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Does Your Foursquare Peg Not Fit into a Round Hole? Consider the Discretionary Exemption

Compliance with country franchise registration and disclosure laws1 tin can be expensive and time consuming. As such, putative franchisors and fran­chisors akin frequently seek to identify an exemption or exclusion from the applicable law in hopes of existence able to avoid the registration and disclosure provisions of the police force. Unfortunately, sometimes the proposed franchisor or franchise transaction does not fit into a typical exemption, or the state lacks an applicable exemption. Merely one exemption, ofttimes trailing at or nearly the bottom of a state'southward list of exemptions—and often disregarded—is the and so-called "discretionary exemption," an exemption in the public involvement, or exemption past club or dominion. This exemption permits a state regulatory agency2 to exempt an offering for sale or auction of a franchise from certain parts of the land'south registration or disclosure requirements upon a written request for an administrative order for exemption, provided that (i) the proposed transaction is not inside the purposes of the state'south fran­chise law; and (2) registration or disclosure of the transaction is not neces­sary in the public involvement or for the protection of prospective franchisees. The discretionary exemption is an often-ignored exemption from registra­tion or disclosure, perhaps because of its vague requirements or patchwork awarding. However, the discretionary exemption can be a useful fallback f or practioners and franchisors if no other exemption applies; for certain transactions, the discretionary exemption can even be the initial strategy to avoid registration or disclosure requirements in a detail state.

This article first provides an overview of the general characteristics of the discretionary exemption,iii followed past a more detailed review of the var­ious types of discretionary exemptions existing in various states. The article then demystifies the discretionary exemption with practical considerations for franchise attorneys and franchisors if they plan to rely on employing a discretionary exemption strategy in connection with the offer or sale of franchises.

  1. Registration and Disclosure Framework

Before a franchise tin can be offered for sale or sold in any state, the franchi­sor must provide its current franchise disclosure document to a prospective franchisee. Further, in xiv registration states, a franchisor must outset register its franchise disclosure document with the respective country regula­tory agencies earlier making any offers for sale or sales of franchises in us. But a franchisor's proposed offer or sale, or the franchisor in general, may be exempt from complying with certain parts of the state'due south registration or disclosure requirements. Exemptions vary land-by-land.four

  • Overview of Discretionary Exemptions

Thirteen of the xiv registration states provide for some variation of the discretionary exemption: California,5 Hawaii,vi Illinois,vii Indiana,eight Mary-state,ix Michigan,10 Minnesota,11 New York,12 North Dakota,13 Rhode Isle,14South outh Dakota,15 Virginia,sixteen and Wisconsin.17 Washington Land does not pro­vide for a discretionary exemption.18 The reason legislatures have delegated discretion to state regulatory agencies to exempt certain transactions from registration or disclosure requirements is to transfer oversight responsibil­ity to nimble administrative agencies that have more expertise than a state legislature in a specific area.19 The purpose of franchise registration and dis­closure laws is to protect prospective franchisees past requiring franchisors to provide detailed disclosures before they buy a franchise. Sometimes, however, a state regulatory agency may conclude that such protection is not necessary or that a franchisor demand only comply with a portion of its state's franchise police force, without undermining the purpose of the franchise constabulary.

Although each of these 13 states permits the land regulatory agency to exempt certain franchise transactions from parts of the land'due south registration or disclosure requirements, the criteria for granting the exemption and what is specifically exempted differ in each jurisdiction.20 Navigating the discre­tionary exemption can therefore exist difficult or unreliable especially consid­ering that, by its definition, the land regulatory bureau has wide breadth to grant or deny the discretionary exemption.

The discretionary exemption can be categorized into two types: discre­tionary exemption past order (or upon request) and discretionary exemption by dominion.

A. Discretionary Exemptions past Guild

A franchisor can asking an exemption from registration or disclosure requirements in a country, and the state regulatory bureau can grant or deny such request via the issuance of an order in its discretion (subject area to some fifty imitations). The franchise laws of Hawaii,21 Illinois,22 Indiana,23 Maryland,24 Michigan,25 Minnesota,26 New York,27 North Dakota,28 Rhode Isle,29 South Dakota,xxx Virginia,31 and Wisconsin32 permit the state regulatory agency to grant a discretionary exemption past guild upon the request of a franchisor. An "order" ways a consent, authorization, or prohibition issued by a land regulatory agency specific to a sure case, whether or not at the request of a franchisor.33

1. The Three P's: Public Involvement, Protection, and Purpose

In most states, a transaction (such equally an offer or sale of a franchise) is exempt from certain registration or disclosure requirements if the state regu­latory agency finds that (1) a proposed transaction is not within the purposes of the state's franchise law (the Purpose Condition); and (2) registration or disclosure of the transaction is not necessary in the public interest (the Pub­lic Interest Condition) or for the protection of prospective franchisees (the Protection Condition).34 A few states, notably Hawaii, Illinois, Michigan, and Virginia, vary the conditions more significantly,35 and Illinois, New York, Rhode Island, South Dakota, and Wisconsin exercise non statutorily crave the Purpose Condition.36

(a) The Purpose Condition

Generally speaking, the purpose of state registration and disclosure laws is to provide prospective franchisees with the information necessary to make an informed determination regarding the investment opportunity, to prohibit f raudulent sales of franchises, and to protect the franchisor-franchisee rela­tionship via disclosures.37 Franchise registration and disclosure laws attempt to satisfy this purpose by requiring the franchisor to provide the prospec­tive franchisee with detailed data regarding the investment opportunity.38 In i case, the Indiana Court of Appeals provided an example, in dicta, of an offer or sale of a franchise that is within the purposes of Indiana's franchise law and where disclosure is necessary to protect a prospective franchisee. Specifically, in Continental Basketball Ass'n 5. Ellenstein Enterprises, Inc.,39 the courtroom held that where a franchisor is inadequately capitalized and is using the sales of franchises (and associated franchise fees) as its primary funding source, a franchisee is essentially contributing equity to the franchi­sor. The court continued: "Under these circumstances, the risks are akin to those posed past an investment in securities and are plainly intended to exist the subject of the Act'southward disclosure provisions . . . ."40 Of grade, given the broad scope of country franchise laws, the more difficult challenge is finding a trans­action that is beyond its purview to satisfy the Purpose Condition.

  1. The Public Interest Status

The Public Interest Condition is very similar to the Purpose Condi­tion in that the purpose of state franchise laws is to protect the public from deceptive investment opportunities. Indeed, courts accept interpreted "public involvement" within the confines of the purpose of the constabulary at issue. For example, in People v. Carter,41 the Illinois Supreme Court agreed with the Appellate Sectionalisation of the Supreme Court of New York that the term "'public involvement,' standing alone, presents a standard of immense and varied implications . . . . [Simply] it should be construed with reference to the general purposes and the subject thing of the [law in question] . . . ."42 Thus, the Public Interest Con­dition should be construed together with the Purpose Condition.

