AAFD: Franchising Watchog… or Lapdog? Part 2
March 18, 2008 by Sean Kelly
Filed under Business
(FranchisePick.Com) Related stories: AAFD: Franchising Watchdog… or Lapdog? Part 1
Disturbing Allegations About Cuppy’s Coffee Franchise All Too Familiar
Cuppy’s Coffee, Elite Manufacturing Franchise Complaint on Rip-off Report
There are two main franchisee advocacy groups: the AAFD (American Association of Franchisees & Dealers) and the AFA (American Franchisee Association). My impression is that the AFA is a lot more political, trying to get laws changed, that kind of stuff. Stories about them usually involve bills, acts, Congress, and big words so, needless to say, I haven’t followed too closely.
The AAFD seems to be focused on two areas: promoting their idea of a fair franchise contract and organizing company-specific franchisee associations. I always had my doubts about their effectiveness (”Is the AAFD a total joke” is regular conversation on the great franchise site BlueMauMau.org), but I never criticized them because 1) They mean well, 2) Nancy Weingartner at Franchise Times told me Bob Purvin is really, really nice, and 3) Franchisees of some chains need all the advocacy they can get.
Even when the AAFD awarded Cuppy’s Coffee a fair franchising award for their pretty franchise agreement and promoted them on its website as a fair franchising award recipient last year, I kept my mouth shut. And when I read AAFD Chairman Bob Purvin’s response to a franchisee inquiry about Cuppy’s Coffee posted in our comments, I really struggled, unsuccessfully, to keep from joining the “total joke” group.
Bob’s words are bolded, my thoughts are not:
We have recently received several similar complaints registered with us regarding Cuppy’s Coffee…
Time to shine the AAFD Seal in the sky over Gotham City! When there are allegations of unfairness, I’m glad AAFD’s on the job…
Each of these complaints has involved demands for refunds when the prospective franchisee failed to be approved for franchising.
Bob, did you mean to say escrowed, refundable downpayments made after being “preapproved.” I’m sure you didn’t mean to say demands for refunds (by ungrateful deadbeats), did you?
Our investigation has revealed that financing for Cuppy’s franchises has been affected by the national mortgage crisis.
Bob, you’re messin’ with us, right? You’re kidding, right? Mortgage crisis! Good one! Right?
Recently, prospects who have been routinely approved have been declined for financing because lending sources have dried up.
That darn mortgage crisis! When’d that start, anyway? Last Wednesday?
Cuppy’s has been unable fulfill cash refunds on a cash basis, and has been negotiating repayment terms.
Did your investigation reveal why they’re unable to fulfill “cash requests” when individuals are wiring them $39,500 that are never used, Bob? The AAFD’s website says Cuppy’s Coffee has welcome 250 franchisees aboard, Bob. $39.5K x 250 is $9,875,000. And that was a year ago. That darn mortgage crisis!
All of the complaints we have received have involved franchisees who declined to accept monthly payments for these refunds.
They declined monthly payments for their own money? Some people are so unreasonable! What possible complaint could they have for having $16,000 withheld, then having their own money paid back with no interest over 20 months. After all, I’m sure those spelled out in their award-winning disclosure documents which some allegedly received.
Cuppy’s dramatically amended their franchise agreement to earn AAFD Accreditation…. If you signed the franchise agreement that was approved by the AAFD, you legal rights are far superior…
That franchise agreement’s a beauty, all right. Maybe if some of these prospects saw it before being pressured for their $39,500 downpayment, as the FTC requires, they’d be basking in the warmth of fair franchising and stop their petty whining.
This is not an award that a company earns for good deeds
Obviously!
We have not received any complaints from Cuppy’s franchisees who are in business.
One year ago, the AAFD reported Cuppy’s Coffee had “welcomed” 250 franchisees and had 51 stores open. Cuppy’s Coffee has been selling hard for a year, and now, according the to the Press-Enterprise, has “opened [emphasis mine] more than 60 franchised locations nationwide.” So the ratio of “franchisees” who are not in business to those who are might be conservatively estimated at, what, 5:1? 6:1?
