December 2015 Archives

Societies are generally groups of like-minded people who form a voluntary association for a particular purpose. Societies can be are created for many reasons: a charitable purpose, fostering a sporting or cultural endeavour, or provide a framework for religious groups.

The Society Act creates the legal framework for the incorporation and organization of such groups. Each society has a constitution that defines its purpose and bylaws or rules that govern the conduct of its affairs.

Despite this, these voluntary associations are, more often than not, fairly casual in handling their affairs. The procedural aspects of their bylaws are often vague or incomplete.

Things get done a particular way because "that is the way it has always been done" or because no one has the time to do it properly.

Role of the Courts in Reviewing and Enforcing the By-Laws?

Resort to the proper procedural technicalities usually only comes into play when a divisive issue arises amongst the members. Everyone drags out and tries to enforce their understanding of the rules to advance the position they seek to establish. Not infrequently, the dispute ends up in court.

What role will the court play in figuring out the correct procedural requirements for the society?

Ilustration - Improper Nomination Forms

One recent case illustrates that the courts will look to the unwritten but long standing traditions of a society to help sort out the proper outcome. In this instance, there was a fight over the disqualification of a set of nomination forms shortly after the nomination deadline passed.

The incumbent executive had submitted their slate of nominations in a timely way, though some portions of the forms were incomplete. The challenging slate of candidates submitted their nominations 90 minutes before the deadline to do so.

Shortly after that, the secretary told the challenger slate that their nomination forms were invalid. They had each nominated themselves rather than have two other society members nominate and second their candidacy. As a result, the incumbent slate was elected by acclamation.

The disappointed challengers sought to overturn the election and the disqualification of their nomination forms. They pointed out that neither the society bylaws, nor the Society Act made provision for the content of nomination forms. Similarly, they contained no prohibition on self-nomination. The challengers asserted that the defect in their nomination was a technicality that ought to be remedied by the court.

Court's Jurisdiction and Remedy

The Society Act gives the court authority to oversee and rectify the affairs of a society. In order to do so, the court must first find that there has been an "omission, defect, error or irregularity in the conduct or affairs of the society". This can be a breach of the Society Act, a failure to comply with the constitution or bylaws, or misbehaviour in connection with the directors or members meetings.

The question, therefore, became whether or not the requirement to have two other members nominate candidates was an irregularity that gave the court jurisdiction to intervene.

The court decided it was not. It did so in reliance on the unwritten but long standing traditions of the society. The nomination forms, and the requirement to have two nominees, had been in use by the society for nearly 40 years. This was a long-standing custom that the court considered to have become a rule of the society.

In doing so, the court noted that voluntary associations are meant largely to govern themselves and to do so flexibly. A tradition or custom that is sufficiently well established may be considered to have the status of a rule on the basis that it has become an unexpressed term of the society's constitution.

The fact that the incumbents' nomination forms were incomplete was dismissed as a reason they too should have been rejected. Again, the court turned to the past conduct of the society for support. It had never been the practice or custom of the society to mandate completion of those parts of the nomination forms.

If you are a society member, remember to be mindful of its traditions and customs when dealing with its governance. A consistent course of conduct over a long period of time may result in the society, knowingly or otherwise, adopting an enforceable obligation that may or may not be in the best interests of its members.

In addition, try to get your nomination forms in earlier in case there is a problem with them. You may need some time to remedy them.

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Whatever the nature of any agreement, it is a device to obtain expected value. The parties have usually anticipated the ranges of that value over the life of the agreement.

These are goals.

They are not achieved realities.

Is Someone At Fault?

They sometimes don't work out the way you intended and sometimes there is an element of "fault" associated with its not reaching fruition. What usually happens then? In modern America the first reactions include blaming others (often without knowledge of the true entire situation); self justification (also known as covering one's ass); and reactions in furtherance of those first impulses.

Of course it is upsetting. Being upset is a symptom here, not the problem itself. Upset just comes with this territory.

Usually before calling in the lawyers there is some repositioning, gamesmanship so that when the lawyers arrive they are presented with what is hoped/believed will be the basis to enable them to obtain vindication of your interests through enforcement of terms of the agreement.

Should You Make a Demand?

The emphasis now shifts from sorting out the relationship's remaining useful potential to redressing grievances. The launching missile for this is the "demand" letter, essentially a letter insisted upon by your lawyers putting the other side on notice that you claim a breach by them that caused injury to you resulting in damages.

The other side, aware of the rift, sets roughly the same process in motion for the same motivation. The rationale, according to most lawyers, is that without this initial accusatory letter you risk waiving some important right. Now both sides are adversaries. Wasn't that quick and easy now?

It was quick and easy and most of the time about the worst mistake that you could have made in terms of your ever realizing anything worthwhile out of this situation. You can preserve your rights without this approach.