  1. The Protection Condition

Alternatively, state regulatory agencies are more inclined to grant a dis­cretionary exemption upon a finding that registration or disclosure of a transaction is not necessary for the protection of prospective franchisees. For example, where the information contained in a disclosure statement is readily available through other sources, a state regulatory bureau may "find t hat enforcement of the [state's franchise constabulary] is non necessary."43 The Pro­tection Condition could also exist satisfied if the franchisor has a high cyberspace worth and a history of franchising or operating outlets (only a item state does not have the large franchisor exemption or, due to some technicality, the franchisor does not meet the exact requirements of the large franchisor exemption).44

If a prospective franchisee is sophisticated or has feel in the fran­chise organization, a franchisor could likewise argue that the prospective franchisee does not need the protection of the franchise laws. The discretionary exemp­tion could exist useful for renewing an existing franchise.

(d) Coaction of the Atmospheric condition

A asking past a franchisor for an order exempting a transaction should identify why the franchise offering does not need to be registered or why the transaction should require simply sure disclosures based on the appropriate atmospheric condition. A franchisor should accost all 3 conditions regardless of the specified conditions in a particular state because the conditions must be con­strued together. The country regulatory agency has the final say on whether the conditions are satisfied.

The fact that Hawaii, Illinois, New York, Rhode Isle, Southward Dakota, and Wisconsin exercise non require a franchisor to satisfy the Purpose Status is irrelevant in practice. Given the similarities between the three conditions, a prudent franchisor should always address the Purpose Condition in whatever request for a discretionary exemption. In detail, if a franchisor requests a discretionary exemption based on the Public Involvement Condition, the fran­chisor should still specify why registration or disclosure (as applicable) is non within the purview of the state's franchise law with reference to the franchise law's statutory purpose (even if the country franchise police force does not list the Pur­pose Condition as in these six states). Likewise, because the principal purpose of state franchise laws is to protect prospective franchisees with adequate disclosures, a franchisor claiming that registration or disclosure is not nec­essary for the protection of a prospective franchisee should also state why the transaction is beyond the purposes of the franchise law. The facts and reasoning may be the same under each condition given the fuzzy distinction betwixt them.

  1. Overlap with Other Exemptions

Many of the transactions that fall outside the telescopic of a land's franchise laws, and hence could be exempt under a discretionary exemption as not within its purposes, are already exempt under other, more definite exemp­tions. This overlap arises because the intent behind all exemptions is to exempt franchise offers or sales that are low-adventure (e.g., because of the apti­tude of the prospective franchisee, a depression initial investment, or the opera­tional size, stability, and experience of the franchisor). For example, several states exempt from their registration and disclosure requirements transac­tions between parties to existing franchise relationships and transactions with sophisticated investors. These transactions would arguably autumn outside the purpose of the registration and disclosure requirements as the existing franchisee (or prospective franchisee) does not necessarily need protection as information technology is already familiar with the franchise system or is an experienced franchi­see capable of understanding the investment risks involved.

Another case of this situation is those transactions that involve de minimis amounts. For example, Maryland exempts the registration of the offer or sale of a franchise where the franchise fee does not exceed $100 annually, finding that such a low-risk transaction is "not inside the purpose of the Maryland Franchise [Registration and Disclosure] Police force and regis­tration of the transaction[] is not necessary or appropriate for the protec­tion of investors."45 Registration of this transaction would probably besides be exempt under the state's discretionary exemption by society because it meets the state's conditions (even if the Function of Attorney General did not spe­cifically formulate this). Similarly, Illinois police force confirms that enforcement of its Franchise Disclosure Act of 1987 is not necessary on a example-past-example basis depending on the investment involved.46 An offer or auction of a franchise to an existing franchisee is already exempt in many states, but could also exist a good candidate for a discretionary exemption considering the existing franchisee is already familiar with the franchise organisation. In this regard, the utility of the discretionary exemption is considerably limited as its applicability is covered by other exemptions; nonetheless, the discretionary exemption can be useful in certain situations every bit discussed later on in Part IV.

  1. Exempt Registration or Disclosure Requirements

Land registration obligations require a franchise exist registered with the state regulatory agency. State disclosure obligations require a franchisor to provide prospective franchisees with franchise disclosure documents. So, f rom what statutory requirements is a franchisor specifically exempted under a discretionary exemption?

The Hawaii Director of Commerce and Consumer Affairs is permitted to discretionarily exempt a franchisor from only its franchise disclosure docu­ment requirements (including the filing, delivering, amending, and renewals thereof), sales recordkeeping requirements, and automated consent to juris­diction in the state and agent for service of process.47 Indiana provides an exemption from registering and delivering disclosure statements.48 Illinois49 and Maryland50 provide an exemption from registration merely, unless the state regulatory agency determines otherwise. Michigan'due south discretionary exemption is possibly the most unique, but very express in its applicability, providing an exemption from filing audited fiscal statements and employing fran­chise agents on exclusive terms.51 Minnesota,52 North Dakota,53 New York,54 South Dakota,55 and Wisconsin56 provide an exemption from registration and disclosure.

The discretionary exemptions available in Rhode Island57 and Virginia58 accept significantly less utility because their respective land regulatory agencies are only permitted to exempt a transaction from their registration crave­ments. A franchisor should consider whether simply registering in these states may be less time-consuming than seeking a discretionary exemption.

The discretionary exemption may not exist useful in discover filing states or states that do not review the contents of the franchise disclosure certificate. Specifically, Indiana, Michigan, South Dakota, and Wisconsin just require a franchise application earlier offering or selling franchises in those states. These states will non review the contents of the franchise disclosure docu­ment. If a franchisor already has a current franchise disclosure document in compliance with federal constabulary, it is typically easier and quicker to file the fran­chise applications in these states and then information technology is to request a discretionary exemp­tion (which requires review from the state regulatory agency). Registration is effective in these states upon receipt of the franchise application.

Of course, even if state police force provides an exemption from registration and disclosure, a franchisor must still comply with the federal franchise law requiring disclosure of a franchise disclosure certificate to prospective fran­chisees, unless a federal exemption applies too. No discretionary exemp­tion exists at the federal level, and then a franchisor would demand to detect some other federal exemption if it wants to avert disclosure requirements. Discretionary exemptions will non exempt a franchisor from other provisions of country law, especially anti-fraud provisions and franchise relationship laws.

