Commissioner's Opinion No. 73 / 48F

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.

Mr. Victor O. Geretz
Attorney at Law
1710 The Travelers Building
3600 Wilshire Boulevard
Los Angeles, CA 90010

Dear Mr. Geretz::

The request for an interpretive opinion, contained in your letter dated July 2, 1973, as supplemented by your letters dated July 9, 1973 and August 29, 1973, has been considered by the Commissioner. Your letters raise the question whether the arrangements between Louis E. Kramer, William Becker and Frances Hoelper, a partnership d.b.a. Health Drinks of America ("Health"), and persons referred to by you and hereinbelow as "operators" are franchises within the definition of Section 310 OS, and subject to the provision of the Franchise Investment Law. On the assumption stated below, this question is answered in the negative.

You have represented that Health proposes to sell to operators automatic beverage vending machines of a standard design purchased by Health from manufacturers. The machines will carry medallions identifying a "well-known beverage" not manufactured by Health. Operators will purchase machines at about an 80% markup, which payment will also cover Health's services in securing a suitable location and placing the machine in such location. After the machine is placed in the location, the operator may purchase the beverage in 12 ounce cans from Health or from any other source. The wholesale price charged by Health for the beverage will be comparable to the prevailing wholesale price. Health will agree to repurchase the vending machines from the operator, if net profit during the first 18 months does not cover the cost of the machine to an operator and if, during such period, the operator purchases all of his supply of beverages from Health.

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 franchise is required to pay a franchise fee.

The Commissioner has stated that for the operation of the franchisee's business to be substantially associated with the symbol, it must be communicated to the customers of the franchisee (Dept. of Corps. Rel. No. 3-F, p. 6). You have represented that the manufacturer of the beverage is Hi-C, a well-known beverage distributed by Coca Cola Company Foods Division, which company has no affiliation to Health. On the assumption that no commercial symbol of Health is communicated to members of the public purchasing beverages from the vending machines, it is our opinion that the arrangement between Health and operators are not "franchises" within the meaning of Section 31005, and are not subject to the provisions of the Franchise Investment Law.

Your letter does not request our opinion, nor does it contain sufficient information for us to express an opinion, as to whether the arrangements between Health and operators constitute "investment contracts" and therefore are "securities" within the meaning of Section 25019, and subject to the qualification requirement of the Corporate Securities Law of 1968.

Dated: San Francisco, California
December 17, 1973

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
J. DOMINIQUE OLCOMENDY
Supervising Corporations Counsel
Office of Policy