Interpretive Opinion No. 71 / 41F
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. Ian F. Robertson
Attorney at Law
Nelson, Liker & Merrifield
606 South Olive Street
Los Angeles, CA 90014
Dear Mr. Robertson:
The request for an interpretive opinion contained in your letter dated May 11, 1971, received in this office on May 28, 1971, has been considered by the Commissioner. Your letter raises the question whether the agreements between Professional Real Estate Programs; Inc., a subsidiary of Sayre & Fisher Company, both Missouri corporations ( "Professional" ), and persons referred to therein and hereinbelow as "associate directors", are franchises within the definition of Section 31005 and subject to the provisions, of the Franchise Investment Law. Based upon the assumptions stated below, this question is answered in the negative.
You have represented that Professional is engaged in the sale of educational materials to members of the real estate profession through associate directors who, under the agreement in question, purchase the materials from Professional for resale in exclusive sales territories and with promotional assistance from Professional. The materials consist of such items as cassette players, recorded cassette programs, and related materials designed for use in connection with what is described in the agreement as "the proprietary and destinctive PREP/aration Sales Training Program Series One" and possibly other proprietary programs.
We understand you to state that the cost of the above mentioned items to Professional is approximately $70 per program. The associate directors pay Professional $95 per program cash or $125 in installments. The recommmended resale price is $245 per program cash or $276 in installments. The associate directors also may but are not required to purchase other educational materials prepared by Professional.
Professional trains the associate directors at its facilities in St. Louis, and reimburses them for air fare and $25 per diem expenses. We understand you to represent and predicate this opinion on the assumption that except as above stated, no payments are made by associate directors pursuant to their agreements with Professional.
Section 31005 defines "franchise" to include an agreement either oral or written, between two or more persons by which a franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, the operation of the franchisee's business pursuant to such plan. or system is substantially associated with the franchisor's commercial symbol, such as its trade name, and the franchisee is required to pay a franchise fee. Section 31011 defines "franchise fee" to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to any such payment for goods and services. The purchase or agreement to purchase goods at a bona fide wholesale price is not considered the payment of a "franchise fee" pursuant to Section 31011(a), and Rule 011 of the Commissioner exempts from the registration requirement of Section 31110 of the Law, any offer or sale of a franchise which would be subject to registration solely because the franchisee purchases or agrees to purchase goods at a price other than the bona fide wholesale price, if the total payment in excess of the bona fide wholesale price computed on an annual basis does not exceed $100.
Assuming, as stated above, that no payments are made by associate directors pursuant to their agreements with Professional, other than on account of the purchase price of goods, such as the cassette players, recorded cassette programs, and related materials mentioned by you, and further assuming that the price paid by the associate directors for these goods does not exceed their bona fide wholesale price, we are of the opinion that the agreements between Professional and the associate directors are not to be deemed franchises within the definition of Section 31005 and not subject to the provisions of the Franchise Investment Law, because on these assumptions the essential element of payment of a franchise fee is lacking.
Please understand that no determination has been made by us of the factual question whether the price charged by Professional for the goods sold to associate directors, does or does not exceed the bona fide wholesale price of these goods, inasmuch as the determination of such a factual question would not be an appropriate part of an interpretive opinion as authorized by Section 31510 of the Law. Therefore the opinion expressed by us that on the stated assumptions, the agreements in question are not to be deemed franchises within the definition of the Law, should not be relied upon if as a matter of fact the price charged to associate directors, exceeds the bona fide wholesale price of the goods sold, even though the excess may represent an amount designed to reimburse Professional for its expenses in connection with the recruiting and training of, or other services rendered to, the associate directors.
Dated: San Francisco California
June 30, 1971
By order of
ANTHONY R. PIERNO
Commissioner of Corporations
HANS A. MATTES
Office of Policy