Dave Michael Public Hearing Testimony

I guess they figured I was making too much money, a living, and they changed that. I paid more for them to deliver my food to me than I did for rent on the main street of downtown Orillia, right up from the docks and all that. My rent was less than what I paid them for cartage fees, and that was done just the next day without my say-so or agreement and totally against what was in the franchise agreement…I imagine they're more careful not to get caught.

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Legislative Assembly of Ontario
March 6, 2000

Public Hearing Testimony
Toronto, Ontario, Canada
Mr. Dave Michael, Pizza Pizza Franchisee Association

Standing Committee on Regulations and Private Bills
1st session, 37th Parliament

FRANCHISE DISCLOSURE ACT, 1999
Consideration of Bill 33, An Act to require fair dealing between parties to franchise agreements, to ensure that franchisees have the right to associate and to impose disclosure obligations on franchisors

Dave Michael, former president, Pizza Pizza Franchisee Association

The Acting Chair (Mr George Smitherman): I'd like to call Dave Michael of the Former Pizza Pizza Franchisee Association. Welcome to the committee. You have 20 minutes.

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Mr Dave Michael: Thanks for having me and hearing me out here. In that 20 minutes, I think I'll give you a brief history of my experience with Pizza Pizza and franchising and then leave the rest of the time for questions, which might be the best way to go. I would need about 20 days to tell you all the stories, and you wouldn't believe them anyway.

I was a Pizza Pizza franchisee from about 1982 to 1995. I had a store in Toronto. I ended up buying a new store in Orillia; I started that from scratch. As you may well be aware, I ended up in a lawsuit with Pizza Pizza, with 48 other franchisees. I was the president of SOPFA, the Southern Ontario Pizza Franchisees Alliance, which was a grassroots organization made up of those who were involved in this lawsuit with Pizza Pizza. We ended up in arbitration as opposed to the courts. All my numbers are very approximate: We won $3 million from Pizza Pizza, which I think is a fraction of what it should have been. Most of that went to the lawyers, but I will add that they fought very hard. There was a lot involved, as you can well imagine, in a case that size with 48 litigants. I got nothing out of it. I lost my store in Orillia. I paid $170,000 for it. Pizza Pizza got it back free and clear.

I won't go into all the details because there's not enough time. Things I experienced: Pizza Pizza changed sales figures. We claimed it as fraud through the arbitrator. We were told it wasn't fraud, but if you ask anybody on the street, that's fraud. I have all the documentation to back that up, but for whatever reasons it wasn't viewed that way. The amounts were very large, and this is something I feel they got away with even after pursuing it through the courts, through arbitration.

As far as Bill 33 goes, it's better than nothing, but I don't think it will protect people from the people they need protection from. I'm sure there are franchisors out there who don't even need Bill 33 in place. However, there are many others. Unfortunately there are a lot of people, and I imagine you've already heard most of them, who are new Canadians, not highly educated, not sophisticated business people but people who are willing to work hard, take a chance on themselves and usually use their house or everything they have to take that chance to improve their lives for themselves and their families. A standing joke among the litigants with me was that some of them had left a Third World country only to end up in a Fourth World country, that being the Pizza Pizza franchise system.

I'm open to questions. I was very involved with the litigation and such.

**Questions

The Acting Chair**: The parliamentary assistant.

Mr O'Toole: Thank you very much, Mr Michael. Certainly to some extent I would say I had read those issues in the paper when that was a public concern. Not to be political or anything, but I think all governments over the last while have looked at this and for whatever reason have failed to do anything. You're aware that there are really three particular focuses of this bill: the disclosure aspect, the fair dealing aspect and the right-to-associate aspect.

The question I have for you is, do you feel that this particular piece of legislation in place today, if you were starting a business, could have helped to prevent or avoid some of the things that you and your business associates ran up against? It's not a perfect world.

Mr Michael: I'm very well aware of that. I don't think it would have. For example, for disclosure, and the principals or shareholders and whoever may be involved in running the company - the directors and such - in my case, if you're aware of the newspaper articles and such, Lorn Austin was in charge of running Pizza Pizza for the most part. Lorn Austin did time in US federal penitentiaries. I think it was the sheriff of Dade county in Florida who said he was the most prolific blue-collar criminal he'd ever run into. When Lorn Austin joined Pizza Pizza, I had already been in the system and was already in my store and already had my house on the line. If this legislation was in place, and if they disclosed that this fellow is now going to be coming into the company and running it, what would I do? I would know, but what would I do at that point?

Mr O'Toole: I guess it's a case that there is a process here where substantive changes occurred within an appropriate period of time and you would have some recourse. Is that one way that could be strengthened in this bill? How long would that take? Administrative directors at all levels could change, and it's up to the corporate culture to deal with that.

