3920 SW 109th Street Secretary RE: 16 CFR Part 436—Franchise Rule Comment My name is Laurie Taylor. I am the owner of an interior design and consulting firm in Seattle, Washington. From September 1991 through June 1993, I was a franchisee of the Decorating Den franchise system. In the spring of 1995, I filed an action before the American Arbitration Association in Seattle alleging, among other things, that Decorating Den had induced my investment through the use of earnings claims that were unsubstantiated, materially false and that were not contained in any offering circular. My action was unsuccessful, with the arbitrator awarding Decorating Den a small sum based upon a liquidated damages provision of the franchise agreement. My purpose in writing to you, however, is not to reargue the merits of my case. Instead, I want to discuss the "alternative dispute resolution" process contained in my franchise agreement and what that ultimately resulted in for me. I will give away the ending—my arbitration took place in February of 1998, almost three years after I filed my action. To put this letter in context, here is a brief overview of my background: I graduated magna cum laude from Seattle University in 1967. I came to the Decorating Den system with a long work history of advancement to positions of steadily increasing responsibility. In other words, I was not a kid fresh out of high school when I bought my franchise. Still, I was naïve about many things regarding franchising, including the dispute resolution process. I now understand, of course, that the dispute resolution requirements were Decorating Den’s way of preventing claims from ever being asserted. The franchise agreement I entered into required arbitration. Fortunately, in Washington state, franchisors are required as a condition of registration to agree that arbitration take place in Washington. However, my Decorating Den contract attached conditions to my right to arbitration. The contract required first, that I travel to Bethesda, Maryland for a face-to-face meeting with the franchisor within 30 days of giving notice of the dispute. Second, the contract required mediation, also in Bethesda. Based upon these provisions, Decorating Den obtained an order from the King County Superior Court in Seattle (cause #95-2-15517-1), enjoining me and the AAA from proceeding to arbitrate until the face-to-face meeting and the mediation had taken place. Decorating Den argued, of course, that it would be irreparably harmed if its pre-arbitration procedures were not followed. At the hearing on Decorating Den’s motion for the injunction, the Court asked Decorating Den’s counsel whether Decorating Den was actually seeking to require me to make two separate trips across the country as a pre-condition to arbitration. Counsel for Decorating Den answered in the affirmative. The Court refused to go that far and ordered instead that the face-to-face meeting and mediation take place in Washington. The judge, in other words, shifted the burden and expense of travel to Decorating Den. Decorating Den’s conduct after the Court’s order is revealing. The first thing that happened after that was their "offer" to waive the face-to-face meeting. I insisted that it take place. It did take place—sort of. In the end, Decorating Den was unable to send a representative for its subfranchisor, which the contract required, and they were not able to make the meeting occur within their own contractually required time frames. The meeting itself was a pure waste of time. It accomplished nothing, not even any meaningful exchange of positions. I cannot prove it, but I sincerely doubt that the low level representative Decorating Den sent had any authority to do anything at all. Decorating Den had intended this meeting to waste its franchisees’ time and scarce resources; instead, because of the Court’s order, the meeting wasted only my time. After the meeting, my attorney continued to press Decorating Den for mediation dates and candidates for mediator. We cooperated with discovery requests only to learn that Decorating Den would have to be pushed to answer our own requests. This back-and-forth continued for months. At various times we seemed to have closed in on a few possible dates only to have Decorating Den change its corporate mind. Ultimately I became frustrated enough that I twice went back to Court seeking relief, with mixed results. As the months became one year and then two, I also confess that there were times that I lost interest or enthusiasm for the effort—I think that is exactly what this process was designed to do to me and all Decorating Den’s franchisees. The delays my franchisor built into its contract and procedures were having the intended effect of discouraging me. In the end, at the point my attorney and I were preparing to ask the Court to compel the mediation (or deem it waived), Decorating Den waived mediation. In short, Decorating Den’s original position had been that the failure to engage in both a face-to-face meeting and a mediation would irreparably harm it. Then, in a complete about-face, (and clearly because they had to travel to Washington state), it offered to waive both steps! Decorating Den’s behavior clearly demonstrated that it was engaged in a cynical campaign of delay and that its pre-arbitration procedures were intended to create an insurmountable obstacle to the airing of franchisee grievances. The arbitration was finally conducted in February, 1998. Ultimately the arbitrator disagreed that I was entitled to relief. He seems to have relied chiefly upon a pre-printed statement in the contract purporting to be my representation that I had received no earnings claims. My attorney called that an unlawful waiver of Washington’s Franchise Act; the arbitrator felt it was "merely" an estoppel against me. As I stated at the outset, a small award was given to Decorating Den. But, in keeping with the surreal nature of this matter, the story gets better: Decorating Den was awarded interest on the award! In other words, the delays they imposed upon me earned them a few hundred dollars interest as well. But it wasn’t over yet. As its final action, Decorating Den had the nerve to ask the Superior Court for attorneys’ fees in connection with the injunction case. The Superior Court refused and expressly stated in its order that the pre-arbitration procedures appeared to have been an exercise of "leverage" over me on Decorating Den’s part. That is exactly right, of course, and therein lies the reason that I am asking the Commission to declare it an unfair act and a violation of the Franchise Rule for a franchisor to require any franchisee to submit to these elaborate pre-arbitration dispute resolution procedures. It is obvious what a franchisor intends to accomplish when they insert these provisions in their contracts. It is just a bad faith attempt to prevent claims from ever being asserted. Should you wish to contact me, here is my contact information: Laurie Taylor (206) 243-6768 Thank you for the opportunity to present my story. |