The Letter Franchisor Attorneys Withheld From The FTC

Jim Lager, a former franchisee of three franchise brands and now an industry whistleblower, was forbidden by franchisor attorney David Kaufmann from sharing his opinions regarding the use of NDAs by franchisor attorneys (like Kaufmann) to nullify the protections of the FTC Franchise Rule.  Kaufmann is supposed to be an unbiased mediator between PIRTEK USA & Lager, but is using his position to silence franchisee Lager from participating sharing communications that don’t even name PIRTEK USA.  by Sean Kelly, Founder, Franchise Truth

(UnhappyFranchisee.Com)  In December 2020, Jim Lager wrote the letter below in response to the Federal Trade Commission (FTC) invitation for public comment for its review of The Franchise Rule.

Lager’s letter directly exposes tactics, such as non-disclosure agreements (NDAs) and private arbitration, to circumvent the Franchise Rule’s intention that prospective franchisees have access to the opinions of current and former franchisees.

PIRTEK USA attorney Michael Joblove and AAA mediator David Kaufmann (also a franchisor attorney) provided a real-life demonstration of franchisee-silencing tactics by prohibiting Jim Lager – a U.S. citizen and Army veteran – from sharing his opinions with a federal governmental agency and participating in a formal legislative review.

Here are PDF copies of the letters Kaufmann tried to withhold from the FTC in 2020 and NASAA in 2021, just now released:

Lager Letter to the FTC 10/11/20 (PDF) BANNED BY DAVID KAUFMANN

Lager Letter to NASAA 12/12/21 (PDF) BANNED BY DAVID KAUFMANN

Federal Trade Commission

Office of the Secretary

600 Pennsylvania Avenue, N.W.

Suite CC-5610 (Annex B)

Washington, D.C. 20580

October 11, 2020

Re: Franchise Rule Regulatory Review,

16 CFR Part 436, Matter No. R511003

Dear Sir/Madam:

This letter responds to the request for public comment on the Disclosure Requirements and Prohibitions Concerning Franchising, 16 CFR Part 436 (the “Franchise Rule”).

My comments will specifically address one of the focus topics (Disclaimers, NDAs, Releases, etc.) to be examined during next month’s workshop, as well as the more general problem of intentional blocking of essential information by franchisors and their expensive attorneys. I will begin with a short summary of my franchise experience.

Ironically (or perhaps not), I am not legally allowed to share the names of the franchise systems I spent the last four decades of my professional life supporting and enriching.

My name is Jim Lager. I am currently the independent owner of Dallas-based Texas Hose Pro, a mobile hydraulic hose service and repair business I opened in January, 2020.

In the four decades prior to the January, 2020, I was a successful and high-profile franchisee of two national franchise brands. In each of these chains, I was a top producer and perennial award-winner, consistently achieving sales volume in the top 2-10% of each franchise system.

Both franchise systems used my success story to their advantage in their public relations, marketing and franchisee recruitment efforts. My success as a military-veteran-turned-franchisee has been featured in numerous publications including Forbes, Entrepreneur, Military Transition News, Multiunit Franchisee and in the IFA’s Vetfran publications.

As I understand it, The Franchise Rule is intended to provide prospective franchisees with the essential information and also the recommendations of knowledgeable insiders they need to make an informed decision as to what will be, for most, the most significant financial decision of their lives. However, many franchisors and their expensive attorneys and lobbyists have derailed the FTC’s well-intentioned effort by establishing tools and techniques that enable franchisors to silence franchisees with bullying, threats, and intimidation. This bullying often comes under the respectable guise of forced releases, NDAs, non-disparagement clauses, and, of course, the reasonable-sounding processes of mediation and arbitration (all of which are designed to keep complaints and disputes out of the public eye – and hidden from prospective franchisees and investors).

The Franchise Rule requires franchisors to disclose franchise-related disputes under the litigation section of Item 3 of the Franchise Disclosure Document (FDD). Of course, franchisors and their attorneys have winnowed down which litigation must be disclosed, and mediation and arbitration are used effectively to keep allegations and complaints, however valid, away from prospective franchisees and investors. Franchisors are allowed to write their own artful versions of the disputes for those they decide to include.