FYI, the complaints we have received has to do with an agreement signed with Elite Manufacturing…
Of course! Now it’s all clear. This happened before… when people mistook Java Jo’z and Emerald Coast Manufacturing for Cuppy’s Coffee and Elite Manufacturing. NOW people are mistaking Elite Manufacturing for Cuppy’s Coffee!
But don’t worry, Bob. I don’t think anyone will mistake this AAFD for the one that was committed to Total Quality Franchising! and proving that fair franchising is good business.
WHAT DO YOU THINK? IS THE AAFD PROMOTING FAIR FRANCHISING OR ADDING TO THE FRANCHISE INDUSTRY’S SHOWCASE OF BOGUS, MISLEADING AND/OR MEANINGLESS AWARDS?
Hard to say because this is the first I’m reading of this, but if I were a franchisee in any field I’d want my advocacy group to, well, advocate more strongly than it seems to be doing.
Sean, can you name any franchise that puts the franchise fee in a trust account to be refunded if the deal doesn’t go through?
Of course, I would like this to be not only the AAFD’s standard, see standard 6.1 and the commentary, but it would be nice it was an industry standard.
No more Quiznos SNOS – sold but not opened stores.
But you are right to argue that the AAFD needs to be pushing for higher levels of care, which I hope that we are in this case and others.
AAFD Response to Cuppy’s and AAFD Postings on Franchisepick:
First, I would like to say at a personal level – especially as the first franchise authority to expose abusive franchise practices in my book The Franchise Fraud in 1994- that I am delighted that Sean Kelly has now got religion. Many of you know that the AAFD was born out of a realization that the practice of franchising was seriously amiss – facts well documented in my book.
But the AAFD doesn’t exist just to complain about franchisor practices. We recognize that many franchise systems do offer fair and collaborative practices – but their franchise agreements or contracts don’t reflect this. The AAFD’s Fair Franchising Standards seeks to correct, supplement and at times outright change a franchise system’s culture.
Second, let me offer a few facts and observations about the AFFD handling of the 5-6 complaints about Cuppy’s Coffee and Elite Manufacturing:
Cuppy’s Coffee and Elite Manufacturing Complaints
1. The AAFD takes all complaints aired to us seriously, and we act fairly to all concerned, the franchisor, the franchisees and the ex-franchisees. We have not yet determined if Cuppy’s or Elite has violated either the AAFD’s Fair Franchising Standards or our licensing agreement, but we are continuing to work with all parties.
2. Cuppy’s has earned AAFD Accredited Contract Status for adopting a franchise agreement that substantially conforms to the AAFD’s Fair Franchising Standards. This means the company offers one of the fairest franchise agreements in the marketplace today. AAFD Accredited Contract status is not a guarantee of performance, or success, or a good business model, but it is an assurance of accountability. And as far as we can ascertain, Cuppy’s is prepared to hold itself accountable.
3. Elite Manufacturing readily confirmed that it made refund promises to applicants who were unable to secure financing for a Cuppy’s franchise. It is the AAFD’s understanding that these 5-6 prospective franchisees were approved as franchisees and Cuppy’s assumed that third party financing would be forthcoming. But the third party financing failed to materialize.
4. I read today on one of the posts that an alleged victim claimed he had been promised that his deposit would be escrowed by Elite Manufacturing (Cuppy’s affiliate). Not one of the complaints registered with the AAFD made that contention, and none of the documents shared with us have documented such a claim. This is important information to know, and I invite anyone with evidence, if such exists, of this to contact the AAFD.
5. Elite has now stepped forward to agree to escrow future deposits, but this prudent commitment, which the AAFD has urged, is above and beyond any written contractual commitment as far as we can determine.
