The North American Securities Administrators Association's Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments

• Published in: Franchise law journal 2023-09, Vol.42 (4), p.351-373
• Main Authors: Fichter, Caroline B, Sciremammano, Frank J
• Format: Article
• Language: English
• Subjects: Acknowledgments (Law); Agreements; Disclosure (Securities law); Franchisees; Franchises; Franchising; Fraud; Law; Laws, regulations and rules; Misrepresentation; Policy making; Questionnaires; Securities fraud
• ISSN: 8756-7962; 2163-2154

At least two courts have granted motions to dismiss under Federal Rule of Civil Procedure 12(b)(6) to dismiss franchisees' fraud claims based on the pleadings and the contractual acknowledgments at issue.16 One court specifically concluded when ruling on a motion to dismiss that, as a matter of law, "it is simply unreasonable to continue to rely on representations after stating in writing that you are not so relying. "17 Other courts, however, have allowed fraud claims to survive the summary judgment and the motion to dismiss stage even when faced with questionnaires and acknowledgments, ruling instead that the questionnaires and acknowledgments may be considered by the trier of fact on questions of fact about whether the fraud occurred or the reliance was reasonable.18 In Long John Silvers, Inc. v. Nickleson, a federal court in Kentucky denied a franchisor's motion to dismiss a franchisee's fraud claims based on acknowledgments within the franchise agreement.19 But the court cautioned that the acknowledgments "should suppress a franchisee's reliance on the purported misstatements" and "will no doubt influence a jury's determination of whether [the franchisee's] reliance on the alleged untrue statements was reasonable. "20 Similarly, in A Love of Food I, LLC v. Maoz Vegetarian USA, Inc., the district court denied the franchisor's motion for summary judgment on the franchisee's franchise act claims based on disclaimers and the franchisee's affirmation that "no employee or person speaking on [Defendant's] behalf made" any financial performance representation but "questioned] whether reliance of any such earnings statement by [the franchisor] in the face of unambiguous disclaimers and its own certification of non-reliance could be considered reasonable." "51 Although the authors of this paper disagree as to the legal effect of NASAA policies and whether it is proper to look to NASAA's policies for legal guidance, at least one state-Washington-has specifically directed its franchise regulators to "be guided" by the policies of NASAA when adopting guidelines for registration and disclosure of franchises.52 B. Proposed SOP In December 2021, NASAA and the Franchise and Business Opportunity Project Group invited public comment on a Proposed Statement of Policy Regarding the Use of Franchise Questionnaires and Acknowledgments (Proposed SOP). " i. Stated Justifications for the Proposed SOP The Proposed SOP had the self-professed goal of seeking "to address the probl