Civil Remedies for Breach of the California Franchise Investment Law

Brian H. Cole

Brian H. Cole is a sole practitioner with the Law Offices of Brian H. Cole, and is also Of Counsel to Chase Law Group, P.C., both in Manhattan Beach. Mr. Cole is a Certified Specialist in Franchise and Distribution Law and has been practicing in the franchise area for over 25 years. Mr. Cole is currently Chair of the Franchise and Distribution Law Advisory Commission to the State Bar Board of Legal Specialization, and has previously served three terms as Chair of the Franchise Law Committee of the Business Law Section.

T he California Franchise Investment Law ("CFIL")¹ regulates the offer and sale of franchises in California. The CFIL generally provides that franchises cannot be offered or sold in California unless they are registered²with what is now the California Department of Business Oversight³ or exempt from registration.⁴ If a franchisor violates the CFIL, the franchisor is subject to criminal prosecution,⁵ administrative remedies imposed by the Commissioner of Business Oversight,⁶ and—the focus of this analysis—civil liability to the aggrieved franchisee.⁷ The primary civil remedy is recovery of damages caused by the violation. With respect to some (but not all) violations, if the violation is willful, then the franchisee may also sue for rescission.

This article discusses the sources of civil liability under the CFIL, reviews the principles for damages or rescission under California law, briefly addresses the issue of reliance (and whether the reliance must be reasonable), and finally discusses practical application of these principles to the types of claims likely to arise under the CFIL.