Franchise Pick

29 opinions for COFFEE BEANERY: Exec’s Trafficing Conviction Leads to Franchisee Legal Win Part 1

• Carol Cross
  Aug 21, 2008 at 4:37 pm

  Ah yes! But Kevin apparently left his life of Cone crime to take advantage of the opportunity to “appropriate the property of others” or “steali by deceit” though the opportunity presented by the current status of the law governing franchising —that, in my opinion, legalizes white collar crime!

  You don’t find anything immoral, or illegal, Sean, about selling a concept that has never had any success. Do you agree with Michael Seid? That is! — That franchisors have no duty under the law to be competent? Michael Webster agrees but he says this is absurd and immoral.

  Just happy that this omission in the UFOC will turn a new page in the Coffee Beanery Episode and that there will be a “private right of action” under little FTC Act perhaps, in the future, or something that looks like justice.

  Hope Michael Webster or Paul Steinberg get out here and talk about this on your site, Sean.

  Look at Les Stewart’s comments on “poo franchises” on his Franchise Fool site on WordPress for a good laugh and a good cry. Michael Webster has made the decision of the 6th Circuit Court of Appeals available on his site, Biz OP, and Les made it available to me when I went in for my daily visit.

• Marylou Wright
  Aug 22, 2008 at 10:24 am

  Sean: Why don’t you do a little more in depth research on the “Coffee People who Care” instead of wasting your time on silliness.? Better yet, go to their website, then to locations and call some of their franchisees. That is where you will get truthful information. You might also want to find out why their franchisees of decreased to 85 in the U.S.

• sean
  Aug 22, 2008 at 3:05 pm

  Marylou: Thanks for the suggestion, but I think I’ll stick with the silliness on this one for a bit. Cuppy’s Coffee has got me a little coffee-frauded out at the moment. Plus, b5 media has been after me to do more posts on the problem of traffic cone theft.

  But you are free to share your in-depth research on this situation. I haven’t gone that in-depth on it, but I’ve read Janet Spark’s stories and the BMM threads and even suffered through the quirky YouTube videos (with that dynamic moderator and keen production values).

  Maybe you can explain a few things that have me puzzled:

  - Am I correct that the franchisees gave up trying to make their business work after only 3 months? After all the work and investment it takes to get a cafe like that open, why didn’t they attack their market with the same voracity that they’ve attacked the franchisor?

  - Are the franchisees contending that if The Great Cone Caper of Kevin Shaw had been disclosed, they wouldn’t have proceeded with their CB franchise investment? Or are they open about the fact that it was a technicality they used to their advantage?

  - How long did they keep their cafe open before pulling the plug?

  - What was the reason they couldn’t make the cafe work? Bad location? Too much competition? Ineffective marketing? No repeat business? What?

  I’ll leave all the legal nuances and wranglings to the BMM discussion. I’d just like to know why this cafe failed, and whether the franchisees did everything in their power to make it work - or whether, as is my suspicion, they had already given up before they really got started.

• Carol Cross
  Aug 22, 2008 at 4:25 pm

  Sean:

  I know you didn’t ask me to respond but I can’t resist.

  I think CB franchisees, the Wilshan’s, bought in the Spring of 2003 and asked for arbitration in 2005 because of their great losses in the operation of the Cafe that were increasing every month. I think you are wrong in your assumption that they gave up before they really got started. Those who invest their life savings in franchised proven business plans don’t give up easily and they live on hard work and hope that they will someday break even before their money is exhausted because, as you well know, it is the franchisees who bear the full brunt of failure of the business when they have to close their rented brand business down and become subject to personal guarantees on the franchise and the lease and are driven into bankruptcy.

  The Wilshan’s had trouble with almost every aspect of this so called “proven” cafe concept from the very beginning —-poor design and poor plan, etc.. But, like all franchisees, they hoped that they could break even before they exhausted their financial resources.

  The point here, Sean, is that the Wilshan’s would not have lost all of their money and five years of their lives, and suffered great pain and stress, and agreed to build a Cafe to wear the CB Name if CB had not misrepresented the offering to them in the sales process and in the Maryland UFOC.

