Warning: If It Looks Like A Duck, And Walks Like A Duck…

well, then it must be a DUCK, right?

And, if it’s a duck…then why hasn’t anyone said so?

Probably because the duck lives in Dallas, and goes by the name Travelhost.

Now, I’m no lawyer, and I’ll never be one. Nor do I ever give legal advice! However, every investor ought to check out this info before they invest, because it’s YOUR DUE DILIGENCE!

Not to oversimplify this, but in a nutshell, if you meet these three criteria…the FTC says you’re a franchise in 15 states:

1. The right to use a trade name. (Travelhost?)

2. Payment for that right. (200% premium on “publishing?”)

3. Marketing and sales help. (TIPS, Webinars, Best practices, etc.?)

Once you meet these criteria, all you have to do is comply with a few simple things, like:

1. Disclose failure rates.

2. Provide contact info for past and present investors.

3. Disclose any litigation within the past 10 years.

Why is this important?  Well, how about its a FELONY to not follow these rules!

Now…why would Travelhost have any problems with handing out this information? Any ideas? Anyone have ANY idea why Travelhost would so vehemently protect themselves from having to share this kind of information?

I do.

Once you find out the failure rate, you’d be out of there. If you still weren’t scared, once you talk to the past AP’s, you’d be running for the hills. And, finally, when you do the research on litigation, you’d be even more surprised!

Well, check this out…

A 1989 FTC Advisory Opinion concluded that Travelhost magazine distributorships met the three elements of a franchise!

“In this situation, there was clearly the right to use the trade name, and there was a payment of a fee. However, Travelhost argued that since there was no “prescribed marketing plan” the third element of a franchise was not satisfied. The FTC ruled that Travelhost clearly provided significant and detailed control and assistance to distributors in all aspects of the distributors’ method of operation (including ad sales, composition and layout, and magazine distribution), as well as comprehensive manuals which provided step-by-step training in each subject.”

(FTC Advisory Opinion, Travelhost Magazine, Inc. (March 2, 1989), Bus. Franchise Guide (CCH) ¶ 6444.:)

So, I ask again, WHY doesn’t Travelhost have to follow the rules?

According to Jeff Loudon’s (Travelheist Investor’s Blog) it may be lack of enforcement:

“Wouldn’t it be nice to know about past and present legal actions against Travelhost? How about the names of the parties and the settlement terms? How about going back 10 years?

Guess what? It’s required if Travelhost is deemed to be a franchise in your State, and actually Federally if the FTC would get off its rear and enforce the laws on its books.

Below is the rule on litigation disclosure for those of you who want details. Below that is an article that I’d of liked to have known about before yesterday, a newspaper article published a year before I bought a Travelhost Franchise (April 2005).

Item 3- Uniform Franchise Offering Circular–Applies in 15 States plus Federally:

LITIGATION

DISCLOSE WHETHER THE FRANCHISOR……..:

A. HAS A…….MATERIAL CIVIL ACTION PENDING ….ALLEGING A VIOLATION OF A FRANCHISE, …..FRAUD, UNFAIR OR DECEPTIVE PRACTICES, OR COMPARABLE ALLEGATIONS. IN ADDITION, INCLUDE ACTIONS OTHER T HAN ORDINARY ROUTINE LITIGATION INCIDENTAL TO THE BUSINESS WHICH ARE SIGNIFICANT IN THE CONTEXT OF THE NUMBER OF FRANCHISEES AND THE SIZE, NATURE OR FINANCIAL CONDITION OF THE FRANCHISE SYSTEM OR ITS BUSINESS OPERATIONS. IF SO, DISCLOSE THE NAMES OF THE PARTIES, THE FORUM, NATURE, AND CURRENT STATUS OF THE PENDING ACTION. …..

B. HAS DURING THE 10 YEAR PERIOD IMMEDIATELY BEFORE THE DATE OF THE OFFERING CIRCULAR BEEN …. HELD LIABLE IN A CIVIL ACTION BY FINAL JUDGMENT OR BEEN THE SUBJECT OF A MATERIAL ACTION INVOLVING VIOLATION OF A FRANCHISE, ANTITRUST OR SECURITIES LAW, FRAUD, UNFAIR OR DECEPTIVE PRACTICES, OR COMPARABLE ALLEGATIONS. IF SO, DISCLOSE THE NAMES OF THE PARTIES, THE FORUM AND DATE OF CONVICTION OR DATE JUDGMENT WAS ENTERED, PENALTY OR DAMAGES ASSESSED AND/OR TERMS OF SETTLEMENTS.

Item 20 of the uniform disclosures is as follows:

Item 20

LIST OF OUTLETS

THE NAMES OF ALL FRANCHISEES AND THE ADDRESSES AND TELEPHONE NUMBERS OF ALL OF THEIR OUTLETS. THE FRANCHISOR MAY LIMIT ITS DISCLOSURE TO ALL FRANCHISEE OUTLETS IN THE STATE, BUT IF THESE FRANCHISEE OUTLETS TOTAL FEWER THAN 100, DISCLOSE FRANCHISEE OUTL ETS FROM ALL CONTIGUOUS STATES AND THEN THE NEXT CLOSEST STATE(S) UNTIL AT LEAST 100 FRANCHISEE OUTLETS ARE LISTED.

