Own? ” and “Disadvantages of Buying a New Franchise” and Franchise Regulation Realities –Deception or Patriotism” in a Google Search.

  32. Carol Cross says:

    Guest and Serena: There is no doubt that the deck has been stacked against franchisees in the courts because apparently fraudulent inducement to contract under cover of existing regulation has been enabled by case law developed these past thirty years since the federal government regulated the sale of franchises to the public with the FTC Franchise Rule.

    Contacting ex-franchisees before you sign the contract may be some help but some of these franchisees have signed confidentiality agreements, etc.. and won’t talk freely to those who contact them. –that is, if you can even find them. Why should new buyers have to contact ex-franchisees and current franchisees? Why does the franchisor, who profits from the sale, have no legal duty to disclose negative unit performance statistics to new buyers under mandated disclosure, the FDD. The FTC says in their guide book that franchisors sometimes pay ex-franchisees for good references –believe it or not?

    If you are interested in the law surrounding franchising, you can currently follow the Peaberry Coffee Litigation in the 10th Circuit Court of Appeals. You can read the Amicus Brief submitted by the IFA in a Google Search, and I believe the AAFD will provide an Email Copy of their Amicus Brief in support of the franchisees, upon request.

    You can also listen to the Oral Arguments on the website of the 10th Circuit Court of Appeals. Just Google up Oral Arguments Peaberry Coffee Litigation 10th Circuit Court of Appeals and listen to the recording of the Oral Arguments of both sides. I recommend doing this after reading both of the Amicus Briefs.

    Grantifying that the courts are open and we can look into how the rule of law is promulgated in the Courts.

    Read also in a Google Search, “Making Michigan Safe for Fraud” to understand the problems the Appeals courts face and franchisees face in interpreting contracts that permit the writers of the contracts to protect themselves from fraud with the integration, acknowledgement, and reliance clauses that are part of every franchise contract of sale, the so-called franchise ‘agreement’ —–!!!!! Also read “Contracting out of the UCC — Opting or Copping Out “– in a Google Search.

  33. Carol Cross says:

    Former Jan-Pro Manager: Thanks for your comments on real word “churning” that is what makes franchising so durable in our economy. I, too, think undisclosed churning should be against the law and so do some of the attorneys who understand that franchisees have not gotten full disclosure of the risks prior to buying their franchises and don’t understand that they are merely an asset of the franchisor to be used to compete cheaply in the sector. Franchisees, as you said “buy nothing but the risk.”

    Please read “Franchising Fraud, The Continuing Need for Reform” in a Google Search. This article in the American Business Law Journal explains the “inducement:” problem —that leads to the ability of the franchisors to churn franchisees out of view of new buyers of their franchise.

    Apparently, the Congress never really looks at the plight of franchisees and plays deaf, dumb and blind to all of the fraud going on. I agree “The bad news is, unless you understand how this works, you won’t know the difference until it is too late!”

    You are a good man to take the time to WARN!

  34. Carol Cross says:

    Serena Bell: Serena — The truth is that franchisees fail at the same rate or even at a slightly greater rate than independents but the franchisee loses more money in failure than the independent, according to studies available and reported on Blue Mau Mau and by Dr. Scott Shane, a researcher, I believe.

    Read Nolo’s Ten Good Reasons Not to Buy a Franchise, as published in Forbes Magazine, and also Donald Trump’s (Prof. Parkers comments) site “Seven Disastrous Reasons Not to Buy a Franchise. Then read “Franchising Fraud — The Continuing Need for Reform” published by the American Business Law Journal 01 Jan 2003. —–The truth is out there but is overwhelmed by all of the hype and misinformation about the American Dream and a business of your own that has been “proven.”

    The hoax of a franchise being a business of your own and safer than an independent has been disproven.

    Read: “Buying a Franchise. The Great Franchise Hoax! A Business of Your Own? in a Google Search, and then realize that the franchisor has been licensed to sell franchises and apparently given immunity to withhold negative statistics concerning the unit performances of what they are selling to the public. This is apparently regulatory policy that is rationalized as serving the greatest good —i.e. in terms of stimulating the economy.