  The Appeals Court indicates “we believe the issue of whether WW is entitled to a rescission is more appropriately addressed when WW pursues its civil remedies available under the Franchise Act in a court of law.” They go on to say that ….”WW should not be bound by the arbitration provisions of the agreement which it was fraudulently induced inso signing in violation of the Franchise Act.”

  True! They will have to go to court and prove that they were fraudulently induced to contract and that they relied on the misrepresentations and omissions and they won’t be able to use the Consent Decree negotiated by the State of Maryland, but, they do NOW have this opportunity to sue under the Maryland Franchise Act because the 6th United States Court of Appeals did reverse the judgement of the federal district court of Michigan and vacated the Arbitrator’s award. In their wisdom they used a “technicality” that was “material” that could not be subject to debate, and they explained this in the opinion.

  Whether the rescission that Maryland negotiated with CB, that the Wilshan’s did NOT accept, will come into play in any actual trial of the facts of the case will be interesting. New York indicates that once a rescission is negotiated by the State, in the interests of the State, and offered to the franchisees, there is NO private right of action under the NY Franchise statute against the franchisor whether or NOT the franchisee accepts the offer of rescission. NASAA works to uniformly regulate franchising across the 50 States.

  I think the NY rescission policy demonstrates the Federal Regulatory Policy that there will not be two bites out of the apple because of the desire to support the franchisor, whose system feeds the economy.

  Franchisors could probably not withstand a State negotiated rescission and a private right of action by those who reject rescissions.

  This is troublesome!

• sean
  Aug 23, 2008 at 1:49 am

  Carol Cross wrote: I think you are wrong in your assumption that they gave up before they really got started.
  I said that I suspected they had, not assumed.
  I haven’t studied every aspect of their story (so many disputes, so little time!) and haven’t really come to a conclusion either way.

  I ask the question because in a video interview posted on YouTube, Deborah Williams says “three months into the franchise, we realized something was wrong. Money was running out like it was going through a sieve. We hired an attorney. We also filed a complaint with the Maryland Attorney General’s office here in Maryland…”

  My question is: did they hire an attorney three months into owning the franchise?

  Those who invest their life savings in franchised proven business plans don’t give up easily and they live on hard work and hope that they will someday break even before their money is exhausted because, as you well know…
  There aren’t many, but some do give up easily. Some franchisees go in with a black and white, all or nothing attitude. They go in thinking the franchisor walks on water. When they realize that that’s not the case, the franchisor can do nothing right. Once they think they’ve been scammed, very few can enthusiastically promote their stores and cheerily greet customers without it showing through.
  I’m not assuming - just asking.
  In one of the discussion threads on BMM, Guest asked the same question I did about why the cafe failed… location? Competition? Has this been discussed anywhere?

  Carol, if anyone should appreciate the irony that the legal argument in this case hinged on traffic cones instead of the serious fraud allegations, you should. I don’t blame the Zees or Rifkin for using whatever argument works… the fact that this is the one that worked is an indication that the system is seriously out-of-whack.

  This sends a serious message to franchisors that if they’ve ever removed those DO NOT REMOVE tags from their mattresses, stole milk crates for bookshelves in college or returned their rented videos in the drop box without rewinding, they better disclose it in the FDD or suffer the consequences.

• Carol Cross
  Aug 23, 2008 at 9:11 am

  Sean: Why divert attention away from the real issues here? Apparently, you haven’t read the decision of the 6th US Circuit Court of Appeals. It is they who used what you refer to as a “technicality” to reverse the obvious injustice (that was known to the public) of the arbitration award. The failure of CB to disclose the felony in the UFOC, and the failure of the arbitrator to give any weight in arbitration to this “undebatable” and “acknowleded” failure to disclose a material fact provided the opportunity for the Appeals Court to reverse.

  This reversal of an Arbitration Award at Appeals level is a RARE event and is a legal victory for the Wilshan’s but, of course, they haven’t won the war.

  I have always thought that the arbitrator felt SAFE in her decision because she was rubber stamping federal regulatory policy. That is, I believe, once the State negotiates a rescission for violations of the State FDD, it is all over for franchisees who then can’t sue under the State Franchise Act or Statute and who cannot then win in arbitration ——whether or not the State rescission has been accepted or rejected by the franchisee.

