1812.200. (a) The Legislature finds and declares that the
widespread sale of seller assisted marketing plans, often connected
with the sale of vending machines, racks or work-at-home
paraphernalia, has created numerous problems in California for
purchasers which are inimical to good business practice. Often
purchasers of seller assisted marketing plans are individuals
inexperienced in business matters who use their life savings to
purchase the seller assisted marketing plan in the hope that they
will earn enough money in addition to retirement income or salary to
become or remain self-sufficient. Many purchasers are the elderly who
are seeking a way to supplement their fixed incomes. The initial
payment is usually in the form of a purchase of overpriced equipment
or products. California purchasers have suffered substantial losses
when they have failed to receive full and complete information
regarding the seller assisted marketing plan, the amount of money
they can reasonably expect to earn, and the previous experience of
the seller assisted marketing plan seller. Seller assisted marketing
plan sellers have a significant impact upon the economy and
well-being of this state and its local communities. The provisions of
this title relating to seller assisted marketing plans are necessary
for the public welfare.
(b) It is the intent of this title to provide each prospective
seller assisted marketing plan purchaser with the information
necessary to make an intelligent decision regarding seller assisted
marketing plans being offered; to safeguard the public against deceit
and financial hardship; to insure, foster and encourage competition
and fair dealing in the sale of seller assisted marketing plans by
requiring adequate disclosure; to prohibit representations that tend
to mislead; and to prohibit or restrict unfair contract terms. This
title shall be construed liberally in order to achieve the foregoing
purposes.
1812.201. For the purposes of this title, the following definitions
shall apply:
(a) "Seller assisted marketing plan" means any sale or lease or
offer to sell or lease any product, equipment, supplies, or services
that requires a total initial payment exceeding five hundred dollars
($500), but requires an initial cash payment of less than fifty
thousand dollars ($50,000), that will aid a purchaser or will be used
by or on behalf of the purchaser in connection with or incidental to
beginning, maintaining, or operating a business when the seller
assisted marketing plan seller has advertised or in any other manner
solicited the purchase or lease of the seller assisted marketing plan
and done any of the following acts:
(1) Represented that the purchaser will earn, is likely to earn,
or can earn an amount in excess of the initial payment paid by the
purchaser for participation in the seller assisted marketing plan.
(2) Represented that there is a market for the product, equipment,
supplies, or services, or any product marketed by the user of the
product, equipment, supplies, or services sold or leased or offered
for sale or lease to the purchaser by the seller, or anything, be it
tangible or intangible, made, produced, fabricated, grown, bred,
modified, or developed by the purchaser using, in whole or in part,
the product, supplies, equipment, or services that were sold or
leased or offered for sale or lease to the purchaser by the seller
assisted marketing plan seller.
(3) Represented that the seller will buy back or is likely to buy
back any product made, produced, fabricated, grown, or bred by the
purchaser using, in whole or in part, the product, supplies,
equipment, or services that were initially sold or leased or offered
for sale or lease to the purchaser by the seller assisted marketing
plan seller.
(b) A "seller assisted marketing plan" shall not include:
(1) A security, as defined in the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4 of the
Corporations Code), that has been qualified for sale by the
Department of Corporations, or is exempt under Chapter 1 (commencing
with Section 25100) of Part 2 of Division 1 of Title 4 of the
Corporations Code from the necessity to qualify.
(2) A franchise defined by the Franchise Investment Law (Division
5 (commencing with Section 31000) of Title 4 of the Corporations
Code) that is registered with the Department of Corporations or is
exempt under Chapter 1 (commencing with Section 31100) of Part 2 of
Division 5 of Title 4 of the Corporations Code from the necessity of
registering.
(3) Any transaction in which either the seller or purchaser or the
lessor or lessee is licensed pursuant to and the transaction is
governed by the Real Estate Law, Division 4 (commencing with Section
10000) of the Business and Professions Code.
(4) A license granted by a general merchandise retailer that
allows the licensee to sell goods, equipment, supplies, products, or
services to the general public under the retailer's trademark, trade
name, or service mark if all of the following criteria are satisfied:
(A) The general merchandise retailer has been doing business in
this state continually for five years prior to the granting of the
license.
(B) The general merchandise retailer sells diverse kinds of goods,
equipment, supplies, products, or services.
(C) The general merchandise retailer also sells the same goods,
equipment, supplies, products, or services directly to the general
public.
(D) During the previous 12 months the general merchandise retailer'
s direct sales of the same goods, equipment, supplies, products, or
services to the public account for at least 50 percent of its yearly
sales of these goods, equipment, supplies, products, or services made
under the retailer's trademark, trade name, or service mark.
(5) A newspaper distribution system distributing newspapers as
defined in Section 6362 of the Revenue and Taxation Code.
(6) A sale or lease to an existing or beginning business
enterprise that also sells or leases equipment, products, supplies,
or performs services that are not supplied by the seller and that the
purchaser does not utilize with the equipment, products, supplies,
or services of the seller, if the equipment, products, supplies, or
services not supplied by the seller account for more than 25 percent
of the purchaser's gross sales.
(7) The sale in the entirety of an "ongoing business." For
purposes of this paragraph, an "ongoing business" means a business
that for at least six months previous to the sale has been operated
from a particular specific location, has been open for business to
the general public, and has had all equipment and supplies necessary
for operating the business located at that location. The sale shall
be of the entire "ongoing business" and not merely a portion of the
ongoing business.
(8) A sale or lease or offer to sell or lease to a purchaser (A)
who has for a period of at least six months previously bought
products, supplies, services, or equipment that were sold under the
same trademark or trade name or that were produced by the seller and,
(B) who has received on resale of the product, supplies, services,
or equipment an amount that is at least equal to the amount of the
initial payment.
(9) The renewal or extension of an existing seller assisted
marketing plan contract.
(10) A product distributorship that meets each of the following
requirements:
(A) The seller sells products to the purchaser for resale by the
purchaser, and it is reasonably contemplated that substantially all
of the purchaser's sales of the product will be at wholesale.
(B) The agreement between the parties does not require that the
purchaser pay the seller, or any person associated with the seller, a
fee or any other payment for the right to enter into the agreement,
and does not require the purchaser to buy a minimum or specified
quantity of the products, or to buy products for a minimum or
specified period of time. For purposes of this paragraph, a "person
associated with the seller" means a person, including an individual
or a business entity, controlling, controlled by, or under the same
control as the seller.
(C) The seller is a corporation, partnership, limited liability
company, joint venture, or any other business entity.
(D) The seller has a net worth of at least ten million dollars
($10,000,000) according to audited financial statements of the seller
done during the 18 months preceding the date of the initial sale of
products to the purchaser. Net worth may be determined on a
consolidated basis if the seller is a subsidiary of another business
entity that is permitted by generally accepted accounting standards
to prepare financial statements on a consolidated basis and that
business entity absolutely and irrevocably agrees in writing to
guarantee the seller's obligations to the purchaser. The seller's net
worth shall be verified by a certification to the Attorney General
from an independent certified public accountant that the audited
financial statement reflects a net worth of at least ten million
dollars ($10,000,000). This certification shall be provided within 30
days following receipt of a written request from the Attorney
General.
(E) The seller grants the purchaser a license to use a trademark
that is registered under federal law.
(F) It is not an agreement or arrangement encouraging a
distributor to recruit others to participate in the program and
compensating the distributor for recruiting others into the program
or for sales made by others recruited into the program.