B. Discretionary Exemptions by Rule

Many country franchise laws also permit the land regulatory agency to promulgate administrative regulations creating additional exemptions for transactions under the discretionary exemption, provided that registration or disclosure regarding the transaction is not necessary (1) under the state's franchise law; and (two) in the public interest or for the protection of pro­spective franchisees. The franchise laws of the following states let their respective state regulatory agency to create additional exemptions by dominion: California,59 Hawaii,threescore Illinois,61 Indiana,62 Maryland,63 Minnesota,64 New York,65 North Dakota,66 Rhode Island,67 S Dakota,68 Virginia,69 and Wis-consin.70 Of these states, the franchise laws of California and North Dakota announced just to qualify their state regulatory agencies to grant discretion­ary exemptions by rule (and not necessarily by society) based on the plainly reading of each state's franchise police force. Whereas most discretionary exemptions explicitly provide for an exemption past order or rule, the phrase "by guild" is absent from California'south and North Dakota'southward discretionary exemption.71 The absence of "by order," however, does not necessarily preclude a franchi­sor from still requesting the California Section of Business Oversight or Northward Dakota Securities Commissioner laissez passer a new regulation exempt­ing a transaction or upshot an interpretive order.72 Further, the North Dakota Due south ecurities Commissioner is still authorized to consequence orders to administer the state's Franchise Investment Law.73

Several country regulatory agencies take issued boosted exemptions past dominion nether the discretionary exemption. Notably, the Maryland Office of the Attorney General has only one legislative exemption: the discretionary exemption, under which the Attorney General tin can promulgate additional exemptions past rule. The Maryland Chaser General has in fact promulgated similar exemptions every bit available in other states under its discretionary ability (and has too permitted discretionary exemptions by social club).74 The Illinois Attorney General exempts by rule certain franchise trade testify promoters, besides as isolated transactions arising from referral sources and certain large franchisors, from complying with portions of the Illinois Franchise Disclo­sure Act of 1987.75 The New York Department of Law likewise exempted by dominion the offer for auction (just non the sale) of franchises at International Franchise Expos to ensure that franchisors non registered in the state could participate in the expos.76 Farther, New York does not require that the offer or auction of a franchise, where the franchise involves adding a new product or service line to an existing business of a prospective franchisee, be registered in certain cases pursuant to an administrative rule.77 Internet offers of fran­chises and online franchise advertising (but not the bodily sale) are exempt by dominion in several states. The North Dakota Securities Commissioner exempts by rule the offer or sale of a franchise organized as a nonprofit corporation for the apply of its own members.78 The Virginia State Corporation Com-mission79 and the Wisconsin Division of Securities 80 exempt past dominion several transactions, such equally those with institutional or existing franchisees.

Iii. State-Specific Requirements for Requesting an Exemption

The process to request a discretionary exemption, conditions for receiving a discretionary exemption, and the registration or disclosure requirements that may be exempt under the discretionary exemption vary state-by-land. Conscientious compliance with the terms of each discretionary exemption is there­fore critical. Highlighted below are some of the material nuances to the gen­eral rules provided before.

  1. Hawaii

Hawaii'southward discretionary exemption is similar to most states' discretion­ary exemptions, except that it has a unique condition for when the Hawaii Director of Commerce and Consumer Affairs can grant an exemption. The Hawaii Director of Commerce and Consumer Affairs may grant a discre­tionary exemption based on (1) whether the information that would be required to be disclosed in a franchise disclosure document is material to a prospective franchisee "in determining whether the prospective franchisee has a reasonable chance of success;" and (2) if the discretionary exemption is within the public interest.81

To elaborate on the materiality status, the state's franchise constabulary restates its aim to protect the public interest by furnishing prospective franchisees the information necessary to make an investment decision.82

  1. Illinois

Illinois has the most developed—i.due east., the least discretionary—discretionary exemption. Illinois's discretionary exemption has unique qualifiers. Fur­ther, the Illinois Franchise Disclosure Act of 1987 provides significant detail on how a franchisor can request an exemption.

The Act gives the Attorney General the ability to grant a discretionary exemption from registration if it finds that enforcement of the Human action is non necessary: (1) in the public involvement; (two) for the protection of prospective franchisees; (iii) because of the investment involved; or (iv) in a limited offer "because of the express character of the offer."83 Regulation of the offering or auction of a franchise is non within the public interest (and hence, may be discretionarily exempt) if (ane) the franchisor intends to sell only i or two franchises in the country within a twelve month period; (ii) litigation and defalcation disclosures are not materially adverse to the prospective franchisee; (3) the franchisor timely provides the prospective franchisee with a fran­chise disclosure document; and (iv) the franchisor obtains a consent letter84 from the prospective franchisee'due south chaser.85

A franchisor must submit the post-obit to be considered for a discre­tionary exemption: (i) a embrace letter;86 (ii) a franchise disclosure certificate; (3) a list showing all franchise sales in Illinois since the most recent fran­chise disclosure document that is submitted with the exemption application; and (iv) a certification page.87 Based on the requirements of the cover letter (which require, inter alia, disclosure of other registration states and the Fed­eral Merchandise Commission that accept issued or denied exemptions or furnished opinions thereto), it may be advisable for a franchisor to request an Illinois discretionary exemption after the franchisor has been registered in other registration states or has been exempted nether an exemption to further bol­ster why it should be granted an Illinois exemption.

  1. Indiana

Indiana is a land that requires the franchisor to meet the Purpose Con­dition, Public Interest Status, and Protection Status. A franchisor must submit all fabric facts relating to the proposed offer or sale, along with a asking for a ruling on the exemption claimed, and a $50 filing fee.88

Indiana provides an exemption from registering and delivering disclosure statements.89 Considering of the relative ease in registering a franchise offering in Indiana (Indiana does non review the contents of the franchisor's franchise disclosure certificate), if a franchisor has a current franchise disclosure docu­ment information technology uses in other states, it is arguably easier to file a franchise awarding in Indiana than seek out an exemption.90 However, if a franchisor does not take a current franchise disclosure certificate, the discretionary exemption may save time and money in preparing one. Since Indiana lacks published guidelines pertaining to a timeline for when an exemption may be granted, and the standards used to evaluate the request, information technology seems likely that if a fran­chisor receives an exemption nether federal police, or a different land police, information technology has a reasonable chance of beingness granted ane in Indiana.

 D. Maryland

Like Illinois' discretionary exemption, Maryland'southward franchise deed as well details how a franchisor tin specifically request a discretionary exemption by social club. A franchisor must file a asking for an lodge exempting the offer or sale o f a franchise with the Securities Commissioner in the Role of the Attor­ney General.91 The Commissioner will then issue an order exempting or not exempting the proposed offering or sale, together with any findings of fact and conclusions. If an exemption is granted, the franchisor must then timely file the following: (one) a signed and verified Form F-ane Notice of Exemption; (ii) a Consent to Service of Process naming the Securities Commissioner as its amanuensis for service of procedure; (3) a statement like-minded to provide any addi­tional data that the state may reasonably require; and (4) a copy of its current franchise disclosure document.92

  1. Michigan

Michigan'due south discretionary exemption is separated into several exemptions. But, unlike most other states, Michigan's Franchise Investment Constabulary identi­fies very specific sections that a franchisor may exist exempt from in the discre­tion of the state Section of Attorney Full general. The scope of Michigan'due south discretionary exemption is therefore limited.

