US Franchise Law

Earnings Claim Discussion Questions TRANSITION QUESTION:

What is perhaps the biggest due diligence mistake that Carousel Creamery LLC made before purchasing and, also, likely the most reliable indication of stability of the franchise system for a new franchise whether or not item 19 earnings claims are provided in the FDD?

1. Why do some franchisors prefer not to mention item 19 earnings claims in the Franchise Disclosure Document (FDD)?

2. When can franchisors not include an item 19 earnings claim in the FDD and still make a future actual earnings disclosure to a potential franchisee in accordance with the FTC's Franchise Rule?

2. What policy reasons exist for allowing this earnings disclosure to occur?

3. If a franchisor decided not to provide item 19 earnings claims in the FDD directly to the franchisee could they send financial information to a third party to analyze without violating the FTC Franchise Rule?

4. Could a franchisor, such as Marble Slab, decide not to have an item 19 earnings claim in the FDD but provide the potential franchisee with a favorable write up in the local business journal about the financial success of the franchise and comply with the FTC's Franchise Rule? What if they didn't provide the article to the franchisee directly?

s. What real world problem does a potential franchisee face when signing a Franchise Agreement that contains the traditionally used disclaimer regarding previous earnings representations outside the UFOC?