(c) "Person" includes an individual, corporation, partnership,
limited liability company, joint venture, or any business entity.
(d) "Seller" means a person who sells or leases or offers to sell
or lease a seller assisted marketing plan and who meets either of the
following conditions:
(1) Has sold or leased or represents or implies that the seller
has sold or leased, whether in California or elsewhere, at least five
seller assisted marketing plans within 24 months prior to a
solicitation.
(2) Intends or represents or implies that the seller intends to
sell or lease, whether in California or elsewhere, at least five
seller assisted marketing plans within 12 months following a
solicitation.
For purposes of this title, the seller is the person to whom the
purchaser becomes contractually obligated. A "seller" does not
include a licensed real estate broker or salesman who engages in the
sale or lease of a "business opportunity" as that term is used in
Sections 10000 to 10030, inclusive, of the Business and Professions
Code, or elsewhere in Chapter 1 (commencing with Section 10000),
Chapter 2 (commencing with Section 10050), or Chapter 6 (commencing
with Section 10450) of Part 1 of Division 4 of the Business and
Professions Code.
(e) "Purchaser" means a person who is solicited to become
obligated or does become obligated on a seller assisted marketing
plan contract.
(f) "Equipment" includes machines, all electrical devices, video
or audio devices, molds, display racks, vending machines, coin
operated game machines, machines that dispense products, and display
units of all kinds.
(g) "Supplies" includes any and all materials used to produce,
grow, breed, fabricate, modify, develop, or make any product or item.
(h) "Product" includes any tangible chattel, including food or
living animals, that the purchaser intends to:
(1) Sell or lease.
(2) Use to perform a service.
(3) Resell or attempt to resell to the seller assisted marketing
plan seller.
(4) Provide or attempt to provide to the seller assisted marketing
plan seller or to any other person whom the seller suggests the
purchaser contact so that the seller assisted marketing plan seller
or that other person may assist, either directly or indirectly, the
purchaser in distributing, selling, leasing, or otherwise disposing
of the product.
(i) "Services" includes any assistance, guidance, direction, work,
labor, or services provided by the seller to initiate or maintain or
assist in the initiation or maintenance of a business.
(j) "Seller assisted marketing plan contract" or "contract" means
any contract or agreement that obligates a purchaser to a seller.
(k) "Initial payment" means the total amount a purchaser is
obligated to pay to the seller under the terms of the seller assisted
marketing plan contract prior to or at the time of delivery of the
equipment, supplies, products, or services or within six months of
the purchaser commencing operation of the seller assisted marketing
plan. If the contract sets forth a specific total sale price for
purchase of the seller assisted marketing plan which total price is
to be paid partially as a downpayment and then in specific monthly
payments, the "initial payment" means the entire total sale price.
(l) "Initial cash payment" or "downpayment" means that portion of
the initial payment that the purchaser is obligated to pay to the
seller prior to or at the time of delivery of equipment, supplies,
products, or services. It does not include any amount financed by or
for which financing is to be obtained by the seller, or financing
that the seller assists in obtaining.
(m) "Buy-back" or "secured investment" means any representation
that implies in any manner that the purchaser's initial payment is
protected from loss. These terms include a representation or
implication of any of the following:
(1) That the seller may repurchase either all or part of what it
sold to the purchaser.
(2) That the seller may at some future time pay the purchaser the
difference between what has been earned and the initial payment.
(3) That the seller may in the ordinary course buy from the
purchaser items made, produced, fabricated, grown, bred, modified, or
developed by the purchaser using, in whole or in part, the product,
supplies, equipment, or services that were initially sold or leased
to the purchaser by the seller.
(4) That the seller or a person to whom the seller will refer the
purchaser may in the ordinary course sell, lease, or distribute the
items the purchaser has for sale or lease.
1812.202. (a) An offer to sell or offer to lease a seller assisted
marketing plan shall occur in this state whenever:
(1) The offer to sell or offer to lease is made in this state;
(2) The purchaser resides in this state at the time of the offer;
or
(3) The offer to sell or offer to lease either originates from
this state or is directed by the seller or lessor to this state and
received at the place to which it is directed.
(b) A sale or lease of a seller assisted marketing plan shall
occur in this state whenever:
(1) The offer to sell or offer to lease is accepted in this state;
(2) The purchaser resides in this state at the time of the sale;
or
(3) The acceptance is communicated to a seller situated in this
state.
1812.203. (a) The seller of any seller assisted marketing plan
shall pay an annual fee in the amount of one hundred dollars ($100)
and annually file with the Attorney General a copy of the disclosure
statements required under Sections 1812.205 and 1812.206, as well as
a list of the names and resident addresses of those individuals who
sell the seller assisted marketing plan on behalf of the seller. The
first filing shall be made at least 30 days prior to placing any
advertisement or making any other representations to prospective
purchasers. The first filing shall not be deemed to be effective
until a notice of filing has been issued by the Attorney General. The
seller may not make any advertisement or other representation to
prospective purchasers until a notice of filing has been issued by
the Attorney General. The disclosure statements on file shall be
updated through a new filing and payment of a fee in the amount of
thirty dollars ($30), whenever material changes occur during the year
following the annual filing and the updated filing shall include all
disclosure statements required by Sections 1812.205 and 1812.206 and
a list of the names and resident addresses of all current
salespersons and all salespersons who have acted on behalf of the
seller since the previous filing, whether the annual filing or an
updated filing, indicating which salespersons are still active and
which no longer act on behalf of the seller. Each seller of a seller
assisted marketing plan shall file the annual renewal filing, whether
or not any update filings have been made, at least 10 days before
one year has elapsed from the date of the notice of filing issued by
the Attorney General, and at least 10 days before the same date every
year thereafter. The annual renewal filing shall include all
disclosure statements required by Sections 1812.205 and 1812.206 and
a list of the names and addresses of the residences of all current
salespersons and all salespersons who have acted on behalf of the
seller since the previous filing (whether the annual filing or an
updated filing), indicating which salespersons are still active and
which no longer act on behalf of the seller. The annual renewal
filing fee shall be one hundred dollars ($100). If an annual renewal
filing is not filed as required, the previous filing shall be deemed
to have lapsed and the seller shall be prohibited from placing any
seller assisted marketing plan advertisements or making any other
representations to prospective purchasers of seller assisted
marketing plan until a new annual filing is made and a new notice of
filing has been issued by the Attorney General.
(b) The Attorney General may send by certified mail to the address
set forth in the seller assisted marketing plan filing an intent to
issue a stop order denying the effectiveness of or suspending or
revoking the effectiveness of any filing if he or she finds the
following:
(1) That there has been a failure to comply with any of the
provisions of this title.
(2) That the offer or sale of the seller assisted marketing plan
would constitute a misrepresentation to, or deceit of, or fraud on,
the purchaser.
(3) That any person identified in the filing has been convicted of
an offense under paragraph (1) of subdivision (b) of Section
1812.206, or is subject to an order or has had a civil judgment
entered against him or her as described in paragraphs (2) and (3) of
subdivision (b) of Section 1812.206, and the involvement of that
person in the sale or management of the seller assisted marketing
plan creates an unreasonable risk to prospective purchasers.