The Franchise Investment Law requires a franchisor to file audited fiscal statements in its registration application, only the Department of Attorney General may—in its discretion—waive this requirement bailiwick to certain conditions where the fiscal statement is not necessary for the protection of the public, or where the Department of Attorney Full general is satisfied that the franchisor tin financially perform its commitments to fran-chisees.93 Likewise, if a transaction is already exempt from registration under an exemption based on the franchisor'southward cyberspace worth, the franchisee'southward initial investment, or a auction of a franchise to an existing franchisee, the Section of Attorney General may waive the requirement of certified and audited financial statements if disclosure is not necessary in the public interest or for the protection of potential franchisees.94 Finally, the Franchise Investment Law requires that a franchise agent work exclusively for ane franchisor with respect to an offering or sale of a franchise "unless the Department [of Attorney Full general] specifically authorizes past order the multiple employment on terms and conditions every bit are appropriate to the public interest."95

  1. Minnesota

Minnesota has a similar Purpose Condition, Public Interest Condition, and Protection Condition as many of the registration states.96 However, the Minnesota Department of Commerce has provided many hints through p revious orders that show dissimilar factors it considers. In determining the merits of a request for a discretionary exemption, the Commissioner has in the past considered (1) the sophistication of the parties; (ii) the prior expe­rience of the prospective franchisee with the franchise system; (3) whether the officer of the franchisee is an insider of the franchisor; (four) whether the franchisee is the franchisor's "wholly-owned subsidiary;" (five) whether the franchise offer is for the renewal of an existing franchise human relationship on terms substantially the same as those governing the existing human relationship; (6) whether the franchise understanding is simply formalizing previous informal arrangements; and (7) financial considerations involving financial performance representations.97

The Commissioner will render an interpretative opinion granting or denying an exemption request from the registration requirements.98 Note that while the Minnesota Franchise Act does not require disclosure when an offering or sale is not registered per an exemption, the Commissioner may require disclosure in accordance with a different state's laws.99 There are no published guidelines for requesting an exemption in an interpretative opinion, other than that the asking "clearly set up forth the basis upon which nonapplicability of the deed is contended" and the Commissioner receives all pertinent documents.100 Regardless, a franchisor volition likely be most success­ful seeking an exemption if the proposed franchisee submits a supporting argument describing why the franchisee does non demand the traditional protections under the law.101 This statement is probable strengthened if the proposed franchisee has counsel or at to the lowest degree signs an acknowledgement or letter every bit to its experience or composure.102

G. New York

In New York, the discretionary exemption may employ to both registra­tion and disclosure requirements.103 A franchisor may asking a discretionary exemption by writing a letter to the New York Department of Law, describ­ing the facts and ground for the request.104 If the exemption is granted, at that place is no annual renewal requirement. However, the New York Section of Police may utilize its discretion to deny or revoke an exemption "with respect to a specific franchisor or transaction, or withdraw or further status any exemption."105

  1. North Dakota

A franchisor seeking a discretionary exemption in Due north Dakota must make a formal asking by alphabetic character to the Securities Commissioner and include all reasons for the exemption. Some attorneys volition also submit a $150 fee for a "No Action" letter.106 Notwithstanding, like Indiana, considering of the relative ease to register, it may be more efficient to complete the registration process assum­ing the franchisor has a current franchise disclosure document.107

  1. Virginia

Dissimilar the other discretionary exemptions, Virginia police grants the Country Corporation Committee discretion to exempt the offer or sale of a franchise from registration by rule or lodge, simply without satisfying any conditions as to the purpose of the Virginia Retail Franchising Act, public interest, or the protection of prospective franchisees.108 Although the Public Involvement Condi­tion, Purpose Status, and Protection Condition are vague,109 the Virginia Retail Franchising Act leaves the virtually discretion to the state regulatory bureau every bit compared to all other states with a similar exemption. Although the Land Corporation Commission has promulgated additional exemptions by rule,110 it has unsurprisingly not qualified its ain power under the discre­tionary exemption.

  1. Wisconsin

An application for a discretionary exemption under Wisconsin law should contain a letter explaining the basis for the exemption asking every bit well every bit payment of a $200 filing fee.111 The Wisconsin Sectionalisation of Securities may request additional information from a franchisor inside 10 days after a franchisor files an application for a discretionary exemption if necessary to decide whether to grant the exemption. If the Partitioning of Securities requests this additional information, the effective date of the exemption is delayed by ten days.112

Iv. Exemption-Based Franchising

The discretionary exemption is typically used as a fallback if no other exemption applies. In express situations, the discretionary exemption can exist the primary exemption used. In either case, there are no guarantees for a franchisor that a transaction or the franchise arrangement volition exist discretionarily exempted.

Although various exemptions from registration or disclosure require­ments be, it is oftentimes difficult for a franchisor (especially a nationwide fran­chisor) to construction its entire franchise sales program around exemptions.113 Each registration state and the Federal Trade Committee rules accept differ­ent exemptions, and fifty-fifty the same exemption often has different qualifica­tions and processes for compliance. Even worse, some exemptions exempt a franchisor from the registration requirements only of the applicative law and non its disclosure obligations. Although exemption-based franchising tin be a bumpy attempt, the discretionary exemption may be a viable solution on a case-by-case basis every bit discussed below.

A. Process for Requesting Discretionary Exemptions

1. Full general Form and Process

The discretionary exemption by order is non self-executing in any state, requiring a written request by a franchisor for an social club exempting the franchisor's transaction. To be clear, the discretionary exemption cannot be used retroactively to defend confronting a franchisor's failure to register; in all states, a franchisor must actually seek and obtain an order granting the exemption before it offers or sells a franchise.114 Illinois goes a pace further requiring the franchisor to obtain a consent letter from the prospective franchisee after being granted a discretionary exemption but earlier it completes a sale of a franchise.115 And Maryland's Securities Commissioner must beginning review and approve the request for a discretionary exemption, and, if granted, the franchisor must and so file a Grade F-one Notice of Exemption at least ten days prior to a proposed offer or sale of a franchise.116

The state requirements to use for a discretionary exemption vary widely. Most states have not specified any procedures to use for the exemption. In these states, the all-time practice is to submit the necessary information in a letter addressed to the appropriate state regulatory agency. Regardless, any request for an order exempting a transaction must specify what registration or disclosure requirement(s) the franchisor wishes to be exempted from and persuasively explain why the transaction should be exempt based on the state c onditions for granting a discretionary exemption. Further, the request must detail the facts surrounding the proposed offer or sale in light of the conditions. For example, if a franchisor seeks to claim a discretionary exemption based on the sophistication of a prospective franchisee or the prospective franchisee'southward prior feel with the franchise organisation, the request should provide sufficient detail showing the prospective franchisee's history, net worth, and feel. Even more than helpful is obtaining a signed acquittance or letter from the prospective franchisee in which the prospective franchisee agrees that it does not need a registered franchise disclosure document. Depending on the circumstances, the asking should highlight unique reasons why the state regulatory agency should exempt registration or disclosure of the transaction, such as list other states that have exempted registration or disclosure of the transaction under the discretionary exemption or another exemption. Some states require additional data in the request for a discretionary exemption by order, such every bit representations that the franchisor will furnish any other information requested by the land regulatory agency. The burden of proving an exemption is on the person requesting the exemption (unremarkably a franchisor).117

ii. Maintaining Exempt Status

If a franchisor is granted a discretionary exemption from registration or disclosure requirements, the franchisor may still have ongoing duties to keep a franchisee informed of any fabric changes to the franchise relationship. A franchisor may be required to update a state regulatory agency regarding any changes to its franchise relationship; for example, to maintain its exempt condition in Wisconsin, a franchisor must notify the state's Division of Securities of any "material event or material modify" regarding the franchise relationship within 30 days of the occurrence of such event or change.118 State regulatory agencies accept equally broad power to revoke any granted exemption, oftentimes if in the public interest or to protect prospective franchisees.119

