Top Franchise Legal Players: Rochelle Spandorf, Davis Wright Tremaine LLP

Honoree: Rochelle Spandorf

Firm: Partner at Davis Wright Tremaine LLP

Rochelle Spandorf is a nationally recognized business franchise and distribution attorney with over 35 years of experience. She represents franchisors, manufacturers, licensors, suppliers, franchisees and distributors in their domestic and international expansion and strategic development. Her practice encompasses a broad spectrum of transactional and regulatory issues for clients ranging from startups to mature public companies. Spandorf is skilled in preparing franchise disclosure documents (FDDs), franchise and distribution agreements, and registration filings, while also advising on compliance, contract enforcement, trademark protection, relationship disputes, antitrust matters, and mergers and acquisitions.

1851 Franchise recently spoke with Spandorf to find out more about her experience in the franchise legal field and for some insights into strategies franchisors can use to navigate legal challenges effectively.

1851 Franchise: What do you see as the most important things franchisors should do to protect their brand? 

Rochelle Spandorf: Target your consumer audience and define the brand clearly to them in marketing. Monitor the customer’s experience with the brand to make sure the brand is meeting their expectations and adjust the brand offering or messaging as needed. This requires a franchisor to have operating experience of their own before launching a franchise system. Make sure franchisees understand how you define the brand to consumers. 

Pick the right franchisees: those who see value in adhering to operating standards and who will support the franchisor’s decisions to hold rogue franchisees accountable for activities that hurt the brand’s reputation. Make a business case for changing operating standards that affect the customer’s brand experience. Invite franchisee feedback on ideas for improving the customer’s experience. 

The obvious: protect trademarks and other intellectual property through federal and country-specific registration and use third party resources to help police against infringement.

1851: How important is the information in Item 19? 

Spandorf: If you are asking how important is making an Item 19 claim to franchise sales, my answer is that an Item 19 claim is generally helpful, and I advise franchisors to make an Item 19 claim if legally possible. Smart franchisors with good data reliably make an Item 19 claim. I consider it a red flag when a franchisor does not make an Item 19 claim.   

While I caution prospective franchisee clients against drawing a negative inference if a franchisor does not make an Item 19 claim, I explain the difficulty of evaluating a franchise opportunity’s financial prospects through less reliable means like spending time in branded units. I encourage prospective franchisees to ask the franchisor for actual expense side data for all operating units if available since cost data is not regulated by Item 19. While existing franchisees may freely share their actual revenue and profit data with prospective franchisees, for valid reasons, franchisees seldom will.

If there is no Item 19 claim because the franchisor lacks enough operating history to make a legitimate Item 19 claim, I advise clients to pass on the franchise opportunity.  

If you are asking: is certain Item 19 data more important than other data? Absolutely. Not all financial performance data carries the same value to a prospective franchisee. An Item 19 that discloses the results of franchisee-owned operations is more useful to a prospective franchisee’s due diligence than an Item 19 that only shares the results of the franchisor/affiliate-owned operations. An Item 19 that discloses the results of multiple franchisees over multiple years is more useful than an Item 19 snapshot of the performance of one or two “pioneer” franchisees. 

1851: What is the single largest legal mistake brands make? 

Spandorf: Most mistakes that I see brands make are mistakes of business judgment. Classic examples include awarding franchises without properly vetting candidates; taking an undisciplined scattershot approach to selling franchises in any market with a willing candidate; awarding territories that are too big; giving franchisees rights of first refusal or first negotiation to expand before the franchisee has a track record of excellent performance with the rights they have; and imposing unrealistic multi-unit development obligations on franchisees even if franchisees eagerly accept them. None of these mistakes are true “legal” mistakes despite the fact that the franchisor’s poor judgment may lead to legal claims. 

The biggest legal mistakes that I encounter involve franchise sales fraud. There are two prime areas: franchisor’s lowballing the initial investment cost to open and begin operating a franchised outlet (FDD Item 7), and presenting an FPR [financial performance representation] without a reasonable basis (typically too little operating history) (FDD Item 19). These mistakes are actionable even when a franchisor lacks an intent to deceive and is just sloppy in preparing its FDD since prospective franchisees are entitled to put their faith in these numbers.

I was recently engaged to advise an investor group that bought an organic, freshly-squeezed-to-order juice bar franchise and discovered shortly after they inked the franchise agreement that their franchisor had upended the business model by switching to pre-bottled juices. This is an example of a common franchisor mistake, believing that a contractual right to modify the operations manual unilaterally or exercise discretion gives them unbridled authority to pile on new fees or change the franchise model without regard to the magnitude of the change. Basic contract law requires mutual consent to modify contract rights materially. While divining materiality is neither simple nor easy, franchisors underestimate the legal and business ramifications when they assert their contract power without making a business case for change.  

1851: How do you stand out as a franchise law firm? 

Spandorf: As an AM LAW 100 law firm with multiple offices in the U.S., Davis Wright Tremaine offers franchising clients legal support in all areas of commercial practice. Not only does our deep, experienced franchise bench handle all aspects of domestic and international franchise regulatory, transactional and dispute resolution matters, but we stand apart from peer franchise law firms by being able to leverage the firm’s collective expertise in all areas of commercial law to deliver comprehensive legal support to franchise clients, from intellectual property, privacy and data security to food safety, M&A, corporate finance, liquor licensing, technology contracts, immigration, real estate, antitrust, advertising law and more. 

Few peer franchising firms can match our ability to seamlessly coordinate full-service legal support saving clients the inefficiencies of piecing together advice from multiple law firms. We proudly help franchisors in all stages of their development — from startups to mature public companies — and represent some of the largest franchisees in the United States in their expansion activities broadening our perspectives. We believe we are unmatched by peer firms in advising clients on the availability of licensing and distribution alternatives to franchising and in prosecuting and defending franchise status claims. 

1851: What is the best business advice you have received in your career? 

Spandorf: Get out from behind your desk and build networking relationships.

Every great franchisee had help buying a franchise. Want to learn more about how 1851 helps franchisees find the right franchise opportunity? Visit www.1851growthclub.com and start your journey.