(c) The notice referred to shall include facts supporting a
suspension or revocation. If the seller assisted marketing plan does
not submit to the Attorney General, under penalties of perjury signed
by an owner or officer of the seller assisted marketing plan, within
10 days of receipt of the intent to issue a stop order, a refutation
of each and every supporting fact set forth in the notice, and each
fact not refuted shall be deemed, for purposes of issuance of the
order, an admission that the fact is true. If, in the opinion of the
Attorney General, and based upon supporting facts not refuted by the
seller assisted marketing plan, the plan is offered to the public
without compliance with this title, the Attorney General may order
the seller to desist and refrain from the further sale or attempted
sale of the seller assisted marketing plan unless and until a notice
of filing has been issued pursuant to this section. Until that time,
the registration shall be void. The order shall be in effect until
and unless the seller assisted marketing plan files a proceeding in
superior court pursuant to Section 1085 or 1094.5 of the Code of
Civil Procedure or seeks other judicial relief and serves a copy of
the proceeding upon the Attorney General.
1812.204. In selling, leasing, or offering to sell or lease a
seller assisted marketing plan in this state, sellers shall not:
(a) Use the phrase "buy-back" or "secured investment" or similar
phrase orally or in writing when soliciting, offering, leasing, or
selling a seller assisted marketing plan if the "security" is the
value of the equipment, supplies, products or services supplied by
the seller to the purchaser.
(b) Use the phrase "buy-back" or "secured investment" or similar
phrase orally or in writing when soliciting, offering, leasing, or
selling a seller assisted marketing plan unless there are no
restrictions or qualifications whatsoever preventing or limiting a
purchaser from being able to invoke the "buy-back" or "secured"
portion of the seller assisted marketing plan contract at any time
the purchaser desires during the one-year period following the
contract date. Upon invocation of the "buy-back" or "security"
provision, the minimum amount a purchaser shall be entitled to have
returned to him is the full amount of his initial payment, less the
amount actually received by him from the operation of the seller
assisted marketing plan. The "amount actually received" means either
the amount the purchaser actually obtained from the seller for any
product resold to the seller or the amount of money the purchaser
received for use of the purchaser's product, equipment, supplies or
services, less any amount: (1) the purchaser has paid the owner or
manager of the location at which the purchaser's products, equipment,
supplies or services are placed; and (2) the purchaser has paid to
obtain other items needed in order to sell, make, produce, fabricate,
grow, breed, modify, or develop the item which the seller assisted
marketing plan purchaser intends to sell, lease, distribute, or
otherwise dispose of.
(c) Represent that a purchaser's initial payment is "secured" in
any manner or to any degree or that the seller provides a "buy-back"
arrangement unless the seller has, in conformity with subdivision (b)
of Section 1812.214, either obtained a surety bond issued by a
surety company admitted to do business in this state or established a
trust account at a federally insured bank or savings and loan
association located in this state.
(d) Represent that the seller assisted marketing plan provides
income or earning potential of any kind unless the seller has data to
substantiate the claims of income or earning potential and discloses
this data to the purchaser at the time the claim is made, if made in
person, or if made through written or telephonic communication, at
the first in-person communication thereafter and, when disclosed, the
data is left with the purchaser. A mathematical computation of the
number of sales multiplied by the amount of profit per sale to reach
a projected income figure is not sufficient data to substantiate an
income or earning potential claim. Income or earning potential claims
cannot be made or implied at all unless they are based on the
experience of at least 10 purchasers from the seller assisted
marketing plan being offered. The data left by the seller must, at a
minimum, disclose:
(1) The length of time the seller has been selling the particular
seller assisted marketing plan being offered;
(2) The number of purchasers from the seller known to the seller
to have made at least the same sales, income or profits as those
represented; and
(3) The percentage the number represents of the total number of
purchasers from the seller.
(e) Use the trademark, service mark, trade name, logotype,
advertising or other commercial symbol of any business which does not
either control the ownership interest in the seller or accept
responsibility for all representations made by the seller in regard
to the seller assisted marketing plan, unless the nature of the
seller's relationship to such other business entity is set forth
immediately adjacent to and in type size equal to or larger than that
used to depict the commercial symbol of such other business. If a
member of a trade association, the seller may use the logo or
registration mark of the trade association in advertisements and
materials without regard to this subdivision.
(f) Place or cause to be placed any advertisement for a seller
assisted marketing plan which does not include the actual business
name of the seller, and if it differs, the name under which the
seller assisted marketing plan is operated and the street address of
the principal place of business of the seller.
1812.205. At the first in-person communication with a potential
purchaser or in the first written response to an inquiry by a
potential purchaser, whichever occurs first, wherein the seller
assisted marketing plan is described, the seller or his or her
representative shall provide the prospective purchaser a written
document, the cover sheet of which is entitled in at least 16-point
boldface capital letters "DISCLOSURE REQUIRED BY CALIFORNIA LAW."
Under the title shall appear in boldface of at least 10-point type,
the statement: "The State of California has not reviewed and does not
approve, recommend, endorse or sponsor any seller assisted marketing
plan. The information contained in this disclosure has not been
checked by the state. If you have any questions about this purchase,
see an attorney or other financial adviser before you sign a contract
or agreement." Nothing shall appear on the cover sheet except the
title and the statement required above. The disclosure document shall
contain the following information:
(a) The name of the seller, the name under which the seller is
doing or intends to do business and the name of any parent or
affiliated company that will engage in business transactions with
purchasers or accept responsibility for statements made by the
seller.
(b) A statement of the initial payment to be paid by the purchaser
to the seller, or when not known, a statement of the approximate
initial payment charged, the amount of the initial payment to be paid
to a person inducing, directly or indirectly, a purchaser to
contract for the seller assisted marketing plan.
(c) A full and detailed description of the actual services the
seller will undertake to perform for the purchaser.
(d) When the seller makes any statement concerning earnings or
range of earnings that may be made through the seller assisted
marketing plan, he must comply with subdivision (d) of Section
1812.204 and set forth in complete form in this disclosure statement
the following:
"No guarantee of earnings or ranges of earnings can be made. The
number of purchasers who have earned through this business an amount
in excess of the amount of their initial payment is at least ______,
which represents ___ percent of the total number of purchasers of
this seller assisted marketing plan."
(e) If training of any type is promised by the seller, a complete
description of the training and the length of the training.
(f) If the seller promises services to be performed in connection
with the placement of the equipment, product or supplies at a
location from which they will be sold or used, the full nature of
those services as well as the nature of the agreements to be made
with the owner or manager of the location at which the purchaser's
equipment, product or supplies will be placed, must be set forth.
(g) If the seller represents orally or in writing when soliciting
or offering for sale or lease or selling or leasing a seller assisted
marketing plan that there is a "buy-back" arrangement or that the
initial payment is in some manner protected from loss or "secured,"
the entire and precise nature of the "buy-back", "protection" or
"security" arrangement shall be completely and clearly disclosed.
1812.206. At least 48 hours prior to the execution of a seller
assisted marketing plan contract or agreement or at least 48 hours
prior to the receipt of any consideration, whichever occurs first,
the seller or his or her representative shall provide to the
prospective purchaser in writing a document entitled "SELLER ASSISTED
MARKETING PLAN INFORMATION SHEET." The seller may combine the
information required under this section with the information required
under Section 1812.205 and, if done, shall utilize the single title
"DISCLOSURES REQUIRED BY CALIFORNIA LAW," and the title page required
by Section 1812.205. If a combined document is used, it shall be
given at the time required by Section 1812.205, provided that this
time meets the 48-hour test of this section. The information sheet
required by this section shall contain the following:
(a) The name of and the office held by the seller's owners,
officers, directors, trustees and general or limited partners, as the
case may be, and the names of those individuals who have management
responsibilities in connection with the seller's business activities.