Either past law or by the terms of the state regulatory agency'southward order itself, a discretionary exemption will unremarkably exist limited to the transaction that is the subject field of the gild, and may not be relied upon in conducting other transactions unless a new discretionary exemption is obtained.120 It is unclear in most states for how long a granted discretionary exemption is valid. In others, such every bit Illinois and Maryland, a discretionary exemption is valid for one year.121 Typically, if a discretionary exemption is granted, the state regulatory agency will specify in its society the exempt transaction(south).

B. Suitable Franchise Transactions for the Discretionary Exemption

Sure transactions may be more likely to be discretionarily exempted by a state regulatory agency, frequently because the conditions stated in Function II.A.one to a higher place are non present in the applicable transaction. But ultimately, state regulatory agencies take been inconsistent in granting discretionary exemptions by order because of their subjective conditions.122 For instance, the country regulatory agencies in some states, including Indiana, Minnesota, North Dakota, and South Dakota, accept past order exempted Internet offers of franchises and other franchise advertising (simply not the actual auction) under their discretionary say-so.123

The Minnesota Department of Commerce has previously granted discretionary exemptions by order in a variety of situations, including where the franchisee was an experienced business organization person, where an officer of the franchisee was an insider of the franchisor, sure renewals of existing franchises (fifty-fifty on substantially different terms), and to permit the disclosure of financial information to a franchisee when the franchisor's franchise disclosure certificate did not include an Item nineteen financial operation representation.124 In the authors' experience, the New York Section of Law has previously exempted a large franchisor on the basis of its unaudited financial statements based on the franchisor'southward history, franchise organisation size, and net worth that was a hundred times more than than that required for challenge the country's large franchisor exemption based on audited financial statements.

The discretionary exemption should be used where the franchisor is unable to authorize for a specified exemption nether the state's law or the applicable land constabulary does non contain an applicable exemption. If a registration country lacks a typical exemption that many other registration states have, and which a franchisor has relied on in other states, the state regulatory agency in the land under consideration will more than probable—but not certainly—grant a discretionary exemption based on the other exemptions (eastward.1000., to make full in the gap). For instance, Hawaii and Minnesota do non have an exemption from registration or disclosure of offers or sales of franchises by seasoned or experienced franchisors, whereas other registration states take such an exemption for big franchisors.125 Similarly, a franchisor may qualify as a big franchisor in i state, b ut may not exist sufficiently big or experienced to qualify for a similar exemp­tion in a different land. A request for an order exempting the registration or disclosure of the transaction in this case should make reference to the fact that the transaction is exempt from registration or disclosure in the other state(south), and the grounds thereof, and that the transaction is not within the purposes of the subject field country'south franchise law and that registration or disclosure is not necessary in the public interest or for the protection of prospective franchisees, equally evidenced by the other state'south exemptions and the fact that the franchisor is experienced. Some other state's ruling that a like transaction is exempt strongly supports a finding that the transaction at issue should be exempted nether a discretionary exemption in another state because, at least theoretically, the purposes of all franchise laws, the public involvement, and the interests of prospective franchisees are the same in all states. Franchisees, equally a whole, are no more sophisticated in one state than in another country. The discretionary exemption tin therefore be a powerful tool to obtain an exemption from registration or disclosure not otherwise bachelor in a particular land. The use of the discretionary exemption in this manner besides aids franchisors in rolling out a nationwide franchise organization via exemptions from registration or disclosure. Even if a franchisor cannot obtain a discretionary exemption in all the "gap" states, it can at to the lowest degree save some costs and time from having to annals and/or disclose in the exempted state(s).

The discretionary exemption can be useful in a few other situations. For case, a land regulatory agency is probably more than likely to grant a discretionary exemption involving a sale of only one franchise in the state as it is arguable that registration and disclosure is not necessary to protect the public involvement in a single auction. Indeed, Illinois's discretionary exemption could be used to exempt the offering or sale of one or two franchises in the state in the ensuing yr, as such a express offering is statutorily within the public interest.126 If a discretionary exemption is granted based on the size of the franchisor, such as the franchisor's net worth, the state regulatory agency will typically let unlimited sales of franchises in that state by the franchisor for the duration of the exemption, whereas in other circumstances the discretionary exemption is granted for a specific transaction but.127

A franchisor besides has a skillful chance of obtaining a discretionary exemption in those transactions where a franchisee is sophisticated or is an existing franchisee, or where a franchise requires a low franchise fee and startup costs, or where the transaction is otherwise considerately low adventure. But the discretionary exemption can be used even if the franchise fee and startup costs are very high. For example, a discretionary exemption may exist appropriate in sure industries by virtue of the type of franchisee involved and the franchisee'southward initial investment. The hospitality industry and larger restaurant bondage typically support only an experienced franchisee with a potent net worth and abundant liquidity. The startup costs and risks are loftier in these franchises, so the franchisee is unremarkably sophisticated and has sufficient bargaining power; the franchisee therefore does not need the protection of state franchise laws.128

A franchisor may be more inclined to seek a discretionary exemption in states with specific processes for requesting an order, such every bit in Illinois and Maryland. But the absence of specific details on how to request a discretionary exemption by guild in a detail state should not, by itself, deter a franchisor from requesting an order. As noted earlier, in most states, the form for a asking for discretionary exemption past order can exist as simple as a letter. If counsel is presented with a transaction that, in his or her judgment, has a reasonable gamble of existence beyond the purview of a land's franchise constabulary or that is similar to i of the earlier example transactions, counsel should consider the discretionary exemption option. Frequently times, in a quick phone call, the advisable land regulatory agency may provide informal guidance on whether it may issue an exemption. Counsel can and then consider the likelihood of obtaining a discretionary exemption in comparing to the fourth dimension and expenses it may take to set up a disclosure certificate and register and make an informed determination on how to go along. If a state regulatory agency denies a request for a discretionary exemption by guild, a franchisor could then consider registration and disclosure in the particular country. If time is of the essence, counsel tin can employ a two pronged approach, by showtime the registration and disclosure process while continuing to pursue the discretionary exemption by lodge.

V. Conclusion

Thirteen of the registration states provide for an exemption from reg­istration, disclosure, or both past administrative lodge or rule, and so long as the proposed offer for sale or auction of the franchise is not inside the purposes of the state's franchise law and the registration or disclosure (as applicable) of the transaction is not necessary in the public interest or needed for the protection of prospective franchisees. However, obtaining this exemption can be tricky and unpredictable based upon the unlike state requirements related to the grant of a discretionary exemption and the lack of guidance in other states. Notwithstanding, for franchisors who are unable to qualify for another identified exemption under applicable law, a discretionary exemption may be the just viable alternative.

