Bundy Law Firm PLLC
NEW STATEMENT OF POLICY – TIME FOR COMMENT
The North American Securities Administrators Association (NASAA) recently released for comment a proposed Statement of Policy on questionnaires and other disclaimers in franchise documents. The deadline for comments is January 5, 2022. You should send comments to: NASAAComments@nasaa.org, with copies to both Andrea.Seidt@com.state.oh.us and to firstname.lastname@example.org. You can view the entire proposed statement of policy here: Request-for-Public-Comment-SOP-on-Franchise-Questionnaires-12-6-2021.pdf (nasaa.org).
The proposed Statement of Policy contains four key components: First, it requires that any questionnaire or “acknowledgements” be attached to the FDD, under Item 22; Second, if a questionnaire or acknowledgement is not written (for example if it is on audio or video recording), a written script must be attached to the FDD, under Item 22; Third, eleven specific types of questions or acknowledgments are prohibited; and Fourth, franchisors must include in every FDD and franchise agreement or state specific addendum an admonition as follows:
No statement, questionnaire, or acknowledgment signed or agreed to by a franchisee in connection with the commencement of the franchise relationship shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement, or (ii) disclaiming reliance on any statement made by any franchisor, franchise seller, or other person acting on behalf of the franchisor. This provision supersedes any other term of any document executed in connection with the franchise.
NASAA carefully explained the basis for its proposed Statement of Policy. Although the explanation covers almost six pages, it boils down to the simple proposition that such “questionnaires” and “acknowledgements” have been widely mis-used as waivers of the rights of franchisees under applicable disclosure laws and related anti-fraud laws. Too many franchisors have written them and used them to make it difficult or impossible for defrauded franchisees to obtain any remedy, treating them as a “get out of jail free card”. State laws prohibiting waivers of franchisees’ disclosure rights and anti-fraud rights have been on the books of most of the franchise registration states for nearly 50 years, so this is not a change in any law by NASAA or the states and it is not a new law. It is simply NASAA and the registration states giving notice that they regard certain efforts at obtaining disclaimers as violating those existing laws and that the states will no longer tolerate the violations. It also signals to judges and arbitrators that the state officials charged with interpreting and enforcing the state franchise laws regard such “questionnaires” and “acknowledgements” as violations.
NASAA discussed and discarded the notion that such “questionnaires” and “acknowledgements” should be allowed as an aid to franchisors in policing their salespeople. The argument is that truthful answers to such questions help good franchisors root out unscrupulous salespeople who make untrue representations to franchisees to get a sale. NASAA responded that such an argument amounted to shifting responsibility for controlling the actions of employees and agents to franchisees instead of franchisors being responsible for policing their own people as they should. They determined, as a matter of public policy that they needed to clarify that, in their view, such vehicles violate existing state laws.
Because this is one of the most important issues in franchising in the last 50 years, Bundy Law Firm urges everyone involved in franchising become informed and to submit comments to NASAA. NASAA truly wants to hear and understand your views and opinions. Don’t forget that the deadline is January 5, 2022.