Debbie Tanton, PEI Public Hearing Testimony

…I had signed a contract, too bad, so sad…”well Debbie, if you don’t sign it today…” And I said, “I’d like to talk to my legal counsel before I get back to PEI.” Well, we have somebody right ready to come, I know, crazy. And I said, well, and they said, we just happen to have a notary on staff. Look, and I have witnesses, there were witnesses there, and I signed it. It’s hard to believe, I know.

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Legislative Assembly of Prince Edward Island
October 25, 2001

Public Hearings on draft franchise legislation
Charlottetown, PEI, Canada
Debbie Tanton, franchisee

Standing Committee on Community Affairs & Economic Development
Session 2/61

MS. DEBBIE TANTON

BETH MacKENZIE (PC) CHAIR: Our next presenter is Debbie Tanton. Miss Tanton, you’ve been allocated a half-hour for your presentation and if you will entertain questions, fine, that would be appreciated.

DEBBIE TANTON: Great, good morning ladies and gentlemen, and members of the hearing committee. The topic I’ve been asked to speak on this morning is my experience as a former franchisee and dealing with a franchisor. The years were ’94-’97, still in business under a different name for the last four years. The company I dealt with was Grow Biz International. It is a US corporation and it is primarily in the business of franchising various retail outlets, including Once Upon A Child stores.

Grow Biz is a sophisticated international company with a wealth of experience in franchising and operating stores in Canada and the US. After reading Grow Biz International’s advertisement for Once Upon A Child in the Globe and Mail in January of 1994, I contacted them for further information. Grow Biz responded favourably to my inquiries and projected through written and oral representations sales of $270,000, gross profit margins of 60 per cent for my first year of operation. But in fact, the franchise did not perform as projected by Grow Biz and I suffered losses, during all three years that I was in operation under the name, Once Upon A Child, $62,000 in losses to be exact.

Based upon the financial representations as well as the promised support for merchandising, buying group, advertising in the Canadian market and store development in the Atlantic Region, made by Grow Biz to me, I entered into a franchise agreement and paid a franchise fee, $28,330 and a ten-year contract. I opened my store, October 18th, 1994. The franchise agreement was drawn up by Grow Biz and presented in its final form. I was told that I should sign immediately because there were other parties interested in the franchise for Prince Edward Island and that I was in danger of missing a great opportunity.

At no time did Grow Biz take steps to ensure that I received independent legal advice and/or that I understood the nature of the document I was signing. I accurately portrayed to Grow Biz, my lack of business acumen, limited business education and training, and had no experience in actually owning or operating my own business. I would be depending on them for their expertise, their store development, along with their buying group and advertising campaign.

My decision had been made based upon verbal and written representation supplied by Grow Biz International. Grow Biz misrepresented the information negligently; the nature and quality of the franchise and these misrepresentations caused losses to me personally. The main issues for me in the contract that they were not fulfilled was a pro forma statement that they provided. Grow Biz gave me this statement, June 13th, 1994, and this was where they had projected their sales of 270,000, 60 per cent overall on the profit margins and $180,000, 50 per cent margins and $136,000 to open the store.

The software provided had many problems. The computer could be down for three days at a time. They promised upgrades for the three years I was a franchisee. The buying group that Grow Biz had promised in their franchise agreement never existed during my three-year operation. The US stores did have a buying group and I always felt that we weren’t playing on the same playing level or field as our US counterparts. They also promised advertising in the Canadian market that never happened, but in the US, they had television and paper advertising.

The fifth thing that happened, they had promised me that there would be store development in the Atlantic Region that would be approximately ten stores so that Once Upon A Child would have an exposure here in the region, and I was the second store in Canada to open. To date, seven years later, one store in St. John’s, Newfoundland.

