Interpretive Opinion No. 71 / 10F
State of California Department of Corporations
Anthony R. Pierno, Commissioner
In reply refer to: File No. _____
This interpretive opinion is issued by the Commissioner of Corporations pursuant to section 31510 of the franchise investment law. It is applicable only to the transaction identified in the request therefor, and may not be relied upon in connection with any other transaction.
Mr. Stanley Sevilla
Attorney at Law
Axelrad, Sevilla and Ross
Suite 400 Clubview Building
10203 Santa Monica Blvd.
Los Angeles, CA, 90067
Dear Mr. Sevilla:
The request for interpretive opinion contained in your letter dated February 9, 1971, has been considered by the Commissioner. Your letter raises the question whether the offer and sale by Dollar-A-Day Rent-A-Car Systems, Inc., a California corporation ( "Systems" ) in states or countries outside of California of franchises to operate car rental outlets under the trade name "Dollar-A-Day Rent-A-Car", under the circumstances described by you, is subject to the registration requirement of Section 31110 of the Franchise Investment Law.
You have represented that Systems was incorporated on September 22, 1965, and since that date has engaged in the business. of renting automobiles. It operates this business through five outlets owned by it in California and through approximately 25 independently owned outlets located in other states which are licensed by it to conduct their business under the trade name "Dollar-A-Day Rent-A-Car". All these independently owned outlets operate under a standard form of license agreement which provides for payment to Systems of an initial licensing fee and for monthly fees equal to six percent of gross receipts of the licensee.
We see no reason to disagree with the conclusion ex:pressed by you for purposes of this opinion that licenses granted by Systems as above stated, are to be deemed franchises within the meaning of section 31005 of the Franchise Investment Law. You have represented that Systems does not contemplate the offer or sale of such franchises to franchisees domiciled in the state of California or of any franchise to be operated in this state, but that all franchises which hereafter may be granted by Systems, will be for outlets in states or countries outside of California. In our opinion, whether such offer or sale of franchises takes place "in this state" within the meaning of Section 31110, so as to be subject to the registration requirement provided in this Section, depends on the manner in which the transaction is conducted.
You have represented in this regard that the first alternative method of sale will be solicitation by Systems through advertising in newspapers or magazines published in cities outside of California inviting responses. to out of state post office boxes or addresses. Negotiations and execution of agreements with prospective licensees will occur entirely outside of California. Assuming that the newspapers and magazines in which the advertisements will be placed, are bona fide newspapers of general, regular, and paid circulation which have had more than two-thirds of their circulation outside this state during the past twelve months it is our opinion, that the offer and sale of franchises pursuant to this alternative method to persons not residing or domiciled in California will not take place in California, because Subdivision (c) of Section 31013 provides that an offer to sell is not take in this state merely because of the circulation of such a publication. The fact that franchisees will forward their operating statements and make payments of fees to Systems' office located in Los Angeles, California, does not change our conclusion, because occurring, as it does, after the sale of the franchise has been consummated, it does not affect the location of the sale for jurisdictional purposes.
The second alternative method of sale contemplates a franchise transaction initiated. by a telephone inquiry to an officer of Systems in California from a person outside the state. In our opinion, if pursuant to such an inquiry the officer of Systems advises the inquirer of the terms under which the franchise is offered for sale, an offer of a franchise pursuant to subdivision (a) of Section 31013, is made in this state, and the registration requirement of Section 31110 is applicable.
The third alternative method of sale contemplates advertisements in airline magazines placed aboard aircraft making interstate flights with California points of origin or destination. In our opinion, by this means an offer is made in California to persons reading the advertisement in California, because the magazines in question are not publications of general, regular and paid circulation, and consequently the provision of Subdivision (c) of Section 31013 is inapplicable.
The Franchise Investment Law does not contain an exemption from the registration requirement of Section 31110 for the offer or sale of franchises in this state based upon the fact that the purchaser is a resident and/or domiciliary of a foreign state, territory, or country, and the sale of the franchise does not violate the law of such foreign state, territory, or country. The Commissioner is presently considering the adoption of a rule granting a limited exemption under circumstances patterned on Rule 260.105.2 under the Corporate Securities Law of 1968. Until such a rule is adopted, the registration requirement of Section 31110 of the Law, in our opinion, is applicable to the second and third alternative methods of sale, as above stated.
Dated: San Francisco, California
March 10, 1971
By order of ANTHONY R. PIERNO
Commissioner of Corporations
HANS A. MAT'TES
Office of Policy