News Briefs

NASAA Adopts New Franchise Disclosure Document Guidelines

On June 6, the North American Securities Administrators Association ('NASAA') announced that it adopted the Federal Trade Commission's 2008 Franchise Disclosure Document ('FDD') and guidelines. The FDD becomes effective on July 1, 2008, replacing both the UFOC Guidelines and the Interim FDD that has been optional for use since July 1, 2007.

Franchisors operating in 'franchise filing states' will continue to be required to file a state cover page, as well as additional forms that might be required by individual states. Instructions for filing and sample forms can be found at http://www. nasaa.org/Industry___Regulatory_Resources/Franchise/

Connecticut AG Says State Can Regulate Franchised Gasoline Sales Prices

With consumers howling about gasoline prices surging past $4/gallon, Connecticut Attorney General Richard Blumenthal stated in a legal opinion on June 9 that the state can regulate pricing arrangements between oil companies and their gas station franchises. A special legislative session, which was to begin on June 11, is likely to include a vote on a bill to bar oil companies from prohibiting their dealers from offering discounts for cash purchases of fuel. The bill died in the regular session of the legislature this spring.

'This legal opinion must be a green light for legislation to provide immediate enhanced competition and benefits for consumers,' Blumenthal said in a press release. 'As in the past, I will continue to urge as sound public policy that the legislature unshackle retailers, giving them discretion to offer cash discounts without imposing a mandate ' .

'Legislation requiring gasoline retailers in this state to offer a cash discount or banning franchise agreement provisions prohibiting franchisees from offering cash discounts would not be prohibited by federal law, including the Petroleum Marketing Practices Act or federal octane rating posting regulations. Such legislation should be upheld as well against any challenge under the Contracts Clause or the Interstate Commerce Clause of the United States Constitution.'

A survey conducted on behalf of the state legislature this spring found that up to 85% of gas station owners in Connecticut are banned from offering cash discounts, usually as a result of being franchisees of major brand-name marketers.

'Neither my proposal to prohibit restrictive contractual provisions, nor a mandated cash discount, violates federal statutory or constitutional law,' Blumenthal said. 'The prohibition on cash discounts is a minor provision in a contract that governs the broad issues of a franchisor-franchisee relationship. Even if a court deems the ban on prohibiting cash discounts to be substantial, there is a strong public purpose to providing consumers the option of significantly reducing gasoline costs by paying cash. Courts have repeatedly upheld state laws regulating aspects of the relationship between gasoline distributors and their retailers.'

AAFD Members Seek Recognition in Franchise Disclosure Documents

The American Association of Franchisees & Dealers ('AAFD') is encouraging its members to utilize the opportunity created by the new Franchise Disclosure Document ('FDD') to expand their dialogue with franchisors, said Robert Purvin, AAFD chairman and CEO.

Franchisors must provide contact information for independent franchisee associations in the new FDD. 'In a very real sense, the requirement to disclose independent franchisee associations compels a level of recognition and gives associations a definite impact on system growth that the AAFD hopes will foster greater collaboration between franchisors and their independent associations,' Purvin said.

Purvin pointed out that the FTC specifically acknowledged AAFD Trademark Chapters as meeting formation requirements under the Franchise Rule. AAFD chapters are, in essence, independent franchise associations that are organized under the tax-exempt banner of the AAFD.

At AAFD's annual meeting this spring, Purvin provided a sample letter that AAFD Trademark Chapters could use to request that franchisors identify them. 'So far, franchisors have been cooperative,' Purvin said. 'Several franchisors have requested evidence or verification that the requesting association meets the FTC requirement that each group be 'legally formed,' but we are not aware of any rejections.'

With the new disclosure requirement, Purvin said that a franchisee association's positive or negative recommendation 'could prove to be crucial for the growth of a franchise system, and we expect that the simple requirement of disclosure will dramatically increase the degree of respect that an association will receive from its related franchisor.'

Shareholder Class Action Filed Against NexCen Brands

Shareholders of NexCen Brands, Inc. have filed a class action lawsuit in the U.S. District Court for the Southern District of New York in the wake of NexCen's financial troubles that surfaced in May 2008. The lawsuit has been filed by Schiffrin Barroway Topz & Kessler, LLP (Radnor, Pa.) on behalf of all purchasers of securities of NexCen from May 10, 2007, through May 19, 2008, inclusive.

NexCen owns seven franchises: The Athlete's Foot, Shoebox New York, Marble Slab Creamery, MaggieMoo's, Pretzel Time, Pretzelmaker, and Great American Cookies. It also owns and licenses the Bill Blass and Waverly brands.

NexCen (and some of its officers and directors) are charged with violating the Securities Exchange Act of 1934
by 'failure to disclose and misrepresent[ing]'material adverse facts' about financial obligations the company undertook in order to purchase Great American Cookies. When the details of those obligations came to light on May 19, 2008, NexCen's stock price dropped 77% on that day. Shares closed on May 19 at $0.58/share, and they remained depressed as FBLA went to press ($0.47/share on June 13).

As a consequence of the financial difficulties becoming public, NexCen's management has committed to an independent financial audit, while also indicating that there is doubt about its ability to continue as a going concern and that its 2008 earnings guidance is no longer valid.

Neither representatives of Schiffrin Barroway nor NexCen returned phone calls or e-mails for comment.

