Business Law

Franchise Opinions from the State of California Department of Corporations

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The Business Law Section is compiling the complete Interpretive Opinions concerning franchise issues from the State of California Department of Corporations.

For past Franchise Opinion reports, click here or contact the Business Law Section.

Introduction to Interpretive Opinion Summaries

The California Franchise Investment Law (Corp. Code § 31000, et seq.), commonly referred to as the “CFIL,” regulates the offer and sale of franchises in California. Section 31510 of the CFIL gives the Commissioner of the Department of Business Oversight (formerly known as the Department of Corporations)(the “DBO”) the discretionary power to honor requests from interested persons for interpretive opinions concerning the CFIL.  Further, § 31511 of the CFIL provides that any act done or omitted in good faith in conformity with any rule, form, order, or any written interpretive opinion of the DBO or of the Attorney General (collectively, the “Opinions”) will not result in liability under the CFIL, even if the Opinion is later amended, rescinded, or determined to be invalid.

Beginning very shortly after the CFIL was enacted, the DBO has received requests for Opinions issued in accordance with § 31510 of the CFIL. While the DBO has responded to many of these requests, some of the letters responding to these requests specifically state in the introduction that “THIS LETTER IS NOT AN INTERPRETIVE OPINION FOR THE REASONS STATED BELOW.”  In the conclusion most of these letters the issuing Commissioner states that:

      “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.”

Even though many of these letters from the DBO state that they are not “interpretive opinions” for purposes of § 31510 of the CFIL, the letters do provide some guidance to the public concerning the DBO’s position with respect to the meaning of the CFIL. In addition, many of the letters are referred to the DBO’s Release 3-F (issued June 22, 1996), which may constitute an “Interpretive Opinion” for purposes of § 31510. Finally, certain courts have referred to and relied on opinions to determine issues of interpretation under the CFIL from time to time.

Although copies of the letters have always been available from the DBO, the process to obtain them is somewhat cumbersome. The California State Bar Franchise Law Committee (the “FLC”) and the DBO believed that it would be helpful if the letters were made more-readily available to the public, to provide information regarding the DBO’s interpretation of the CFIL. In turn, the FLC and the DBO hope that this broader availability of the letters will increase compliance with the CFIL.  On this basis, the FLC has undertaken the collection and summarization of all available letters, and has organized the summaries of the letters in an electronic format that is searchable by keyword or phrase (the “Summary”).

The Summary is available [insert location of the summary and any caveat we must include if we determine that we do not have all of the existing letters].  While the FLC and the DBO encourage the review and use of these letters to provide the public with further clarification issues and questions under the CFIL, these letters (as noted above) do not constitute “Interpretive Opinions” under §31510, and so reliance on the letters does not protect against liability or preclude the DBO from reaching a different conclusion in a future situation.

For past Franchise Opinion reports, click here or contact the Business Law Section.

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