The Need for Outside Independent Counsel

According to a recent case in the US District Court, Northern District of Illinois:

“Drafting franchise agreements, offering circulars, and licensing agreements and executing registration certificates is the practice of law. . . in-house counsel may not act as attorneys on behalf of their employer’s clients. . . simply having a licensed attorney review and “sign off” on those documents does not absolve the company from unauthorized practice (of law).”

So while franchise packagers will tout their “all-under-one-roof” approach, it is a worthwhile exercise to ask why the unauthorized practice of law is prohibited. Why is independent and expert legal representation so vital in the design and implementation of your franchise program?

By contracting with an experienced franchise law firm from the start, you:

  • Avoid conflicts of interest. When you hire an attorney, the attorney represents you. When you use a packager’s attorney, the attorney represents the packager. Thus, in the event of a conflict of interest, you will find that “your attorney” is actually the attorney for the other side. How can you ever hope to trust their advice?
  • Enjoy attorney-client privilege. When you hire an attorney, you may have privileged conversations. With a packager’s attorney, nothing you discuss is subject to privilege. Thus, your own “attorney” may be called to testify against you. Just imagine this scenario: one of your franchisees sues you over a particularly onerous clause in a franchise agreement, and your franchisee has the right to depose “your attorney” relative to the conversations you had.
  • Avoid having to pay for legal documents twice (once for their creation and once for their review by outside legal counsel). The fees quoted by packaging firms are only a fraction of what you will really pay to create these documents.
  • Can use a law firm for legal proceedings (such as franchise closings, transfers, negotiations, etc.).
  • Can seek to avoid costly mistakes that might lead to litigation later by building in provisions that minimize your legal exposure.
  • Are assured that in the event of litigation the firm that created your legal documents is the same group that will defend them.
  • Can receive expert legal advice on issues such as real estate, capital formation, franchise finance, antitrust, and other issues that arise from time to time from professionals who understand the impact of these issues on franchising.
  • Have the peace of mind that the firm that developed your legal documents is properly insured in the highly unlikely event of a problem. Packagers cannot carry legal malpractice insurance for obvious reasons.
  • Can develop a relationship with professionals who are well established in the franchise community and well known and respected by state examiners.

For these reasons, the iFranchise Group does not provide legal documents itself, but instead always recommends the use of independent franchise counsel. The iFranchise Group coordinates all activities of its members with outside counsel to provide you with a seamless approach to the development of your franchise program, but does not participate in legal fees collected by outside counsel, allowing objectivity in its recommendations of counsel.

For more information about how to choose the right franchise attorney for your company, click here.