6. But an important point is being missed: If the Cuppy’s agreement hadn’t been negotiated by the AAFD to qualify for AAFD Accredited Contract Status, the promise of a refund would not have existed! Literally, the complaining individuals possess a breach of contract claim because of the efforts of the AAFD.
7. Further, all of the Cuppy’s franchisees who have complained through the AAFD have had their complaints aired through the AAFD, and all have been offered a refund plan by Cuppy’s and an offer of mediation of their claims by the AAFD. Cuppy’s has agreed to mediation, but none of the claimants have responded to our offer of mediation.
8. Cuppy’s has not once denied its obligation to make refunds, and has admitted to financial pressures due to the current banking and credit crisis.
9. The AAFD has not received one complaint from a Cuppy’s franchisee in business.
While some have demanded the AAFD to behead Cuppy’s, and “get tough”, the AAFD is most concerned about investigating the claims, mediating solutions, negotiating refunds, protecting a brand, and acting fairly for all parties concerned.
The AAFD prefers to act responsibly rather than to join what we believe to be reckless cries for vengeance. I am certainly not condoning the failure of anyone to promptly make good on a promise, but I suggest that some of our critics go rent the movie, “It’s a Wonderful Life” and advance to the scene in which George Bailey responded to a run on the Bedford Savings and Loan.
George couldn’t return all the depositors money in just one day, but he acted in a manner to save his clients and his business in the long run. Cuppy’s, who has already bailed out Java Jo’z licensees, deserves the same opportunity.
Regarding the AAFD’s Role
I have been puzzled by some responses, or concerns raised, about the AAFD. Numerous collectively bargained franchise agreement spawned and negotiated by the AAFD have greatly benefited thousands of franchise owners nationwide.
The thousands of man hours and millions of donated dollars that have been invested in negotiating Fair Franchising Standards now lay the groundwork for major reform.
All that is needed is the long ago assumed groundswell of franchisee malcontent to surface and support a strong trade association to truly arm itself as the voice of franchisees.
The AAFD is about to celebrate its 16th Anniversary—we have now tripled the longevity of the next best hope for franchisee advocacy.
But let me close with this: The AAFD is not, and has never been pro-franchisee or anti-franchisor – never was, and under my watch, never will be. I believe that balanced collaborative franchising can deliver all of the enormous promise of the franchise model of product and service distribution.
The AAFD has helped spawn dozens of franchisee associations that were dedicated to building great relationships based upon fair agreements within their franchise systems.
The AAFD has created the only true accreditation for a franchise agreement and franchise system. The AAFD Fair Franchising Standards are truly a work of enormous potential for our community.
What kind of Kool Aid is Bob Purvin drinking?
only 5 or 6 unhappy franchisees? Wrong is Wrong,
illegal is illegal no matter how many people are vicimized. Many franchisees have signed gag orders in hopes that the might get at least some of their money back. They might get some partial payments but then Elite defaults on them but the gag order remains in effect.
Is Mr. Purvin privy to these settlement offers that Cuppys/Elite Mfg makes to the franchisees?
Would you accept a settlement deal where you are going to be paid back over 3 years? Cuppys
will go the way of Java Joz before then.
And to think, part of the reason I feel for Cuppy’s scheme was because the AAFD made them their poster child for “fair franchinsing.”
Sean;
Are you aware of “many” individuals who have signed gag orders?
If anyone has signed a gag order, why don’t you send it confidentially to the AAFD – which has a Standard on the damn things that Cuppy’s has to respect.
Franchisor ethics can be a real problem. Take a look at http://www.cdicorp.info and read the facts on how MRINetwork, a global recruiting franchise, misrepresented the truth for years. They train and encourage their franchisee to interwork. However, they represented someone as a regular franchisee who’s franchise agreement had expired years earlier and who was in mounting debt for years ultimately exceeding $300,000 USD (> £170,000 UK Pounds). MRI Network continued with this misrepresentation for years whilst encouraging other real franchisee to interwork with the bogus franchisee. Read the facts and form your own opnion on their ethics.
