Question

Based on the attached Critical Incident, please complete the following questions:

2. Identify and discuss the specific environmental factor(s) that might be involved in this scenario. Make sure to consider the issues between Twin Restaurant Franchise, LLC and Chalak TP Waco, LLC. Give evidence to support your claim(s).

3. Identify the governing structures that exist in the relationship Twin Restaurant Franchise, LLC and Chalak TP Waco, LLC. Be specific and provide evidence to support your conclusions.

4. Identify and discuss the causes/sources of conflict between Twin Restaurant Franchise, LLC and Chalak TP Waco, LLC. Give evidence to support your claims.

5. Identify and discuss the bases of power between Twin Restaurant Franchise, LLC and Chalak TP Waco, LLC. Give evidence to support your claims.

Introduction

A dark day for Al Bhakta likely grew darker as he read the email from the PerkinsCole law firm. Twin Restaurant Franchise, LLC, (i.e., the franchisor) was giving legal notice of immediate termination of the franchise agreement with Al’s company, Chalak TP Waco, LLC. The legal action, in response to a biker brawl yesterday outside of his Twin Peaks restaurant in Waco, Texas, that resulted in nine deaths, seemed premature to Al. While he certainly felt the incident was tragic, he was frustrated by the franchisor’s sudden decision to terminate before all of the facts were known. The email also insinuated that his Harker Heights Twin Peaks location and four future locations were in jeopardy. With millions of dollars already invested in the Twin Peaks restaurant concept, Al wanted to remain a franchisee. Yet, the police, the public, and the franchisor seemed to place most of the blame for the tragedy upon his company rather than the bikers. Facing seemingly insurmountable odds, Bhakta quickly needed to decide whether to fight the legal action to close his restaurant or accept the contract termination.

The Aftermath of the Biker Brawl

The Waco Twin Peaks restaurant was a franchised location of the Twin Peaks chain of sixtyseven sports bar-style restaurants with log cabin décor based in Dallas, Texas. Similar to Hooters restaurants, the concept featured “scantily clad waitresses toting beer in frosted glasses” (Smith, 2015). Twin Peaks biker-friendly events were a nationwide program encouraged by the franchisor (Hirsch, 2015). On the morning of Sunday, May 17, 2015, bikers gathered at the Waco Twin Peaks restaurant for a brunch meeting. In attendance were members of rival biker clubs. At some point, a brawl broke out between the two clubs and fighting ensued inside and outside the restaurant (Campbell, 2015). Police had predicted trouble and had pre-positioned a marked SWAT vehicle and eighteen police officers on the premises (Hirsch, 2015). In the end, nine bikers were killed, 18 injured and 170 arrested (NBC 5 Dallas-Fort Worth, 2015). Jay Patel, operating partner at the Waco location, released the following statement that afternoon: "We are horrified by the criminal, violent acts that occurred outside of our Waco restaurant today. We share in the community's trauma. Our priority is to provide a safe and enjoyable environment for our customers and employees, and we consider the police our partners in doing so. Our management team has had ongoing and positive communications with the police and we will continue to work with them as we all want to keep violent crime out of our businesses and community. We will continue to cooperate with the police as they investigate this terrible crime.” (NBC 5 Dallas-Fort Worth, 2015) The following morning, Al received word that the Texas Alcoholic Beverage Commission had suspended the liquor license of the Waco Twin Peaks restaurant for the next seven days ((Texas Alcoholic Beverage Commission, 2015).…a decision not gone unnoticed by the franchisor. In addition, the City of Waco Police Department declared the restaurant a crime scene and closed the location indefinitely. News of the brawl dominated national media reports. As Al continued to read the communication from the PerkinsCole law firm, he focused on four paragraphs in the court filing, two of which quoted directly from his signed franchise agreement: Three days prior to the incident, Franchisee agreed in a telephone call with Franchisor to verify and enforce certain important priorities of Twin Peaks National, including implementing proper security measures to ensure the safety of the Waco restaurant’s guests and team members during the event…Lastly, Franchisor emphasized that responsible alcohol service should be monitored by Franchisee and ensure that management presence is felt by guests. You must immediately return to us…all copies of the manuals and production preparation materials in your possession or previously disseminated to your employees. You must promptly at your expense remove all Restaurant signage, displays or other materials in your possession at the Authorized location that bear any of the Marks…and so alter the appearance of the Restaurant as to differentiate the Restaurant unmistakably from duly licensed restaurants identified by the Marks. You acknowledge and agree that we have the right to establish quality standards regarding the business operations of Twin Peaks National® restaurants and stores to protect the distinction, goodwill, and uniformity symbolized by the Marks and the System. In the event your liquor license is suspended or revoked, in addition to our right to terminate this Agreement pursuant to Section 13.B, we reserve the right to charge you the Royalty Fee on the Gross Sales you would have received on the lost liquor sales during the license suspension (Twin Restaurant Franchise, LLC v Chalak TP Waco, LLC, 2015).

Al also discovered that the franchisor had released a public statement about the termination: From Twin Peaks Corporate Office: We are in the people business and the safety of the employees and guests in our restaurants is priority one. Unfortunately the management team of the franchised restaurant in Waco chose to ignore the warnings and advice from both the police and our company, and did not uphold the high security standards we have in place to ensure everyone is safe at our restaurants. We cannot tolerate the actions of this relatively new franchisee and have revoked their franchise agreement effectively immediately. Our sympathies continue to be with the families of those who died and are very thankful no employees, guests, police officers or bystanders were hurt or injured. 18 May 2015, 1:27 p.m. Facebook Post In response to the franchisor’s public statement, Leigh Strope, spokesperson for the franchisee made the following statement: “We are disappointed that the franchisor made a sudden decision to cancel our Waco franchise before all of the facts are learned,” (Campbell, 2015). Al Bhakta’s Dilemma Al Bhakta wanted to remain a Twin Peaks franchisee. He believed the Twin Peaks franchise system offered a profitable restaurant concept with a solid marketing plan. Al felt his Waco location had operated according to the franchisor’s policies and procedures. While the franchisor’s legal action focused on Waco, he also worried about the future of his area development agreement to open a total of six locations (Campbell, 2015). Besides an initial $50,000 franchise fee and ongoing royalty fees, several million dollars were required to build and operate a unit. To date, two restaurants had been built, Waco and Harker Heights. Though the franchisor appeared to have the right to terminate the agreement, Al felt a court judge might sympathize with his company’s plight. He hastily began writing a list of important points to discuss with his own legal team and contemplated various courses of action he might take in response to franchisor’s legal action.

Answer 1

In the given case, there are different issues, need to be sorted out before going for the franchise agreement. The first issue is the clarity upon the geographical are for the operation as different franchises of the same chain are operating and it can cause conflict. The second issue is the scope, language and mode of promotional campaigns for a franchise as aggressive promotions, can harm the customers of each other franchises and overall harm to the brand. The third issue is the sharing of data with the franchise on the basis of locality. Whether it is decided by the centralized company center or by the consumers. Not taking it into the consideration, may harm the new franchisee. The fourth issue is the sharing of business data or data of my existing consumer base with the other franchises to help them. It should not happen. The fifth issue is the support in terms of promotion, operation, documentation and other areas of franchisee management for a particular period of time. It should be clear before entering into the franchise agreement.
Besides, the other issues are related to taxation, profit sharing, number of calls committed on a daily basis, treatment of unfair trade practices and ownership of tort of negligence in the restaurant and legal support extended by the company, should be con