Commissioner's Opinion No. 73 / 51F

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. Stephen Farr
Corporate Legal Counsel
Advance College Preparatory Institute
811 South 5th West
Bountiful, UT 84010

Dear Mr. Farr:

The request for an interpretive opinion, contained in your letter dated August 1, 1973, as supplemented by your letter dated November 6, 1973, has been considered by the Commissioner.

The first question raised in your letters is whether the arrangements proposed by Advance College Preparatory Institute, a Utah corporation ( "ACPI" ), and the persons referred to by you and hereinbelow as "licensees", are franchises within the definition of Section 31005, so as to be subject to the provisions of the California Franchise Investment Law. This question is answered in the affirmative.

You have represented that ACPI owns and operates schools known as "Medical and Dental Assistant Training schools" in Utah, Nevada and Arizona. It proposes to license the operation of such schools in California. The licensee is to pay an initial fee varying according to his territory. There is to be no other fee or royalty payment.

You have further represented that the licensee will have the right to use ACPI's name and that he will receive the benefit of ACPI's national advertising and expert advice and assistance in setting up the school and obtaining accreditation, if requisite standards are adhered to. ACPI will provide a director of sales training who will spend from two weeks to one month with the new licensee aiding him in selecting a school site, recruiting a faculty and students, and with other suggestions and techniques for maintaining a continuing flow of students, as well as regards procedures for bookkeeping and other office management.

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.

The agreement between ACPI and the licensee contains all of the essential elements of a "franchise" within the definition of Section 31005. Especially, we are of the opinion that ACPI prescribes a marketing plan or system in substantial part. 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. Therefore, a marketing plan or system may be "prescribed" within the meaning of Section 31005, although there is no obligation on the part of the franchises to observe it, where a specified sales program is outlined, suggested, recommended or otherwise originated by the franchisor (Dept. of corps., Release 3-F p. 3-5).

In the instant case, the advice and assistance given by the director of sales training is apt to result in a marketing plan or system in substantial part, especially since to obtain accreditation, uniform standards will have to be adhered to by the licensees.

Accordingly, it is our opinion that under the circumstances described by you as outlined above, the agreements between ACPI and the licensees are "franchises" within the definition of Section 31005, and are subject to the provisions of the Franchise Investment Law.

In your letter dated November 6, 1973, you have inquired moreover whether the California Franchise Investment Law applies to a sale of a franchise for operation of a business in California where both the seller and the buyer of the franchise are residents of Utah. The information furnished by yon is not sufficient to admit of a direct answer to this question, but the following explanation of the controlling principles, we trust, will be of assistance to you.

The Franchise Investment Law imposes a registration and other requirements on the offer and sale of franchises "in this state", that is in California. Section 31013 of the Law defines the circumstances under which an offer or sale of a franchise is deemed made "in this state" subsection (a) provides that an offer or sale is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state; or, if the franchisee is domiciled in this state. Subsection (b) provides that an offer to sell is made in this state when the offer either originates from this state or is directed by the offeror to this state and received at the place to which it is directed, and an offer to sell is accepted in this state when acceptance is communicated to the offeror in this state.

The offer or sale of a franchise is not deemed made "in this state" solely by reason of the fact that the franchised business will be operated in this state, or that a franchisee who was not physically present in this state when the offer and sale of the franchise were made outside the state, subsequently comes into this state for the purpose of supervising the operation of the franchised business or for other purposes (Comm. Op. No. 71/56F).

Dated: San Francisco, California
December 20, 1973

By order of
BRIAN R. VAN CAMP
Commissioner of Corporations

By __________________
HANS A. MATTES
Assistant Commissioner
Office of Policy