International Law

Sneaky Lawyer Tricks Part II

Just yesterday, I posted about a sneaky lawyer trick in franchising.

So I was absolutely gob smacked when I read this interchange over at BMM with the new head of the FTC, which regulates franchising in the US.

"BMM: Would you yourself buy a franchise if there were no Item 19 earnings claim ? that is to say you did not know what the profitability of the business concept was? Why did the FTC decide not to require franchisors to declare an average franchise owners income statement or at least what the bottom-line earnings for a store is?

Tregillus: The Rule gives franchisors the option of making financial performance representations, rather than requiring them, because the requirements for preparing an Item 19 claim are rather demanding, and not all franchisors have sufficient reliable data from their franchisees to be able to comply with the substantiation requirements.

For that reason, the absence of an Item 19 claim should not be viewed negatively. The FDD provides a broad range of important information that includes alternative means to obtain earnings information.

If I were buying a franchise, regardless of whether Item 19 data were provided, I would obtain information about sales, costs, and profits by meeting and talking at length with a number of current franchisees, and would encourage all prospective franchisees to do that.

Uh, uh, well if you got that information, and it turned about to be false, and you reasonably relied upon it, what sort of remedy would you have?

Squat - unless your clever lawyer had amended the franchise agreement to include these representations.

Honestly, what a silly statement to make in the face of the standard integration/merger clause!

It is amazing that this person is in charge of "protecting" prospective franchisees!

(Franchise Pundit has a nice post about item 19 earnings claims.)

Full post as published by Misleading Advertising Law on June 04, 2008 (boomark / email).