Commissioner's Opinion No. 73 / 49F

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. James F. McGrill
President
National Glass Service Inc.
385 Arnold Street
Woonsocket, RI 02895

Dear Mr. McGill:

The request for an interpretive opinion contained in your letter dated September 20, 1973, has been considered by the Commissioner. Your letter raises the question whether the agreements between national glass Services, Inc. ("National") and persons referred to therein and hereinbelow as "glaziers", are franchises within the definition of Section 31005, and subject to the provisions of the California Franchise Investment Law. This question is answered in the affirmative.

We understand that National's specialty in the glass business, in which it is engaged, is to contract with chain stores for all of their plate glass replacement requirements. To provide this service, it enters into agreements with glaziers by which it grants to them the exclusive right to service its accounts with the chain stores in a specified area during a one-year period and any extension of such period.

In the agreement with the glazier National undertakes to act as the nation-wide marketing and sales force in soliciting plate glass business and to submit to the glazier for servicing under the agreement all plate glass business within the glazier's area; to provide a minimum of 1,000 square feet of plate glass replacement business during the one-year period of the agreement or to make a pro rata reduction of the $200 annual fee referred to in the agreement as a "franchise fee"; not to enter into competition with its "exclusive franchized glazier" for local plate glass replacement; to render payments to the glazier for work performed only at specified rates; and to institute a cooperative buying plan under a national supply contract by which the glazier will be able to avail himself of the combined purchasing power of National's glaziers.

The glazier agrees to represent National exclusively within his area during the period of the contract and not to engage in a similar business or represent any other company similar in nature to National for a period of one year after the contract's termination; to provide prompt 24-hour service, 7 days a week, including Sundays and holidays. to National accounts in accordance with the contracts between National and the chain stores; to install plate glass promptly and in a courteous and professional manner; to invoice promptly for all work performed under the contract at rates specified in the agreement; to act as prime contractor on all work associated with plate glass breakage under the agreement; to make its books available to National or its duly authorized representatives; and to maintain adequate bodily injury and property damage liability insurance. The glazier is prohibited from charging for boarding up, travel or overtime in serving National accounts.

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 trademark, trade name, or advertising, and the franchisee is required to pay a franchise fee.

In our opinion, the agreements between National and the glaziers contain all the essential elements of a "franchise" within the definition of Section 31005. Especially, it is our opinion, that the provisions regarding nation-wide marketing and exclusive territory, rates charged, 24-hour service and prohibition of engaging in a similar business for one year after the agreement's termination, indicate that National is prescribing a marketing plan in substantial part. The directions given by National with respect to the marketing plan of the Glaziers, are the more significant as they are fitted into the specialized service which National provided to its particular clientele.

It is also our opinion that the business of the glaziers, even though they operate under their own names, is substantially associated with the trade name and advertising of National. In this connection, National, as indicated above, agrees to act as the nation-wide marketing and sales force in soliciting plate glass business, and the chain stores serviced by glaziers are referred to as "National accounts" (See Policy Letter 33F).

Furthermore, it is our opinion that the annual payment of $200 required of glaziers, is a "franchise fee", as defined in Section 31011 of the Law to mean any fee or charge that a franchisee is required to pay or agrees to pay for the right to enter into a business under a franchise agreement. Glaziers make this payment for the right to service the National accounts. The provision in the agreement for pro rata reduction of the fee or waiver in the ensuing year if 1,000 square feet of glass is not sold by a glazier, is not significant. As we said in Comm. Op. 73/15F, even if totally refunded, such a payment deprives the licensee of the use of the money for the period while it is in the hands of the licensor.

In conclusion, it is our opinion that the agreements between National and the glaziers are "franchises" within the definition of Section 31005, and are subject to the provisions of the Franchise Investment Law.

We have noted the provision in National's advertising that the glaziers will have "the opportunity of buying stock in National Glass Service Inc....at a good price." Therefore the Company's attention is called to the qualification requirement imposed by Section 25110 of the California Corporate Securities Law of 1968 on the offer or sale by an issuer of any security in this stater unless an exemption is available.

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 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 an interpretive opinion.

Dated: San Francisco, California
December 17, 1973

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
HANS A. MATTES
Assistant Commissioner
Office of Policy