Commissioner's Opinion No. 73 / 27F
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. Brian J. Simpson
Attorney at Law
Simpson and Simpson
370 W. Sixth St., Suite 100
San Bernardino, CA 92402
Dear Mr. Simpson:
The request for an interpretive opinion, contained in your letter dated May 11, 1973, has been Considered by the Commissioner. Your letter raises the question whether the so-called "membership agreement" between Real Estate Mart Inc., a California corporation ( "Mart" ), and persons referred to therein and hereinbelow as "mernbers" are franchises within the meaning of Section 31005 and subject to the provisions of the Franchise Investment Law.
You have represented that Mart is organized to enable independent real estate brokers to join together for the purpose of group advertising, the expenses of which will be borne on a pro rata basis by the brokers. All members will be licensed real estate brokers in good standing under the laws of California, a member in good standing of the local real estate board and in control of his own business operation.
Pursuant to the agreement, which is for a term of five years with an option to renew for an additional five years, Mart licenses each member to use the name "Real Estate Mart Inc." in his business and to make available for his optional use certain forms, lawn signs and other advertising and informational publications. Mart agrees to develop and publish a reasonable amount of advertising in at least one daily newspaper of general circulation in San Bernardino County, California and such other advertising as is normally done in the real estate business. From time to time, Mart, at it's option, will solicit the opinion of each member with respect to advertising and the opinion of a majority of the merrillers will be directed to Mart as a recommendation for the quantity and manner of advertising.
In consideration for the services to be rendered by Mart and for the nonexclusive license to use the name "Real Estate Mart Inc.", member agrees to pay a $1,000 initiation fee, a monthly operation fee of $100, and his pro rata portion of the monthly media advertising costs incurred by Mart.
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.
As regards the requirement of a marketing plan or system prescribed in substantial part by the franchisor, you have represented that Mart will not regulate the operation of each member's independent business and the agreement specifies that each member is entirely free to operate his own business according to his owm system and circumscribed only by the laws of the state of California governing real estate brokers. Members are entitled to do any independent advertising and are not required to use the Mart's tradename. However, Mart will develop and publish a reasonable amount of advertising, the cost of which will be borne pro rata by the membership. Further, with the payment of the $1,000 fee and a monthly operating fee of $100, it can be assumed that the members, though not required to, will make use of the "Real Estate Mart Inc." name in their real estate business which will have the effect of giving a uniform appearance to the members' businesses through the use of lawn signs, forms and other publications made available by Mart. In addition, to make use of and to capitalize on the advertising of Mart, the use of such name would appear to be necessary.
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 supplies 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, P. 3-5).
It is our opinion, based on the advertising proposed and the uniform appearance from the use of the name, as discussed above, that Mart does prescribe a marketing plan or system in substantial part and, as such, the agreements between Mart and members are "franchises" within the definition of Section 31005 and are subject to the provisions of the Franchise Investment Law.
You have not raised the question, and we express no opinion, as to whether the memberships in Mart constitute "securities" within the meiming of Section 25019 and subject to the qualification requirements of the Corporate Securities Law of 1968.
Dated: San Francisco, California
June 9, 1973
By order of
BRIAN R. VAN CAMP
Commissioner of Corporations
J. DOMINIQUE OLCOMENDY
Supervising Corporations Counsel
Office of Policy