Business Law

Opinion No. 73 / 23F

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State of California Department of Corporations

Brian R. Van Camp, Commissioner 
In reply refer to: File No. _____

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

Mr. Thomas H. Thornton
Attorney at Law
Suite E
14482 Beach Boulevard
Westminister, CA 92683

Dear Mr. Thornton:

The request for an interpretive opinion, contained in your letter dated April 26, 1973, has been considered by the Commissioner. Your letter raises the question whether the agreements between Z Z Corporation (“Z Z”) and persons referred to therein and hereinbelow as “franchisees” are franchises within the meaning of Section 31005 and subject to the provisions of the Franchise Investment Law. This question is answered in the affirmative.

We understand that Z Z is in the business of producing, merchandising, distributing and promoting Hexionic Acid U.S. Pat. #93,328,492. Pursuant to the agreements, franchisees, who may be plumbers and corporations, are granted the right to conduct a scale removal service, referred to as “PiPurge”, in domestic and commercial water lines employing the acid, under certain standards of management, supervision, merchandising and quality in a specified territory. In addition, the franchisees are required to promote the trademark “PiPurge” and to follow the outline of procedure without deviation. Any variance from the outline of procedure must be approved by Z Z. Franchisees would be permitted to service customers outside of their territory, if they had serviced said customers outside of the assigned territory for more than one year.

We further understand that Z Z for $500, payable upon signing of the agreement, will furnish franchisees, at cost and at no higher than established list prices, specified equipment as well as assistance ana training. In addition, franchisees are required to pay 10% of gross receipts from “PiPurge” jobs and to pay one-half of reasonable advertising expenses in their area.

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 franchise fee.

In our opinion, the agreements contain all of the essential elements of a “franchise”. Especially, the provisions with regard to standards of management, supervision, merchandising, quality and procedures; the territorial limitations; and the assistance and training lead to the conclusion that Z Z is prescribing a marketing plan or system in substantial part. Moreover, the operations are substantially associated with the trademark “PiPurge” and the payments for assistance, training and advertising, as well as 10% of gross receipts, constitute a franchise fee.

Accordingly, it is our opinion that, under the circumstances described by you as outlined above, the agreements between Z Z and the franchisees are “franchises” within the meaning of Section 31005 and subject to the provisions of the Franchise Investment 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: San Francisco, California
May 31, 1973

By order of 
Commissioner of Corporations

By __________________ 
Supervising Corporations Counsel
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