  We all know that the FTC Rule and the status quo of the law surrounding the Rule and the State FDD has been promulgated to protect franchisors from any recourse from that percentage of their franchisees who do ultimately fail to thrive and who are destroyed in failure.

  Of course, all franchises who fail, fail because they can never generate the sales that will allow them to break even. Most franchisees expect that “breakeven” will take time and they will need working capital, as indicated by the franchisor in his startup estimate, to reach breakeven status. The Wilshan’s were led to believe they were buying a “proven” concept and a “turn-key” operation.

  You ignore the fact that the CB Cafe Concept was NEVER PROVEN to work and that this fact was not disclosed in the sales process and obscured in the FDD.

  There were substantive violations of the UFOC that led to the rescission negotiated by the State of Maryland. If Kevin’s hidden felony record were the ONLY violation of the UFOC by Coffee Beanery, I’m sure that CB would have been allowed to go to school if the regulator felt that this was merely a “technical” violation that was not proximate to any damages suffered by the Wilshan’s or the other franchisee.

  What is the purpose of regulation if not to warn of the risks of the investment? —-as demonstrated by all of the times the concept fails to work for the startup franchisee in the market place?

  This is not about Kevin and his “silly” crime. But, of course, you are right. This reversal of the arbitration award will be a warning to franchisors to fully and honestly disclose all of the items of the FDD, as required by law, so as not to lose their immunity from lawsuits for fraudulent inducement to contract.

  It will be interesting to see whether or not CB will, as you say, “suffer the consequences.”

• sean
  Aug 23, 2008 at 6:42 pm

  There’s really no need to repeat the same legal discussion that’s already well-covered on BMM.

  I ask again: Did Deborah Williams hire a lawyer within 3 months of opening her cafe?

  Second question: What is the flaw with concept itself? What makes it not viable? As a former VP of Operations for an organization larger than the entire CB chain, I’m sure DW has a lot of insights into the reason that the business model is unfeasible and not viable. Is that laid out anywhere?

  I’m not disputing that many cafes have failed and that representations were made. Why did they fail?

• Carol Cross
  Aug 24, 2008 at 10:49 am

  Sean! I don’t think DW is going to discuss her reasons for believing the Coffee Beanery was a flawed concept?

  DW must know by now that under the status quo of regulation and the law, there is no such cause of action as a “flawed concept” as long as the franchisor is declared to be legitimate by the government when he registers his UFOC/FDD and complies with disclosure law. Obviously, franchisors are declared to be legitimate if they have just one viable franchise unit to show the public and the regulators, and their Franchise Disclosure Document (FDD).

  Always, the reason for all failures of all franchisees with any concept is the failure of the franchisee to generate enough sales to cover overhead and service the debt on the startup.

  Obviously, in a system where, for instance, 70% of the first owners attain break even status and 30% fail, the concept is viable 70% of the time and unviable 30% of the time for the 30% who can’t generate enough sales to breakeven.

  If you want to make the point that the 30% who failed had bad locations, this point is valid! (As the Minister of Industry of the United Kingdom commented, a franchise may work in one location and not another.) If you want to make the point that some concepts die a natural death because of market saturation, etc., the point is valid.

  But! in the Coffee Beanery case, the Cafe concept had no record of a successful performance and this fact was hidden from DW in the UFOC and in the sales process.

  Of course, there will always be failures but the “fraud” in the fraudulent inducement to contract is enabled by the failure of the government to require the franchisor to disclose historical unit performance statistics to new buyers that would enable the new buyers to assess the odds of the failure or success of the investment of hundreds of thousands of dollars before they purchase the franchise.

  If DW had known the odds of failure of the Cafe Concept, she would never have considered the investment.

  This fatal flaw in the FTC Rule, the subsidy of the franchisors, produces great grief and loss for franchisees who are treated merely as expendable resources for franchisors to perpetuate their systems.

• sean
  Aug 24, 2008 at 12:54 pm

  Carol:

  We’re not on BlueMauMau. BMM covers cause of action and the legal battle in depth - no need to repeat. My frame of reference is not confined to the legal process or what can be proved in court. My question is - what was wrong with the concept that made it not a viable business model?

  Simple question.