  1. California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, Due south Dakota, Washington, Virginia, and Wisconsin are referred to as franchise registration states. Of course, the customer would also need to comply with the federal franchise disclosure constabulary, 16 C.F.R. pt. 436.
  2. As used in this commodity, "state regulatory agency" ways the country agency overseeing fran­chise registration and disclosure (oft the state's Attorney General or Department of Com­merce or Securities).
  3. Note that many land franchise laws also permit the country regulatory agency to deny or revoke whatsoever statutory exemption, such as the sophisticated investor or large franchisor exemp­tion, if in the public interest, and certain hearing processes are followed. E.g., IND. CODE § 23-2­ii.v-6 (2018); WIS. STAT. § 553.24(2) (2018). This article focuses on the discretionary exemption from registration or disclosure requirements only. Business opportunity laws are besides beyond the scope of this article.
  4. See ABA FORUM ON FRANCHISING, EXEMPTIONS AND EXCLUSIONS Under FEDERAL AND STATE FRANCHISE REGISTRATION AND DISCLOSURE LAWS 128 (Leslie D. Curran & Beata Krakus eds., 2017) [hereinafter, EXEMPTIONS AND EXCLUSIONS].
  5. CAL. CORP. Code § 31100.
  6. HAW. REV. STAT. § 482E-4(b); come across too infra Role III.A.
  7. 815 Ill. COMP. STAT. 705/nine; ILL. ADMIN. Lawmaking. tit. 14, § 200.201; encounter too infra Office III.B.
  8. IND. CODE §§ 23-2-2.v-5, 23-two-2.five-eight; see also infra Part 3.C.
  9. Dr.. Coach. REG. Lawmaking § 14-214(b)(three); MD. COMAR 02.02.08.10(K); encounter as well infra Office 3.D.
  10. Run into infra Office III.East.
  11. MINN. STAT. § 80C.03(g); come across as well infra Part Iii.F.
  12. Northward.Y. GEN. BUS. LAW § 684(1)-(2); meet also infra Function Iii.M.
  13. N.D. CENT. Lawmaking § 51-19-04(3); see also infra Part Three.H.
  14. R.I. GEN. LAWS § 19-28.1-6(10); see also infra Part III.I.
  15. Due south.D. Codified LAWS § 37-5B-fifteen.
  16. VA. Lawmaking § 13.1-560; see also infra Function III.I.
  17. WIS. STAT. § 553.25; see also infra Role 3.J.
  18. EXEMPTIONS AND EXCLUSIONS, supra annotation four, 1–twenty, 235.
  19. IND. CODE § 23-2-2.v-47; Quist v. Best Western Int'l., Inc., 354 North.West.2nd 656, 660 (N.D. 1984) ("The assistants of the [land franchise law] is an expanse where in that location is an obvious need for agency expertise. The statutory scheme provided in the [country franchise law] is common to such situations where the Legislature cannot exist expected to provide for regulation of the public involvement on a case-by-case basis.").
  20. Various attempts accept been made to create a uniform discretionary exemption. The Model Franchise Investment Act, Omnibus. Franchise Guide (CCH) ¶ 3700 § 6(thou) (Aug. 30, 1990), includes a prehistoric discretionary exemption similar to Minnesota's version. Over time, the North American Securities Administrators Association (NASAA) has modernized the discre­tionary exemption with details on the procedure to request an gild. NASAA issued updated, pro­posed model franchise exemptions on June thirty, 2011 for states to prefer to create uniformity across states requiring registration and disclosures for franchises. NASAA, NASAA PROPOSED MODEL EXEMPTIONS 9 (June 30, 2011). NASAA invited comments on the proposed model fran­chise exemptions, before issuing its terminal model franchise exemptions on September 9, 2012. The final model discretionary exemption is similar to virtually states' exemptions with some vari­ations (in detail, the model discretionary exemption includes information on applying for a discretionary exemption that is absent in near state franchise laws). NASAA, NASAA MODEL FRANCHISE EXEMPTIONS 9–10 (Sept. ix, 2012).
  21. HAW. REV. STAT. § 482E-4(b).
  22. 815 ILL. COMP. STAT. 705/9.
  23. IND. Lawmaking § 23-2-2.5-5.
  24. MD. BuS. REG. CODE § 14-214(b)(three); MD. COMAR 02.02.08.ten(Yard).
  25. MICH. COMP. LAWS §§ 445.1501-.1546.
  26. MINN. STAT. § 80C.03(thousand).
  27. Due north.Y. GEN. Passenger vehicle. Police § 684(2); EXEMPTIONS AND EXCLuSIONS, supra note iv, at 158–59. Note that while New York law states that a discretionary exemption past "rule or regulation" is available, the authors and New York practitioners have requested discretionary exemptions by order. EXEMPTIONS AND EXCLuSIONS, supra note 4, at 158–59.
  28. North.D. CENT. Code § 51-19-04(iii); EXEMPTIONS AND EXCLuSIONS, supra annotation 4, at 173– 74. Notation that while N Dakota law states that a discretionary exemption past dominion is avail­able, North Dakota practitioners announced to accept requested discretionary exemptions by lodge. EXEMPTIONS AND EXCLuSIONS, supra note iv, at 173–74.
  29. R.I. GEN. LAWS § 19-28.1-half dozen(10).
  30. Due south.D. Codified LAWS § 37-5B-15.
  31. VA. CODE § thirteen.1-560.
  32. WIS. STAT. § 553.25.
  33. Due east.g. , 815 ILL. COMP. STAT. 705/iii(6); MINN. STAT. § 80C.01, subdiv. eleven; MICH. COMP. LAWS 445.1503(4).
  34. E.k. , CAL. COrP. CODE § 31100; IND. Lawmaking § 23-ii-2.5-5; MD. Autobus. REG. Lawmaking § 14-214(b)(three) (for discretionary exemptions by rule); Doctor. COMAR 02.02.08.x(G) (for dis­cretionary exemptions by order); MINN. STAT. § 80C.03(g); Due north.D. CENT. Code § 51-xix-04(3).
  35. Run across infra Part Three.
  36. 815 ILL. COMP. STAT. 705/9; Northward.Y. GEN. BuS. LAW § 684(1); R.I. GEN. LAWS § 19-28.ane­6(ten); Southward.D. Codification LAWS § 37-5B-15; WIS. STAT. § 553.25.
  37. See generally , CAL. COrp. Lawmaking § 31001; HAW. REV. STAT. § 482E-1; Md. Omnibus. REG. Code § 14-202; N.Y. GEN. Jitney. Law § 680(one); R.I. GEN. LAWS § 19-28.1-ii; In the Thing of Crd Enter. Inc. d/b/a Jan-Pro Cleaning Sys. of So. New England, D.B.R. No. 10-S-0112 (R.I. Dep't of Autobus. Reg. June 7, 2011).
  38. Run into R.I. GEN. LAWS § 19-28.1-two.
  39. Continental Basketball game Ass'northward v. Ellenstein Enters., Inc., 640 N.Due east.2d 705 (Ind. Ct. App. 1994), aff'd, 669 N.E.2d 134 (1996).