(b) A statement whether the seller, any person identified in
subdivision (a), and any other company managed by a person identified
in subdivision (a):
(1) Has been convicted of a felony or misdemeanor or pleaded nolo
contendere to a felony or misdemeanor charge if the felony or
misdemeanor involved an alleged violation of this title, fraud,
embezzlement, fraudulent conversion or misappropriation of property.
(2) Has been held liable in a civil action by final judgment or
consented to the entry of a stipulated judgment if the civil action
alleged a violation of this title, fraud, embezzlement, fraudulent
conversion or misappropriation of property or the use of untrue or
misleading representations in an attempt to sell or dispose of real
or personal property or the use of unfair, unlawful or deceptive
business practices.
(3) Is subject to any currently effective agreement, injunction,
or restrictive order, including, but not limited to, a "cease and
desist" order, an "assurance of discontinuance," or other comparable
agreement or order, relating to business activity as the result of an
action or investigation brought by a public agency or department,
including, but not limited to, an action affecting any vocational
license.
The statements required by paragraphs (1), (2) and (3) of this
subdivision shall set forth the terms of the agreement, or the court,
the docket number of the matter, the date of the conviction or of
the judgment and, when involved, the name of the governmental agency
that initiated the investigation or brought the action resulting in
the conviction or judgment.
(4) Has at any time during the previous seven fiscal years been
the subject of an order for relief in bankruptcy, been reorganized
due to insolvency, or been a principal, director, officer, trustee,
general or limited partner, or had management responsibilities of any
other person, as defined in subdivision (b) of Section 1812.201,
that has so filed or was so reorganized, during or within one year
after the period that the individual held that position. If so, the
name and location of the person having so filed, or having been so
reorganized, the date thereof, the court which exercised
jurisdiction, and the docket number of the matter shall be set forth.
(c) The length of time the seller:
(1) Has sold seller assisted marketing plans.
(2) Has sold the specific seller assisted marketing plan being
offered to the purchaser.
(d) If the seller is required to secure a bond or establish a
trust account pursuant to the requirements of Section 1812.204, the
information sheet shall state either:
(1) "Seller has secured a bond issued by
_________________________________________________,
(name and address of surety company)
a surety company admitted to do business in this state. Before
signing a contract to purchase this seller assisted marketing plan,
you should check with the surety company to determine the bond's
current status," or
(2) "Seller has deposited with the office of the Attorney General
information regarding its trust account. Before signing a contract to
purchase this seller assisted marketing plan, you should check with
the Attorney General to determine the current status of the trust
account."
(e) A copy of a recent, not more than 12 months old, financial
statement of the seller, together with a statement of any material
changes in the financial condition of the seller from the date
thereof. That financial statement shall either be audited or be under
penalty of perjury signed by one of the seller's officers,
directors, trustees or general or limited partners. The declaration
under penalty of perjury shall indicate that to the best of the
signatory's knowledge and belief the information in the financial
statement is true and accurate; the date of signature and the
location where signed shall also be indicated. Provided, however,
that where a seller is a subsidiary of another corporation which is
permitted by generally accepted accounting standards to prepare
financial statements on a consolidated basis, the above information
may be submitted in the same manner for the parent if the
corresponding financial statement of the seller is also provided and
the parent absolutely and irrevocably has agreed to guarantee all
obligations of the seller.
(f) An unexecuted copy of the entire seller assisted marketing
plan contract.
(g) For purposes of this section, "seller's owners" means any
individual who holds an equity interest of at least 10 percent in the
seller.
1812.207. Every contract for sale or lease of a seller assisted
marketing plan in this state shall be in writing and shall be subject
to the provisions of this title. A copy of the fully completed
contract and all other documents the seller requires the purchaser to
sign shall be given to the purchaser at the time they are signed.
1812.208. The purchaser shall have the right to cancel a seller
assisted marketing plan contract for any reason at any time within
three business days of the date the purchaser and the seller sign the
contract. The notice of the right to cancel and the procedures to be
followed when a contract is canceled shall comply with Section
1812.209.
1812.209. Every seller assisted marketing plan contract shall set
forth in at least 10-point type or equivalent size if handwritten,
all of the following:
(a) The terms and conditions of payment including the initial
payment, additional payments, and downpayment required. If the
contract provides for the seller to receive more than 20 percent of
the initial payment before delivery to the purchaser of the
equipment, supplies or products or services to be furnished under the
terms of the contract, the contract shall clearly set forth for the
escrow account established pursuant to subdivision (b) of Section
1812.210 and the name and address of the escrow account holder, as
well as the institution, branch, and account number of the escrow
account. If the contract provides for payment of any amount in excess
of 20 percent of the initial payment prior to delivery of the
equipment, supplies or products or services to be furnished under the
terms of the contract, the contract shall set forth that payment of
the amount in excess of 20 percent shall be by separate instrument
made payable to the escrow account.
(b) Immediately above the place at which the purchaser signs the
contract the following notification, in boldface type, of the
purchaser's right to cancel the contract:
"You have three business days in which you may cancel this
contract for any reason by mailing or delivering written notice to
the seller assisted marketing plan seller. The three business days
shall expire on
________________________
(last date to mail
or deliver notice)
and notice of cancellation should be mailed or delivered to
________________________.
(seller assisted marketing
plan seller's name and
business street address)
If you choose to mail your notice, it must be placed in the United
States mail properly addressed, first-class postage prepaid, and
postmarked before midnight of the above date. If you choose to
deliver your notice to the seller directly, it must be delivered to
him by the end of his normal business day on the above date. Within
five business days of receipt of the notice of cancellation, the
seller shall return to the purchaser all sums paid by the purchaser
to the seller pursuant to this contract. Within five business days
after receipt of all such sums, the purchaser shall make available at
his address or at the place at which they were caused to be located,
all equipment, products and supplies provided to the purchaser
pursuant to this contract. Upon demand of the seller, such equipment,
products and supplies shall be made available at the time the
purchaser receives full repayment by cash, money order or certified
check."
(c) A full and detailed description of the acts or services the
seller will undertake to perform for the purchaser.
(d) The seller's principal business address and the name and the
address of its agent, other than the Secretary of State, in the State
of California authorized to receive service of process.
(e) The business form of the seller, whether corporate,
partnership or otherwise.
(f) The delivery date or, when the contract provides for a
staggered delivery of items to the purchaser, the approximate
delivery date of those products, equipment or supplies the seller is
to deliver to the purchaser to enable the purchaser to begin or
maintain his business and whether the products, equipment or supplies
are to be delivered to the purchaser's home or business address or
are to be placed or caused to be placed by the seller at locations
owned or managed by persons other than the purchaser.
(g) A complete description of the nature of the "buy-back",
"protection", or "security" arrangement, if the seller has
represented orally or in writing when selling or leasing, soliciting
or offering a seller assisted marketing plan that there is a
"buy-back" or that the initial payment or any part of it is
"protected" or "secured."
(h) A statement which accurately sets forth a purchaser's right to
void the contract under the circumstances and in the manner set
forth in subdivisions (a) and (b) of Section 1812.215.
(i) The name of the supplier and the address of such supplier of
the products, equipment, or supplies the seller is to deliver to the
purchaser to enable the purchaser to begin or maintain his business.