  If DW had known the odds of failure of the Cafe Concept, she would never have considered the investment.
  It’s not possible to know the odds of failure of any business. Do you think Starbucks anticipated closing 600 stores? Did their past P&Ls save them from increased competition, brand weariness, reduced customer visit frequency, their own gamble with going to automatic machines combining with an economic downturn, etc.?

  If Coffee Beanery gave illegal earnings claims, lied that the cafes had successful track records when they didn’t, etc. that will all come out, I assume, at trial. The franchisees obviously have a pretty sharp lawyer, so I assume he will make each valid point pretty persuasively.

  But there are many, many people reading FranchisePick.com who are ready and willing to invest a few hundred grand in a coffee shop, and would kill to be in a market like Annapolis (look at the hundreds of people that sent money in to Cuppy’s Coffee). Why is it they couldn’t make it?

  Did the food suck? Was it too branded as a coffee shop to compete as a quick casual destination? Was the food cost too high? Labor cost too high? Were they unable to compete with their nationally advertised competitors? Is the CB brand strong enough to snag impulse mall pedestrians, but not strong enough to be a destination?

  In other words, if you removed the Pepsi contract, the gift card charges, the ten-year lease requirement and all executives who had disreputable contact with municipal safety equipment, would they have had a fighting chance? Or would the Annapolis lunch crowd have driven by them on their way to Panera?

  These are intelligent, experienced, accomplished business people - the cream of the mom & pop franchisee crop. They made the decision early on, it seems to me, to spend $100K+ in a single year on attorney’s fees rather than investing it in advertising or marketing for their store. That indicates to me that they came to the conclusion that there were serious deficiencies with the business model or cost structure itself that made trying to grow the store futile. They opted to put their energy into the legal fight.

  The Quiznos franchisees were very specific about the challenges and flaws with their concept. Why the need for secrecy here?

• Carol Cross
  Aug 24, 2008 at 1:39 pm

  Sean: You say “it is not possible to know the odds of failure of any business” but are you saying that the odds of failure as demonstrated by first owners of the concept who do fail are not a MATERIAL risk factor known to the franchisor that that should be disclosed to the new buyer of a franchise by the franchisor. Isn’t the failure to do, and the failure of the government to mandate disclosure of UNIT historical financial performance statistics a failure to meet even minimum standards of commercial practice under our Code?

  You can’t deny, can you? that if the performance statistics of the Cafe Concept, as known to the owners of the CB, had been disclosed to DW, she would not have made this investment that has so devasted her financially and emotionally.

  Is the CB model itself deficient? —-the performance history certainly indicates that the model, itself, was not efficient no matter how competent the franchisees. Since the franchisors have no legal obligation to prove that their model is efficient to prospective buyers, or that they are competent, there are, of course, a lot of inefficient and unviable models offered for sale to the public and I think DW would give you reasons as to why CB is one of them.

  I think D&R knew from the beginning that the model itself was inefficient but, of course, it was represented as a proven and viable concept and that’s why they bought it. I think they talked about some of the problems with the equipment and store layout on Blue Mau Mau.

  The Quiznos franchisees who suffer because of encroachment and overselling of the franchises to the public in an effort to capture market share to compete with Subway and other QSR S franchises, no matter what the cost to the franchisees, suffer also from policies of the franchisor that enhance the franchisor’s profits at the expense of loss of profits for the franchisees.

  Again, the franchisees of Quiznos suffer from the constructive fraud of the government disclosure document and the adhesory contract that are packaged together in the sales process. They, also, are fraudulently induced to contract because the franchisor can obscure the failure rate and the lack of profitability of the nits in the system from new buyers of the franchise. If Quiznos franchisee prospects had any idea of the churning and pumping and dumping and encroachment that Quiznos indulged in, they, of course, wouldn’t offer themselves up to be a expendable resource on which Quiznos can perpetuate themselves in the marketplace.

  There is no need for secrecy but just what is the point and the advantage to DW of discussing the deficiencies of a franchise in which she lost over a million dollars dollars in just a few years?

• sean
  Aug 24, 2008 at 2:09 pm

  …what is the point and the advantage to DW of discussing the deficiencies of a franchise in which she lost over a million dollars in just a few years?
  They allege that they were sold a defective product, that CB lied to them and the deficiencies of the product were covered up.

  What were the deficiencies that led to the failure?