NASAA Adopts New Franchise Disclosure Document Guidelines

On June 6, the North American Securities Administrators Association ('NASAA') announced that it adopted the Federal Trade Commission's 2008 Franchise Disclosure Document ('FDD') and guidelines. The FDD becomes effective on July 1, 2008, replacing both the UFOC Guidelines and the Interim FDD that has been optional for use since July 1, 2007.

Franchisors operating in 'franchise filing states' will continue to be required to file a state cover page, as well as additional forms that might be required by individual states. Instructions for filing and sample forms can be found at http://www. nasaa.org/Industry___Regulatory_Resources/Franchise/

Connecticut AG Says State Can Regulate Franchised Gasoline Sales Prices

With consumers howling about gasoline prices surging past $4/gallon, Connecticut Attorney General Richard Blumenthal stated in a legal opinion on June 9 that the state can regulate pricing arrangements between oil companies and their gas station franchises. A special legislative session, which was to begin on June 11, is likely to include a vote on a bill to bar oil companies from prohibiting their dealers from offering discounts for cash purchases of fuel. The bill died in the regular session of the legislature this spring.

'This legal opinion must be a green light for legislation to provide immediate enhanced competition and benefits for consumers,' Blumenthal said in a press release. 'As in the past, I will continue to urge as sound public policy that the legislature unshackle retailers, giving them discretion to offer cash discounts without imposing a mandate ' .

'Legislation requiring gasoline retailers in this state to offer a cash discount or banning franchise agreement provisions prohibiting franchisees from offering cash discounts would not be prohibited by federal law, including the Petroleum Marketing Practices Act or federal octane rating posting regulations. Such legislation should be upheld as well against any challenge under the Contracts Clause or the Interstate Commerce Clause of the United States Constitution.'

A survey conducted on behalf of the state legislature this spring found that up to 85% of gas station owners in Connecticut are banned from offering cash discounts, usually as a result of being franchisees of major brand-name marketers.

'Neither my proposal to prohibit restrictive contractual provisions, nor a mandated cash discount, violates federal statutory or constitutional law,' Blumenthal said. 'The prohibition on cash discounts is a minor provision in a contract that governs the broad issues of a franchisor-franchisee relationship. Even if a court deems the ban on prohibiting cash discounts to be substantial, there is a strong public purpose to providing consumers the option of significantly reducing gasoline costs by paying cash. Courts have repeatedly upheld state laws regulating aspects of the relationship between gasoline distributors and their retailers.'

AAFD Members Seek Recognition in Franchise Disclosure Documents

The American Association of Franchisees & Dealers ('AAFD') is encouraging its members to utilize the opportunity created by the new Franchise Disclosure Document ('FDD') to expand their dialogue with franchisors, said Robert Purvin, AAFD chairman and CEO.

Franchisors must provide contact information for independent franchisee associations in the new FDD. 'In a very real sense, the requirement to disclose independent franchisee associations compels a level of recognition and gives associations a definite impact on system growth that the AAFD hopes will foster greater collaboration between franchisors and their independent associations,' Purvin said.

Purvin pointed out that the FTC specifically acknowledged AAFD Trademark Chapters as meeting formation requirements under the Franchise Rule. AAFD chapters are, in essence, independent franchise associations that are organized under the tax-exempt banner of the AAFD.

At AAFD's annual meeting this spring, Purvin provided a sample letter that AAFD Trademark Chapters could use to request that franchisors identify them. 'So far, franchisors have been cooperative,' Purvin said. 'Several franchisors have requested evidence or verification that the requesting association meets the FTC requirement that each group be 'legally formed,' but we are not aware of any rejections.'

With the new disclosure requirement, Purvin said that a franchisee association's positive or negative recommendation 'could prove to be crucial for the growth of a franchise system, and we expect that the simple requirement of disclosure will dramatically increase the degree of respect that an association will receive from its related franchisor.'

Shareholder Class Action Filed Against NexCen Brands

Shareholders of NexCen Brands, Inc. have filed a class action lawsuit in the U.S. District Court for the Southern District of New York in the wake of NexCen's financial troubles that surfaced in May 2008. The lawsuit has been filed by Schiffrin Barroway Topz & Kessler, LLP (Radnor, Pa.) on behalf of all purchasers of securities of NexCen from May 10, 2007, through May 19, 2008, inclusive.

NexCen owns seven franchises: The Athlete's Foot, Shoebox New York, Marble Slab Creamery, MaggieMoo's, Pretzel Time, Pretzelmaker, and Great American Cookies. It also owns and licenses the Bill Blass and Waverly brands.

NexCen (and some of its officers and directors) are charged with violating the Securities Exchange Act of 1934
by 'failure to disclose and misrepresent[ing]'material adverse facts' about financial obligations the company undertook in order to purchase Great American Cookies. When the details of those obligations came to light on May 19, 2008, NexCen's stock price dropped 77% on that day. Shares closed on May 19 at $0.58/share, and they remained depressed as FBLA went to press ($0.47/share on June 13).

As a consequence of the financial difficulties becoming public, NexCen's management has committed to an independent financial audit, while also indicating that there is doubt about its ability to continue as a going concern and that its 2008 earnings guidance is no longer valid.

Neither representatives of Schiffrin Barroway nor NexCen returned phone calls or e-mails for comment.