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15 Franchise L.J. 1 (1995-1996)

handle is hein.journals/fchlj15 and id is 1 raw text is: ERANCHISE LAW JouRNAL AMERICAN BAR ASSOCIATION QUARTERLY JOURNAL OF THE FORUM ON FRANCHISING VOLUME 15, NUMBER I • SUMMER 1995 Charting Courses in the Debate Over Mandatory Earnings Claims By ROCHELLE B. SPANDORF Editor-in-Chief's note: For years, franchisors have debated the pros and cons of including in their Offering Circulars information designed to inform prospective franchisees about actual or potential sales, costs, income, or profit. This debate was possible because the inclusion of earnings claim information has been permitted but not required under the FTC Rule and Item 19 of NASAA's Uniform Franchise Offering Circular Guidelines. Now the focus of the debate has shifted. Both NASAA and the FTC currently are considering whether to mandate the disclosure of earnings claim information. In a series of arti- cles appearing in this issue, three noted franchise practition- ers examine the policy considerations relevant to such a mandate. he objective of existing franchise disclosure regula- tion is to provide investors with sufficient meaningful infor- mation to evaluate franchise opportunities. Therefore, it is a strange and troubling anomaly' that earnings claim' disclosures are not mandated. Neither the FTC nor the North American Securities Administrators Associ- ation (NASAA) has hesitated to ROCHELLE B. SPANDORF lay down a disclosure mandate with respect to information demonstrably less important to investment decisions, such as association with a public fig- ure. These bodies now are confronting this inconsistency. There should be no debate over the materiality of earnings claims to prospective franchisees. Investment decisions are Ms. Spandorf begins a two-year term as Chair of the ABA Forum on Franchising in August 1995. She is a shareholder of Shapiro, Rosen- feld & Close in Los Angeles, Calitbrnia, and past chair of the Califor- nia State Bar Franchise Committee. inherently forward looking,3 and this is no less true of fran- chise investments than it is of other economic activities. All investors want information relevant to evaluating the expect- ed return on the investment against anticipated costs and risks. To argue that earnings claim information is useless4 is to ignore common sense. The debate over mandatory earnings claim disclosure should center on the scope and kind of disclosure a mandato- ry system should require. It should focus on balancing the (continued on page 34) In This Issue Charting Courses in the Debate Over M andatory Earnings Claims .................... 1 Earnings Claim Disclosure: The Case For ..........3 Earnings Claim Disclosure: The Case Against ......... 3 Addressing the Threat of Punitive Damages Claims in Franchise and Dealer Litigation ................. 10 mmm C hair's C olum n ................................. 2 Editor-in-Chief's Column ......................... 2 Franchising Currents ....................... .... 20 (Including: Choosing Court Waives Right to Arbitrate in Seventh Circuit; Choice of Law and Forum Cases Yield Different Results; Claims Upheld Despite Con- tract Merger Provisions; Pennsylvania Departs from Majority on Covenant of Good Faith; Recoupment Claims Produce Different Results; Bad Faith Conduct Is Incurable Ground for Termination; Florida Court Finds Presumption of No Vicarious Liability: Court Discusses Standards for Preliminary Injunctions; Bankruptcy and Related Cases; Oregon Court Denies Jury Trial Under Oregon Franchise Act; Dealers Denied Remedies Under PMPA; FTC Enforcement Action Eighteenth Annual Forum Program ................. 26 Comprehensive Guide to Journal ............... 28 Operations Manual: Financial Statement Requirements for State Franchise Registrations .............. 32 r N

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