January, ’95, this is not even seven/eight months into business, the franchisor decided to drop children’s’ clothing sizes 10 to 14. It was 0 to 14. My sales dropped $23,000 that year. I had expected to derive income from that market share. This was part of Grow Biz’ business plan in June of ’94. I stopped paying the royalties of five per cent. I stopped paying buying group fees of four per cent.

The relationship deteriorated between us. I felt they were not fulfilling their contract obligations. Then came arbitration. If you had asked me four years ago what it was, I would have had no idea what it meant. Grow Biz terminated the franchise agreement, August 7th, 1997. That’s when things really started to get tough. I was unable to present my case at arbitration due to the prohibitive costs involved in travelling to Minneapolis, Minnesota. I wound have to procure legal services in that state, take my own legal counsel, fly there, find a place to stay. We’re probably talking in the vicinity of ten to $12,000.

I informed Grow Biz that I would not attend for financial reasons and that I wished to pursue negotiations to resolve matters between the parties. Grow Biz have never responded to my request. Instead they had the arbitration hearings without my being present or represented. Of course, I believe largely based on the one-sided story, Grow Biz got an award against me. Grow Biz International sought legal counsel on Prince Edward Island to enforce the arbitration award pursuant to the International Commercial Arbitration Act. My legal counsel requested the court not recognize and/or enforce the award.

The statement claim submitted by Grow Biz refers to continuing fees meaning royalties, five per cent, advertising fees, two per cent: buying group fees four per cent, plus they wanted 18 per cent interest starting August 7th, 97 up until yesterday, kind of idea. They also requested that the store be closed. This was just part of the award. The Judge of the Supreme Court of PEI did not enforce the closure of the store but that I would have to pay the fees to determination date of August 7th, ’97. The initial bill was $55,000, but the Judge allowed 18 per cent interest that now brings the bill to $93,000.

My legal counsel also submitted the argument that the vast discrepancy in business acumen, the undue influence and pressure tactics and the misrepresentations that induced me to sign the agreement combined with the lack of independent legal advice made the enforcement of this award contrary to public policy. The court did not accept this argument, but stop, think, what would happen financially to our small business community if what happened to me happens to other franchisees.

Lastly, on September 11th, Grow Biz has made an appointment with the Prothonotary to assess the costs of their legal fees that I’m required to pay. As follows: Charlottetown Law Firm, four lawyers, $43,289; Grow Biz In-House legal counsel, $14,550.95: their Toronto law firm that they hired, $8,470, fir a grand total of $66,310.90, based on a one-year period. My legal counsel for the same period of time, $10,000.

This is just a small part of my experience as a former franchisee, but hopefully, demonstrates the importance of legislation of existing and new franchisees. Like it won’t effect me now but there needs to be something there.

The final analysis and breakdown of my debt for the last seven years and the last, basically, the first three of Once Upon A Child and then the next four of the lawsuit, which I’m still dealing with, losses the first three years were $62,000; the Supreme Court of Law Award here on Prince Edward Island, $93,000; Legal fees for four years for Debbie Tanton, $30,000; and Grow Biz submission to the Prothonotary for legal fees, $66,000 and change; approximate amount $250,000. This company closed 50 outlets last year.

Thank you for your time. I think it pretty well sums it up.

BETH MacKENZIE (PC) CHAIR: Thank you very much for your presentation. I know when we first started to look into the legislation, we were quite interested in what we would hear from both sides and it’s a real learning experience for us to hear your story and thank you for sharing that with us. Will you entertain questions?

DEBBIE TANTON: Yes.

BETH MacKENZIE (PC) CHAIR: Okay, gentlemen?

HON. RONALD MacKINLEY (L): Debbie, are you familiar with the franchise bill that was tabled in the House? The one that we’re looking at now?

DEBBIE TANTON: I’ve read over it.

HON. RONALD MacKINLEY (L): Now, if this was put in, how would that have protected your business?

