News Briefs

As proposed, the bills would require that franchisors provide prospective franchisees with the state disclosure document at least 14 calendar days prior to the franchisee signing a binding franchise agreement. This would replace the current language that requires delivery of the franchise disclosure document at least 10 business days before signing. The bills would also require that if the franchisor makes unilateral and material changes to the disclosure document during the offer period, the prospective franchisee must be given at least seven days to review the new contract (though mutually negotiated changes do not trigger the seven-day review period). With the changes, the law would not only match the FTC Rule, but it would also conform with the state's Administrative Procedures Act, said a representative of the Department of Financial Institutions.

The bills also would shift the timetables for a franchisor to respond to a stop order or cease-and-desist order related to franchise sales. The franchisor would have 20 calendar days, instead of the current 15 business days, to respond to the order ' again, designed to match the Washington Administrative Procedures Act.

New York's Trade Show Franchise Sale Exemption Attracts Applicants

In October 2011, the state of New York enacted a limited exemption to its Franchise Sales Act (N.Y. Gen. Bus. L. ' 680 et. seq.) (the “Act”), which allows franchisors that are not registered with New York to participate in a franchise trade show under certain circumstances. With the June 2012 International Franchise Expo in New York City a few months away, applications have been received, said a spokesperson for the Office of the New York Attorney General, which is reviewing the applications. She could not provide information on how many applications have been received, but added that more are anticipated.

“The exemption would allow an eligible franchisor to exhibit and offer for sale, but not to sell, franchises at a franchise trade show,” said Matthew Kreutzer, a partner at Armstrong Teasdale LLP in Las Vegas. “Before a company can actually sell a franchise covered under the Act, the franchisor would still have to register with the state as provided under New York law.”

Franchisors seeking an exemption are required to complete and submit an exemption application form and supporting materials to the Office of the New York Attorney General. The form can be found at www.ag.ny.gov/bureaus/investor_protection/franchise/NY%20Franchise%20Trade%20Show%20Application%20Final.pdf. The fee is $150 for each day attending a franchise expo.

Ordinarily, an unregistered franchisor that exhibits at a trade show in a franchise-registration state would potentially violate that state's registration law, because the simple act of exhibiting at the show is arguably the making of an unregistered “offer to sell” a franchise. Franchisors and companies that are interested in franchising their concepts have contended that participating in trade shows enables them to test the waters to determine the market demand for their concepts, while adequate buyer protections can be maintained.

Kreutzer added that the California State Bar Franchise Law Committee has sent a proposal for a similar exemption to the California Department of Corporations, which oversees franchising in California. “The Department may want to see how it goes in New York before it agrees to sign off on or modify the proposal,” said Kreutzer.

Washington Legislators Consider Franchise Bills

Washington state legislators are considering bills to match the Washington Franchise Investment Protection Act (“WFIPA”) with federal requirements for delivery of franchise contracts to prospects and several other issues. Senate Bill 6172 and House Bill 2235, which are identical, would update the WFIPA so that it is identical to the FTC Franchise Law that was finalized in 2007 and guidelines subsequently issued by the North American Securities Administrators Association.

Passage of the bills is considered highly likely, as they have been requested by the Department of Financial Institutions as technical corrections. Two House committees have passed the House bill, and a Senate hearing was scheduled for Feb. 15.

As proposed, the bills would require that franchisors provide prospective franchisees with the state disclosure document at least 14 calendar days prior to the franchisee signing a binding franchise agreement. This would replace the current language that requires delivery of the franchise disclosure document at least 10 business days before signing. The bills would also require that if the franchisor makes unilateral and material changes to the disclosure document during the offer period, the prospective franchisee must be given at least seven days to review the new contract (though mutually negotiated changes do not trigger the seven-day review period). With the changes, the law would not only match the FTC Rule, but it would also conform with the state's Administrative Procedures Act, said a representative of the Department of Financial Institutions.

The bills also would shift the timetables for a franchisor to respond to a stop order or cease-and-desist order related to franchise sales. The franchisor would have 20 calendar days, instead of the current 15 business days, to respond to the order ' again, designed to match the Washington Administrative Procedures Act.

New York's Trade Show Franchise Sale Exemption Attracts Applicants

In October 2011, the state of New York enacted a limited exemption to its Franchise Sales Act (N.Y. Gen. Bus. L. ' 680 et. seq.) (the “Act”), which allows franchisors that are not registered with New York to participate in a franchise trade show under certain circumstances. With the June 2012 International Franchise Expo in New York City a few months away, applications have been received, said a spokesperson for the Office of the New York Attorney General, which is reviewing the applications. She could not provide information on how many applications have been received, but added that more are anticipated.

“The exemption would allow an eligible franchisor to exhibit and offer for sale, but not to sell, franchises at a franchise trade show,” said Matthew Kreutzer, a partner at Armstrong Teasdale LLP in Las Vegas. “Before a company can actually sell a franchise covered under the Act, the franchisor would still have to register with the state as provided under New York law.”

Franchisors seeking an exemption are required to complete and submit an exemption application form and supporting materials to the Office of the New York Attorney General. The form can be found at www.ag.ny.gov/bureaus/investor_protection/franchise/NY%20Franchise%20Trade%20Show%20Application%20Final.pdf. The fee is $150 for each day attending a franchise expo.

Ordinarily, an unregistered franchisor that exhibits at a trade show in a franchise-registration state would potentially violate that state's registration law, because the simple act of exhibiting at the show is arguably the making of an unregistered “offer to sell” a franchise. Franchisors and companies that are interested in franchising their concepts have contended that participating in trade shows enables them to test the waters to determine the market demand for their concepts, while adequate buyer protections can be maintained.

Kreutzer added that the California State Bar Franchise Law Committee has sent a proposal for a similar exemption to the California Department of Corporations, which oversees franchising in California. “The Department may want to see how it goes in New York before it agrees to sign off on or modify the proposal,” said Kreutzer.