A Different Approach

Another approach is more positively calculated to produce less injury and damage; a shorter path to amicable resolution of everything present; preserve the most that can be preserved out of this bad situation; and save enforcement costs that today often run into hundreds of thousands and even millions of dollars.

If you want to salvage the most from a deal gone bad, in the shortest time, at the lowest cost, you owe it to yourself to consider the other approach as the first thing you do, not as some afterthought alternative when the well has already been poisoned by following bad legal advice. The legal advice was technically correct but not the best advice and rather immature in almost every instance.

With the better approach you have preserved all your rights and can always go back to warfare if the other side fails to see the potential and reciprocate in kind. The odds are that they will reciprocate, especially if you have not already followed your lawyers into confrontation in which only they end up winners most of the time.

There are usually forces working on you that want to propel you into conflict. They are normal human forces and instincts, but they have to be resisted in favor of a more rational parsing of the values as they now are rather than what you hoped they might be when you entered into the agreement.

Consider, for example, that while the deal may well have been thought out to the point of very high positive probabilities, all deals include risks, many of which are not controllable. No deal entry stage valuations are solid. They are theoretical.

In the best mode you would often have come out with substantially less than expected. Market conditions change.

Globalization expanded the ranges and sources of risks far beyond what they were ten years ago. If you applied formulae that were effective ten years ago to the entry stage evaluation of this deal, and did not adjust for the enhanced risks, the valuations were never realistic in the first instance.

Don't go immediately to war over expectations! Since the value of expectations is now changed due to the pending break up there is now an element of your doing little more than chasing after sunk costs. Chasing sunk costs is usually considered to be a terrible decision. Reassessment of valuations associated with the deal at the time of its impending collapse ought to provide you with serious attitude revision concerning how aggressively you want to pursue vindication of interests that in retrospect may not have been what you thought and hoped. The present tense value of the deal is now far less, and far less should be expended in cash and other resources trying to resurrect those expectations.

Find lawyers who can live outside contract language and "rights and wrongs". While contract language is very important, how you use it when trouble appears can be more important. Call it finesse if you will, but it usually provides much better, swifter, less expensive resolution.

I believe, based upon 50 years in formal dispute resolution practice, that the way businesses usually go about dealing with major problems is wasteful and unnecessary. I have tried the approach of which I speak in this article in several instances in the past few years and it resulted in extremely satisfied clients every time.

It won't always work. Some situations are inherently more difficult to work in due to perceived leverage advantages and ego issues. Those can sometimes be turned around and sometimes not. But with rights reserved in the interim this value preservation approach to dispute resolution will always be worth trying.

As always, you can call me, RIchard Solomon, at 281-584-0519.

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Few in the franchising world doubt that McDonald's is a world-class organization.

Hallam Movius and Lawrence Susskind hold out the mouth-watering proposition that McDonald's is a world-class negotiation organization. And, they offer up their recipe for turning your franchise into something similar. Their recipe is contained in Built to Win. The ingredients are familar enough to anyone with knowledge of the Harvard Negotiation Program or Mutual Gains Approach.

McDonald's Is Built to Win

Why should other franchisors care that McDonald's overwhelming advantage is due, in part, to its negotiation capability with franchisees and vendors?

Well, if true, then despite the notorious secrecy of McDonald's, Movius and Susskind offer the posibility that your franchise system could duplicate McDonald's advantage by following their Built to Win curriculum.

That's a very tempting offer.

Let's look more closely.

"Happily, we sometimes find that leaders have recognized the value of relationships and converted them into bottom-line opportunities. For many years, Bob Jackson (most recently a vice president and division operating officer) was a highly successful regional general manager at McDonald's, responsible for an area of the United States that comprised more than six hundred sites.

His region was consistently among the best performing in the country. When we first interviewed Jackson [in 2003], it was clear that he and his most successful colleagues were already following a number of practices encompassed by the mutual gains approach (my emphasis). Jackson repeatedly described negotiations in which he worked with owner-operator franchisees to implement marketing plans, technology upgrades and other operational initiatives.

'Many times we have interests and goals in common. But sometimes the corporation's interests are not identical with the owner operators.', he commented. 'We do best when we work jointly with our franchisees to solve the problems and difficulties that come up, taking their worries and concerns seriously and trying to share information and invent options to address those concerns and interests while advancing our own.

'Having a good relationshiop helps to create value far out into the future, because you gain trust and the next time a hard problem comes up, you're in a much better position to deal with it productively." Movious and Susskind [pages 40-45]

Effective Cooperation

Now, you and I know that franchisees can be downright nasty and refuse to engage in constructive dialogue with the franchisor. (And franchisors don't fix nasty -they look to terminate nasty.)

