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The Franchise Memorandum

Court Upholds Discipline Against Attorney Who Failed to Provide Competent Franchise Law Advice to a Franchisor

In State of Nebraska v. Orr, 2009 WL 212966 (Neb. Jan. 30, 2009), the Nebraska Supreme Court affirmed a disciplinary finding that an attorney violated his oath of office because he failed to provide competent representation to a franchisor.

Orr was engaged to represent a Nebraska start-up franchisor. The lawyer drafted a franchise agreement and disclosure statement, but failed to draft a complete Uniform Franchise Offering Circular. After the franchisor already had sold 21 franchises, it received a request for a UFOC from a prospective franchisee. The attorney then told the franchisor that the disclosure statement he had prepared was sufficient and could be used anywhere, but that the UFOC was a requirement of federal law such that the franchisor was “probably going to have to get” one if it sold franchises outside of Nebraska. Franchises were sold in Colorado and Iowa, and litigation with franchisees in those states ensued, with the franchisees correctly claiming that the disclosures they had received were not sufficient. The franchisees prevailed, and one of them even obtained a personal judgment against the owners of the franchisor. As a result, Orr made certain changes to the disclosure statement and assured the franchisor that the disclosure statement was now complete. The franchisor then sold seven additional franchises. Ultimately, however, the Federal Trade Commission notified the franchisor that it was under investigation for failing to provide proper disclosure. At that time, the franchisor hired an attorney specializing in franchise law, who determined that the disclosure statement the franchisor had been using contained major deficiencies. 

Formal charges were filed against Orr, and the referee in the disciplinary proceeding found that the attorney had failed to provide competent representation to the franchisor because he provided counsel in an area of law in which he lacked expertise. The Nebraska Supreme Court affirmed the decision of the referee that the attorney should receive a public reprimand, and cautioned “general practitioners against taking on cases in areas of law with which they have no experience.”

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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