1812.210. (a) No seller assisted marketing plan contract shall
require or entail the execution of any note or series of notes by the
purchaser which, when separately negotiated, will cut off as to
third parties any right of action or defense which the purchaser may
have against the seller.
(b) If the contract referred to in Section 1812.209 provides for a
downpayment to be paid to the seller, the downpayment shall not
exceed 20 percent of the initial payment amount. In no event shall
the contract payment schedule provide for the seller to receive more
than 20 percent of the initial payment before delivery to the
purchaser, or to the place at which they are to be located, the
equipment, supplies or products, unless all sums in excess of 20
percent are placed in an escrow account as provided for in
subdivision (c) of Section 1812.214. Funds placed in an escrow
account shall not be released until the purchaser notifies the escrow
holder in writing of the delivery of such equipment, supplies or
products within the time limits set forth in the seller assisted
marketing plan contract. Notification of delivery by the purchaser to
the escrow holder shall not be unreasonably withheld.
1812.211. Any assignee of the seller assisted marketing plan
contract or the seller's rights is subject to all equities, rights
and defenses of the purchaser against the seller.
1812.212. No seller shall make or authorize the making of any
reference to its compliance with this title.
1812.213. Every seller shall at all times keep and maintain a
complete set of books, records and accounts of seller assisted
marketing plan sales made by the seller. All documents relating to
each specific seller assisted marketing plan sold or leased shall be
maintained for four years after the date of the seller assisted
marketing plan contract.
1812.214. (a) Every seller of seller-assisted marketing plans other
than a California corporation shall file with the Attorney General
an irrevocable consent appointing the Secretary of State or successor
in office to act as the seller's attorney to receive service or any
lawful process in any noncriminal suit, action or proceeding against
the seller or the seller's successor, executor or administrator,
which may arise under this title. When service is made upon the
Secretary of State, it shall have the same force and validity as if
served personally on the seller. Service may be made by leaving a
copy of the process in the office of the Secretary of State, but it
shall not be effective unless:
(1) The plaintiff forthwith sends by first-class mail a notice of
the service upon the Secretary of State and a copy of the process to
the defendant or respondent at the last address on file with the
Attorney General; and
(2) The plaintiff's affidavit of compliance with this section is
filed in the case on or before the return date of the process, if
any, or within such further time as the court allows.
(b) If, pursuant to subdivision (c) of Section 1812.204, a seller
must obtain a surety bond or establish a trust account, the following
procedures apply:
(1) If a bond is obtained, a copy of it shall be filed with the
Attorney General; if a trust account is established, notification of
the depository, the trustee and the account number shall be filed
with the Attorney General.
(2) The bond or trust account required shall be in favor of the
State of California for the benefit of any person who is damaged by
any violation of this title or by the seller's breach of a contract
subject to this title or of any obligation arising therefrom. The
trust account shall also be in favor of any person damaged by these
practices.
(3) Any person claiming against the trust account for a violation
of this title may maintain an action at law against the seller and
the trustee. The surety or trustee shall be liable only for actual
damages and not the punitive damages permitted under Section
1812.218. The aggregate liability of the trustee to all persons
damaged by a seller's violation of this title shall in no event
exceed the amount of the trust account.
(4) The bond or the trust account shall be in an amount equal to
the total amount of the "initial payment" section of all
seller-assisted marketing plan contracts the seller has entered into
during the previous year or three hundred thousand dollars
($300,000), whichever is less, but in no case shall the amount be
less than fifty thousand dollars ($50,000). The amount required shall
be adjusted twice a year, no later than the tenth day of the first
month of the seller's fiscal year and no later than the tenth day of
the seventh month of the seller's fiscal year. A seller need only
establish a bond or trust account in the amount of fifty thousand
dollars ($50,000) at the commencement of business and during the
first six months the seller is in business. By the tenth day of the
seller's seventh month in business, the amount of the bond or trust
account shall be established as provided for herein as if the seller
had been in business for a year.
(c) If, pursuant to subdivision (b) of Section 1812.210, a seller
utilizes an escrow account to receive those portions of the
downpayment in excess of 20 percent of the initial payment before
delivery to the purchaser of the equipment, supplies or products or
services to be furnished under the terms of the contract, the
following procedures shall apply:
(1) The holder of the escrow account shall be independent of the
seller, and the seller shall not have any authority to direct
disbursements from the escrow account by the holder except upon
written notification by the purchaser to the holder of the escrow
account of the delivery of the equipment, supplies, or products as
required by and within the time limits set forth in the seller
assisted marketing plan contract.
(2) The name and address of the escrow account holder, the name of
the institution, the branch and account number of the escrow account
shall be reported to the Attorney General by the seller.
(3) Any person claiming against the escrow account for a violation
of this title may maintain an action at law against the seller and
the escrow account holder. The escrow account holder shall be liable
only for actual damages and not the punitive damages permitted under
Section 1812.218. The aggregate liability of the escrow account
holder to all persons damaged by a seller's violation of this title
shall in no event exceed the amount of the escrow account.
1812.215. (a) If a seller uses any untrue or misleading statements
to sell or lease a seller assisted marketing plan, or fails to comply
with Section 1812.203, or fails to give the disclosure documents or
disclose any of the information required by Sections 1812.205 and
1812.206, or the contract does not comply with the requirements of
this title, then within one year of the date of the contract at the
election of the purchaser upon written notice to the seller, the
contract shall be voidable by the purchaser and unenforceable by the
seller or his assignee as contrary to public policy and the purchaser
shall be entitled to receive from the seller all sums paid to the
seller when the purchaser is able to return all equipment, supplies
or products delivered by the seller; when such complete return cannot
be made, the purchaser shall be entitled to receive from the seller
all sums paid to the seller less the fair market value at the time of
delivery of the equipment, supplies or products not returned by the
purchaser, but delivered by the seller. Upon the receipt of such
sums, the purchaser shall make available to the seller at the
purchaser's address or at the places at which they are located at the
time the purchaser gives notice pursuant to this section, the
products, equipment or supplies received by the purchaser from the
seller. Provided, however, if the seller inadvertently has failed to
make any of the disclosures required by Section 1812.205 or 1812.206
or the contract inadvertently fails to comply with the requirements
of this title, the seller may cure such inadvertent defect by
providing the purchaser with the correct disclosure statements or
contract if at the time of providing such correct disclosures or
contract the seller also informs the purchaser in writing that
because of the seller's error, the purchaser has an additional 15-day
period after receipt of the correct disclosures or contract within
which to cancel the contract and receive a full return of all moneys
paid in exchange for return of whatever equipment, supplies or
products the purchaser has. If the purchaser does not cancel the
contract within 15 days after receipt of the correct disclosures or
contract, he may not in the future exercise his right to void the
contract under this section due to such noncompliance with the
disclosure or contract requirements of this title.
(b) If a seller fails to deliver the equipment, supplies or
product within 30 days of the delivery date stated in the contract,
unless such delivery delay is beyond the control of the seller, then
at any time prior to delivery or within 30 days after delivery, at
the election of the purchaser upon written notice to the seller, the
contract shall be voidable by the purchaser and unenforceable by the
seller or his assignee as contrary to public policy.
The rights of the purchaser set forth in this section shall be
cumulative to all other rights under this title or otherwise.
1812.216. (a) Any waiver by a purchaser of the provisions of this
title shall be deemed contrary to public policy and shall be void and
unenforceable. Any attempt by a seller to have a purchaser waive
rights given by this title shall be a violation of this title.
