Business Law

Opinion No. 74 / 12F

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State of California Department of Corporations

Robert L. Toms, Commissioner 
In reply refer to: File No. _____

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

Mr. C. Brian Oā€™Gorman
Attorney at Law
Eckert, Oā€™Gorman & McFarland
160 North Fairview Avenue, Suite 4
Goleta, CA 93017

Dear Mr. Oā€™Gorman:

The request for an interpretive opinion, contained in your letter dated September 6, 1974, has been considered by the Commissioner. Your letter raises the question whether the agreement between Lodestar Productions, Inc., an Alaska corporation (ā€œLodestarā€), and persons referred to therein and hereinbelow as ā€œlicenseesā€ are ā€œfranchisesā€ within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law. This question is answered in the affirmative.

You have represented that Lodestar is engaged in the business of producing motion pictures which it plans to distribute through licensees, referred to in your letter as ā€œreleasing agenciesā€. Who will receive a defined geographic area in which they may distribute films advertised to be ā€œProduced and Released by LODESTAR Productions, Inc.ā€ The licensees will pay a one-time fee based upon the population in his territory, a royalty of between 25% and 45% and a deposit for each print of a motion picture delivered by Lodestar to licensees.

Section 31005 of the Franchise Investment Law defines ā€œfranchiseā€ 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 franchiseeā€™s business pursuant to such plan or system is substantially associated with the franchisorā€™s commercial symbol, such as, its trade name or trademark, and the franchisee is required to pay a franchise fee. Section 31011 defines ā€œfranchise feeā€ to mean any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for goods and services.

After reviewing your letter and the material submitted therewith, it is our opinion that the agreement between Lodestar and licensee contains all of the elements of a ā€œfranchiseā€. Especially, the contents of the manual entitled ā€œBenefit Film Premiere manualā€ which sets forth ā€œstep-by-step instructions for making the most profit from your ā€˜fund raisingā€™ benefit film premiereā€, as well as the contents of the manual which includes the agreement, tend toward the conclusion that Lodestar is prescribing a marketing plan or system in substantial part (Dept. of Corps. Release No. 3-F (Revised) pp 2-6.)

Moreover as indicated above, the advertising specifies that the films distributed by licensees are ā€œProduced and Released by LODESTAR Productions, Inc.ā€ It is therefore our opinion. that the operation of the licensees businesses are substantially associated with Lodestarā€™s trade name and commercial symbol. (ibid. pp. 6-7.)

In conclusion, it is our opinion that the agreements between Lodestar and licensees are ā€œfranchisesā€ within the definition of Section 31005 and subject to the provisions of the Franchise Investment Law.

We have noted the provision in the agreement that licensee may distribute Lodestar films through ā€œdistributors or licensees or releasing agentsā€. In this connection, we call your attention to the definitions of an ā€œarea franchiseā€ and ā€œsubfranchisorā€ set forth in Sections 31008 and 31009, respectively, 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 14, 1974

By order of 
Commissioner of Corporations

By __________________ 
Supervising Corporations Counsel
Office of Policy

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