Arbitration on Trial: How Franchisor Attorneys Undermine the FTC Franchise Rule
PIRTEK USA’s dispute with former top multi-unit franchisee – thought to be settled in September, 2020 – has erupted with the fury of a Golden Corral brawl after they’ve run out of steak. And while the melee has the potential to significantly damage both parties, it offers onlookers a rare glimpse inside the secret and shameful process of franchise mediation and arbitration. by Sean Kelly
(UnhappyFranchisee.Com) Documents & proceedings that PIRTEK USA, PIRTEK attorney Michael Joblove and the mediator-who-named-himself-arbitrator David Kaufmann assumed would be forever hidden from public view are emerging from the shadowy confines of private franchise arbitration.
They provide a disturbing confirmation that forced confidential Alternative Dispute Resolution (ADR) of franchise disputes provide powerful franchisors and their highly paid attorneys with a process where bias and unfair application of the rules can be used to coerce and crush franchisees behind closed doors.
It seems that this system has been mastered by franchisor attorneys to blatantly circumvent the protections intended for prospective franchisees by the Federal Trade Commission’s Franchise Rule.
With No Oversight or Private Right of Action, Franchise Rule Protections Are Laughed Off by Franchise Sellers & Attorneys
With no federal government oversight and no private right of action, franchise sellers and franchisor attorneys consider the FTC Franchise Rule a minor inconvenience whose intent is easily undermined.
The FTC website states:
The Franchise Rule gives prospective purchasers of franchises the material information they need in order to weigh the risks and benefits of such an investment. The Rule requires franchisors to provide all potential franchisees with a disclosure document containing 23 specific items of information about the offered franchise, its officers, and other franchisees.”
The information the FTC requires that franchisor provide to prospective franchisees include:
- Litigation of franchise related disputes, pending or completed
- Financial Performance Representations (must be disclosed & substantiated)
- # of Franchises Opened, Transferred, Ceased Operation, etc.
- Contact information of current & former franchisees, so prospective franchisees can speak to them
How Franchisor Attorneys Helped Enable PIRTEK to Disregard the FTC Regulations & Mislead Prospective Franchisees
Prospective Franchisees Enticed by Illegal Earnings Claim Embedded in Fake News Article; Defended by Franchisor Attorney Joblove & Arbitrator Kaufmann
In Item 19 of every FDD from 2020, PIRTEK claimed “We do not make any representations about a franchisee’s future financial performance or the past financial performance of company-owned or franchised outlets. We also do not authorize our employees or representatives to make such representations either orally or in writing.”
Yet PIRTEK authorized its PR representative Nick Powills to publish a “sponsored” article promoting Jim Lager’s sales of $1M in his first year and $2M in his 2nd year.
It appears PIRTEK attorney Joblove and franchisor attorney Kaufmann were OK with this violation of the FTC Franchise Rule, which also appears to violate the parties Sept. 2020 settlement agreement.
The Financial Performance Representations (FPRs) PIRTEK disclosed in its 2020 and 2021 showed sales volumes substantially lower than those promoted in PIRTEK’s “sponsored” 1851 posts. However, PIRTEK USA, its attorney Michael Joblove & even Arbitrator David Kaufmann allowed the deceptive claims to remain on the Internet where they can deceive & mislead prospective franchisees.
Hidden from Prospective Franchisees: Unfair Termination of a Top Franchisee & Significant Payment & Concessions to Settle Dispute
PIRTEK USA has continued to this day to use Jim Lager’s success story to attract and sign new franchisees. That Jim Lager’s ouster from the PIRTEK chain was so egregious it resulted in major concessions and a significant financial payment by PIRTEK seems to be the kind of information the FTC wanted prospective franchisees to have. Yet, since PIRTEK’s substantial initial settlement with wronged franchisee Jim Lager was achieved through mediation, PIRTEK USA has been able to state in its Franchise Disclosure Document (FDD) that it has no litigation it’s required to disclose.
That’s a very slick way of falsely communicating that PIRTEK has had no serious disputes with franchisees.
