Interpretive Opinion No. 71 / 38F

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. Ronald Rosenfeld
Frieman, Rosenfeld & Zimmerman
Attorneys at Law
9100 Wilshire Boulevard, Suite 201
Beverly Hills, CA, 90212

Dear Mr. Rosenfeld:

The request for an interpretive opinion contained in your letter dated May 17, 1971, has been considered by the Commissioner. Your letter raises questions regarding the offer, sale, and advertising of franchises by Bruck Distributing Company, Inc., a California corporation dba Eldon Drapery Cleaners ("Bruck").

The first question raised in your letter relates to the offer or sale of a franchise by Bruck to L. E. Leonard, University Heights One Hour Martinizing, Victoria, British Columbia, Canada. In this connection, you have represented that Mr. Leonard is domiciled in Victoria, British Columbia, Canada. In the event that Mr. Leonard purchases the franchise, the agreement will be accepted by Bruck in the State of California. Mr. Leonard desires to pay a lower franchise fee than the $5,000 fee established by Bruck as set forth in its application for operation under the Franchise Investment Law and in its prospectus.

The Commissioner, pursuant to the emergency procedure provided in Section 11422(c), Government Code, and subject to the limitations as to effectiveness provided in Section 11422.1 of said Code, has adopted Rule 100.1 exempting from the registration requirement of Section 31110 of the Law, the offer or sale of a franchise to a resident of a foreign state, territory, or country who is neither domiciled in California to the knowledge of the seller, nor actually present in this state, if the sale of such franchise is not in violation of any law of the foreign state, territory, or country concerned. Without determining whether under the circumstances described by you, as above stated, the offer or sale of the franchise to Mr. Leonard will take place in this state, as defined in Section 31013(a), we are of the opinion that by virtue of Rule 100.1, and subject to the limitations upon its effectiveness mentioned above, this offer and sale if it does not violate any law of the foreign country concerned and if Mr. Leonard will not be actually present in California in connection with the sale, is not subject to the registration requirement of Section 31110 of the Franchise Investment Law.

Since the offer and sale of the franchise to Mr. Leonard is not subject to the registration requirement of Section 31110, we are further of the opinion, that the amount of the franchise fee which Mr. Leonard will pay, and which you have indicated will be less than that set forth in Bruck's California application and prospectus is not required to be set forth in the application under Section 3111(i), or in the California prospectus under Section 31114. In our opinion the requirement in these sections of disclosure in the application and prospectus of the franchise fee or if the fee is not the same in all cases of the formula by which the amount of the fee is to be determined, has reference to the fee charged for franchises in offers or sales in this state.

We wish to point out that Section 31201 of the Law Prohibits a person from offering and selling a franchise in the state by means of any written or oral communication not enumerated in Section 31200 which includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. We express no opinion as to whether, under the particular circumstances of a sale in California, the failure to advise the purchaser that a franchise or franchises are or have been sold outside of California at a fee of less than $5,000, in view of the $5,000 fee set forth in the prospectus, would be an omission of a material fact within the meaning of Section 31201.

A further question raised in your letter is whether the advertising proposed by Bruck in media circulated in the State of Colorado and not in California, is subject to the requirements of Rules 156-156.2.

Section 31156 of the Law imposes a filing requirement on advertising offering a franchise subject to the registration requirement of Section 31110. If in accordance with principles outlined above, the offer and sale of franchises by Bruck in the State of Colorado is exempt from the registration requirement of Section 31110 of the Law by virtue of Rule 100.1, it is our opinion that the advertising .in the State of Colorado is not subject to the filing requirement of Section 31156, and therefore not subject to the requirements of Rules 156-156.2.

Dated: San Francisco California
June 24, 1971

By order of
ANTHONY R. PIERNO
Commissioner of Corporations

_______________________
HANS A. MATTES
Assistant Commissioner
Office of Policy