S&A Newsletter Fall 2012
Restaurant Woes in the Down Economy Increase Litigation

Franchisee-franchisor relations are getting tense in the down economy. Several companies such as Wendy’s, Burger King, and Quiznos have been in the headlines because of franchisee unrest, including charges of racketeering and corruption and complaints about food costs, supplies, and the use of marketing and advertising funds.

“When your profits are gone, the first place you look is to see who is taking the most money off you,” said Kevin Tackett, president of the Quiznos Franchisee Association (QZFA).

With less people going to restaurants, franchisees start to look around the store for answers. Is it new food that is cutting into profits, forced advertising campaigns, or upgrade costs, for example? When a franchisee feels that their part of the franchise agreement is not being upheld, they should present their concerns to a franchise attorney, allow him or her to review the terms of their agreement, advise on those terms and potentially seek to initiate negotiations or litigation against the franchisor. Resolving a franchise dispute quickly is essential to making sure the business can run smoothly and be profitable.

Wendy’s recently settled with its largest franchisee, the WendPartners Franchise Group, after it wanted stores to install new toasters for an up-and-coming cheeseburger that would increase sales by more than two percent. Big costs like new toasters across many stores can be tough when profits are not as plentiful as they were in the past.

Burger King settled a lawsuit with its franchisees in the spring after store owners were required to sell a double cheeseburger for $1 as part of a promotion. Franchisees said they were losing at least a dime per sandwich, and when you add it up, it hurt their bottom line. The Burger King National Franchisee Association says the settlement has been a positive step that allows franchisees to have more input in future promotions. The restaurant is also hoping that a menu makeover will also drive more profits to the franchisees.

Quiznos survived a slew of franchisee lawsuits back in 2009 too. Franchisees were in disputes over royalties, marketing funds, and food and supply issues. The QZFA seeks to work with Quiznos Corporate in an open way so that business decisions are more transparent and profit concerns are addressed more efficiently.

And even over at KFC, the franchisee-led KFC National Council and Advertising Cooperative (NCAC) won a recent battle against the corporate office over advertising. Advertising strategies and promotional dates should be a discussion between both sides to have the most impact.

In the end, franchisees are wise to have a franchise lawyer on speed dial and open lines of communication with their fellow stores. The downturn in the economy is too severe to go it alone against the corporate office.

CLIENT SPOTLIGHT: Interior Illusions, a Client who did it Right!

What do Cameron Diaz, Justin Bieber, Sharon Osbourne, Megan Fox, Tyler Perry, Brian Austin Green and a host of other celebrities have in common? Home décor by Interior Illusions, Los Angeles.

interior illusions front

We recently sat down with co-founder and CEO of Interior Illusions, Inc., Mike Valles, to not only learn how this one time Merck vaccine specialist made the transition into the world of home décor and interior design, but did so triumphantly enough to become reputably known as one of LA’s leading celebrity designers.

Starting in 1999, this S&A client made its debut in Fresno, California, thanks to the efforts of Lottie Valles and son, Michael. What first began as a hobby for the duo, Lottie and Mike opened their interior design business by appointment only, mainly because they had no office or retail space to work from. A true hobby for them both, Mike continued his employment with Merck, later joining IBT as a performance consultant. Still, the young Cal State Fresno graduate and entrepreneur was having a hard time making ends meet, saw no real future in his then career and said he “knew” he was not truly following his passion. So, with a $15,000 line of credit and a second mortgage on Valles’ triplex, it was time to really explore what Interior Illusions could be.

Within a few years, the partnership would have a taste of moderate success in Northern Cal and, while Lottie sought retirement, her son had much larger aspirations for the business. As such, Mike would move to Los Angeles in 2004 where he secured the first Interior Illusions’ leasehold; a small commercial space on Robertson Boulevard in West Hollywood. The real boom began.

Still forced to be financial conservative, the opportunity for more seemed available and yet, with so much competition in the marketplace, Valles would have to not only be strategic and creative to succeed, but he would have to fight hard to secure his place in a saturated Los Angeles’ market. And so this one-time dual business owner/floor salesman did what it took. He wore many hats to cut costs; Interior Illusions became one of the few if not the only luxury furniture store that would bargain with you and offer impromptu discounts right there on the showroom floor; Valles began to explore the idea of offering interior design services to accompany and supplement his retail store services; the list goes on. Ultimately, Valles would indeed make an impression in Los Angeles and beyond and the proverbial ball began to roll and roll and success began to build bigger and brighter.