Prospective PIRTEK Franchisees Are Denied Access to Former Franchisees
Despite the Franchise Rule’s requirement that prospective franchisees be provided with contact information for recent franchisees such as Lager, confidentiality clauses forbid Jim Lager (and others similarly silenced) from speaking with them. The FTC’s “Consumer Guide to Buying a Franchise” repeatedly emphasizes the importance of speaking to current and former franchisees listed in the FDD. However, Pirtek, its attorneys and arbitrators like David Kaufmann do all they can to prevent prospective franchisees from speaking to aggrieved or candid franchisees.
Franchise Closures Not Clearly Disclosed to Prospective Franchisees
Despite the Franchise Rule’s mandate to clearly disclose how many locations that closed and why, PIRTEK’s 2021 FDD refers to the closure of Lager’s two locations as non-renewals in one place and terminations in another.
Franchisee Lager Prohibited From Communicating Complaints to the FTC & State Administrators
Arbitrator David Kaufmann prohibited Jim Lager from sharing his views with the FTC and issued a Restraining Order to keep him from communicating his complaints to state administrators.
Unfair & Biased Treatment of Franchisee Jim Lager Made Possible by Lack of FTC or Other Enforcement
With a slanted playing field, no one at the FTC to police unfair franchise practices, and misuse of strict confidentiality clauses, franchisor attorneys Michael Joblove and David Kaufmann are free to place undue restrictions on franchisees like Jim Lager and strip them of basic rights while refusing to even request that franchisor PIRTEK comply with the most basic settlement terms.
Jim Lager initially complied with the requirements that he remove commentary and references to PIRTEK. He removed his blogs posts, even from 3rd party websites. He even withheld his letter to the FTC, despite the fact it didn’t name PIRTEK.
However, PIRTEK did not make a serious effort to cease using Lager’s name, likeness and success story from their online promotions, and David Kaufmann refused to direct them to do so.
The following screenshots document PIRTEK’s continued exploitation of Lager’s image, likeness and story as of 2/6/22, 18 months after the settlement agreement.
PIRTEK’s Continued Misuse of Jim Lager’s Name, Likeness & Success Story 2/6/22
David Kaufmann Arbitration Leaks Appear to Expose Blatant Franchisor Bias
King David Kaufmann Franchise Arbitration Call Leaked! (Parody)
Franchise Discussion, Documents, Links: NASAA Proposed S.O.P.
Franchise Attorney, Mediator David Kaufmann Ethics Accusations
Does U.S. Army Veteran Jim Lager Recommend the PIRTEK Franchise?
Is PIRTEK USA Racist? Or Just Really, Really White?
WHAT DO YOU THINK? ARE YOU FAMILIAR WITH THE ARBITRATION PROCESS? WHAT WAS YOUR EXPERIENCE? PLEASE SHARE YOUR OPINION BELOW OR EMAIL US AT UNHAPPYFRANCHISEE [at] GMAIL [dot] COM
We welcome comments and clarification from David Kaufmann, Michael Joblove, PIRTEK USA as well as the franchise regulators of NASAA.
NOTE: Unhappy Franchisee provides an open invitation to all individuals and companies discussed, mentioned or involved with our posts. We invite you to provide corrections, clarifications, rebuttals or alternative points-of-view in the comments and/or by emailing us at UnhappyFranchisee [at] Gmail [dot] Com. We welcome all respectful opinions and value open, productive discussion. We also respect the protected right of anonymous speech and assure the confidentiality of our sources and those who wish to contribute anonymously. Threats and bullying will not be tolerated (especially when directed at us).
Tags: Arbitration, AAA, American Arbitration Association, David Kaufmann, Franchise attorney David Kaufmann, mediator David Kaufmann, attorney Michael Joblove, PIRTEK, PIRTEK USA, Glenn Duncan, CEO Kim Gubera, Jim Lager, franchisee Jim Lager, Texas Hose Pro, Franchise NDAs, Federal Trade Commission, FTC, the Franchise Rule, NASAA, Franchise Legislation,