(b) In any proceeding involving this title, the burden of proving
an exemption or an exception from a definition is upon the person
claiming it.
1812.217. Any person, including, but not limited to, the seller, a
salesman, agent or representative of the seller or an independent
contractor who attempts to sell or lease or sells or leases a seller
assisted marketing plan, who willfully violates any provision of this
title or employs, directly or indirectly, any device, scheme or
artifice to deceive in connection with the offer or sale of any
seller assisted marketing plan, or willfully engages, directly or
indirectly, in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any person in connection
with the offer, purchase, lease or sale of any seller assisted
marketing plan shall, upon conviction, be fined not more than ten
thousand dollars ($10,000) for each unlawful transaction, or
imprisoned in the state prison, or imprisoned in county jail for not
more than one year, or be punished by both such fine and
imprisonment.
1812.218. Any purchaser injured by a violation of this title or by
the seller's breach of a contract subject to this title or of any
obligation arising from the sale or lease of the seller assisted
marketing plan may bring any action for recovery of damages. Judgment
shall be entered for actual damages, plus reasonable attorney's fees
and costs, but in no case shall the award of damages be less than
the amount of the initial payment provided the purchaser is able to
return all the equipment, supplies or products delivered by the
seller; when such complete return cannot be made, the minimum award
shall be no less than the amount of the initial payment less the fair
market value at the time of delivery of the equipment, supplies or
products that cannot be returned but were actually delivered by the
seller. An award, if the trial court deems it proper, may be entered
for punitive damages.
1812.219. The provisions of this title are not exclusive. The
remedies provided herein for violation of any section of this title
or for conduct proscribed by any section of this title shall be in
addition to any other procedures or remedies for any violation or
conduct provided for in any other law.
Nothing in this title shall limit any other statutory or any
common law rights of the Attorney General, any district attorney or
city attorney, or any other person. If any act or practice proscribed
under this title also constitutes a cause of action in common law or
a violation of another statute, the purchaser may assert such common
law or statutory cause of action under the procedures and with the
remedies provided for in such other law.
1812.220. If any provision of this act or if any application
thereof to any person or circumstance is held unconstitutional, the
remainder of the title and the application of such provision to other
persons and circumstances shall not be affected thereby.
1812.221. (a) When a deposit has been made in lieu of bond pursuant
to paragraph (1) of subdivision (b) of Section 1812.214 and Section
995.710 of the Code of Civil Procedure, the person asserting a claim
against the deposit shall, in lieu of the provisions of Section
996.430 of the Code of Civil Procedure, establish the claim by
furnishing evidence to the Attorney General of a money judgment
entered by a court together with evidence that the claimant is a
person described in paragraph (2) of subdivision (b) of Section
1812.214.
(b) When a person has completely established the claim with the
Attorney General, the Attorney General shall forthwith review and
approve the claim and enter the date of approval thereon. The claim
shall be designated an "approved claim. "
(c) When the first claim against a particular deposit account has
been approved, it shall not be paid until the expiration of a period
of 240 days after the date of its approval by the Attorney General.
Subsequent claims which are approved by the Attorney General within
the same 240-day period shall similarly not be paid until the
expiration of the 240-day period. Forthwith upon the expiration of
the 240-day period, the Attorney General shall pay all approved
claims from that 240-day period in full unless there are insufficient
funds in the deposit account in which case each approved claim shall
be paid a proportionate amount to exhaust the deposit account.
(d) When the Attorney General approves the first claim against a
particular deposit account after the expiration of a 240-day period,
the date of approval of that claim shall begin a new 240-day period
to which subdivision (c) shall apply with respect to the amount
remaining in the deposit account.
(e) After a deposit account is exhausted, no further claims shall
be paid by the Attorney General. Claimants who have had their claims
paid in full or in part pursuant to subdivisions (c) and (d) shall
not be required to make a contribution back to the deposit account
for the benefit of other claimants.
(f) When a deposit has been made in lieu of bond, the amount of
the deposit shall not be subject to attachment, garnishment, or
execution with respect to an action or judgment against the seller,
other than as to an amount as no longer needed or required for the
purpose of this title which would otherwise be returned to the seller
by the Attorney General.
1812.200. (a) The Legislature finds and declares that the
widespread sale of seller assisted marketing plans, often connected
with the sale of vending machines, racks or work-at-home
paraphernalia, has created numerous problems in California for
purchasers which are inimical to good business practice. Often
purchasers of seller assisted marketing plans are individuals
inexperienced in business matters who use their life savings to
purchase the seller assisted marketing plan in the hope that they
will earn enough money in addition to retirement income or salary to
become or remain self-sufficient. Many purchasers are the elderly who
are seeking a way to supplement their fixed incomes. The initial
payment is usually in the form of a purchase of overpriced equipment
or products. California purchasers have suffered substantial losses
when they have failed to receive full and complete information
regarding the seller assisted marketing plan, the amount of money
they can reasonably expect to earn, and the previous experience of
the seller assisted marketing plan seller. Seller assisted marketing
plan sellers have a significant impact upon the economy and
well-being of this state and its local communities. The provisions of
this title relating to seller assisted marketing plans are necessary
for the public welfare.
(b) It is the intent of this title to provide each prospective
seller assisted marketing plan purchaser with the information
necessary to make an intelligent decision regarding seller assisted
marketing plans being offered; to safeguard the public against deceit
and financial hardship; to insure, foster and encourage competition
and fair dealing in the sale of seller assisted marketing plans by
requiring adequate disclosure; to prohibit representations that tend
to mislead; and to prohibit or restrict unfair contract terms. This
title shall be construed liberally in order to achieve the foregoing
purposes.
1812.201. For the purposes of this title, the following definitions
shall apply:
(a) "Seller assisted marketing plan" means any sale or lease or
offer to sell or lease any product, equipment, supplies, or services
that requires a total initial payment exceeding five hundred dollars
($500), but requires an initial cash payment of less than fifty
thousand dollars ($50,000), that will aid a purchaser or will be used
by or on behalf of the purchaser in connection with or incidental to
beginning, maintaining, or operating a business when the seller
assisted marketing plan seller has advertised or in any other manner
solicited the purchase or lease of the seller assisted marketing plan
and done any of the following acts:
(1) Represented that the purchaser will earn, is likely to earn,
or can earn an amount in excess of the initial payment paid by the
purchaser for participation in the seller assisted marketing plan.
(2) Represented that there is a market for the product, equipment,
supplies, or services, or any product marketed by the user of the
product, equipment, supplies, or services sold or leased or offered
for sale or lease to the purchaser by the seller, or anything, be it
tangible or intangible, made, produced, fabricated, grown, bred,
modified, or developed by the purchaser using, in whole or in part,
the product, supplies, equipment, or services that were sold or
leased or offered for sale or lease to the purchaser by the seller
assisted marketing plan seller.
(3) Represented that the seller will buy back or is likely to buy
back any product made, produced, fabricated, grown, or bred by the
purchaser using, in whole or in part, the product, supplies,
equipment, or services that were initially sold or leased or offered
for sale or lease to the purchaser by the seller assisted marketing
plan seller.
(b) A "seller assisted marketing plan" shall not include:
(1) A security, as defined in the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4 of the
Corporations Code), that has been qualified for sale by the
Department of Corporations, or is exempt under Chapter 1 (commencing
with Section 25100) of Part 2 of Division 1 of Title 4 of the
Corporations Code from the necessity to qualify.
