USA Law and Practice Contributed by: David B. Ramsey and Michelle Murray-Bertrand, Kaufmann Gildin & Robbins LLP
Oregon is not generally classified as a Franchise Reg - istration State, but it imposes franchise disclosure requirements that closely align with those imposed by the Rule and Registration States. Unlike the Reg - istration States, Oregon does not require franchisors to file, register or obtain regulatory approval of their FDD before offering or selling franchises. The remaining 35 other states, commonly referred to as “Non-Registration States”, generally do not require that franchisors register or file their FDDs, unless a business opportunity law applies (see the next para - graph). Instead, franchisors offering and selling fran - chises in Non-Registration States must comply with the FTC Franchise Rule’s pre-sale disclosure require - ments. Several Non-Registration States enforce these disclosure obligations through their own general con - sumer protection statutes, commonly referred to as “Little FTC Acts”, discussed in 1.2 Franchise Reg- ulation . These statutes generally prohibit unfair or deceptive acts or practices and, in many jurisdictions, expressly incorporate the Rule or treat a franchisor’s failure to comply with the Rule as a state law violation. Finally, 26 states have enacted business opportunity laws that may regulate the sale of franchises. Although most exempt franchises, the exemption generally applies only if the offering satisfies the state’s statu - tory definition of a “franchise” and, in some states, only if the franchisor has a federally registered trade mark. Offerings that do not qualify for an exemption may be subject to state business disclosure and reg - istration requirements, which are generally less exten - sive than those imposed by the FTC Franchise Rule. Consequently, where the Rule applies, its disclosure requirements generally pre-empt inconsistent state business opportunity disclosure provisions. The Rule requires the FDD to be written in “plain Eng - lish” and presented in a clear and understandable manner. 2.2 Consequences of a Failure to Disclose Failure to comply with applicable federal or state pre- sale disclosure requirements may expose the fran - chisor and responsible individuals – including officers, directors, employees, franchise sellers and other indi - viduals who participate in or are responsible for the
non-compliant conduct – to significant legal, financial and regulatory liability. The nature and scope of the available remedies may vary depending on the appli - cable federal and state franchise laws. At the federal level, Section 436.2 of the FTC Fran - chise Rule expressly provides that violations of the Rule’s disclosure obligations constitutes an “unfair or deceptive act or practice” under Section 5 of the Federal Trade Commission Act (the “FTC Act”), 15 US Code Section 45, giving the FTC broad investigative and enforcement authority to pursue any violations of the Rule. Among other powers, the FTC (pursuant to Sections 6, 9, 19 and 20 of the FTC Act) has author - ity to: • conduct investigations; • issue civil investigative demands and subpoenas; • compel the production of documents and testi - mony; and • commence administrative or judicial enforcement proceedings against franchisors and, where appro - priate, any responsible individuals. If the FTC has reason to believe that a franchisor vio - lated the Rule, it may pursue a broad range of statu - tory and equitable remedies under Sections 5, 13, 18 and 19 of the FTC Act. Depending on the circum - stances, these remedies may include: • civil penalties; • payment of restitution to the franchisee; • rescission of the franchise agreement; • preliminary or permanent injunctive relief; and • other appropriate equitable remedies. In appropriate cases, the FTC may also seek orders requiring changes to a franchisor’s business practices or prohibiting the franchisor from offering or selling franchises in the United States. Although the Rule provides the FTC with significant enforcement authority, it does not create a private right of action. So, franchisees generally cannot directly sue a franchisor for disclosure violations. While leg - islation has been introduced in Congress to create such a private right of action, including the Franchisee
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