When we asked Valles what he believed to be the secret to his success, the (still) young entrepreneur responded, “It’s about humility. Just treat everyone with kindness and respect. I’m still the ‘hands-on’ floor salesman I once was every time I need to be. I still box things and help people to their car. I don’t believe in titles. I have never so much as asked to take a picture with any of our celebrity clientele. They are people. They are friends.”

And so eight years after making the move to LA, Interior Illusions has twice moved from its original Robertson Boulevard location, each time into a much larger and more impressive showroom in West Hollywood. But that’s not all. Not only does Interior Illusions now have locations in Los Angeles, Santa Monica and Palm Springs with 35 employees in all, but it also has a subsidiary “lifestyle” brand called “iSquared” which already has two locations and competes with the likes of familiar store names like, “Target” and “CB2” (aka, Crate & Barrel 2). And as if that’s not enough, Amazon has recently picked up the Interior Illusions’ brand which will now be available for purchase via the web giant, amazon.com! And there’s even more good stuff in the making….we’re just not allowed to talk about it yet. Stay tuned!

So here’s an S&A client who we’re not only proud of, but who did it RIGHT! We feel extraordinarily fortunate to have worked alongside this modest businessman as he incorporated his company, developed the necessary contracts, secured his intellectual property rights and began to develop an impressive IP portfolio, the list goes on. And in this process, we asked, if you could lend one piece of advice to others who are considering a path similar to yours, what would you tell them? Valles responded, “My biggest mistake was spending too much on rent. I know it’s a big undertaking and financing is not always easily available; however, if you can get the financing, BUY – DON’T RENT! Not only do I now have valuable assets, but my mortgage is less than what we paid in rent. We threw away tons of money.”

So what lies ahead for the Interior Illusions and iSquared brands? Valles said his long-term goal is to have a presence in the “Bermuda Triangle” (New York, Miami, LA) where both brands would be seen as national brands with storefront presence. After that….maybe sell….maybe franchise…maybe not. Time will tell but one thing is for sure, this is an S&A client who did it RIGHT! You can keep up with Interior Illusions and check out their beautiful home furnishings at www.interiorillusionshome.com

Entertainment Attorneys are a Band’s Best Asset

Music festivals are becoming huge moneymakers over single concerts. Rolling Stone reports that festivals are booming because fans are willing to pay $250 to $500 to see 130 artists versus watching only a solo show.

Big music acts and up-and-coming stars can rake in quite a bit of income playing at festivals such as the annual Coachella Music Festival in southern California. Especially when backed by ample marketing budgets and social media, it is no wonder the festival typically sells out in under three hours. Now it remains to be seen if the 2013 festival will top this year’s record number of 85,000 fans per day.

Behind the scenes, one of the most important players for musicians and bands is an entertainment lawyer. With big festivals and large venues, bands will want to be prepared to sign performance agreements and oftentimes need an experienced entertainment attorney to ensure they understand the agreement and that their rights are being upheld. An attorney can be vital to negotiating the payment terms, merchandising agreements, cancellation clauses, permissible video and audio recording equipment, and ensure the band will not be liable for any and all damages that could occur while performing in the venue.

Most musicians might not love this side of the business, so that is why getting legal counsel early on can leave the business of entertainment to the attorney and the band can continue focusing on its creative output. Legal counsel shows everyone a band deals with that they are professionals and are serious about what they do. Attorneys are great at looking over the necessary agreements and any side contracts for loopholes and further enforcing contract terms when other parties decide not to meet the stipulations agreed to beforehand.

Beyond big festivals and concerts, entertainment attorneys can provide guidance on management agreements, recording contracts, copyright and trademark matters, licensing and royalty agreements, and endorsements and partnership contracts, just to name a few. Some entertainment attorneys can also give clients business planning and career advice. The music business is full of horror stories about bad promoters, shoddy venues, and broken promises, so a good entertainment lawyer can help a band through the complex music industry. A hands-on entertainment lawyer is a key part of a band’s success. It takes a team approach to make it big in the music industry, so having a lawyer who will be proactive with all the other team players – agents, booking agents, record labels, and other key contacts – will only increase a band’s buzzworthiness and chances of financial success.

DISCLAIMER: The information provided herein is intended to provide general information and does not constitute legal advice. You should not act or rely on such information without seeking the advice of an attorney and receiving counsel based on your particular facts and circumstances. Some of the legal principles mentioned might be subject to exceptions and qualifications which are not necessarily noted. Furthermore, laws are subject to change and vary by jurisdiction. Please see our entire web site disclaimer, available in our menu options and incorporated herein by this reference.
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