Commissioner's Opinion No. 77 / 2F

State of California Department of Corporations

Willie R. Barnes, 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. David A. Beanblossom
Attorney at Law
Frost & Jacobs
2900 Dubois Tower
511 Walnut Street
Cincinnati, Ohio 45202

Dear Mr. Beanblossom:

The request for an interpretive opinion, contained in your letter dated January 3, 1977, has been considered by the Commissioner. Your letter raises the question whether the change in the agreement between Domesticare, Inc. ("Domesticare") and Mr. Charles Harrington ("Harrington") is subject to the registration requirement of Section 31110 of the Franchise Investment Law ("Lawn").

You have represented that Domesticare is a wholly-owned subsidiary of The Drackett Company which is a wholly-owned subsidiary of Bristol-Myers Company. At the present time, Domesticare's scope of operations includes most of the states east of the Mississippi. Domesticare has an existing franchise with Harrington, a resident of Massachusetts who has operated the franchise for several years. Harrington now proposes to transfer his franchise to California. We understand that Harrington's agreement with Domesticare will be changed, substituting California as the new territory for the territory he is now operating in Massachusetts. No additional consideration will be paid by Harrington. You have advised us that Domesticare does not intend to extend its operation to California in the near future.

Section 31018(a) of the Law defines "sale" to include every contract or agreement of sale of, or disposition of, a franchise for value. Section 31018(b) provides that the term "offer" includes every attempt to offer or dispose of a franchise for value. That Section further provides that the terms "offer" and "sale" do not include "the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee." In our opinion, however, a change in an existing agreement which grants the franchisee a new location is a material change in the existing franchise agreement arid is therefore a "sale" within the meaning of Section 31018(a) of the Law. (See Comm. Ops. Nos. 71/47, 73/19F, 73/37F, 76/2F and Policy Letter No. 36-F.)

Section 31110 of the Law imposes a registration and other requirements on the offer and sale of franchises "in this state", that is in California. Section 31013 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, the franchised business is or will be operated 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 was 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. Ops. Nos. 7l/56F and 73/51F).

Assuming that the only contact with California in relation to the present transaction was or will be the operation of the franchised business by Harrington, based upon the representations contained in your letter, it is our opinion that the proposed change in the franchise between Harrington and Domesticare is not subject to the provisions of Section 31110 of the Law.

Dated: Sacramento, California
February 3, 1977

By order of
WILLIE R. BARNES
Commissioner of Corporations

By __________________
ROBERT E. LA NOUE
Assistant Commissioner
Office of Policy
(916)322-3633