DEBBIE TANTON: Well I guess I should have been in arbitration, but I honestly couldn’t afford to because of the losses I was racking up with this franchise. So I said, it’s just not feasible for me to go to this arbitration and a lot of times when arbitration happens in another province or whatever, it’s usually, it ends up siding with the company. And since from past other franchisees that are past franchisees, like Once Upon A Child, etc. etc. have called me in the last four years that are no longer. They’ve gone out of business. They’ve lost their homes, bankruptcy, you name it. Like this is just one franchise. I’m not saying they’re all bad. I got a bad one. There are good ones out there too. But I think if there were legislation in place, it would make the bad franchisors maybe buck up and not try to run roughshod over people that aren’t experienced.

HON. RONALD MacKINLEY (L): But then you said the Judge here on the Island…

DEBBIE TANTON: Well, I think the Judge, I was in front of three different Judges.

HON. RONALD MacKINLEY (L): Here on the Island?

DEBBIE TANTON: Yes, four different…

HON. RONALD MacKINLEY (L): And they ruled with the franchisor.

DEBBIE TANTON: Well, what had happened was this, like I don’t know if they felt that the legislation wasn’t in place and I had, basically, I had signed a contract, too bad, so sad. You signed it. It’s a terrible thing and it’s a lesson learned, that type of thing. But you did sign the contract, Debbie, and you know, there’s nothing we can do about it. And that’s basically what they said.

HON. RONALD MacKINLEY (L): I’m just wondering if this legislation was in, and what this basically says, you want your court hearings here on Prince Edward Island and not in Toronto.

DEBBIE TANTON: They should be here, well, it would have been Minneapolis in my case.

HON. RONALD MacKINLEY (L): Minneapolis, but you did end up in court here and the Judge still ruled with the rulings that were made.

DEBBIE TANTON: The only reason why it ended up in the court here was because they wanted to enforce the arbitration, but what had happened was, we did a discovery before we even went in front of the Judges and during that discovery, which was too bad, like where there was Galenac (sic), which was the Minneapolis lawyer, there was the Charlottetown lawyer and then there was a Toronto lawyer and then they had other people from Minneapolis there at the discovery. There was myself and my legal counsel. It’s on transcripts and tapes and everything like that.

One of the bigger questions was did the franchisor provide financial information? No, no, no. And all through the discovery, they denied and said, and my lawyer said, well you’ll be quite interested in this document. And thank heavens, I saved it. It was the business plan of Grow Biz International on the bottom, June 13th, 1994. And they said, we’d like to have a recess. We’d like a copy of that. Now, if I had of been in front of a Judge, and they could have seen the looks on their faces and the fact that they lied in discovery, but the Judge too, also had the copies of these transcripts and maybe he didn’t read it. I don’t know.

HON. RONALD MacKINLEY (L): Could you sometime give me a copy, there’s no rush, of the Judge’s decision on this?

DEBBIE TANTON: Sure, I have it with me today.

HON. RONALD MacKINLEY (L): Because they, it doesn’t have to be today, but they do give out a ruling and then they break it down, so I’d like to look at that.

DEBBIE TANTON: A breakdown and a ruling.

HON. RONALD MacKINLEY (L): Another thing, Debbie, since I’ve been here, like when you’re dealing with outside the province, for instance, there was a group of people quite a few years ago went over to England and signed a contract with the Lords of London and they, I guess, made a few dollars in the first few years and then all of a sudden we had these oil spills and everything and they were signed into a contract. They had to go to England to court to fight it and it was at least three million dollars just to get to court over there. But they couldn’t have a case heard in Prince Edward Island, where they were asking for…what they were asking for at that time was, they weren’t asking for any favours from government other than having the case heard on Prince Edward Island rather than have to go way over there.

But one of the problems we’re going to have is the larger the companies, the lawyers they’ve got hired, like I mean if this thing went to court, let’s say for instance, if this act went through in your case and you went to court, so we have the government lawyers there, the prosecutors trying to charge you. They’re still going to have their Toronto lawyers or their law firms her eon PEI. They’re still going to be there.