  40. Id. at 710–11.
  41. People v. Carter, 454 Due north.Eastward.2d 189, 190-91 (Ill. 1982) (citing Int'l Ry. Co. v. Pub. Serv. Comm'northward, 264 A.D. 506 (N.Y. App. Div. 1942)); see also Am. Power & Light Co. 5. Sec. & Exch. Comm'north, 329 U.Southward. 90, 104 (1946) (holding same).
  42. Carter , 454 Northward.E.second at 190–91.
  43. Id. at 191.
  44. For example, in the authors' experience, a large franchisor was able to rely on its unau­dited financial statements given the history of the franchisor, size of the franchise system, and the franchisor's (unaudited) net worth, without having audited financial statements that would have otherwise met New York's large franchisor exemption. Meet infra Part Iv.B. In another instance, the authors were able to merits discretionary exemptions in a number of states to permit a newly-formed and well-capitalized franchisor entity of a franchise arrangement with thousands of locations to rely on its predecessor'due south experience because the franchisor and the predecessor had the same buying and management, despite the fact that big franchisor exemptions typically require the "franchisor" come across the feel requirement.
  45. MD. COMAR. 02.02.08.10(C). The Maryland Office of the Chaser General has by rule stated that registration and disclosure is non necessary for the protection of potential franchisees in these types of transactions involving small franchise fees or made to seasoned franchisees, sophisticated franchisees, or institutional franchisees. Compare MD. Autobus. REG. Lawmaking § 14-214(b)(3) (authorizing the country regulatory agency to issue new exemptions by dominion if they are in the public interest and non necessary to protect prospective franchisees), with MD. COMAR 02.02.08.10(B-Grand) (promulgating the typical exemptions available in nearly other states).
  46. 815. Ill. COMP. STAT. 705/ix.
  47. HAW. REV. STAT. § 482E-4(b); EXEMPTIONS AND EXCLUSIONS, supra annotation 4, at 58–59.
  48. IND. Lawmaking § 23-2-2.5-five; EXEMPTIONS AND EXCLUSIONS, supra note iv, at 89–90.
  49. Sick. ADMIN. CODE tit. 14, § 200.201.
  50. MD. Charabanc. REG. Lawmaking § 14-214(b); Medico. COMAR 02.02.08.ten.
  51. Encounter infra Part III.E.
  52. MINN. STAT. § 80C.03(g); EXEMPTIONS AND EXCLUSIONS, supra note 4, at 115.
  53. Due north.D. CENT. CODE §§ 51-19-08(3), 51-19-04(3); EXEMPTIONS AND EXCLUSIONS, supra annotation 4, at 173–74.
  54. Due north.Y. GEN. BUS. Law § 684(i); EXEMPTIONS AND EXCLUSIONS, supra note 4, at 158–59.
  55. S.D. Codification LAWS § 37-5B-15; EXEMPTIONS AND EXCLUSIONS, supra note 4, at 203–04. South Dakota police force also provides an exemption from having to notify prospective franchisees when alteration franchise agreements or disclosure documents, and having to include all infor­mation required nether state law in disclosure documents every bit prepared for prospective franchi­sees. Id.
  56. WIS. STAT. § 553.25; EXEMPTIONS AND EXCLUSIONS, supra note iv, at 249–50.
  57. R.I. GEN. LAWS §§ 19-28.i-vi and 19-28.1-8; EXEMPTIONS AND EXCLUSIONS, supra note 4, at 189–xc.
  58. VA. Code § 13.1-560; EXEMPTIONS AND EXCLUSIONS, supra notation 4, at 217–xviii
  59. CAL. COrP. Lawmaking § 31100.
  60. HAW. REV. STAT. § 482E-4(b).
  61. 815 ILL. COMP. STAT. 705/9.
  62. IND. Code § 23-2-two.5-v.
  63. MD. Bus. REG. CODE § 14-214(b)(iii).
  64. MINN. STAT. § 80C.03(g).
  65. North.Y. GEN. Motorcoach. LAW § 684(1).
  66. N.D. CENT. Lawmaking § 51-xix-04(3).
  67. R.I. GEN. LAWs § 19-28.1-6(10).
  68. S.D. CODIFIED LAWs § 37-5B-15.
  69. VA. CODE § thirteen.1-560.
  70. WIs. STAT. § 553.25.
  71. CAL. COrP. Code § 31100 ("There shall be exempted . . . any other transaction which the commissioner by rule exempts . . . ."); Northward.D. CENT. CODE § 51-19-04(3) ("In that location must be exempted from the provisions of section 51-19-03 [registration] whatsoever other transaction which the commissioner past rule exempts . . . .").
  72. Run across, due east.chiliad. , Quist v. Best Western Int'l, Inc., 354 N.W.2d 656 (N.D. 1984) (refusing to issue an interpretative opinion pursuant to its discretionary exemption by rule power to exempt a transaction).
  73. Syver Vinje, N.D. Sec. Comm'r, Nov. 29, 2000, Bus. Franchise Guide (CCH) ¶ 5340.02.
  74. See supra notation 45.
  75. Sick. ADMIN. CODE tit. 14, § 200.202.
  76. E.g. , Barbara D. Underwood, Role of Att'y Gen., Country of N.Y. Dep't of Law, Pursuant to § GBL 684(1), Exemption Request for an Unregistered Franchisor to Exhibit and Offer for Auction, But Non to Sell, Franchises at the International Franchise Expo in New York (May 2019).
  77. N.Y. COMP. CODES R. & REGS. tit. 13, § 200.10(2).
  78. N.D. ADMIN. CODE 73-03-01-01.
  79. 21 VA. ADMIN. Lawmaking § v-110-75.
  80. WIS. ADMIN. Lawmaking D.F.I. § 32.05.
  81. HAw. REV. STAT. § 482E-4(b).
  82. Id. § 482E-1(b).
  83. 815 ILL. COMP. STAT. 705/9.
  84. The franchisor must obtain a alphabetic character from the prospective franchisee's attorney, after issu­ance of the discretionary exemption merely inside the fourteen-day time periods described in 815 Ill. COMP. STAT. 705/five(2), stating that the chaser has explained the Franchise Disclosure Act of 1987 to the prospective franchisee client and that the client has not objected to the issuance of the discretionary exemption. The franchisor must forward this consent letter to the Illinois Attorney General. Note that during the lay menses (afterwards the discretionary exemption is granted only before the franchisor obtains the consent alphabetic character), the franchisor may only solicit prospective franchisees just may not sign any contract or require whatever prospective franchisee or subfranchisor to pay consideration. Ill. ADMIN. Lawmaking tit. fourteen, § 200.201.
  85. Ill. ADMIN. Code tit. 14, § 200.201; EXEMPTIONS AND EXCLUSIONS, supra note four, at 74.