Does Cuppy’s Coffee or Elite Manufacturing owe you a refund? Provide an update at: Does Cuppy’s Coffee or Elite Manufacturing Owe You Money?
CUPPY’S COFFEE: Interview With Franchisee Rick Noem Rick Noem tells how he gave Cuppy’s Coffee a deposit of $125,000 in March, 2008 shortly before Dale Nabors took over. He’s been unable to get even workeable plans or his phone calls returned, much less construction. Meanwhile, he’s gone broke paying $6000 a month rent and a $3000 monthly loan payment on a business that hasn’t been built.
CUPPY’S COFFEE: List of Locations, Status Here’s the location list from the Cuppy’s website. I’ve started adding closed locations, and those who paid but never opened. Contribute additions or clarifications with a comment or by emailing unhappyfranchisee[at]gmail.com.
Cuppy’s Coffee Overview Here’s a central page with links to Cuppy’s Coffee franchisee interviews, stories, documents and information. Direct people here to get them up to speed on the Cuppy’s Coffee story.
CUPPY’S COFFEE, Java Jo’z, Elite Manufacturing, Medina Blogliography Franchise Pick’s links to Cuppy’s Coffee, Elite Manufacturing, AAFD, & Java Jo’z related posts.
Are you aware of “many” individuals who have signed gag orders?
If anyone has signed a gag order, why don’t you send it confidentially to the AAFD – which has a Standard on the damn things that Cuppy’s has to respect.
Here is wording from an agreement sent to a franchisee on behalf of Cuppy’s by Bob Purvin. In Bob’s email, he advises the franchisee to stop participating in the blog discussions.
Release. In consideration of the mutual promises made hereunder, the acceptance and sufficiency of which are hereby acknowledged, the benefits and advantages anticipated by the parties from the compromise and settlement of the matters described herein and the absence of which this Settlement Agreement and Mutual Release would not be executed and delivered by the parties, each of the parties have acquitted, released, exonerated and discharged, and do hereby each acquit, release, exonerate and discharge, each of the other parties and their respective representatives, attorneys, agents, successors and assigns, from any and all obligation, liability, responsibility or claim, whether at law or in equity, under the laws and rules of any state of the United States, and of the United States of America, and of any other nation, and of any regulatory body or agency, from, upon, under, or on account of or growing or arising out of the Released Matters, including all damages, losses, costs, fees and expenses of every kind or nature and character, now existing or hereafter arising, known or unknown or hereafter becoming known, accrued or hereafter accruing, resulting directly or indirectly, proximately or remotely, from all or any of the Released Matters and each party does hereby acknowledge full and complete compromise and settlement, accord and satisfaction and payment thereof and therefore. This document is intended to be a release of past, present and future claims as to the Released Matters.
3. No Disparagement. Each of the parties agrees to not make or publish any statement that is disparaging concerning or adverse to the business interests of another party, or which, whether intentionally or unintentionally may harm the other party’s reputation, including but not limited to, statements that disparage any service, finances, capability, character, integrity or any other aspect of another party, its employees, agents, officers, affiliates or affiliate’s employees, agents or officers. Each of the parties agrees to remove any and all statements currently existing in any form that is disparaging or adverse to the interests of the other party or its affiliates or employees, agents or officers of same.
10. Confidentiality. The terms and conditions of this Settlement Agreement and Mutual Release shall remain confidential and shall not be disclosed by any party to this Settlement Agreement and Mutual Release to any third party, unless required by a court of competent jurisdiction or a validly issued subpoena.
Sean, this is a standard release, and the disparagement clause is meaningless.
But thank-you bringing it to my attention.
…the disparagement clause is meaningless.
Perhaps in court, but it’s not perceived as meaningless to the people who signed the agreements and are afraid to speak publicly about the terms of the agreement.
Their agreements have served them well since the Java Jo’z days.