    Remember, we are talking about Mom and Pop franchises here and not those owners who may own several units of a franchise system — which somewhat mitigates their risk. I’m sure the passive income rules favor the multiple-unit franchisees of the big brand chain organizations who may also be able to get loans and credit without posting “personal guarantees” for the loans and credit?

  35. Carol Cross says:

    Moved here from the Amway discussion since Amway isn’t a franchise:
    Tex!

    I agree with your factors: but I would put them in a different order.

    1. Political Influence (the Regulator IS Captured because The Congress was captured by the money and influence of those who are regulated)

    2. Feigned Incompetence (The FTC Rule is a cleverly designed Red Herring that is intended to obscure the risk of the investment in a franchise. )

    3. Bureaucracy (the long chains of command mean that nobody is really watching the store and there is no accountability because nobody is responsible to look at any rules already on the books.)

    The UK Minister of Industry decided NOT to “specially” regulate franchising in the UK a few years ago because she didn’t want to mislead the troops returning from the wars. I guess she looked across the water and saw what was going on here in the USA –and NOW, of course, the troops and their families have been made targets of the franchisors because of the pilot progam “The Patriot Express Loan” of the SBA. passed in mid 2007.

  36. Tex says:

    As I said previously, I’m commenting on Amway, not a generic franchise discussion, which I think is misdirected generality, as there are probably good franchise opportunities and “sucky” ones as well.

  37. Check out this site on the LARGEST FRANCHISOR in all of North America http://www.thetdlgroupltd.com and see how a franchisor spent over $600,000.00 on 1 family and stood behind the current laws to protect itself. This happened to my family and as of right now 450 current store owners are trying to certify a class action lawsuit against Tim Hortons as the stores are not profitable.

    Tim Hortons stated in court that the stores success is based on them not closing, even though the store could have gone through 5, 10, 15+ families and to the courts that is considered a success!! I have an article coming out in Entrepreneur Magazine about my site but have had no luck in Canada as Tim Hortons spends 10’s of millions on advertising here in Canada. I have all of the documents to back up our claims and can tell you that Tim Hortons is doing all they can to seal the court records and to keep shutting my website down. All they want my family to do is sign a confidentiality agreement so reporters like you can’t write stories like this.

    They are publicly traded on the NYSE and TSE as THI. How come no one questions how they report the sale of the same store over and over, or how many promissory notes are signed by franchisees adding up to the tens of millions of dollars and how does that get shown in their accounting.

    I also wanted to mention they plan on opening 900 stores in the next year and a good part will be opened in your Country, the USA. So this will start affecting people in your country and not to mention they can skip around your laws in the USA as they have become the sole provider for financing the stores. This is very scary and should be stopped as the loans are back end loaded so the store owner will put in sweat equity and then be trapped and not be able to pay the later years of the loan. So no more banks involved and this added “perk” to being involved in a large franchisor will in essence protect Tim Hortons as they are now in total control of you. [Contact information redacted]

    Thank you for your time
    Chris Zaborniak

  38. Todd A. Peterson says:

    Carol Cross,

    You are, without a doubt, the most educated and honest person who has spoken out about franchising. I applaud you for being vocal and know exactly what you are talking about.

    Franchising will continue to be a misrepresented, unethical and immoral way for big corporations to take advantage of good honest Americans who pay their bills and have something of equity to lose.

    The fact is that all the crapped on franchisees in the world could never come up with the money to fight this and all the big money in the world is PROFITING off of the success of screwing the franchisees.

  39. Carol, Thank you for your great articles on franchise fraud and franchise churning. I am a victim of franchise churning, and little did I know, the day I signed my franchise agreement was actually the day I also signed my bankruptcy papers (a few years in advance).
    Your articles helped be through the “issues” of anger management, being a victim, etc. I feel like I am lucky in that I survived being killed by a serial killer, of entrepreneurship. My franchisor squeezed me for everything I had, and wanted me to then get “investors” such as family and friends, to get even more money.
    What is tragic is the franchise frauds are now targeting military veterans, because that is where the money is. Here are some links to warn military veterans about franchise fraud in Veterans Franchises.

    http://www.youtube.com/user/VeteransFranchises
    http://www.facebook.com/#!/jody.whistleblower
    http://veteransfranchises.blogspot.com/

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