  Yeah, that question is probably irrelevant. I’m sure the traffic cones, 2 cent gift card swipes and a questionable Pepsi contract were enough to sink them in the marketplace.

• Marylou Wright
  Aug 24, 2008 at 3:20 pm

  Sean: If you want answers to the questions you have asked, I suggest you contact the Rawelshans in Annapolis and speak with them. I will also give you another person to contact, Alan Kerr, at Kerr Insurance in Little Rock, Arkansas. If you can’t find him, let me know. There are also many, many others that have gone out of business.

• Carol Cross
  Aug 24, 2008 at 4:34 pm

  Apparently, Sean! you are indicating that because the franchisee attorneys KNOW that the deck is stacked and the franchisors are protected by regulation (and the intent of The FTC Rule and the State FDD’s) from claims of fraudulent inducement and failure to disclose MATERIAL facts to new buyers, they have to look for any breach that they can find of the actual adhesory contract to get the attention of the arbitrator or the judge.

  How can the franchisee attorneys penetrate that shield of safety that is provided to franchisors under regulatory policy? — except by looking for every possible breach that can be raised and raising the matter of the breaches to the courts or the arbitrator in hopes of getting compensation for their clients.

  Their clients, generally, were fraudulently induced to contract but didn’t know it and signed their due process rights away in the boilerplate franchise agreement that makes it legal for franchisors to induce prospective buyers to contract by whatever means are available to them.

  They have to find ways to skin the regulatory cat! —or something like that!

• sean
  Aug 25, 2008 at 4:17 am

  …because the franchisee attorneys KNOW that the deck is stacked and the franchisors are protected by regulation (and the intent of The FTC Rule and the State FDD’s) from claims of fraudulent inducement and failure to disclose MATERIAL facts to new buyers, they have to look for any breach that they can find of the actual adhesory contract to get the attention of the arbitrator or the judge.
  Well put.
  When your dispute enters the legal system, you are now in a world with different rules, procedures and priorities. Of course, to the attorneys this makes sense. This is their country, they speak the native tongue fluently. But for those from the everyday world who find themselves suddenly in this foreign country, it’s confusing and maddening. They now in the attorney’s world, and they are dependent on these highly priced tour guides to drive them around and teach them the local customs. They pray to God they know what they’re doing as they watch the meter spinning wildly at $350 an hour.
  The tourists need to realize that there’s no right and wrong in this world. There’s actionable and non-actionable. Proveable and not. Material, statutory… all the lingo you’ve picked up for your last few years dealing with all this stuff.

  So, prospective franchisees need to understand that if they fail to do their due diligence, if they inadvertently invest with the wrong company or in the wrong concept, everything they assume exists (like a governmental guardian angel watching over them, or some sense of fairness, or anyone who even cares about their problems for less than $350 an hour) doesn’t.

  Once they venture into the legal system, they are at a tremendous disadvantage and the odds are they are going to lose even if they win.

  I think there are two things that unhappy franchisees can do to try to have some good come out of their negative experience. First, they can fight the legal battle, as Deborah & Richard are doing, in the hopes that they can not only recover money but also bring attention to the problems and prompt changes in the flawed system. I think that it’s an important and noble avenue to pursue for those who have truly been screwed over - though it may prove financially, emotionally and personally devastating.

  The other way (which is not exclusive of the first) is to share the lessons they’ve learned with prospective franchisees, and to provide them with the warnings and guidance they never received. I don’t mean simply “Don’t buy a franchise” or “Don’t trust this particular franchisor,” but also: here’s what you should look for in a concept… here are things I wish we’d asked about… Here’s why this concept looked like it would work, but didn’t.

  Attorney Paul Steinberg recently asked “What is it with all these coffee franchisors?” lamenting the disputes with Cuppy’s, CB, etc. The fact is, owning a coffee house (like a little “Cheers” as Deborah said) seems like an ideal business to many people. If people want to start a coffee shop, someone will be happy to sell them one. If unhappy franchisees are willing to share what they learned to the contrary, they can at least have the gratitude of some they might have steered toward more viable concepts.

