Litigation Avoidance System

This story may be a little self-serving, but it is a true story. I was the president of a franchised restaurant chain that was rapidly expanding.  We were in about 15 states at the time and had expanded into some cities with single units.  I always use to say in franchising that a franchise candidate never came into our office and said, “I only want one unit”.  “Five units” was the most typically stated goal of new franchisees.  The fact remains that most franchisees never get past one unit in the early years of brand development.

We awarded a franchise to a young woman in a large western city who was struggling a little but doing alright.  The city was a size that could hold about 15 – 20 units so we knew we could add a few more franchisees and if some expanded, we could properly develop the market.  About a year after that first unit opened, we finally had another viable franchise candidate and we awarded another single unit license.  This is where the story becomes related to our current business.

I received a call from an attorney that was hired to sue us for not honoring an expansion commitment to the original franchisee.  He asked me simply if I would agree to a phone interview initially.  I agreed and was soon contacted by a private investigator who I subsequently spent about an hour on the phone with.  He asked me some very pointed questions like “how do you know you didn’t make the promise to her”, “how can you be certain it was never “understood” she would not have a right of first refusal”, etc. etc.

I explained our process of discovery day and how single versus multiple unit development agreements were awarded.  I described our “no exception” policy (that we always stuck to) to never grant right of first refusal letters or addenda.  I explained how the information was provided to every single person that came to us for a franchise.  I left no doubt in my answers that there was no case.  Easy to say, of course!  However, it was our steadfast and consistent execution of our policies and procedures that led to an early drop of a bad case.

I got a follow-up call from that attorney thanking me for the information I provided as it helped him save him and his client an enormous amount of time and money.  

Lesson for businesses:  Always act fairly, honestly and develop policies and procedures.

Lesson for attorneys:  Do your initial diligence and use good private investigators!! Lesson for franchisees: Whatever it is, get it in writing and make sure it is understood.