DEBBIE TANTON: They have deep pockets.

HON. RONALD MacKINLEY (L): They have deep pockets and that’s why they’re large, multinationals and it’s basically like somebody that’s working on a minimum wage trying to sue somebody that’s making $125,000 a year income. Like I mean, no matter, there’s all these deep pockets or even in the farming situation, you get the large corporate farms and then you get the middle farmers like us. Then you also have the smaller farmers and you know, we can’t go up against corporations. Anyway, it’s interesting. If you can get me that, just send it to my office.

DEBBIE TANTON: I will.

WILFRED ARSENAULT (PC): Debbie, did you get any legal advice prior to signing the contract? Did you feel that you were pressured to sign as in today, tomorrow or what was the situation?

DEBBIE TANTON: I just went and go the lawyer to sign it, but what had happened was when it got to the USA, they realized that I hadn’t signed the guarantee and I hadn’t signed the assignment of my company, etc. etc. But I’m here there and they said, “well Debbie, if you don’t sign it today…” And I said, “I’d like to talk to my legal counsel before I get back to PEI.” Well, we have somebody right ready to come, I know, crazy. And I said, well, and they said, we just happen to have a notary on staff. Look, and I have witnesses, there were witnesses there, and I signed it. It’s hard to believe, I know.

HON. RONALD MacKINLEY (L): No, it’s not hard.

DEBBIE TANTON: But I’m a good example to show that it can happen.

HON. RONALD MacKINLEY (L): It can happen.

DEBBIE TANTON: And there needs to be protection.

HON. RONALD MacKINLEY (L): Look at those people that invested the money with, not too long ago, invested money with people out of Halifax or something. You know, like all the dollars that went there and they thought they were in a good investment. It can happen. It can happen to anybody, it doesn’t matter if, your lawyers even get into those deals or you know whatever.

BETH MacKENZIE (PC) CHAIR: Wilfred, anything further?

WES MacALEER (PC): Debbie, you mentioned that you were the second person in Canada to sign. What other jurisdiction preceded you?

DEBBIE TANTON: Ontario.

WES MacALEER (PC): Ontario, had you communicated at all with that particular franchise?

DEBBIE TANTON: I did with her and I did with a lot of the US franchisees, but they didn’t seem to want to talk or tell you too much.

WES MacALEER (PC): Okay, so you didn’t have any extensive communications with that franchisee in Ontario before you signed?

DEBBIE TANTON: No.

WES MacALEER (PC): Did the franchisor visit the province?

DEBBIE TANTON: Yes.

WES MacALEER (PC): And at that point, did they have the agreement with them when they came to the province?

DEBBIE TANTON: No.

WES MacALEER (PC): You then visited Minneapolis to sign the agreement?

DEBBIE TANTON: Well, we went to a discovery day, it was called, in March 5th, ’94. Basically, it’s a big event to show you how great, grand and wonderful the company is. It’s a sell job.

WES MacALEER (PC): And where was that event held?

DEBBIE TANTON: That would be in Minneapolis, Minnesota. That was March of ’94.

WES MacALEER (PC): So at the point, you signed the agreement?

DEBBIE TANTON: No, the agreement didn’t get signed until like July of ’94. Like once they gave me the pro forma statement in June 13th, ’94, because I had gone to the bank and they said, no, we don’t think we’d like to give you the money, and I told the franchise, I’m sorry, I won’t be doing this or pursuing it because the bank does not want to finance it, blah, blah, blah. And they say, “well why?” I said, I’ve already submitted what I feel my business plan which was lower than theirs. And they said, we will do that. We will provide a business plan and a pro forma statement for you. We’ll tell you how much it’s going to cost to open your store and what your profit levels will be and what the sales will be and blah, blah, blah. So I just took that to the bank and they said, “sure we’ll finance it.”

WES MacALEER (PC): So where did you actually sign the document?

