Snell & Wilmer Outfoxes Zarco Einhorn

Cold Stone Creamery gets the last laugh, with an assist from the ABA Forum on Franchising.

Kahala's outside counsel bided its time, and has now embarked on a publicity campaign to proclaim its love of Robert Zarco. Much like Michael Corleone in The Godfather II, Kahala general counsel Michael Reagan has given Zarco the kiss of death.

Almost a year has passed since franchisor Kahala came up with the idea of retaining their arch-nemises franchisee attorney Robert Zarco. Despite having no experience in media law or defamation law, Zarco had two things Kahala needed:

Zarco built his reputation on fighting solely on the side of franchisees. Snell & Wilmer now is publicizing how, when a story detailing the abuses of franchisees at the hands of Cold Stone aired on television, Cold Stone recruited Zarco:

The newly-formed team decided Mr. Zarco should send a similar cease-and-desist letter to CNBC on behalf of the franchisees on December 23, 2010.  This letter met with better results, and CNBC agreed to pull the story and consider real changes to it.

For Zarco, being lauded as a member of the "team" on the payroll of a franchisor as notorious as Kahala/Cold Stone is hardly going to be a ringing endorsement for prospective franchisee clients.

That is a shame, because other than this notable exception, Zarco has been an effective advocate for franchisees.

Having neutered their main legal adversary's legal brand, S&W now has placed a story in The Franchise Lawyer to make sure that if any of Zarco's colleagues had not heard about it, they now know. S&W then placed the story on legal blog sites such as JDSupra in order to ensure that non-ABA Forum on Franchising attorneys did not miss it, and also to ensure that news feeds such as Google would both push the story and ensure search engine users would find it.

That S&W comes out with this publicity at the worst possible time for Zarco is no accident. Not only does the story harm Zarco, but it reinforces the case, which former franchisee Cecil Rolle is (according to reliable sources close to Rolle) pressing with both Florida's disciplinary body for attorneys and possible direct litigation. Having patiently waited until the story was off the front pages, S&W now puts the story back in the headlines and in a way which Zarco cannot defuse.

The tactical brilliance of Snell & Wilmer's litigation strategy is to be admired. When I die, I want to be reincarnated as a S&W litigation associate.

Since readers would ask the obvious question as to why outside counsel was raising such negative publicity a year after everyone forgot, S&W makes sure to have Cold Stone's general counsel as a third author, and the GCs smiling face is the one beaming out on the Franchise Lawyer: the client is fully onboard with the S&W strategy.

I admire S&W because they are doing their job, and doing so in a methodical and devestatingly effective manner.

The role of the ABA Forum on Franchising is a more troubling one.

For more than a decade, the Forum has shied from contentious debate. It has chosen (wisely, in my opinion) to stress civility and a "just the facts" approach.

The S&W article is a bombshell. Iit is hard to believe that the ABA Forum would not carefully vet this piece before it appeared in The Franchise Lawyer.

Essentially, the article is discussing public relations: a franchisor was accused of behaving badly against its franchisees. The franchisor sent a fat bank wire to the franchisee attorney for the non-franchisor controlled franchisee association, whereupon that franchisee attorney went on television to say that the disgruntled franchisees were really the ones at fault for the rash of franchise failures.

Is there a lesson in there for the readers of The Franchise Lawyer? Umm... it is unlikely that Justin Klein is now going to take a check from Ric Cohen, or Michael Dady will go on the payroll of franchisor The UPS Store. So the article is of rather limited utility in informing attorneys.

Worse still is the presence of a legally ludicrous argument in the pages of an ABA publication. With nary a single citation to law, the article suggests that statements of opinion are defamatory, something a first year law student knows is simply not true, at least not in the United States:

Cold Stone believed the allegations that there are “hidden fees,” that Cold Stone profited from subleasing locations to franchisees, and that Cold Stone forced franchisees to buy unnecessary equipment were defamatory and false.  Cold Stone also believed that the allegation that there was a “yet-to-be-filed class action” was false. [emphasis added]

Apart from the matter of what is "hidden" and "unnecessary" is in the eye of the beholder, the article implies that the subleasing markup did not exist. Note the careful use of the word "profited" rather than "marked up": Cold Stone most certainly did mark up leases by at least 2%, and did not always remit lease payments to the landlord even though Cold Stone debited the franchisee bank accounts.

While it is true that the editors of The Franchise Lawyer are not defamation experts, this is not exactly a tough point of law. More importantly, the editors of the publication are no doubt familiar with some uncomfortable details such as Cecil Rolle's prominent play in the infamous Zarco letter to CNBC and the resulting ethical storm.

The omission of any discussion about Rolle is puzzling, since The Franchise Lawyer lauds the Zarco letter as being the catalyst for CNBC to cave in, and the Zarco letter is less than three pages of type, with more than a full page being devoted to a blistering attack on Rolle. Logically one would think that The Franchise Lawyer would mention that the primary focus of this wonderful strategy is to attack your ex-franchisees.

Did The Franchise Lawyer editors demand a full and balanced article? Well, read it for yourself. Pay close attention to what is not discussed, in particular any discussion of the actual contents of the Zarco letter, or the legal requirements to pursue a defamation action against a publisher.

I have the utmost admiration for all the good work that Robert Zarco has done for franchisees over the past decades. I disagreed with him as to how he handled the Cold Stone matter. But I did so publicly. Zarco was a good sport and replied to me publicly.

Snell & Wilmer has written an article brilliant for its masterful grasp of the use of publicity to eviscerate a litigation adversary. They came not to praise Zarco, but to bury him.

And they do so with the imprimatur of the "American Bar Association, Fall 2011 Vol. 14 No. 4 "-- when was the last time a major law firm could not do a proper BlueBook cite? But then again, it has more impact being published in the "American Bar Association" rather than "The Franchise Lawyer" fall edition.

For the ABA Forum on Franchising to be a part of this is not at all sporting. Wading into an ongoing legal and ethical morass, while avoiding discussion of it is not worthy of the Forum.

Some time after the BlueMauMau articles appeared, a television executive explained that NBC legal was aware that the program was not defamatory but that the producers just did not want to deal with franchising anymore.The individual indicated that after dealing with the brouhaha, he felt as though he had walked through a sewer. Those familiar with the backstory to the CNBC program may well feel the same way.

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