Business Law

Opinion No. 73 / 47F

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. Arnold J. Stone
Attorney at Law
Wainer & Stone, Inc.
1900 Avenue of the Stars
Suite 1090
Century City
Los Angeles, CA 90067

Dear Mr. Stone:

The request for an interpretive opinion, contained in your letter dated July 24, 1973, has been considered by the Commissioner. Your letter raises the question whether the so-called “license agreement” between Ah Men, Inc., a California corporation (“Company”) and Dr. Francis C. Steiger, dba Ah Men of Houston (“Licensee.”), is a franchise within the meaning of Section 31005, and subject to the provisions of the Franchise Investment Law. This question is answered in the affirmative.

You have represented that Company’s principal business is the retail sale of men’s clothing and related items under the trade name and trademark of “Ah Men”. Pursuant to the agreement, Company grants Licensee the right to use the name “Ah Men of Houston” in connecting with its operation of only one retail store in the City of Houston, Texas, and to use Company’s trade name and trademark on exterior signs of said store if approved in writing by Company. From time to time, Company will sell to Licensee Ah Men merchandise and other materials, such as bags and wrappers, and furnish mail order catalogs published by it for use only by Licensee’s retail customers at its store. Licensees may sell Ah Men merchandise only to customers at retail at their stores. They may not engage in the mail order business.

There are no minimum or maximum purchase requirements with regard to merchandise. Merchandise listed in the catalog may not be sold at retail for less than the current “Ah Men catalog market prices” plus applicable taxes, except as Company may from time to time specifically authorize in writing. The agreement further requires that licensee will pay Company a “one-time license fee of $3,000” which is not refundable, and also quarterly as a “license fee” two percent of all of its net sales.

The agreement specifically states that it “shall be deemed to be entered into in the state of California”, and that it shall be governed and construed according to California law.

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 a franchise fee.

In our opinion, the agreement contains all of the essential elements of a “franchise”. Especially, the restrictions on prices the Licensee may charge for Ah Men merchandise, the limitation to one store, the restrictions on the use of advertising and catalogs, and the prohibition of mail order business, are indicative of a marketing plan or system prescribed in substantial part by Company. The several license fees required to be paid in the “license agreement”, constitute a franchise fee.

.In conclusion, it is our opinion that this agreement is a “franchise” within the meaning of Section 31005, and is subject to the provision 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
November 12, 1973

By order of 
Commissioner of Corporations

By __________________ 
Assistant Commissioner 
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