Commissioner's Opinion No. 72 / 6F

State of California Department of Corporations

Brian R. Van Camp, 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.

The request contained in your letter dated February 7, 1972, for reconsideration of the opinion expressed in our letter dated December 14, 1974, concerning X, Inc. ("X"), has been considered by the Commissioner. In our previous letter, we advised you that on the basis of the information available to us, we were unable to concur in the opinion expressed by you that the agreements between X and purchasers of so-called Y Courses ("Y"), are not "franchises" within the definition, and are not subject to the provisions, of the Franchise Investment Law. Upon further consideration, as requested by you, we reaffirm this advice.

Our further consideration of this matter does not indicate a misunderstanding of the factual representations contained in your letter dated November 3, 1971, and the pamphlet entitled "Y" submitted therewith, as suggested in your letter dated February 7, 1972, especially in the following particulars:

1. The references in the first and fourth paragraphs of our letter to franchise agreements between X and purchasers of Y are based on the statement on the reverse side of the fourth sheet of the pamphlet, that "upon signing your franchise agreement, and even before your actual installation, you will receive our nationally advertised idea & promotion kit", and also upon the fact that the sale of a Y, including appurtenant services and privileges, is effected by an agreement of purchase and sale between X and purchaser.

2. The reference in the third paragraph of our letter to provisions whereby towns may be reserved by a prospective purchaser, is based upon the statement on the front side of the tenth sheet of the pamphlet that mailing of the attached application blank "will reserve the town of your choice for thirty (30) days, while your are looking for a location".

3. The top paragraph of page 2 of your letter dated February 7, 1972, recognizes the statement on the reverse side of the fourth sheet of the pamphlet that X's "public relations and promotions directors will conduct a 2-day seminar at no cost to purchasers, as well as the statement on the front side of the tenth sheet that" X will pay expenses of a visit to its executive offices and plant". We understand that these statements will be eliminated from the pamphlet. We also understand from your letter that promotional ideas and aids furnished by " " are merely suggestions, and that under no circumstances is a purchaser of a Y obligated to follow these suggestions or, for that matter, to conduct his business in the matter suggested by X.

As the Commissioner has pointed out in his Release No. 3-F, a copy of which is enclosed, a marketing plan or system may be "prescribed" within the meaning of Section 31005 defining "franchises" for the purpose of the California Franchise Investment Law, although there is no obligation on the part of the franchisee to observe it, where a specific sales programs is outlined, suggested, recommended, or otherwise originated by the franchisor. This release further states that a sales program may be "prescribed" by the franchisor. This release further states that a sales program may be "prescribed" by the franchisor where he provides the franchisee with sales aids, training material or seminars, and that by such or other means a nonmandatory program may attain the force of a "prescribed one".

As we stated in our letter dated December 14, 1971, you have not given us adequate factual information concerning the question whether the operation of the Y is displayed on the premises. Naturally there can be no assurance that this sign will be discerned by the public but chances are in will be. We understand that plans for use Y credit cards have been abandoned.

Furthermore, as stated in our previous letters, there is a question of fact as to whether the purchase price for the Y charged X exceeds the bona fide wholesale price. X has the burden of proving that the price charged does not exceed the bona fide wholesale price of goods sold, so as not to constitutes a franchise fee.

Since X may fail to meet the burden of proof, and the operation of the Y would appear to be substantially associated with the X's commercial symbol, as indicated by the public display of the X sign on the courses, we can only repeat that on the basis of the information available to us, we cannot concur in the opinion expressed by you that the agreements in question are not "franchises" within the definition, and are not subject to the provisions, of the Franchise Investment Law.

Inasmuch as interpretive opinions are issued for the principal purpose of providing a procedure by which members of the public can protect themselves against liability for acts done or omitted in good faith in reliance upon the administrative determination under the Franchise Investment Law made in the opinion, and 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 a interpretive opinion.

Dated: San Francisco, California
March 15, 1972

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
HANS A. MATTES
Assistant Commissioner
Office of Policy