DEBBIE TANTON: In July of ’94, I signed the company D.L.T. Holdings Inc. and I signed the guarantee in Minneapolis.

WES MacALEER (PC): In Minneapolis.

DEBBIE TANTON: Without legal counsel, their notary that was on staff. I mean, I know that sounds so stupid but you’re in this big, large corporation. It’s huge like they have like Play it Again Sports, Disco Round, Music Go Round, Once Upon A Child. Like this is their business. They take you out in the lakes. They wine, they dine you, they, I mean, it’s unbelievable. And you’re saying, how could a company like this and they traded on the Nasdeck (sic), they wouldn’t lie to me. You know, sign, Debbie, relax. That’s the way a lot of these franchisors work. You think that they wouldn’t do, you trust them.

WES MacALEER (PC): I’m interested to know, did you feel that you were dealing with a franchisor or were you dealing with an agent that was selling franchises for the franchisor?

DEBBIE TANTON: It was an agent.

WES MacALEER (PC): I know that’s a technicality but I just wondered.

DEBBIE TANTON: It was an agent, in fact a lot of the top brass, the day you’re there you meet with like about ten different people. You have meetings with people all day and they’re basically assessing you and saying, would you be a good franchisee? Would you work at the business, etc? You know, that type of thing. And like after the third year and I left the franchise I was terminated and stuff, all the top brass are all gone. This computer sold out Computer Renaissance since because they were having financial trouble. They needed to get their credit line back. They’ve closed up a lot of outlets. They were in financial trouble. They sold their building in Minneapolis and they’ve rented back 55 per cent of the space. I mean, I could go on and on and on.

WES MacALEER (PC): Are you still involved in a dispute with these people, or has that been concluded?

DEBBIE TANTON: Well, it’s basically concluded. Again, September 11th, my legal counsel…

WES MacALEER (PC): Of this year?

DEBBIE TANTON: Yes, this year, it’s still not finished.

WES MacALEER (PC): …outstanding (INDISTINCT)…

DEBBIE TANTON: The legal fees of 66,000 that Grow Biz wants me to pay is in front of George MacMillan, and he’s going to decide what the assessment will be.

WES MacALEER (PC): Thank you for your comments. I appreciate you taking the courage to be here.

DEBBIE TANTON: Thanks.

BETH MacKENZIE (PC) CHAIR: Thank you very much.

HON. RONALD MacKINLEY (L): I have just one more. Debbie, I wouldn’t feel bad about it because this happens all in different times. Secondly, is if, I know farm machinery, for instance, if you went and bought a piece of equipment from a dealer here which has a franchise to sell that, and that baler has problems. It’s no the dealer here who looks after it under warranty. It’s the company that built it. So all of a sudden, that farmer has got to take on the company that built it and all the dealer here is a spokesman, or just agents.

The same thing as insurance. You go to an insurance company here, they insure you and they set it up as an agent but it’s a company that you’re insured with is the company you’ll be dealing with if, I mean, and so happens all the time.

DEBBIE TANTON: Yeah.

BETH MacKENZIE (PC) CHAIR: Thanks again.

DEBBIE TANTON: Thanks.

This document is an spelling-corrected copy of the Verbatim Transcript of House Committee Proceedings, Province of Prince Edward Island, Canada.


Risks: Prince Edward Island Public Hearings, Canada, 2001, Justice only for the rich, False earnings claims, Misrepresentations, Blame themselves, Termination of franchisee, single, Disputes heard on franchisor’s home turf, Dispute resolution means franchisee goes broke, Lost homes, Bankruptcy, first the company and then you personally, Caveat emptor - let the buyer beware, Persuasion techniques, Trust, Termination of franchisee, single, Development agents, Current franchisees can’t talk freely, Within the four corners of the contract, Banker says franchised is less risky than independent business, Cost of doing business, Seminar selling, Canada, 20011025 Debbie Tanton

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