Rebuttal and Endorsement: AZ – HB 2404

Rebuttal and Endorsement: AZ – HB 2404

March 13, 2023

Dear Honorable Ben Toma, House Speaker

Members of the Arizona House of Representatives, State Legislature – Endorsement: HB 2404

*Please note – International Franchise Association letter and addended comments follow.  Comments of which are denoted in red.

IFA letter begins:

February 23, 2023

The Honorable Ben Toma

Speaker, Arizona House of Representatives Opposition: HB 2404

Dear Speaker Toma and Members of the Arizona State Legislature:

IFA – We are writing in opposition to HB 2404. This legislation has far-reaching and harmful ramifications for franchisors, franchisees, and the contributions of these small and large businesses on Arizona’s economy. The foundation of this legislation comes from a 2016 California law which has resulted in a decrease in the number of franchise brands seeking owners in the state. The true impact of HB 2404 would be far worse as HB 2404 exceeds not only California regulation, but also exceeds the Federal Trade Commission’s current regulatory construct for franchising.

Note by KGP – The IFA continues to oppose any nationwide legislation that might aid Franchisees and their respective businesses.  Laughable on its face, the IFA continues to thwart any effort on behalf of any state that may “lead the way” towards franchise reform for the benefit of FRANCHISEES.  This legislation, if enacted, will do precisely the opposite of what the IFA maintains.  It will benefit Arizona’s many Franchisees and allow them not to be misled into changes made should their respective brand be sold and agreements modified and changed.

IFA – Arizona currently ranks the third best state in the country for franchising, according to IFA/FRANdata projections. This measure would harm Arizona’s 19,000 franchise establishments, which generate nearly $20 billion in economic output and employ over 203,000 Arizona residents. As a result of HB 2404, FRANdata estimates Arizona franchise growth would drop from a current rate of 2.2% per year to 1% growth each year, eliminating approximately 136 new Arizona small businesses from ever opening and nearly 1,500 jobs from being created in the franchise sector.

Note by KGP – This comment by the IFA is nothing more than puffery while thinking the Arizona State Legislature is unaware of the franchise space and the Franchisees working hard daily within it. The only true impact the legislation would have is that of holding Arizona’s Franchisees up against changes, modifications, new rules, and egregious control by, amongst others, Private Equity firms that seek nothing more than to provide returns for their investors at the very expense of the brand(s) they purchase.  Generally, and with no concern for a brand’s Franchisees, they will slash services, cut costs, and leverage debt, all while undermining the agreements entered into by the brand owners they purchased it from.

IFA – Then, for Arizona’s current franchisees and franchisors:

  • IFA – The proposed legislation would undermine current franchise contracts, promote costly litigation between franchisees and franchisors, and result in unsafe products and services for consumers and workers in

Note by KGP – Pure nonsense. In the IFA’s desire to protect, without regard to Franchisees, the status quo of unfair and unequal agreements, they again load up the IFA talking points about unsafe products and services.  Again, another ridiculous statement meant to confuse and deflect.  Franchisees HONOR the brands they’ve invested in and do so with the desire to maintain consistency of products, services, and customer service. This statement by the IFA is meant only, once again, to deflect from the issue at hand and one that you’ll be deciding.

  • IFA – The legislation inserts the state of Arizona as a third party in private contracts by adding a first of its kind provision that creates a private right of action under the Federal Trade Commission (FTC) Franchise Rule. No such provision exists in any state law, nor under the current FTC Rule. This would create the most onerous franchise law anywhere in the United States.

Note by KGP – This sounds much like a covert “threat” than it does a statement based in fact. What, pray tell, is the problem with being the “first of its kind” provision creating a private right of action for injured, abused, and potentially terminated Franchisees without cause? In fact, legislation such as this has already been codified in several States so there again the IFA is using non-factual information to imply that the Honorable legislature members would be doing something “wrong” by adding this legislation to your State.  Does the IFA believe that honorable members of the Legislature are so far removed from their Franchisee constituents that they’ll fall for this line?  What could possibly be wrong with the State of Arizona “leading the way” for other states considering the transformational change necessary in franchising to level the playing field when in fact other States have already done so?  I ask respectfully that you not be fooled by their consistent and never-ending tired talking points.

  • IFA – This legislation undermines the very key to franchising – a brand’s standards of safety, quality, and operation. These brand standards signal to consumers they can expect the same safety, consistency, and quality of a product or service regardless of the business location. In short, Arizona small business franchise owners and their customers will have to contend with uneven quality standards, fewer loyal customers, and shrinking opportunities for new business

Note by KGP – Once again simply a very silly statement.  Franchisees have invested, in many cases, hundreds of thousands of dollars to provide standards of safety, quality, and operations. Brand standards are GIVEN when a Franchisee signs a then-current form of Franchise Agreement initially and before it is purchased by a firm that may seek to modify, change, alter, upcharge, and minimize all of the items the IFA makes in this very unconvincing statement that is hardly based on factual information but is yet another “threatening” statement thinking that Honorable Legislators are removed from the very constituent Franchisors that have voted them in.