Mr Michael: Obviously, from the trouble I was into - I'm a pretty simple guy, and things seem pretty straightforward and black and white to me. When somebody says they're going to do something and you know what that is and you both understand that, that's all that is needed to be said and done.

In just about every partnership agreement there's a shotgun clause, which is: If they want to terminate the partnership, I'm sure everybody is very well aware, somebody makes an offer and the other one can match it or accept the offer to buy that person out. I don't know why something like that can't be in place in the franchise system. If I'm a franchisor and I have to protect my name and all these things, and somebody has made an investment and they're not happy with it: "OK, here's your money back; here's your $80,000. Get lost. I'll sell it to somebody." I made this offer to Pizza Pizza - I didn't want anything from them, not a lawsuit or money or anything - to take their signs and I'd just operate my business, Dave's Pizza, whatever. They wouldn't go for that, nor would they make me a reasonable offer for what I had invested.

I don't know why something like that couldn't be in place. You wouldn't need a huge bureaucratic department or new agency or anything like that. It would be very simple. It would be like buying a house or when you bought your store. You wouldn't have a $100,000 legal bill, not to mention millions of dollars in legal bills. It could be done very simply, I would imagine, if something like that were put in place. That keeps everybody honest, I would think.

Mr Martin: I want to first of all thank you for being the lightning rod at one point in time in the history of franchising in Ontario that finally woke somebody up. This whole process of trying to get legislation and regulation in place began so that people wouldn't have to suffer the same fate that you suffered. The articles that were written—and I have one here in the Report on Business. I think that's you.

Mr Michael: That's me.

Mr Martin: You had a moustache back then. That wasn't against the contract you signed, was it?

Mr Michael: It may have been.

Mr Martin: That may sound ludicrous, but I read through some of the articles that have been written on Pizza Pizza, and in the volume I gave you this morning, from section A1 to about A56 it's all on Pizza Pizza. If you want to read their story and understand the crux of this whole matter, this is it in more than a nutshell. This is it in detail, the kind of bad dealing, the situation of franchisees who go into a business in good faith, simply: "You give me this, I'll give you that. I'll work hard and we'll all make money. Let's get on with it and be happy." It turns out at the end of the day that wasn't the story, it wasn't in the cards, particularly when Mr Austin came in. I believe that your story was getting good coverage until Mr Austin sued even the Toronto Star for having the temerity to write the story and expose it in the public forum.

This may be an extreme case of what's happening out there, but it is nevertheless a good example of all the things that can happen if you don't have regulations in place to protect people. I don't think you were asking for any favouritism or privileged position in this. All you were asking for was a chance to make a few bucks and run a good business and compete.

Mr Michael: If I could interrupt for a second just to explain an example of that, I had the store in Orillia and I was paying something like 1.5% of my sales in cartage. So not only did I buy food from them at inflated prices, but I paid them to deliver it to me. These were the same green peppers I could buy cheaper right next door in Orillia and support the local economy. I won't get into that. They just unilaterally changed that for the stores out of town. I think it went to 4.5%. At that time the store was doing very well. I guess they figured I was making too much money, a living, and they changed that. I paid more for them to deliver my food to me than I did for rent on the main street of downtown Orillia, right up from the docks and all that. My rent was less than what I paid them for cartage fees, and that was done just the next day without my say-so or agreement and totally against what was in the franchise agreement.

Mr Martin: I'm told as well that you could lose your franchise for your delivery people not smiling when they deliver the pizzas?

Mr Michael: I'd fire them if they didn't. I'm joking.

Mr Martin: Is that true?

Mr Michael: Yes, they did have a campaign, and they did have memos out to that effect. I'm almost positive.

Mr Martin: You were the ones who also had to deliver within 30 minutes or the pizza was free?

Mr Michael: Right.

Mr Martin: At your cost?

Mr Michael: Absolutely.

Mr Martin: And that created a problem with people speeding and traffic tickets?

Mr Michael: That should be outlawed. Nobody should be able to hold the public hostage for their benefit. It's ludicrous.

Mr Martin: So disclosure legislation would not have helped you.

Mr Michael: There are so many things. No, it's not enough.

**Mr Martin*: Disclosure legislation would not have prevented a guy like Mr Austin to come in and do what he did?

Mr Michael: We would have known about it. But, again, as I say, what would I do at that point? You're already in, and this has changed after the fact.

Mr Martin: We need more.

The Acting Chair: Any more questions?

Mr Chudleigh: I take it that Pizza Pizza held the lease on your store?

Mr Michael: Yes, they did.

Mr Chudleigh: Was that part of the agreement? They had to hold the lease? It wasn't an option?