A. THE NUMBER OF FRANCHISEE OUTLETS IN THE FOLLOWING CATEGORIES THAT, FOR THE 3-YEAR PERIOD IMMEDIATELY BEFORE THE CLOSE OF FRANCHISOR’S MOST RECENT FISCAL YEAR HAVE:
(1) TRANSFERRED CONTROLLING OWNERSHIP;
(2) BEEN CANCELLED OR TERMINATED BY THE FRANCHISOR;
(3) NOT BEEN RENEWED BY THE FRANCHISOR;
(4) BEEN REACQUIRED BY THE FRANCHISOR; OR
(5) BEEN REASONABLY KNOWN BY THE FRANCHISOR TO HAVE OTHERWISE CEASED TO DO BUSINESS IN THE SYSTEM.

B. THE NAME AND LAST KNOWN HOME ADDRESS AND TELEPHONE NUMBER OF EVERY FRANCHISEE WHO HAS HAD AN OUTLET TERMINATED, CANCELLED, NOT RENEWED, OR OTHERWISE VOLUNTARILY OR INVOLUNTARILY CEASED TO DO BUSINESS UNDER THE FRANCHISE AGREEMENT DURING THE MOST RECENT LY COMPLETED FISCAL YEAR OR WHO HAS NOT COMMUNICATED WITH THE FRANCHISOR WITHIN 10 WEEKS OF THE APPLICATION DATE.

“Call it Travel Wars; Suit Erupts over New Magazine”

Baltimore Business Journal, April 2005

“A local travel magazine publisher is embroiled in a legal dispute with a national travel publication in which both sides accuse the other of misrepresenting their end of a franchise agreement.

At least three separate lawsuits have been filed in the matter.

Dallas-based Travelhost Inc. filed a lawsuit against John E. Barton and his Maryland company J. Barton Associates Inc., alleging he breached the noncompete clause in his local franchise agreement by distributing a competing publication, Baltimore Ambassador. The case, filed in Dallas County District Court, is set to go to trial in May, following a judge’s temporary injunction order, issued in January, that the defendant stop publishing and distributing Baltimore Ambassador.

Meanwhile, Baltimore Ambassador magazine continues to be published and solicit advertising in violation of the franchise agreement, said Travelhost attorney John A. Price.

Travelhost seeks unspecified damages, including attorneys’ fees and court costs.

In 2000, Travelhost Inc. hired Barton to distribute and sell advertising for Travelhost’s Maryland edition, which includes Baltimore and 18 counties, court documents show.

Barton filed his own lawsuit in Anne Arundel County Circuit Court last fall, alleging Travelhost Inc. violated Maryland franchise law because it failed to register the franchise in Maryland. The suit also claims that Travelhost sent a letter in December 2003 rescinding the franchise agreement.

Barton, along with other former associate publishers from nine other states, filed a separate lawsuit in Dallas County District Court earlier this year against Travelhost, alleging the publisher mislead local franchises, court documents show.

Travelhost induced associate publishers to “give up a large portion of their resources without the promised support from Travelhost,” said Michael K. Hurst, an attorney with Texas law firm Godwin Gruber LLP, which represents the franchisees.

“Travelhost — the self-proclaimed travel publishing empire — runs its business by inducing associate publishers to enter into contracts based on blatant misrepresentations and omissions of material facts,” the lawsuit reads.

“Travelhost thrives on its tremendous turnover by fraudulently inducing the next round of unassuming associate publishers to enter into the same contracts frequently reselling spoiled markets to new associate publishers who have no chance of success because of the tremendously bad reputation that attaches to the name Travelhost,” court documents say.

According to court documents, associate publishers paid $40,000 with the promise of earning more than $100,000 a year for printing and distributing a local travel magazine. “Instead of earning in excess of $100,000 they ended up paying in excess of $100,000 just to keep their Travelhost publication afloat.”

In two and a half years of publishing, Barton lost more than $250,000 publishing Travelhost in Baltimore and Annapolis, the lawsuit alleges. The franchises seek unspecified damages, including court costs and attorneys’ fees. The case is set to go to trial May 2.

John Barton could not be reached for comment.

Travelhost Chairman James E. Buerger could not be reached for comment.”

http://baltimore.bizjournals.com/baltimore/stories/2005/04/11/story5.html?surround=etf

TRAVELHOST, PLEASE LET US ALL KNOW WHAT’S GOING ON HERE!

One Response to “Warning: If It Looks Like A Duck, And Walks Like A Duck…”

  1. Where Is The “Travelhost Love,” And Will The Lies Ever End? « Publishing Industry Practices Says:

    […] https://publishersadvocate.wordpress.com/2009/12/02/warning-if-it-looks-like-a-duck-and-walks-like-a-… […]

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