Commissioner's Opinion No. 75 / 1F

State of California Department of Corporations

Willie R. Barnes, Commissioner
In reply refer to: File No. _____

This letter is not an Interpretive Opinion for the reasons stated below.

Mr. Bryant M. Smith
Attorney at Law
845 Oak Grove, Suite 105
Menlo Park, CA 94025

Dear Mr. Smith:

The request for an interpretive opinion, contained in your letter dated October 29, 1974, has been considered by the Commissioner. Your letter raises the question whether the so-called "IDent-A-Pet Agency and Commission Agreements" ("Agreements") between IDent-A-Pet, a California corporation ("IDAP"), and persons referred to therein and hereinbelow as "Agents", are "franchise" within the definition of Section 31005, and subject to the provisions of the Franchise Investment Law ("Law"). This question is answered in the affirmative.

You have represented that IDAP operates a pet identification system, whereby a pet owner pays a fee to have the ear of his dog or cat tattooed with an identification mark, which includes the symbol "IDAP", as well as a number. The number is also written on a registration card and kept on file in IDAP's permanent record. Anyone finding the pet can obtain from IDAP information as to the name, address and telephone number of its owner.

Pursuant to the Agreement, IDAP authorizes Agent to tattoo any dog or car when the possessor of such animal has completed and signed the registration form prescribed by IDAP and given Agent a check or money order payable to IDAP; Agent has ascertained that the dog or cat has not previously been tattooed with an IDAP number; and Agent is satisfied that the information in the registration is accurate and has no reason to believe that the possessor of the animal is not its true owner. Agent may use only the identification number provided by IDAP as well as special forceps and dyes which he may purchase from IDAP; he may not use anesthetics. Agent also agrees to actively promote the sale of the IDAP registration service by contacting various individuals and associations, including veterinarians, kennel clubs, humane societies and police who are likely to be interested in stolen, lost, strayed or injured pets; to advertise his own and IDAP's telephone number in appropriate classifications in telephone directories; and to maintain specified amounts of liability insurance. IDAP agrees to give Agent such training in its method of tattooing as IDAP "may deem necessary to assure compliance with law and to effect a successful tattoo with minimum pain to the dog or cat" and to supply sales aids.

Within 24 hours of tattooing an animal, Agent is required to transmit to IDAP, by first class mail, all registration forms and the registration fee, specified in the agreement to be $15.00 for the first dog or cat owned by a household and $7.50 for each additional dog or cat owned by the same household and registered within one year after the first dog or cat. IDAP will pay Agent monthly commissions based on initial registration fees accepted by IDAP, of two-thirds of the gross amount of such fees. The commission will be delivered to the Agent between the fifth and fifteenth days of each calender month after such commission has been earned by Agent and forwarded to IDAP. During the second six months of the Agreement, Agents's monthly quota is $375 of gross fees; and thereafter said monthly quota is $375 of gross fees; and thereafter said monthly quota is $750 of gross fees.

Section 31005 of the Law defines "franchise" to include an agreement, either oral or written, between two or more persons by which a franchise 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. Section 31011 defines "franchise fee" to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services.

The purchase or agreement to purchase goods at a bona fide wholesale price is not considered the payment of a "franchise fee" pursuant to Section 31011(a), if no obligation is imposed upon the purchaser to purchase or pay for a quantity of goods in excess of that which a reasonable businessman would purchase to start, supply or maintain a going inventory or supply. Rule 011 of the Commissioner exempts from the registration requirement of Section 31110 of the Law, any offer or sale of a franchise which would be subject to registration solely because the franchisee is required to pay, directly or indirectly, a franchise fee which, on an annual basis, does not exceed $100. Further, Rule 011.1 of the Commissioner exempts from such registration requirement any offer or sale of a franchise which would be subject to registration solely because the franchisee is obligated to pay, in addition to the payment under Rule 011, a sum not exceeding $1,000 annually on account of the purchase price or rental of fixtures, equipment or other tangible property to be utilized in, and necessary for, the operation of the franchised business, if the price or rental so charged does not exceed the cost which would be incurred by the franchisee acquiring the item or items from other persons or in the open market.

In our opinion, the Agreement contains all of the essential elements of a "franchise". Especially, it is our opinion that the provisions regarding forms and fees, use of specified IDAP numbers and supplies, training and sales material, and determinations to be made by Agent tend toward the conclusion that IDAP is prescribing a marketing plan or system in substantial part (Dept. of Corps. Rel. No. 3-F (Revised), pp. 2-6). Moreover, it is our opinion that the Agent is granted the right to engage in the business of offering a service, IDAP's pet identification system, which business is substantially associated with IDAP's commercial symbol.

In addition, the fact that Agent only receives two-thirds of the registration fees and does not have the use of that amount for a period of time tends toward the conclusion that Agent is paying a "franchise fee" similar to royalty and deposit (ibid p. 3 and Comm. Op. 73/15F).

We have noted the provision in the Agreement that Agent is independent contractor. In this connection, the Commissioner has stated that a provision in agreement that the franchisee is to be considered an independent contractor does not preclude the possibility that the franchisee's business is, actually and in fact, operated pursuant to a marketing plan or system prescribed in substantial part by the franchisor, and such an agreement, if other requirements of the definition are satisfied, may be a "franchise" (ibid p. 5).

In conclusion, it is our opinion that the Agreements between IDAP and Agent are "franchises" within the definition of Section 31005 and subject to the provisions of the 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 made in the opinion, and since there can be no such reliance where the Commissioner asserts jurisdiction with respect to a particular situations 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
February 6, 1975

By order of
WILLIE R. BARNES
Commissioner of Corporations

By __________________
ROBERT E. LA NOUE
Assistant Commissioner
Office of Policy