  • IFA – HB 2404 will also be harmful to Arizona residents interested in pursuing franchise ownership, as franchisors will be less likely to develop new franchise locations in Arizona due to the significant risk associated with a regulatory environment under HB 2404. Companies not currently franchising but considering franchising as a method of expansion have already indicated to our association that this proposal would preclude that as a viable option in Arizona, further depriving potential business owners from an opportunity to start a business and employ Arizona

Note by KGP – On the absolute contrary. Residents of Arizona or those seeking to do business in Arizona will find the franchise climate RIPE for development and adding to the strong economic environment that attracted them and those to be in the first place.  This legislation will reinforce the very many reasons to develop within the great state of Arizona and not the opposite.  For Franchise Investors, nothing is more gratifying than a state that upholds Franchisee Equity, Total Quality Franchising, and substantive, solid, and fair agreements.

IFA – In a few short weeks, the International Franchise Association is hosting Franchise Expo West at the Phoenix Convention Center (March 31-April 1) which will bring hundreds of franchise brands interested in finding prospective franchise owners in their systems. This expo was moved from California, to Arizona, largely due to the business climate for franchising being more favorable for both franchisees and franchisors in Arizona. The bottom line is this legislation will largely undo that reality and will certainly impact the opportunities for Arizona.

Note by KGP – Respectfully, this appears to be a comment to “buy off” a vote that would benefit both new and existing Franchisees.  California has legislated common sense legislation that, in many ways, benefits Franchisees.  While true that some are in contention and will go to referendum, legislation in that regard has little to do with what is being requested of you here. Another of the IFA’s talking points and covert “threatening” language that desires to pit state against state and nothing less. 

IFA – Thank you for considering our comments and opposition related to this proposed legislation and our concerns about its impacts on our industry, our small business owner members, and the opportunities for future growth in Arizona. HB 2404 is being promoted by a single nonresident of Arizona who is in a dispute with her former franchisor, after being terminated for not paying her contractually obligated franchise royalties and fees. We do not believe the legislature is the appropriate venue for this kind of dispute resolution and could lead to unreasonable new regulations to solve a problem that does not exist while harming Arizona’s competitive advantage to growing its economy.

Note by KGP – A purely ridiculous statement that does nothing more than insult the Honorable members of the Legislature.  It’s so wrong on so many levels that I’m frankly struggling with where to begin.  First, they accuse a single Franchisee, a non-resident of Arizona, for “inciting” HB 2404 when they know full well that the franchise agreement provided by this company called for any arbitration by any Franchisee THROUGHOUT the United States that they could only arbitrate in the State of Arizona.  They accuse this “out of state” Franchisee of not paying contractually obligated franchise royalties without facts concerning that the new franchisor attempted to modify the terms of the agreement concerning payment by ACH, which suddenly included the ability to withdraw monies for any reason they deemed desired. Again, they make these false statements without reading the suit, the claims, and the issues associated with the ongoing litigation.  This is insulting to you, the Honorable Members of the States Legislators, in an obvious attempt to once again deflect and frankly pull the WOOL over your eyes.  Don’t let them do this to you for their own selfish reasons to say they caused a “VICTORY” due to their relentless nationwide lobbying against anything that might benefit Cherished Franchisee Investors, the very constituents who rely on you for protection and not the International Franchise Association.

Notes respectfully submitted by Kim G. Perrotta

WorldWise Franchise Development

Supporting Member and Leaderships Council Delegate

American Association of Franchisees and Dealers

Cell: 772-801-9747

About Kim Perrotta:

With extensive experience in franchising, as both a franchisee and a franchisor, Kim has been involved with start-ups and major franchisors throughout his career. His expertise includes franchise sales and development, Franchisee support, operations, marketing, financial management, real estate, construction, domestic US and international franchise brand building, and brand acquisitions.

Kim has been associated in executive capacities with several premier and world-class brands such as Wendy’s, Dunkin’ Donuts, Sbarro, and Focus Brands (Roark Capital). Throughout his career, Kim has served in various progressive capacities such as General Manager, Director, Vice President, President, Chief Operating Officer, and Managing Director. Kim has also served as Country Manager to brands in Asia and the Middle East and lived internationally.

As a Managing Director for International Development, Kim developed and implemented a strategic and tactical international development and franchising plan, serving as a model for international development.

As an original founder and creator of the International Franchise Professionals Group (Emeritus), I assisted with the development, design, infrastructure, strategy, and organization, established the group’s name, and determined the guidelines and procedures for this online for-profit subscription endeavor during its initial stages and launch.

A known public speaker in domestic and international business development, award-winning Mr. Perrotta has been interviewed on CNN and various other business networks, including radio and professional podcasts. Along with highly talented teams, Kim has been responsible for literally 1000’s newly developed businesses and locations domestically and internationally.

Passionate about working with the American Diabetes Association and the Congressional Diabetes Caucus for Diabetes Advocacy with Police Departments, First Responder EMTs, and in particular, in conjunction with the Cleveland Clinic / Martin County Health for ongoing education and refresher courses.

Just as important is the work with the American Association of Franchisees And Dealers (AAFD). on behalf of Cherished Franchisees and significant and substantial change in franchise regulation throughout the country. We subscribe to Total Quality Franchising and Fair Franchising Standards.

True Franchisee Advocacy.

As a volunteer with SCORE, I expect to “give back.”
“For of those to whom much is given, much is required” – John F. Kennedy.