Commissioner's Opinion No. 92 / 1F

State of California Department of Corporations

Thomas S. Sayles, Commissioner
In reply refer to: File No. _____

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

Ms. Elisabeth Eisner
Gray, Cary, Ames & Frye
401 B Street, Suite 1700
San Diego, CA 92101-4297

Re: Ben & Jerry's West Coast, Inc.
Request for Interpretive Opinion

Dear Mr. Eisner:

We have reviewed your November 1, 1991 letter requesting an interpretive opinion on behalf of your client Ben & Jerry's West Coast, Inc., a California corporation ("B & J West Coast"), together with the accompanying materials submitted with your letters dated November 13, 1991 and November 14, 1991. Your correspondence raises the following two questions: (1) whether B & J West coast is a sub franchisor and thereby subject to the registration requirement of Section 31110 of the Franchise Investment Law ("Law"); and (2) whether certain assignment transactions involving undeveloped territory and developed stores by B & J West Coast are exempt from that registration requirement by virtue of Section 31102 of the Law. We decline to exercise our discretion to issue an interpretive opinion for the reasons set forth below.

According to your correspondence, B & J West Coast is an area franchisee of Ben & Jerry's Homemade, Inc.; a Vermont corporation ("B & J Vermont" ). B & J Vermont is a manufacturer and distributor of ice cream and related food products and an operator of a retail ice cream parlor business. Under the franchise agreement, B & J West Coast is required to pay various franchise fees including an initial deposit of $42,000, a payment of $17,600 for the first opened franchise location and a payment of $14,000 for each subsequent location. In addition to paying prices for products purchased from B & J Vermont, B & J West Coast must pay specified advertising fees and transfer fees. In return, B & J West Coast acquires certain rights including the right to operate ice cream parlors within the boundaries of California Territory No. 2. Furthermore, the franchise agreement allows B & J West Coast to assign a portion of its interest in two ways. First, B & J West Coast may sell, transfer or assign so much of its interest in the franchise agreement as is necessary or appropriate to allow the purchaser, transferee or assignee ( "assignee" ) to develop a portion of undeveloped territory. Second, B & J West Coast may sell, transfer or assign so much of its interest in the franchise agreement as is necessary or appropriate to allow the assignee to acquire the right, title and interest in one or more existing and operating stores. Each assignment to develop an undeveloped territory or to acquire a developed store requires a separate agreement executed by the assignor, B & J West coast, and the assignee. Each assignment receives the consent of B & J Vermont and requires the assignee to enter into a separate franchise agreement with B & J Vermont. That separate franchise agreement modifies several covenants contained in the franchise agreement between B & J Vermont and B & J West coast.

Based on the foregoing, the first issue is whether B & J West Coast is a subfranchisor under Section 31009 of the Law. Section 31009 defines a subfranchisor as a person to whom a subfranchise is granted. A subfranchise is defined in Section 31008.5 to include, in part:

"[a]ny contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for that right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor."

In this case, B & J West Coast entered into a franchise agreement with B & J Vermont. Although that franchise agreement refers to B & J West Coast as the franchisee, a person may be both a franchisee and subfranchisor under an agreement. (See Comm. Op. No. 73/45F.) For the purpose of determining whether B & J West Coast is a subfranchisor, it is of no consequence that an assignee acquires certain rights and obligations by executing a separate franchise agreement with B & J Vermont rather than B & J West Coast current law merely requires that a subfranchisor be granted a right to sell or negotiate the sale of franchises in the name or on behalf of the franchisor. Here, B & J West Coast acquires that right to sell franchises from its franchise agreement with B & J Vermont. As previously indicated, the franchise agreement permits B & J West Coast to sell, transfer or assign an interest in the franchise. Those sale and assignment transactions will result in new franchises for the purpose of developing undeveloped territory and continuing operations of existing stores. Furthermore, B & J West Coast is required to pay specified franchise fees in consideration for all rights, including the sale and assignment rights, acquired under its franchise agreement with B & J Vermont. For these reasons, we must conclude that B & J West Coast is a subfranchisor as defined in Section 31009 of the Law. Accordingly, B & J West Coast is subject to the registration requirement of Section 31110, unless its offer or sale of a franchise is exempt.

The second issue is whether certain assignment transactions involving undeveloped territory and developed stores by B & J West Coast are exempt from the registration requirement of Section 31110 Ms. Elisabeth Eisner 3 Comm. OP. 92/1F by virtue of Section 31102 of the Law. Section 31102 provides, in part:

"The offer or sale of a franchise by a franchisee for his own account or the offer or sale of the entire area franchise owned by a subfranchisor for his own account, is exempted from the provisions of Section 31110 if the sale is not effected by or through a franchisor." [Emphasis added.]

A review of the above language indicates that Section 31102 applies to an offer or sale of an entire area franchise. While not clarified in statute, the term "entire" is defined in Black's Law Dictionary, Sixth Edition, to mean: "Whole; without division, separation, or diminution; unmingled; complete in all its parts; not participated in by others." We cannot conclude that B & J West Coast will offer or sell its entire area franchise as required by Section 31102. For example, rather than selling all of its rights to operate stores in Territory No. 2, B & J West Coast proposes to assign portions of its franchise interest in two ways. B & J West Coast may execute either an assignment of an undeveloped portion of territory or an assignment of a developed store. B & J West Coast may enter into more than one of those assignments, with more than one assignee. Each assignment agreement requires an assignee to execute a new franchise agreement that differs from the franchise agreement between B & J Vermont and B & J West Coast. In essence, this is not a case where a subfranchisor proposes "to sell his rights and duties under the agreement in their entirety to another." (See comm. Op. 73/45F.) For these reasons, we must conclude that the proposed sale and assignment transactions by B & J West Coast are not exempt-under Section 31102 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 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: February 7, 1992
Sacramento, California

By order of
THOMAS S. SAYLES
Commissioner of Corporations

By __________________
WILLIAM KENEFICK
Assistant Commissioner
Office of Policy
(916)322-3553