Commissioner's Opinion No. 72 / 29F

State of California Department of Corporations

Brian R. Van Camp, Commissioner
In reply refer to: File No. _____

This letter is not an Interpretive Opinion for the reasons stated below.

Mr. G. Scott Miller
Attorney at Law
Thompson & Miller
Whittier, CA 90608

Dear Mr. Miller:

Your request for an expression of our opinion filed on July 27, 1972, has been considered by the Commissioner. You have raised the question whether the agreements between Real Estate Sales Corporation of America, Inc., a California corporation ("RESCOA"), and persons referred to therein and hereinbelow as "licensees", are franchises within the definition of section 31005 and subject to the provisions of the Franchise Investment Law. This question is answered in the affirmative.

You have represented that RESCOA proposes to solicit persons referred to by you as "licensees", and also as "members" and "associates", to join RESCOA under the terms and conditions set forth in a licensing agreement. All of these persons will be licensed real estate brokers and will carry on their own business under their own direction. They will, however, take advantage of the services provided by RESCOA as and when they desire. We understand that these services include instructing licensees in sales and management techniques, advertising methods, and accounting and cost procedures.

The licensee agrees to erect and display RESCOA signs provided by RESCOA as a means of indicating his association with other RESCOA licensees; to participate in joint cooperative advertising with other licensees in his area; to utilize and participate in training programs; to maintain the signs, manuals, and mechanical aids and devices provided by RESCOA; to participate in and support the activities of RESCOA area directors; to abide by such additional policies and rules for cooperation as may be established by these area directors; to maintain high ethical standards; to purchase and use RESCOA supplies, providing prices charged therefor are competitive; to cooperate fully with all RESCOA licensees in serving transferred prospects and to remit promptly such referral fees as may be established; to promptly permit monthly license fees; to permit inspection by RESCOA of license's premises, accounts and records; and to hold confidential all policies, procedures and other business concepts provided RESCOA.

You have further represented that the licensee: pays an initial fee of $2400 plus a monthly fee which is the greater of $240 or 4%, of gross commissions received after payment to other brokerage firms for their cooperation in sales.

Section 31005 of the Franchise Investment Law 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 or trademark, and the franchisee is required to pay a franchise fee.

You have expressed the opinion that the agreements are not franchises because RBSCOA is not in the business of selling real estate and the licensees, prior to entering into the agreement, are already selling real estate. In our opinion, the agreement grants licensees the right to engage in the business of selling real estate under the marketing plan or system developed and prescribed in substantial part by RESCOA, and that plan or system is substantially associated with the RESCOA, trade name required to be displayed under the agreement by each licensee on signs provided by RESCOA.

In making the determination whether there is a prescribed marketing plan or system, it is necessary to keep in mind the objective of the Law to deal with a multiplicity of business establishments created by the franchisor for all of which he ostensibly assumes responsibility by causing them to be operated with the appearance of centralized management and uniform standards as regards the material incidents of the operation. The marketing plan or system is prescribed by the franchisor as one of the important means by which the appearance of centralized management and uniform standards is achieved. Such a plan or system may be deemed "prescribed" by the franchisor where he supplier the franchisee with sales aids or detailed instructions, especially when it is supported by elaborate training material, courses, or seminars. (See Dept. of Corp. Release No. 3-F 1 P. 3-5)

In the instant case, as indicated above, the licensee may take advantage of all of RESCOA services as and then he desires, and he is required to perform various activities and functions and abide by certain policies and rules. In our opinion, these arrangements, considered as a whole, are indicative of a "marketing plan or system prescribed in substantial part" by RESCOA.

We do not concur in your opinion that the regulatory authority exercised by the Department of Real Estate with respect to RESCOA's franchisees eliminates the necessity for exercise by the Department of Corporations of supervision under the Franchise Investment Law with respect to the franchisor. As you have pointed out, the franchisor is not in the business of selling real estate and for all that we know, does not hold a license from the Department of Real Estate.

As regards your request for an exemption from the provisions of the Franchise Investment Law, and for a hearing, the Law does not authorize the Commissioner to grant exemptions from its requirements in individual cases. Rather the authorize of the Commissioner to grant exemptions is limited in Section 31100 to exemptions granted by rule, meaning a published regulation or standard of general application issued by the Commissioner (Section 31017, Corp. Code). No exemptive rule applicable to the facts stated in your request, as reflected above, has been adopted by the Commissioner.

Section 31510 of the Franchise Investment Law authorizes the Commissioner in his discretion to honor requests from interested persons for interpretive opinions such interpretive opinions are issued for the principal purpose of providing a procedure b:r which members of the public can protect themselves against liability for acts done or omitted in good faith in reliance upon the administrative determination made in the opinion. Since there can be no such reliance where the Commissioner asserts jurisdiction with respect to a particular situation or determines that a legal requirement is applicable advice to that effect, as contained in this letter, does not constitute an interpretive opinion.

Dated: San Francisco, California
September 20, 1972

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
HANS A. MATTES
Assistant Commissioner
Office of Policy