Mr Michael: That's right.

Mr Chudleigh: If you had owned that building, they would have leased it and you would have paid rent on it?

Mr Michael: Yes, and that has happened in other—

Mr Chudleigh: Even if you owned the building, they still have the lease?

Mr Michael: Right.

Mr Chudleigh: If you had had that lease, you could have just taken down their sign and operated Dave's Pizza, as you say, and probably done very well.

Mr Michael: Unfortunately, once you get into that position in the relationship, you don't have the money to find out if you can do something like that. Again, the people aren't sophisticated business people. The thought did cross my mind, "If I could buy the building, but there's already a lease in place and can I get out of that lease and blah, blah?" I don't have the answers and you need expensive counsel to get them.

Mr Chudleigh: Thanks very much. Thanks for coming.

The Acting Chair: We have a couple of minutes left if there are any additional questions.

Mr Martin: Yes, if you don't mind.

The Acting Chair: One short one.

Mr Martin: There was a suggestion this morning by the counsel for the Canadian Franchise Association that we don't have enough evidence yet that there's a problem in the industry and that we need relationship regulation that goes beyond just simple disclosure. Would that be your position?

Mr Michael: It's a good way to stall everything, I think. When I went to certain hearings and that, during the time of the lawsuit, and was in places like this, I'd have franchisees from Golden Griddle and all sorts of places in tears, coming up to us and asking what they should do. I didn't ask for any of this. Even when it happened, it was like everybody else stepped back. I didn't step forward. All the other franchisees just stepped back. I didn't ask for any of this. People would come up to me in tears, like I knew something or could do something, people older than me losing their houses and stuff.

Certainly, whoever said that is more than well aware of all those situations, plus I'm sure countless others you haven't heard of and that he hasn't even heard of.

Mr Martin: That's what I suggested, that the 4,600 families represented here and the 5,000 who are before the courts every year in Ontario fighting their franchise system are just the tip of the iceberg. There are lots of families who don't go to court, who don't tell their stories, who simply either walk away or remain indentured for the rest of their lives.

Mr Michael: Absolutely.

The Acting Chair: Final question, Mr Gill.

Mr Gill: How has the Pizza Pizza franchise system changed since your days? Has it changed? Can you answer that?

Mr Michael: I imagine they're more careful not to get caught.

Mr Gill: Simple as that.

Mr Michael: Well, I'm not involved with it. From what I understand, nothing has really changed. You see the ads on TV, perhaps. They're very good marketers. They have a very good product. It's just that they've gone nuts. They've thrown the baby out with the bathwater in dealing with all their people, all their franchisees. They've put a special on, if you've seen. For $9.99 you can order any pizza, any size, with any amount of toppings and a pop this big, all these things.

Mr Gill: Or a $6.99 walk-in special, or whatever.

Mr Michael: There you go, OK.

Mr Gill: And they still have the 30-minute guarantee. I think they do; I'm not sure. Is it 40 now?

The Acting Chair: It's not that I'm an expert.

**Mr Michael: For example, with these specials and discounts, the franchisee doesn't get a discount on the food that is being used and purchased from Pizza Pizza, which he then pays royalties on and pays rent on and pays advertising charges onand in my case, cartageall these things. None of this is waived or discounted.

If Pizza Pizza can get stores to do $20,000 a week, that's $1 million a year. They have 450 stores. They just look at the numbers they can drive those sales up to and figure out their bottom line. The franchisee's bottom line is in the negative, it's dwindling, and the more specials they come out with and the higher the sales go, the more he is losing. But not Pizza Pizza, because you have to buy everything from them and it's at full price. So if they can sell everything at cost by the franchisee, he'll be broke and they'll make millions and millions of dollars.

When this started, before the lawsuit, everybody was complaining about it and saying: "What am I supposed to do? If 60% of my sales are specials, the rest doesn't even cover the bills and labour and such." They said, "Well, take your credit card and pay your bills. This is your business. Take your personal credit card and pay it." People did it because they didn't want to lose their house, they had nowhere else to go, and they built up such great debt that they couldn't get out from under that rock. They were stuck between a rock and a hard place, all precipitated by them and their profits.

The Acting Chair: I'm going to have to stop you because of the time. Thank you very much for your presentation.

This document is a verbatim copy of this witness’ oral testimony. To review the original transcript: http://www.ontla.on.ca/web/committee-proceedings/committee_transcripts_details.do?locale=en&Date=2000-03-06&ParlCommID=1&BillID=740&Business=&DocumentID=19737#P566_221675

Copyright (c) 2000
Office of the Legislative Assembly of Ontario
Toronto, Ontario, Canada


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