(2) A franchise defined by the Franchise Investment Law (Division
5 (commencing with Section 31000) of Title 4 of the Corporations
Code) that is registered with the Department of Corporations or is
exempt under Chapter 1 (commencing with Section 31100) of Part 2 of
Division 5 of Title 4 of the Corporations Code from the necessity of
registering.
(3) Any transaction in which either the seller or purchaser or the
lessor or lessee is licensed pursuant to and the transaction is
governed by the Real Estate Law, Division 4 (commencing with Section
10000) of the Business and Professions Code.
(4) A license granted by a general merchandise retailer that
allows the licensee to sell goods, equipment, supplies, products, or
services to the general public under the retailer's trademark, trade
name, or service mark if all of the following criteria are satisfied:
(A) The general merchandise retailer has been doing business in
this state continually for five years prior to the granting of the
license.
(B) The general merchandise retailer sells diverse kinds of goods,
equipment, supplies, products, or services.
(C) The general merchandise retailer also sells the same goods,
equipment, supplies, products, or services directly to the general
public.
(D) During the previous 12 months the general merchandise retailer'
s direct sales of the same goods, equipment, supplies, products, or
services to the public account for at least 50 percent of its yearly
sales of these goods, equipment, supplies, products, or services made
under the retailer's trademark, trade name, or service mark.
(5) A newspaper distribution system distributing newspapers as
defined in Section 6362 of the Revenue and Taxation Code.
(6) A sale or lease to an existing or beginning business
enterprise that also sells or leases equipment, products, supplies,
or performs services that are not supplied by the seller and that the
purchaser does not utilize with the equipment, products, supplies,
or services of the seller, if the equipment, products, supplies, or
services not supplied by the seller account for more than 25 percent
of the purchaser's gross sales.
(7) The sale in the entirety of an "ongoing business." For
purposes of this paragraph, an "ongoing business" means a business
that for at least six months previous to the sale has been operated
from a particular specific location, has been open for business to
the general public, and has had all equipment and supplies necessary
for operating the business located at that location. The sale shall
be of the entire "ongoing business" and not merely a portion of the
ongoing business.
(8) A sale or lease or offer to sell or lease to a purchaser (A)
who has for a period of at least six months previously bought
products, supplies, services, or equipment that were sold under the
same trademark or trade name or that were produced by the seller and,
(B) who has received on resale of the product, supplies, services,
or equipment an amount that is at least equal to the amount of the
initial payment.
(9) The renewal or extension of an existing seller assisted
marketing plan contract.
(10) A product distributorship that meets each of the following
requirements:
(A) The seller sells products to the purchaser for resale by the
purchaser, and it is reasonably contemplated that substantially all
of the purchaser's sales of the product will be at wholesale.
(B) The agreement between the parties does not require that the
purchaser pay the seller, or any person associated with the seller, a
fee or any other payment for the right to enter into the agreement,
and does not require the purchaser to buy a minimum or specified
quantity of the products, or to buy products for a minimum or
specified period of time. For purposes of this paragraph, a "person
associated with the seller" means a person, including an individual
or a business entity, controlling, controlled by, or under the same
control as the seller.
(C) The seller is a corporation, partnership, limited liability
company, joint venture, or any other business entity.
(D) The seller has a net worth of at least ten million dollars
($10,000,000) according to audited financial statements of the seller
done during the 18 months preceding the date of the initial sale of
products to the purchaser. Net worth may be determined on a
consolidated basis if the seller is a subsidiary of another business
entity that is permitted by generally accepted accounting standards
to prepare financial statements on a consolidated basis and that
business entity absolutely and irrevocably agrees in writing to
guarantee the seller's obligations to the purchaser. The seller's net
worth shall be verified by a certification to the Attorney General
from an independent certified public accountant that the audited
financial statement reflects a net worth of at least ten million
dollars ($10,000,000). This certification shall be provided within 30
days following receipt of a written request from the Attorney
General.
(E) The seller grants the purchaser a license to use a trademark
that is registered under federal law.
(F) It is not an agreement or arrangement encouraging a
distributor to recruit others to participate in the program and
compensating the distributor for recruiting others into the program
or for sales made by others recruited into the program.
(c) "Person" includes an individual, corporation, partnership,
limited liability company, joint venture, or any business entity.
(d) "Seller" means a person who sells or leases or offers to sell
or lease a seller assisted marketing plan and who meets either of the
following conditions:
(1) Has sold or leased or represents or implies that the seller
has sold or leased, whether in California or elsewhere, at least five
seller assisted marketing plans within 24 months prior to a
solicitation.
(2) Intends or represents or implies that the seller intends to
sell or lease, whether in California or elsewhere, at least five
seller assisted marketing plans within 12 months following a
solicitation.
For purposes of this title, the seller is the person to whom the
purchaser becomes contractually obligated. A "seller" does not
include a licensed real estate broker or salesman who engages in the
sale or lease of a "business opportunity" as that term is used in
Sections 10000 to 10030, inclusive, of the Business and Professions
Code, or elsewhere in Chapter 1 (commencing with Section 10000),
Chapter 2 (commencing with Section 10050), or Chapter 6 (commencing
with Section 10450) of Part 1 of Division 4 of the Business and
Professions Code.
(e) "Purchaser" means a person who is solicited to become
obligated or does become obligated on a seller assisted marketing
plan contract.
(f) "Equipment" includes machines, all electrical devices, video
or audio devices, molds, display racks, vending machines, coin
operated game machines, machines that dispense products, and display
units of all kinds.
(g) "Supplies" includes any and all materials used to produce,
grow, breed, fabricate, modify, develop, or make any product or item.
(h) "Product" includes any tangible chattel, including food or
living animals, that the purchaser intends to:
(1) Sell or lease.
(2) Use to perform a service.
(3) Resell or attempt to resell to the seller assisted marketing
plan seller.
(4) Provide or attempt to provide to the seller assisted marketing
plan seller or to any other person whom the seller suggests the
purchaser contact so that the seller assisted marketing plan seller
or that other person may assist, either directly or indirectly, the
purchaser in distributing, selling, leasing, or otherwise disposing
of the product.
(i) "Services" includes any assistance, guidance, direction, work,
labor, or services provided by the seller to initiate or maintain or
assist in the initiation or maintenance of a business.
(j) "Seller assisted marketing plan contract" or "contract" means
any contract or agreement that obligates a purchaser to a seller.
(k) "Initial payment" means the total amount a purchaser is
obligated to pay to the seller under the terms of the seller assisted
marketing plan contract prior to or at the time of delivery of the
equipment, supplies, products, or services or within six months of
the purchaser commencing operation of the seller assisted marketing
plan. If the contract sets forth a specific total sale price for
purchase of the seller assisted marketing plan which total price is
to be paid partially as a downpayment and then in specific monthly
payments, the "initial payment" means the entire total sale price.
(l) "Initial cash payment" or "downpayment" means that portion of
the initial payment that the purchaser is obligated to pay to the
seller prior to or at the time of delivery of equipment, supplies,
products, or services. It does not include any amount financed by or
for which financing is to be obtained by the seller, or financing
that the seller assists in obtaining.
(m) "Buy-back" or "secured investment" means any representation
that implies in any manner that the purchaser's initial payment is
protected from loss. These terms include a representation or
implication of any of the following:
(1) That the seller may repurchase either all or part of what it
sold to the purchaser.