• COFFEE BEANERY: Overview & Blogliography | Unhappy Franchisee
  Aug 25, 2008 at 7:14 am

  […] COFFEE BEANERY: Exec’s Trafficing Conviction Leads to Franchisee Legal Win Part 1 August 21st, 2008 […]

• Carol Cross
  Aug 25, 2008 at 10:35 am

  Thanks, Sean! I hope the Posting of the Audio Interview of DW of CB clarifies some points. DW is very well spoken and definitely not a dummy, huh! It appears that Audio Interview 1 and Interview 2 are the same?? Or, am I in Monday neverland?

  You lean on the “due diligence angle” but those who do due diligence for prospects charge for this service, don’t they? And, is it possible for a prospective franchisee to be really safe without involving the $200.00 to $300.00 an hour attorney in the process?

  Will new prospects who do their “due diligence” with experts be advised of the odds of success (profits and survivability) as demonstrated by the historical financial performance statistics of the franchisor. How do the experts get these statistics?

  Franchisees should really understand the risk before they put so much at risk and we have nothing but past and present performance statistics of the units on which to assess this risk.

  If prospects DO hire advisors, etc.. and the advisors give them inaccurate information and misrepresent the opportunity, do they have any legal recourse?

  I’m with Les Stewart of Franchise Fool on all of this who thinks any legal recourse for franchisees is like “trying to revive a corpse” and sometimes this is the second victimization of the failed franchisees by the Bar.

  And, as indicated on NOLO’s Ten Good Reasons Not to Buy a Franchise, as published in Forbes.Com., Let the Buyer Beware!

  Thanks for not blocking my computer, Sean. You are a good man and you do good work in your quest to tell both sides of the story.

  Carol

• sean
  Aug 25, 2008 at 11:37 am

  It appears that Audio Interview 1 and Interview 2 are the same?? Or, am I in Monday neverland?
  Not sure where you are, but they’re video interviews and are not the same. #2 is a continuation of #1.

  #1 has a lot of futzing around including Deborah correcting just about everything out of the Secret Justice guy’s mouth (name, marital status, etc.) His name is George McDermott and I believe he is running for President.

  Personally, I don’t think Deborah comes off as very sympathetic in this video, and don’t think she’d do well in front of a jury. She may be completely correct in all she says, but she comes off as a know-it-all unwilling to acknowledge her own responsibility.

  1) DW is basing her story on the fact that hers was a cerebral, logical, well-researched business decision, but it wasn’t. She decided to own a coffee shop because of a “romantic” notion of having a neighborhood “Cheers.” They didn’t look into whether it was a good business to own - or that their community had a need for a coffee shop - they had already decided. Their first choice was “Starbucks.” Well, Starbucks is closing 600 locations. If Starbucks franchised, there’s a good chance they would have failed with them too.

  2) DW claims that she had read up on franchise law as part of her Due Diligence, and mentions that she believed - even before signing - that Maryland law controlled the contract. If that’s true, why did she accept illegal earnings claims and not see that clear violation of the law as a signal to immediately cease business with KS and CB?

  Is she saying that an illegal earnings claim didn’t bother her, but if she had known he had stolen traffic cones she would have grabbed her checkbook and run?

  3) I think it’s very hard to simultaneously impress people with your business experience and previous power and also claim to be an innocent victim. DW tells of being a powerful VP lording over an organization bigger than the Coffee Beanery, but she fell for the cheezy cocktail napkin trick and “Can you live on $125,000″?

  4) Having a million dollar house with $600,000 equity does not make you sympathetic character to the average person. Just a tip before getting in front of a jury of people struggling to make payments on a $125K townhouse.

• Carol Cross
  Aug 25, 2008 at 12:15 pm

  Sure! Sean! All of your comments are reasons that the franchisor attorney would use to indicate that it was DW’s fault that she bought the franchise because she didn’t do her DUE DILIGENCE as any intelligent person would in these circumstances —and that she wasn’t promised success or profits in the actual contract she signed.

  But, of course, she couldn’t do her “due diligence” on Item 20 because there were errors and ommissions that amounted to misrepresentations according to the Maryland regulator. If it is necessary to perform due diligence outside of the voluminous red herring, the FDD, why doesn’t the government indicate that it is “unsafe” to buy a franchise without hiring expert due diligence help when they give their misleading advice “TO PROTECT YOU” WE …………

  I think that DW demonstrates that very intelligent and successful people are being taken in by franchising because they think there is some government oversight of the industry —and that no franchisor would demand that kind of contract or take that kind of money unless they were selling something of “value.”

