By Paul Steinberg2011-11-15 14:13
What happened is that the franchisee bank account was ACH debited for the amount of the rent money. That was then supposed to be remitted to the landlord. For this, Kahala charged (in a multi-year lump-sum advance) a 2 percent fee. Of course, because of time value, the fee was actually more than that.
One day with no notice, Kahala announced that if the franchisee was indebted (by Kahala accounting) to the franchisor for any reason, Kahala would not remit the money to the landlord.
That would be fine if they just returned the money to the franchisee. But they did not.
Instead, Kahala took the money from the franchisee and then did not give it to the landlord. Kahala kept the money for themselves.
In one local case where I have personally seen the documentation, the franchisee was pushed out by the landlord who got disgusted after 2 consecutive months of no rent and no response from Kahala.
I doubt that even Kahala's most vehement defenders or even their high-paid outside counsel could call that anything but what it is-- stealing. Heck, I don't even think that Kahala's "franchisee" attorney pals can justify that other than the traditional "when you reach the top you do as you please" rationale.
That is Kahala in a nutshell-- they reached the top, and so for them the rule of law does not apply.
And unlike their past success with silencing some media conglomerates, Kahala is not going to have much success in sending a threatening letter to Don Sniegowski to hide the reality of what Kahala does.
The CSC model is meant to exploit the franchisee from every angle. Some Kahala genius in a suit figured out they could make a spread on the lease if they sub-lease to the franchisee. They figured the franchisee would personally guarantee their end and Kahala would ante up the corporate guarantee to the landlord. Every month the franchisee pays corporate and Kahala pays the landlord.
The genius in the suit never thought they would need to use the landlord's money to fund other divisional activities. Now, CSC franchisees simply pay Kahala and corporate simply does not pay the landlord.
Due Diligence >