Franchise Pick

20 opinions for CUPPY’S COFFEE: AAFD Not Getting Its Share of the Spoils

• michael webster
  Sep 8, 2008 at 9:14 pm

  Sean, you and I are fascinated with con criminals.

  But in this case, who are siding with Dale Nabors or Bob Purvin?

  Cuz, one of them is has control of $27 million SBA approved loans to do with what he wants.

  And it ain’t the AAFD.

  Focus on the money, buddy. Not on the side shows.

• sean
  Sep 9, 2008 at 3:09 am

  …who are siding with Dale Nabors or Bob Purvin?
  Neither. I think they’re both scavengers at a train wreck.

  Focus on the money, buddy.
  Give me something to post about it and I’ll post it. No one has shared what they know with me about the funding situation - even in confidence. When I asked you to give info about the process with the SBA, you said to refer people to their lawyers. I didn’t read about Funding Solutions until Paul’s post on BMM and by that time the website was down.

  I can’t focus on what’s not shared with me. I can’t comment on what I’m not privvy to.

  …Not on the side shows.

  It’s a shame you’re involved with the AAFD because I think you’d be fascinated with this “sideshow” too. Why is franchising such fertile soil for these con-criminals to thrive? One reason is that they are welcomed into the mainstream and seem right at home. They fit in. They aren’t the guy on the streetcorner playing a shell game on a card table, they are the shopkeeper with the immaculate shop, Chamber of Commerce and sticker on the window, donater to the Policeman’s fund.
  The Entrepreneurial media will run anyone’s ads, will do positive stories on any concept without scrutiny. Franchisors can disregard franchise laws and brag about it in the newspapers and no government agency will do a thing. (Make & Take Gourmet published earnings claims in business journals and boasted about opening non-franchise opportunities they’d convert to franchises when they were registered. NY, FTC still has done nothing.)
  The SBA posts tutorials on franchising written by and promoting private franchise brokers.
  Millions and millions of dollars guaranteed by taxpayers are, in essence, making scammers rich at the expense of people who have played by the rules all their lives.
  Of course, this is not being caused by the AAFD and, of course, its defenders are right that it plays a marginal if not irrelevant role in the grand scheme of things.
  The AAFD is just supplying the sticker for the shopkeeper’s window, perhaps.
  The AAFD is just the boy scout helping an old lady across the street with one hand, rummaging through her purse with the other.

• carol cross
  Sep 9, 2008 at 6:12 am

  Always, from the outside looking in, it is so disgusting for me to know that we have had thirty years of the FTC Rule that encourages the con men, and nobody inside of franchising, except Sean Kelly, will admit that regulation is the enabler of all of this common law fraud that is going on in the franchise industry.

  Apparently, Robert Purvin accepted the reality that there would never be any change in the FTC Rule that would actually help whatever percentage of franchisees who would fail, and the only avenue of assistance would be to negotiate better, less harsh, and fairer franchise contracts that would improve the relationship of those franchisees who would stand. He knew, of course, that the failed franchisees in franchise systems would continue to be sacrificed to federal regulatory policy, as determined by the Congress and the “powers that be” in the financial markets who make the decisions as to public policy for the greater good.

  Robert Purvin wouldn’t be able to do anything to help failed franchisees after they signed franchise agreements but he believed he could help the standing franchisees with better terms in the contracts that would be accepted by both the franchisor and the franchisee. He did try to warn through his book and he did on behalf of himself, and not on behalf of the AAFD, make public comment #79 to the FTC in 1997 to wash his hands clean.

  I imagine Funding Solutions is an arm of the IFA and that franchisors are scrambling to find lenders in view of the scandal in banking circles that most certainly must involve the SBA in ways that may yet be unknown.

  I recently heard a Pod Broadcast Interview with Coleman in which the head of Fran Data, who runs the SBA Franchise Registry under contract, indicated that the SBA software programs that tracked franchise loans and franchise defaults didn’t work well with one another, and that the banks and the lenders shouldn’t depend on the SBA information. How convenient! Where is the Congressional Oversight? Who watches the store for the people?

  Carol

  Obviously, the SBA is a subsidy for the franchisors, both big and small, and we have to hope that someone will investigate the 27,000,000 in SBA Loans that were guaranteed for Cuppy’s Coffee, and the fact that some of these funds were converted illegally and prospective franchisees were defrauded?

  If this is true, wouldn’t the AAFD have a responsibility to report this to the proper authorities?

• michael webster
  Sep 9, 2008 at 8:27 pm

  Dale has got $27 million at his train wreck.

  Purvin is out money.

  It is time to give up on whacking Purvin.