  And-d-d, it doesn’t excuse the franchisor who is indulging in misrepresentations and fraud to sell an “unproven” and lousy concept to the public because they CAN!

  Since the 6th US Court of Appeals has ruled already, constructively, that the CB franchisees were fraudulently induced to contract, I don’t think this case will ever go before a jury, do you? It would appear to be in everyone’s interest to settle the matter outside of court so as to not make new case law.

  Carol

• sean
  Aug 25, 2008 at 12:49 pm

  Since the 6th US Court of Appeals has ruled already, constructively, that the CB franchisees were fraudulently induced to contract, I don’t think this case will ever go before a jury, do you? It would appear to be in everyone’s interest to settle the matter outside of court so as to not make new case law.
  I doubt CB gives a rat’s behind about whether they risk making new case law or not. If I were the franchisor, I’d be more concerned about the message I sent to all the failed, failing or struggling franchisees and franchisee attorneys who might consider taking a run at me in the future. Indicating that you’re willing to settle out of court would not be the message most franchisors would want to send.

  Unfortunately for Richard and Deborah, a more effective message would be “If you take a run at us, we will tie you up in court until you’re more broke and miserable than you ever imagined you could be.”

  Remember the lesson of poor Bob Baber.

  I remember being in a meeting with a client who was being sued. The attorney said: “You’ve got two choices. We could settle this probably for $50,000. Or we could fight it an win for $100,000. If we settle, we’ll send a message encouraging others to sue us in the future. If we fight it, we send a message to everyone in the future that we don’t settle and we fight to the bitter end.”

  The client opted to fight it… send a message that he wasn’t to be trifled with. Last I remember, his legal bill for fighting it was just over $800,000.

  Attorneys don’t make big bucks for being stupid… on either side.

• Carol Cross
  Aug 25, 2008 at 1:14 pm

  Yes! You are right Sean! You’ve see so much of it. The deck is stacked — I understand that even more States are thinking about reducing the statute of limitations for filing claims against franchisors —because it brings franchisors into the state to stimulate the economy and help the job numbers.

  It’s just a money game for the franchisors —-the Statute of Limitations has expired for many of their franchisees, etc.. and they do, of course, what is best for their bottom line.

  Franchisees have to fight not only the franchisors but their insurance companies. The deck is stacked. But Insurance companies won’t pay out on “Fraud” so don’t franchisors take the risk that they might lose and be found guilty of fraud and they will not have any insurance coverage to help pay to fight the case?

  Where did the $100,000 that CB paid out to the other Maryland Franchisee come from? —from Insurance or from the Coffee Beanery?

  Its a pity that the courts were made part of it. When enough people lose faith in the system of justice under both criminal and civil law, they will take to the streets. Many great countries have found this out the hard way.

  I never forget Bob Baber - Quiznos —and when I get discouraged and think my posting is accomplishing so little, I just read that suicide note again and keep on trying to educate and warn.

  Thanks, Sean, for respecting free speech and not blocking my comments from your Site. I could tell you what I think the ABA stands for but I mustn’t be vulgar in my old age and insult their Mothers.

• COFFEE BEANERY: Exec’s Cone-viction Leads to Franchisee Victory Part 2
  Aug 25, 2008 at 3:09 pm

  […] COFFEE BEANERY: Exec’s Trafficing Conviction Leads to Franchisee Legal Win Part 1, I recounted how Coffee Beanery V.P. Kevin Shaw’s dalliance into the secet underworld of […]

• sean
  Aug 25, 2008 at 4:36 pm

  Just hours after writing about Bob Baber I learned that a failed Butterfly Life franchisee - facing mounting debt and foreclosure - took her own life.

  These issues have deadly serious consequences. Franchisors need to think about the kinds of ramifications that their actions can have when they sell to people who are not equipped to deal with the consequences of business ownership.

  At the same time, franchisees need to do their homework and understand the real ramifications of their decisions. No one should start a business if they cannot afford to fail. Period.

