ABA Weighs In On Franchise Laws

The American Bar Association Forum on Franchising was recently held in Baltimore, and forum chair and franchise attorney Joseph Fittante spoke to Blue MauMau about the current climate …

The American Bar Association Forum on Franchising was recently held in Baltimore, and forum chair and franchise attorney Joseph Fittante spoke to Blue MauMau about the current climate in franchise law. Fittante discusses the increased willingness of transactional attorneys to practice for franchisees and franchisors, the decrease in franchise litigation and the uptick he’s seen in transactions, which could be taken as a sign of stronger business. He also highlights recent landmark cases in franchise law, and what those cases mean for franchising in the future. For more on this continue reading the following article from Blue MauMau.

Joseph Fittante, chair of the American Bar Association Forum on Franchising, speaks frankly about the state of the Forum, the law and the economy.  In an economy still limping along, the country’s premier legal event for franchise lawyers was attended by some 772 participants, one of the top attendance figures ever. Lawyers descended into Baltimore to learn about the cutting edge state of franchise law and to network with a Who’s Who list of attorneys.

Mr. Fittante is an attorney with the Minnesota-based law firm Larkin Hoffman Daly & Lindgren Ltd.

BMM: What’s the economic pulse of the franchise law sector? Are transactional (focused on business transactions) and litigation lawyers (focused on lawsuits) experiencing an uptick or a drop in business?

Fittante: Full disclosure, I’m a transactional lawyer. I’m not a litigator. I will tell you that we are seeing more high stakes litigation. The number of cases have decreased because there is less to fight about. But when there is something to fight about, then those cases are going a longer distance than before. Litigation is now more drawn out, but the amount of it is less.

From a transactional perspective, which is my thing, these last two years have been tough. I have seen an uptick in franchising over the last month or two. At least in my practice, I’m seeing some new franchisors. I’m hoping that is a sign of good things to come.

BMM: Have law firms been laying off?

Fittante: My law firm has about 70 lawyers. We haven’t let go of lawyers, but larger firms have. However, not as much in the last year. I was talking to one of the guest speakers at the Women’s Caucus who is a recruiter out of Washington, D.C. She was telling us that she’s never been busier.

I’m actually the hiring partner for our law firm. We’ve had a hiring uptick in the last year. I think that’s probably consistent among the industry [of franchise attorneys]. There were times two or three years ago when firms were laying off and freezing salaries. There are a lot of qualified people who are still unemployed today. Hopefully that will change in the future.

BMM: As part of this softened economy, there seem to now be more franchisee attorneys becoming franchisor attorneys, and vice-versa. Do you see that as a trend?

Fittante: No, I don’t. I think you might see it here and there. There are probably more people who have come out about it. There have always been people who walked on both sides of the aisle. Lawyers didn’t talk about walking down both sides. I think more are becoming more public about it.

BMM: It sounds like there is some sort of social or marketing taint about being "bi-franchising." Should franchisee specialized attorneys switch over to represent franchisor clients?

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Fittante: Different strokes for different folks. But it would be hard for some folks. I think you can do it on the transactional side a little easier than the litigation side. From a marketing point of view, it would be hard for me to represent a franchisor and then get on the opposite side. And possibly even creating a law that would impact that franchisor because I know I would get a call from my client saying, "What the hell are you doing?"

You could probably do it on a transactional basis. But I think litigation lawyers are on one side of the aisle and stay on that side. There are the Dady and Gardners. All they do is franchisee and dealer litigation. In firms like mine, you litigate for franchisors. Gray Plant Moody also does franchisor litigation.

I don’t see an increase in switching sides. Having said that, if competition continues to grow, lawyers will look for new clients. They will move to the franchisee side if they are on the franchisor side, or to the franchisor side if they represent franchisees.

BMM: Speaking about switching, I’m seeing news stories about franchisor attorneys swapping their services for shares in a franchising company. I mean, if I were a franchisee or franchisor and my lawyer had shares in a competitor’s company, I’d be concerned. What is your opinion about that?