• sean
  Sep 10, 2008 at 10:36 am

  Michael:

  A burned franchisee posted an excerpt from Purvin’s The Franchise Fraud on an unrelated post. It was really brilliantly written, clear, insightful. Considering when it was written, it was courageous and, I’m sure, unprecedented. That makes this situation sadder yet.

  “Whacking Purvin” is certainly impolite, but it’s politeness - not criticism - that has marginalized and drained the AAFD of funds and credibility. All along the way, smart people who - I have to assume - care about improving franchising, chose politeness over scrutiny, good manners over common sense. I may seem like the bad guy, but you guys allowed Daddy to drive the bus off a cliff because you thought it would be impolite to criticize his driving.

  If the AAFD tanks, won’t it be because the AAFD Board and the AAFD defenders sat politely silent and allowed bad ideas and poor decisions to go unchallenged?

  If the AAFD board had whacked Purvin when he was he helping Morg line up that $27 million, he might be the hero in all this - and the AAFD might not be out of money - and credibility.

  If AAFD members had been less polite once it was obvious that the poster child of “contract accreditation” was exaggerating its meaning and using it as a tool for fraud, BP would have emerged from this as a defender of franchisees - and not so whacked out.

  Denial & politeness got the AAFD into this situation. You guys called for politeness when you should have forced change. Do you really think it’s doing them a favor to call for more of the same?

  Or are you really saying that the AAFD is too far gone - let it die in peace?

• carol cross
  Sep 10, 2008 at 11:16 am

  It appears that the original sin (the FTC Rule) - of taking franchisors out from under the common law fraud statutes of the States and allowing franchisors to sell franchises without disclosing proprietory unit statistics - has come home to roost.

  The fatal flaw in the FTC Rule has a price! Even though the courts have been busy trying to legitimize the flaw in the FTC Rule, those who take advantage of it perhaps go too far when institutions like the SBA become infected because they want to work with the FTC and the IFA to promote Commerce.

  Again, while BP’s motive may have been to generate business for his Association, in an effort to protect the employees of the AAFD, he had the same conflict of interest as do the regulators. What is the point of bringing Cuppy’s down if this means that innocent franchisees who ARE breaking even will be destroyed in the process of trying to help those franchisees who were cheated out of deposits, etc.?

  Bob Purvin was NOT the enabler of the process wherein Cuppy’s has 27 mil. in SBA guaranteed loans. Bob Purvin is a good man who is in business for himself, as are all of us, and who misjudged the situation because he didn’t do effective due diligence on Cuppy’s and the owner of Cuppy’s, whom he trusted.

  Michael is right —maybe it is time to let the Cuppy’s/AAFD mess die in peace on Franchise Pick and hope that the SBA and the banks and the lenders will regulate the situation to the best of their ability.

• sean
  Sep 10, 2008 at 12:48 pm

  Bob Purvin was NOT the enabler of the process wherein Cuppy’s has 27 mil. in SBA guaranteed loans. Bob Purvin… misjudged the situation because he didn’t do effective due diligence on Cuppy’s and the owner of Cuppy’s, whom he trusted… maybe it is time to let the Cuppy’s/AAFD mess die in peace
  There are a couple of problems with that. First, BP hasn’t ever owned up or acknowledged that he misjudged anything or made any mistakes. The press release attempted to rewrite what happened. Bob has never acknowledged the misleading nature of contract accreditation as an “award,” and never acknowledged the error of being hoodwinked by Morg Morgan. When he finally suspended Cuppy’s Coffee’s accreditation, he did it for the wrong reasons. Dale was right: his contract was no less award-worthy when it was suspended than when it was awarded.
  What has been learned? Or changed? Bob has not pulled the plug on contract accreditation as an award, as far as I know. So it still exists - right their with your FDD - as a badge of credibility for sale.
  The real problem, though, is not BP & Cuppy’s, it’s the fundamental model of the AAFD as a “tertiary” service that purports to hold FRs accountable, but depends on them for their finances (even if ultimately paid by the franchisees). You can’t serve two masters, and when push came to shove the AAFD stuck up for the one with the checkbook. That’s the flaw in the model - your survival depends on the wrong side supporting you.
  Imagine if labor unions had taken that approach - if they had gone to GM and asked them to subsidize them so they could represent their workers. How long would they have lasted?
  As it stands, nothing has changed to prevent this from continuing with some other company.
  What’s to keep Ponzi’s Coffee from setting up shop, getting on the SBA registry, joining the IFA, buying an AAFD Fair Franchise contract Award, accepting construction downpayments through its Ponzi Construction Co., sucking millions out of middle class American nesteggs?
  Nothing’s changed whatsoever.