Especially when it comes to: marketing, upgrades, retrofits, menu item changes, and numerous other operational issues. Franchisees feel the dynamic is: the franchisor's plans using the franchisee's money.

Franchisor and franchisee interests, positions or goals, can be either adverse, in common, or a mixture of both.

McDonald's, says Jackson, takes these differences seriously and provides sufficient information to the franchisees to establish a collaborative working relationship which advances everyone's interests. (It also helps the franchisor's credibility that they own 20% of the units. Thus, this franchisor isn't alwasy using other people's money.)

Operational choices made by McDonald's have a long projected payback. A good working relationship extends the trust created today to commitment tomorrow. This coordination is valuable. It is not a traditional asset because it is not owned by the corporation. It is an intangible value, which nonetheless can be measured.

Increase value and get a better bottom line.

Now, do you think other franchise systems can be Built to Win or is McDonald's in a unique position?

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The Americans with Disabilities Act (ADA) is most frequently cited in reference to the employer-employee relationship; however, Title III of the ADA contains accessibility requirements for public buildings and facilities, including regulations related to signage, parking spaces, curbs, height of service counters, and size of restrooms. These regulations apply to anyone who owns, leases, or operates a place of public accommodation, which includes almost all businesses that serve the public.

Any public facility that is not ADA compliant is in violation of the law, and contrary to popular belief, there are no grandfather provisions in Title III of the ADA. Essentially, if you have an architectural barrier that prevents a disabled person from using your premises then you have to remove that barrier if removal is "readily achievable." Readily achievable means the removal may be accomplished without undue cost or effort.

The problem for franchisors and franchisees is that they may not know if they are ADA compliant until a lawsuit is filed.

With astounding frequency, lawsuits are being filed against businesses, restaurants, bars, and hotels that allege violations of Title III of the ADA. The rise in these lawsuits is attributed to the fact that Title III of the ADA permits a prevailing plaintiff to recover attorney fees.

Certain plaintiff's attorneys do little else other than filing Title III lawsuits. Some have even taken out advertisements seeking local attorneys to partner with them in jurisdictions in which they do not practice. Typically, the plaintiff's attorney will enlist the help of a disabled individual. In fact, some of these individuals file so many suits that when another attorney in our office advised me his client had been sued for an ADA violation, I immediately correctly guessed the identity of the plaintiff and his counsel.

The standard operating procedure is that the disabled individual, upon his own initiative or at counsel's direction, will travel to a business and assess whether or not it is ADA compliant. If the business is not in compliance, the disabled individual will report back to his or her attorney who will then file a lawsuit. In most cases, the business will not receive any advance warning, such as a demand letter, because the plaintiff's attorney does not receive any fees if the business voluntarily agrees to remedy any violations. The lawsuit will name either the business or the landowner -- the plaintiff's attorney really does not care which one he or she names because both may be liable for any violations.

The defense of these lawsuits can entail significant costs. As mentioned, a prevailing plaintiff generally is awarded attorney fees. Second, the determination of whether a business is ADA compliant and/or whether the removal of architectural barriers is "readily achievable" requires the testimony of an expert witness.

The best defense is to ensure your business is ADA compliant. Attorneys, consultants, and architects can assist in auditing your business for compliance. Additionally, determining whether any applicable insurance policies cover ADA violations can save a business owner from having to fight any claims itself. Likewise, reviewing lease provisions can assist a business owner in determining exactly who is liable for ADA violations as many lease agreements contain indemnification provisions.

If a lawsuit is filed, attacking the plaintiff's standing is also a viable defense. In order to have standing to bring a claim, an individual must be disabled and they must intend to return to the business. In some instances, lawsuits have been brought by individuals who live hundreds of miles away from the business. A little background research on the particular plaintiff can go a long way toward establishing a defense. In instances where the plaintiff does not reside in close proximity to the business, you can attack standing on the basis the individual does not legitimately intend to return to the business.

The volume of these lawsuits certainly has not gone unnoticed by the courts, nor has the fact that the same disabled individual may be the plaintiff in numerous lawsuits. Accordingly, another defense is to argue that attorney fees should not be available to the plaintiff as the business could have and would have remedied any violations without the filing of a lawsuit.

Another defense, albeit a potentially expensive one, is to argue that removal of architectural barriers is not readily achievable. A determination of what is "readily achievable" requires consideration of the expense of the proposed remedy and the business's overall financial resources. As such, what might be "ready achievable" for one business may not be for another business. Generally, this defense will require expert testimony.

Keep in mind, obtaining building permits and compliance with local zoning laws and ordinances does not mean your building complies with the ADA regulations and does not provide you with a defense to an ADA claim. If you have questions regarding your ADA compliance or provisions in your insurance policies or lease agreements it is recommend you consult with counsel to determine your potential exposure.