  86. The embrace letter must (1) describe the basis for the exemption by reference to ILL. ADMIN. Code tit. 14, § 200.201(a) and 815 Sick. COMP. STAT. 705/9 (encounter supra text accompanying notes 83); (2) list any other franchise regulatory states and the Federal Trade Commission that have issued or denied exemptions or opinions, together with copies of the exemptions or opinions; and (three) state the number of franchises the franchisor intends to sell in Illinois in the next twelve months. Ill. ADMIN. Code tit. fourteen, § 200.201(a)(1).
  87. A course certification page is available at Sick. ADMIN. Code tit. 14, § 200 App. A, Illus. G.
  88. IND. Lawmaking § 23-ii-2.5-8. The Commissioner may deny an exemption from registration and disclosure requirements if there has been failure to comply with the provisions of this chap­ter, or the offer or auction would establish misrepresentation, deceit or fraud on, the franchisee. Id. § 23-2-2.5-six.
  89. Id. § 23-2-2.5-5; EXEMPTIONS AND EXCLUSIONS, supra notation 4, at 89–90.
  90. EXEMPTIONS AND EXCLUSIONS, supra note four, at ninety.
  91. MD. COMAR. 02.02.08.10(G)(two). This request for an order must include a clarification of the proposed transaction, a clarification of the reasons why an guild of exemption is appropriate under the state'south conditions, and a statement confirming that the requesting franchisor will fur­nish whatever boosted information that the Commissioner may asking. Id.
  92. Id. § 02.02.08.10(Chiliad)(5).
  93. Mich. Admin. Code  r. 445.503.
  94. Id. r. 445.504.
  95. Id. r. 445.601.
  96. Minn. Stat. § 80C.03(g).
  97. EXEMPTIONS AND EXCLUSIONS, supra note 4, at 128.
  98. MINN. STAT. § 80C.xviii subdiv. 2; MINN. R. 2860.0300. Exemptions only utilise to the transaction that is subject to the order. Meet too EXEMPTIONS AND EXCLUSIONS, supra note 4, at 128.
  99. EXEMPTIONS AND EXCLUSIONS, supra note 4, at 128.
  100. MINN. R. 2860.0300.
  101. EXEMPTIONS AND EXCLUSIONS, supra note 4, at 129.
  102. Id. at 129.
  103. Id. at 158.
  104. Id. at 159.
  105. Due north.Y. GEN. BUS. LAW § 684(four).
  106. EXEMPTIONS AND EXCLUSIONS, supra note 4, at 174–75.
  107. Id. at 174.
  108. Compare VA. Lawmaking § 13.i-560, with, e.g., S.D. CODIFIED LAWs § 37-5B-fifteen; R.I. Gen. Laws § 19-28.1-half dozen(ten); Doctor. Bus. REG. CODE § fourteen-214(b)(three).
  109. These qualifiers may exist practically vague, resulting in inconsistent application of the discretionary exemption on a case-by-case ground, just are non unconstitutionally vague. East.g., Car­ter, supra note 41, 454 Due north.E.2d at 190 (the delegation of authorisation to land regulatory agencies to grant exemptions in the "public interest" is constitutional as "public interest" provides sufficient intelligible standards for a proper legislative delegation provided that this benchmark is construed within the purposes of the state franchise constabulary).
  110. 21 VA. ADMIN. Code § 5-110-75.
  111. Wis. ADMIN. Code DFI § 35.01(1)(a).
  112. Wis. STAT. § 553.24(vi).
  113. E.m. , Karen B. Satterlee & Leslie D. Curran, Exemption-Based Franchising: Are You lot Playing in a Minefield?, 28 FRANCHISE L.J. 191, 191–92 (2009) (discussing the advantages and disad­vantages of exemption-based franchising).
  114. Come across, e.1000. , In re Crd Enter. Inc. d/b/a Jan-Pro Cleaning Sys. of So. New England, D.B.R. No. ten-South-0112 (R.I. Dep't of Bus. Reg. June 7, 2011).
  115. Run across supra note 84 and accompanying text.
  116. Doc. COMAR 02.02.08.ten(G)(v)(a).
  117. E.g. , CAL. CORP. CODE § 31153; Northward.D. CENT. Lawmaking § 51-19-xvi(4); R.I. GEN. LAWS § 19-28.i-24.
  118. WIS. ADMIN. Code D.F.I. § 32.03.
  119. See supra note iii.
  120. E.g. , MINN. R. 2860.0300.
  121. EXEMPTIONS AND EXCLUSIONS, supra notation 4, at 75, 110.
  122. E.g. , Letter from David Byers, Director, Corporate Counsel, Starbucks Corp., to Dale Cantone, Chair, Part of the Chaser General, Division of Securities (July 29, 2011) (in com­menting to NASAA's proposed uniform discretionary exemption, supra note 20, "In [Starbucks'] experience, different franchise examiners applying this [public involvement or protection of prospec­tive franchisees] standard have come to polar opposite conclusions, even when the underlying facts are essentially identical.").
  123. Bradley W. Skolnik, Sec. Comm'r, Ind. Sec. Comm'r, December. 24, 1997, Bus. Franchise Guide (CCH) ¶ 5140.011; James C. Bernstein, Comm'r of Commerce, Minn. Dep't of State, December. four, 2002, Double-decker. Franchise Guide (CCH) ¶ 5230.81; Debra Yard. Bollinger, Due south.D. Div. of Sec., Oct. 16, 2000, Motorbus. Franchise Guide (CCH) ¶ 5410.20; Syver Vinje, N.D. Sec. Comm'r, Nov. 29, 2000, Omnibus. Franchise Guide (CCH) ¶ 5340.02. Other registration states too exempt Inter­net offers for auction and online franchise advertising under the discretionary exemption by dominion (the consequence is the same).
  124. EXEMPTIONS AND EXCLUSIONS, supra annotation 4, at 127–29.
  125. Compare, e.g. , HAw. REV. STAT. § 482E-4 and MINN. STAT. § 80C.03, with e.g. , CAL. CORP. CODE § 31109, Dr.. COMAR 02.02.08.10(D), and N.D. CENT. Lawmaking § 51-19-04(1).
  126. See supra Part III.B.
  127. Due east.grand. , MD. Coach. REG. CODE § 14-214(b)(three); Doc. COMAR 02.02.08.10(G).
  128. Run across Cont'l Basketball Ass'n v. Ellenstein Enter., Inc., 669 N.E.2d 134, 141 (Ind. 1996) ("While the integrity of offers and sales of franchises in Indiana is certainly an of import public policy, we run into little likelihood that refusal to enforce a professional sports franchise agreement between highly sophisticated parties will further that policy. In brusk, a sports franchise agreement among highly sophisticated parties is so far from the typical franchise transaction which the [Indi­ana] Franchise Acts were designed to regulate that nosotros can adhere to our strong presumption in favor of the enforceability of contracts without undermining the purposes of the Acts.").

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