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

handle is hein.journals/fchlj15 and id is 1 raw text is: ERANCHISE



Charting Courses in the Debate
Over Mandatory Earnings Claims

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
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
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
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

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