Fittante: Depending on the state bar, there may be ethical rules that apply to that activity. So check with each state. It isn’t something that I would do, but I can’t speak for anyone else. I wouldn’t invest in a client because I need to be independent and if I invest in a client, where’s my independence? However, this isn’t unheard of. This was something that was really "hot" in the go-go ’90s. There were lots of lawyers who invested in clients during the dot-com boom. There were lots of law firms that took warrants in clients’ companies in lieu of legal work fees. When the client went public, they’d cash in. So it’s not something that is unheard of.

BMM: How are things going with the American Bar Association Forum on Franchising? I heard that this year there were 772 attendees, which is a pretty decent year.

Fittante: Yes, that’s right. This year is more than we had from last. If you would have asked me about attendance three months ago, I would have bet my house that there was no way we were going to get that many people. Co-program chairs Mike Lindsey and Karen Saterlee did a really good job of publicizing this program and also getting other members of the governing committee, which is the board, if you will, to go out and beat the bushes for attendees.

When you combine this program with the economic times we are in today and end up with the attendance we have, it is a real credit to the program co-chairs. The days in which we put on an event and just had 800 people show up because times were good and people had money to spend are gone.

The marketing was good. The Forum used social media more this year than ever. We used LinkedIn, which is new for us. Lawyers were tweeting. We have a Facebook page. And we have the ABA Forum on Franchising’s ListServ [an email-based discussion group].

BMM: I liked the Forum on Franchising’s iPhone, Android and Blackberry app. I have it on my iPhone for the event, which I found helpful and convenient to know who was presenting. I clicked on a workshop description and voilà, it was inserted into my calendar to block off, say, 2 p.m., with that meeting.

Fittante: Exactly. We put all of those things together and gave people something new.

BMM: How do you see the Forum on Franchising developing in the future? Are you planning any changes?

Fittante: No, I don’t see any changes.

I received two sage pieces of advice when I took over [the position of Forum chair]. One: Don’t screw it up. The other was, if it ain’t broke, don’t fix it. That’s interesting advice because when you take over an organization like this one, you want to leave your thumbprint on it in some way, shape or form. That premise has been a little harder for me to take a step back and say, "You know what, things are running smoothly. We are going to tinker around the edges, but I don’t foresee any big changes.

Over the last two years, my predecessor in the governing committee put a premium on trying to attract younger, more diverse members. For the last two years we offered a reduced rate for the Forum’s first and second time attendees. This year we will reach out to these people. If you throw money at people, they may attend the event this year or next but if they are not tied to the organization, then on the third year they probably are not going to come back. If that is the case, then all we will have done is spend a lot of money, without achieving our purpose of getting those younger and newer members behind this organization. So we are going to take those new members and split them up among the governing members of the board and past chairs to reach out to them, to touch bases and to do some sort of mentoring program to make sure that they will come back every year, because they are truly the future of this organization.

We need to make sure that we develop a pipeline of future leaders.

BMM: For 2011, what are the landmark cases that will have an ongoing impact on the future of franchises?

Fittante: I think we are going to see the states looking for additional avenues to raise revenue. They will continue to target franchisors (see Iowa vs KFC), either from the tax perspective or the misclassification of franchisees as employees versus independent contractors (see Awuah Pius vs Coverall). It’s a huge issue in Massachusetts and in other states too.

From the regulatory landscape, I think it depends on who is in power. However, I don’t think that franchisors as a whole are averse to regulation. I can tell you from a franchisor representative perspective, I’m okay with regulation. Tell me what the rules are and I’ll follow the rules.

BMM: In some ways, it may be easier. Rather than have all the state regulation, you can have a single federal standard, like the new federal menu labeling law

Fittante: I hear you on that, although I don’t know if that will ever happen. I don’t foresee there being a federal franchise relationship law. That will continue at the state level. But if I can go back to my original point: just tell me what the rules are and I’ll follow the rules. What I don’t like is ambiguity. Because if I anticipate that I should move left because it wasn’t clear, but I should have moved right, I end up getting sued.

Tell me what the rules are and I’ll follow the rules. I think most franchisors will agree with that.

I think we will see more state-specific legislation on consumer stuff like the new label menu law, which will impact franchisees. There’s still the thing about "card check" that is hanging out there. Who knows where that will finally end up? We’ll know the political climate in the next 12 months. It depends upon who our next President is.

The Forum doesn’t take a position on these legislative issues.

This article was republished with permission from Blue MauMau.


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