The Franchise Rule also requires franchisors to include the names, addresses and contact information for both current franchisees and those who have recently left the system. The FTC clearly – and correctly – recognized that the best way to assess a franchise opportunity is to speak to those who were once in the prospective franchisee’s shoes and can relate their experiences and opinions – good or bad. However, many (if not most) franchisees who left franchise systems are not at liberty to share their experiences, their true opinions, or even acknowledge that they owned the franchise. Franchisees in and/or exiting franchise systems have no choice but to sign NDAs and releases, and agree to non-disparagement clauses that prevent them from warning or educating prospective franchisees from, perhaps, making the mistake that could devastate themselves and their families for generations to come.

The industry has an unnecessarily high level of franchise failures. Not only do franchisees and their families pay the price, but the American taxpayer pays as well. The Franchise Rule was intended to give prospective franchisees the information to help them identify the best opportunities and the best franchisors that will give them the best chance to thrive, repay their loans and contribute to the U.S. economy in myriad ways. However, very effective franchisor attorneys, associations and lobbyists have been allowed to subvert the flow of honest and accurate information to the public, to prospective franchisees, to lenders and the government agency that guarantees loans with taxpayer dollars (SBA).

Franchise and entrepreneurial publications and other award-givers have been allowed to function as propaganda machines, publishing press releases verbatim and promoting success stories with no regard for the truth or accuracy. The single consistent source of uncensored, non-whitewashed franchise information (the watchdog website UnhappyFranchisee.Com) is underfunded and its publisher, Sean Kelly, is constantly under threat & defamatory attacks for allowing anonymous franchisees and insiders to communicate the REAL information as the FTC intended. Franchisees and former franchisees know that it is the only place where they can share their true experiences without fear of repercussions.

Prospective franchisees of my former franchise systems could benefit from my four decades of real-life experience with the brands they are considering. My advice would be neither overly negative nor Pollyanna positive. I prospered through franchising. I followed the systems and was compliant. I could share insights that are realistic, and grounded in experience. However, prospective franchisees and investors considering these franchises will not hear the advice or insights of me or those like me. They will only be fed my sanitized success story, scrubbed clean of anything inconsistent with the false narrative that Franchising means being in business for yourself but not by yourself.

The true shame of this lockdown on Truth, through the use of NDAs, releases, non-disparagement clauses, etc., is that it disincentivizes marginal or mediocre franchise systems from improving, fixing their problems, providing better support for their franchisees or creating equitable relationships. Too many just figure that its easier to squeeze more money from their franchisees and spend it on attorneys and arbitration rather than making their systems, and franchising, better.

Thank you for listening,

Jim Lager

Owner and President, Texas Hose Pro

Former franchisee of [Redacted] and [Redacted]

This and related letters have been released exclusively through UnhappyFranchisee.Com.

Media credits should include UnhappyFranchisee.Com & link. 

For more information or interview requests, contact Sean Kelly at UnhappyFranchisee [at] Gmail [dot] Com.

We welcome comments and clarification from David Kaufmann, Michael Joblove, PIRTEK USA as well as the franchise regulators of NASAA and the FTC.

NOTE:  Unhappy Franchisee provides an open invitation to all individuals and companies discussed, mentioned or involved with our posts.  We invite you to provide corrections, clarifications, rebuttals or alternative points-of-view in the comments and/or by emailing us at UnhappyFranchisee [at] Gmail [dot] Com.  We welcome all respectful opinions and value open, productive discussion.  We also respect the protected right of anonymous speech and assure the confidentiality of our sources and those who wish to contribute anonymously.  Threats and bullying will not be tolerated (especially when directed at us).

The opinions expressed are those of the author or of those he has quoted.  Statements of fact are true to the best of our knowledge;  always do your own research and come to your own conclusions.

WHAT DO YOU THINK?  PLEASE SHARE YOUR OPINION BELOW OR EMAIL US AT UNHAPPYFRANCHISEE [at] GMAIL [dot] COM

Related Documents & Links:

Franchise Attorney, Mediator David Kaufmann Ethics Accusations

NASAA Advisor Forbids Franchisee Participation in NASAA Public Comments

Jim Lager Letter to NASAA 122821

Jim Lager Letter to FTC 122821

Lager to ACLU of Texas 122821

TAGS: , Federal Trade Commission, FTC, the Franchise Rule, Franchise Legislation,NASAA, North American Securities Administrators Association, franchise legislation, David Kaufmann, Franchise attorney David Kaufmann, mediator David Kaufmann, attorney Michael Joblove, PIRTEK, PIRTEK USA, Glenn Duncan, Jim Lager, franchisee Jim Lager, Texas Hose Pro, Franchise NDAs, AAA, American Arbitration Association