• carol cross
  Sep 10, 2008 at 1:52 pm

  You are right, Sean! You bring up the problem of the imbalance of power between franchisors and franchisees and the truth that the AAFD can’t, as a trade association, serve two masters and achieve a neutrality that would serve franchisees in any real sense.

  If you hold my hand and pick my pocket and I am only comforted and not helped, I am poorer for the experience.

  Did the Congress intend for the FAA to apply to parties where the balance of power is all with one party? Did the Congress intend that the franchisors and the special interests be enabled to “suck mnillions out of middle class American nest eggs” because they would never again be “middle class” and have to worry about getting a job?

  Is this always the case and “Nothing’s changed whatsoever?

• michael webster
  Sep 10, 2008 at 3:53 pm

  1. Bob and the Subcommittee who approved the Cuppy’s contract are well aware that they have made mistakes -indeed I made this a public announcement several months ago at the AAFD’s convention.

  2. Uhh, it was actually me, the polite AAFD member, who put together the $27 million SBA potential fraud story, complete with background facts that so far have not been made public - for obvious reasons.

  3. Sean, you can continue to whack Bob and the AAFD all you want over the accreditation issue, but you are deeply wrong about the overall picture.

  You labour analogy is completely wrong: unions would not exist but for the check off dues system. That is entrenched in law.

  The ongoing requirements for a fair contract were not met and Cuppy’s was terminated.

  You should be applauding the historical nature of this story instead of trying to give it the IFA twist.

• sean
  Sep 10, 2008 at 4:45 pm

  … they have made mistakes -indeed I made this a public announcement… it was actually me, the polite AAFD member, who put together the $27 million SBA potential fraud story…
  Michael:
  I think your work on this has been praiseworthy, and I appreciate having been able to send people who have inquired your way. And I also believe the way that you, Paul and Don Sniegowski spoke up and held your ground at the AAFD convention is praiseworthy.
  While you may disclaim this, it’s pretty obvious that the good you’ve done is a product of your individual initiative outside the normal procedures of the AAFD.
  Yes, you were outspoken about the mistakes made while at the same convention Bob was having Doug Hibbing handing out the next fairness award.
  As for the overall picture, I hope I am wrong.
  The point of the labor analogy was that unions are clear who their first allegiance is to. Of course they need to be sensitive to the health of the overall company, but they know their primary job is to advocate on behalf of their members.
  In this case, I clearly had the feeling that BP/AAFD was advocating on the side of “Management” not “labor” (or Labour)
  I freely admit that I am making broad criticisms based on one very specific situation - but if AAFD membership is declining and credibility is diminishing, I think these criticisms indicate a few of the reasons.
  ….or maybe I’m being secretly bankrolled by a competing franchisee organization…;)

• Mark
  Sep 11, 2008 at 2:12 pm

  Sean, I’m a ‘burned” Cuppy’s franchisee in PA. I’m anticipating they will continue to breach and was wondering if you can serve as knowledge source for our attorney if/when it comes down to litigation. You seem to be the resident subject matter expert when it comes to this “train wreck”.

• Guest
  Sep 12, 2008 at 3:51 pm

  I just logged a complaint with the FTC

  https://www.ftccomplaintassistant.gov/

  I think everyone who has been wronged should also.

• carol cross
  Sep 12, 2008 at 5:00 pm

  Good Luck. The FTC, it is reported, only looks at 6% of the complaints it gets.

  Sure hope you are in that 6% and that the SBA gets interested as well.

• Paul Steinberg
  Sep 15, 2008 at 8:34 am

  Guest: There are several reasons the FTC ignores most complaints, and one of them is a valid reason.

  Most zees bitch and moan about the unfairness of life and incidents arising from the franchisee relationship. They do so without even bothering to properly frame as a Section 5.

  Moreover, the FTC has spoken out as to why it virtually never looks at a Section 5 franchisee claim, and they do make a compelling argument (even if you don’t agree with the argument).

  Bottom line is to stick to Franchise Rule violations and read the damn regulation (the CFR is online).

  Whining and moaning are staples of blog sites where misery loves company. But if you want the FTC to even spend 30 seconds on your complaint, spend the time to learn what the position of the FTC is and frame your complaint so that it falls within the FTC’s self-defined area of cognizance.

• carol cross
  Sep 15, 2008 at 9:00 am

  You can speak plainer than the above, Paul Steinberg.

  Tell us where the FTC has spoken out as to why it virtually never looks at a Section 5 franchisee claim.