• Carol Cross
  Aug 25, 2008 at 5:30 pm

  It is so sad to know how many have been destoryed by franchising! Could this be avoided? Hopefully, the banks and the lenders will be alerted by the sub-prime scandal and the worst franchisors won’t be able find franchisees who can obtain loans to buy their lousy franchises.

  You are right, Sean! when you say “No one should start a business if they cannot afford to fail. Period.” (Dale Nabors, the new owner of CB used to say this on Blue Mau Mau. One wonders if he lives by his own advice. He has children to educate. But, of course, he knows that the contract protects him and maybe he can afford to try to make CB a viable investment for himself.)

  This is excellent advice but, of course, when push comes to shove and the prospective franchisee NEEDS a job and income, and the “risk” is obscured from view in the sales process, we see the outcome.

  This is the ugly implication of The Patriot Express Loan Initiative of the SBA and I’m afraid that many VETS and/or their families are going to be hurt because they won’t understand the risk involved. I’m not against franchising if the risk is understood by the new buyer of the franchise.

  Thanks for helping me to warn VETS and their families who will be looking for a way to make a living when they return to the States.

  Carol

• Carol Cross
  Aug 27, 2008 at 9:12 am

  Correction: Dale Nabors is the new owner of Cuppy’s Coffee —-not CB.

  What is it with all of these Coffee franchises?

  Carol

• Tiffany
  Aug 27, 2008 at 1:25 pm

  First of all Sean, you are a brilliant writer. Secondly, to the franchisees involved in this. You are so caught up in your pride that you cant accept that the store failed because of you, not because of the franchisor. You read the company UFOC, as highly educated as you both are ..you should maybe be a little embarassed right now. My guess would be that neither of you have had any experience in the service industry.
  Sounds to me like no one practiced any COMMON SENSE in buying their business. You really think that blaming Mr. Shaw for not letting you know he got busted sealing some Traffic cones years ago makes him a dishonest person? That is really reaching.. I sure wish I were part of the jury.

• Carol Cross
  Aug 27, 2008 at 4:36 pm

  Tiffany! Are you trying to change the subject and protect your interests somehow?

  You don’t think there is anything illegal or immoral in tricking the public into buying franchises while hiding the risk from the buyer under cover of government regulation.

  If the CB incident is not the perfect example of FRAUDULENT INDUCEMENT TO CONTRACT, it is only because the federal government decided to protect frnchisors from common law fraud in the State Courts in order to encourage franchising in the economy.

  Mr. Shaw should get busted for plain, ordinary fraud in my opinion. Quit trying to throw the red herring of the traffic cones into the discussion.

  You are so obvious and hopefully you will never get picked to serve on a jury! Want to bet, Tiffany, there will never be a jury trial!

  Carol

• sean
  Aug 27, 2008 at 5:07 pm

  Quit trying to throw the red herring of the traffic cones into the discussion.

  I believe that would be, technically, an orange herring.

  I have to say I strongly agree with Tiffany. At least the part about my writing.

  Thanks Tiffany. At least someone around here appreciates me.

• gk2mom
  Oct 8, 2008 at 5:47 am

  Whoever stated, “Owning your own business is comparable to natural childbirth” is dead on. Its much more work than many think. Everyone has an “image” of the little coffee shop where the locals all gather with good cheer but reality is small business is a lonely, tough business to be in.

• sean
  Oct 8, 2008 at 7:31 am

  Good points, gk2mom
  It seems to me that there’s a problem when the business owner’s strategy is to open a “little coffee shop where the locals all gather with good cheer…”
  A better strategy is “Find a need and fill it,” is it not?
  If the market had no gathering spot, no coffee shop, it wouldn’t be so hard, would it?
  One of the benefits of franchising is that it gives you choices to pick the type of business that fills the need in your particular market - regardless of your personal expertise.
  Did these franchisees compare the need for, say, junk hauling services, temporary personnel placement, tanning salons, etc. and then decide that there was a need for a coffee and sandwich cafe?
  I don’t mean to be unsympathetic, but realistically a coffee franchisor is going to sell the romance of owning a coffee franchise. The guy in the next booth at the IFE show may be selling the unromantic concept of industrial fluid recycling or windshield repair. The prospect needs to match the need in their market with the concept that fills that need and that they can afford and operate (somewhat) enjoyably.

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