• sean
  Sep 15, 2008 at 9:17 am

  Most zees bitch and moan about the unfairness of life and incidents arising from the franchisee relationship.
  This being an election year, it is worth pointing out that all of you who voted for “less government” for the last 8 years got what you voted for. Less government oversight. Virtually no enforcement whatsoever.

  Pro-business ain’t the same thing as pro-small business.

• Paul Steinberg
  Sep 15, 2008 at 9:41 am

  Sean is correct. We get the government we vote for (good or bad). However, Sean is not correct in implying that the Presidential election is particularly relevant; for franchisees the Congressional and Senatorial elections are far more important.

  As to the FTC on Section 5, see my entry on “Franchise Regulation” on the BMM Franchipedia:
  http://www.bluemaumau.org/franchise_regulation

  ..and once more, read the statute!!! [15 USC 45(n)]

  If you don’t like the statute, that is a matter to address with your local Congressman. I’m not saying I agree with the statute, I’m just telling you what the statute explicitly states. Personally, I think the FTC is content with the statute just the way it is. But regardless of the FTC regulator’s personal opinions, if Congress sees fit to change the US Code, then the FTC will follow the direction of Congress.

  Again, that is representative democracy. Like it or not.

• carol cross
  Sep 15, 2008 at 11:19 am

  Paul: I have been blocked from Blue Mau Mau and cannot read your Franchipedia Comment on Section 5.

  I remember that franchisees do not get Section 5 protection because franchisees are not considered to be “consumers” under FTC policy and Court rulings — who would get any protection from deceptive trade practices.

  Obviously, franchisees, under law and regulation, are just considered resources for the franchisors who control the franchisees, once they sign the contract, in the interests of the franchisors who feed the economy.

  Deceptive trade practices are redefined by the fTC Rule, in my opinion, to rationalize its position that unit financial performance statistics are not MATERIAL to new buyers of franchises.

  In a representative democracy, my one vote doesn’t mean much when the big money of the special interests is spent in the Congress to capture committees who represent the special interests.

  The FTC announced a Workshop on Unfair Competition and Section 5, coming up in October. But, of course, nobody will talk about the fact that the FTC Rule has eliminated competition between franchisors of the same and similar concepts, resulting in saturation of markets and increasing business failures of franchisees.

  The SBA Franchise Registry continues to list franchises that have HIGH failure rates and more prospective franchisees will be brought to great harm because in our representative democracy, our representastives can be bought.

• Paul Steinberg
  Sep 18, 2008 at 11:58 am

  The relevant excerpt re Section 5:

  There are 2 sources of authority for the FTC to regulate franchises: the Franchise Rule and Section 5 of the FTC Act. While Section 5 would potentially cover aspects of the franchise relationship, the FTC takes the position that it lacks a Congressional mandate to use Section 5 to effectively get into the operational decisions of a franchisor, particularly since the law provides (15 USC 45(n)) a three-pronged test: (1) substantial injury (2) not reasonably avoided by the affected party and (3) not outweighed by countervailing benefit. Additionally, the contract between zor and zee is a commercial one and not a consumer. Since there is no private right of action to enforce the Franchise Rule, only the government (and not franchisees) may bring an action in federal court if a franchisor does not comply with the Rule. While f’zee groups maintain that a private right of action is necessary given the perceived lack of FTC enforcement, such a right is unlikely to be granted soon.

• carol cross
  Sep 18, 2008 at 12:45 pm

  Thanks, Paul!

  I understand that franchisees are merely premeditated resources upon which the franchisors can stilumulate the economy for all of the special interests involved in franchising.

  The FTC Rule, the State FDD’s, and the malicious legal traps of the franchise agreements, wrapped together, do serve Federal Regulatory Policy.

  Prospective franchisees get none of the protections of consumers under the law, and Section 5 is interpreted by the FTC as not applying to the commercial relationship of the franchisor and the franchisee because this would work against the intent of the FTC Rule.

  The law accommodates the FTC’s understanding of the law, and their Congressional Mandate expressed in the FTC Rule ensures that there will be no private right of action for fraudulent inducement to contract in arbitration or the courts, unless there is a violation of disclosure law, the FDD. And, if there is a violation, only the Federal Government or the State has the right to sue for the violation.

  Pretty disgusting stuff! and supported by the Rule of Law.

Have an opinion? Leave a comment:

• Use this area to discover new blogs and content in the b5media network.
• Beauty & Style
• Business
• Entertainment
• General
• Health & Wellness
• Lifestyles
• Music
• No Channel Selected
• Sports
• Team Blogs
• Technology
• Travel & Culture

• Social Web
• E-mail