(2) That the seller may at some future time pay the purchaser the
difference between what has been earned and the initial payment.
(3) That the seller may in the ordinary course buy from the
purchaser items made, produced, fabricated, grown, bred, modified, or
developed by the purchaser using, in whole or in part, the product,
supplies, equipment, or services that were initially sold or leased
to the purchaser by the seller.
(4) That the seller or a person to whom the seller will refer the
purchaser may in the ordinary course sell, lease, or distribute the
items the purchaser has for sale or lease.
1812.202. (a) An offer to sell or offer to lease a seller assisted
marketing plan shall occur in this state whenever:
(1) The offer to sell or offer to lease is made in this state;
(2) The purchaser resides in this state at the time of the offer;
or
(3) The offer to sell or offer to lease either originates from
this state or is directed by the seller or lessor to this state and
received at the place to which it is directed.
(b) A sale or lease of a seller assisted marketing plan shall
occur in this state whenever:
(1) The offer to sell or offer to lease is accepted in this state;
(2) The purchaser resides in this state at the time of the sale;
or
(3) The acceptance is communicated to a seller situated in this
state.
1812.203. (a) The seller of any seller assisted marketing plan
shall pay an annual fee in the amount of one hundred dollars ($100)
and annually file with the Attorney General a copy of the disclosure
statements required under Sections 1812.205 and 1812.206, as well as
a list of the names and resident addresses of those individuals who
sell the seller assisted marketing plan on behalf of the seller. The
first filing shall be made at least 30 days prior to placing any
advertisement or making any other representations to prospective
purchasers. The first filing shall not be deemed to be effective
until a notice of filing has been issued by the Attorney General. The
seller may not make any advertisement or other representation to
prospective purchasers until a notice of filing has been issued by
the Attorney General. The disclosure statements on file shall be
updated through a new filing and payment of a fee in the amount of
thirty dollars ($30), whenever material changes occur during the year
following the annual filing and the updated filing shall include all
disclosure statements required by Sections 1812.205 and 1812.206 and
a list of the names and resident addresses of all current
salespersons and all salespersons who have acted on behalf of the
seller since the previous filing, whether the annual filing or an
updated filing, indicating which salespersons are still active and
which no longer act on behalf of the seller. Each seller of a seller
assisted marketing plan shall file the annual renewal filing, whether
or not any update filings have been made, at least 10 days before
one year has elapsed from the date of the notice of filing issued by
the Attorney General, and at least 10 days before the same date every
year thereafter. The annual renewal filing shall include all
disclosure statements required by Sections 1812.205 and 1812.206 and
a list of the names and addresses of the residences of all current
salespersons and all salespersons who have acted on behalf of the
seller since the previous filing (whether the annual filing or an
updated filing), indicating which salespersons are still active and
which no longer act on behalf of the seller. The annual renewal
filing fee shall be one hundred dollars ($100). If an annual renewal
filing is not filed as required, the previous filing shall be deemed
to have lapsed and the seller shall be prohibited from placing any
seller assisted marketing plan advertisements or making any other
representations to prospective purchasers of seller assisted
marketing plan until a new annual filing is made and a new notice of
filing has been issued by the Attorney General.
(b) The Attorney General may send by certified mail to the address
set forth in the seller assisted marketing plan filing an intent to
issue a stop order denying the effectiveness of or suspending or
revoking the effectiveness of any filing if he or she finds the
following:
(1) That there has been a failure to comply with any of the
provisions of this title.
(2) That the offer or sale of the seller assisted marketing plan
would constitute a misrepresentation to, or deceit of, or fraud on,
the purchaser.
(3) That any person identified in the filing has been convicted of
an offense under paragraph (1) of subdivision (b) of Section
1812.206, or is subject to an order or has had a civil judgment
entered against him or her as described in paragraphs (2) and (3) of
subdivision (b) of Section 1812.206, and the involvement of that
person in the sale or management of the seller assisted marketing
plan creates an unreasonable risk to prospective purchasers.
(c) The notice referred to shall include facts supporting a
suspension or revocation. If the seller assisted marketing plan does
not submit to the Attorney General, under penalties of perjury signed
by an owner or officer of the seller assisted marketing plan, within
10 days of receipt of the intent to issue a stop order, a refutation
of each and every supporting fact set forth in the notice, and each
fact not refuted shall be deemed, for purposes of issuance of the
order, an admission that the fact is true. If, in the opinion of the
Attorney General, and based upon supporting facts not refuted by the
seller assisted marketing plan, the plan is offered to the public
without compliance with this title, the Attorney General may order
the seller to desist and refrain from the further sale or attempted
sale of the seller assisted marketing plan unless and until a notice
of filing has been issued pursuant to this section. Until that time,
the registration shall be void. The order shall be in effect until
and unless the seller assisted marketing plan files a proceeding in
superior court pursuant to Section 1085 or 1094.5 of the Code of
Civil Procedure or seeks other judicial relief and serves a copy of
the proceeding upon the Attorney General.
1812.204. In selling, leasing, or offering to sell or lease a
seller assisted marketing plan in this state, sellers shall not:
(a) Use the phrase "buy-back" or "secured investment" or similar
phrase orally or in writing when soliciting, offering, leasing, or
selling a seller assisted marketing plan if the "security" is the
value of the equipment, supplies, products or services supplied by
the seller to the purchaser.
(b) Use the phrase "buy-back" or "secured investment" or similar
phrase orally or in writing when soliciting, offering, leasing, or
selling a seller assisted marketing plan unless there are no
restrictions or qualifications whatsoever preventing or limiting a
purchaser from being able to invoke the "buy-back" or "secured"
portion of the seller assisted marketing plan contract at any time
the purchaser desires during the one-year period following the
contract date. Upon invocation of the "buy-back" or "security"
provision, the minimum amount a purchaser shall be entitled to have
returned to him is the full amount of his initial payment, less the
amount actually received by him from the operation of the seller
assisted marketing plan. The "amount actually received" means either
the amount the purchaser actually obtained from the seller for any
product resold to the seller or the amount of money the purchaser
received for use of the purchaser's product, equipment, supplies or
services, less any amount: (1) the purchaser has paid the owner or
manager of the location at which the purchaser's products, equipment,
supplies or services are placed; and (2) the purchaser has paid to
obtain other items needed in order to sell, make, produce, fabricate,
grow, breed, modify, or develop the item which the seller assisted
marketing plan purchaser intends to sell, lease, distribute, or
otherwise dispose of.
(c) Represent that a purchaser's initial payment is "secured" in
any manner or to any degree or that the seller provides a "buy-back"
arrangement unless the seller has, in conformity with subdivision (b)
of Section 1812.214, either obtained a surety bond issued by a
surety company admitted to do business in this state or established a
trust account at a federally insured bank or savings and loan
association located in this state.
(d) Represent that the seller assisted marketing plan provides
income or earning potential of any kind unless the seller has data to
substantiate the claims of income or earning potential and discloses
this data to the purchaser at the time the claim is made, if made in
person, or if made through written or telephonic communication, at
the first in-person communication thereafter and, when disclosed, the
data is left with the purchaser. A mathematical computation of the
number of sales multiplied by the amount of profit per sale to reach
a projected income figure is not sufficient data to substantiate an
income or earning potential claim. Income or earning potential claims
cannot be made or implied at all unless they are based on the
experience of at least 10 purchasers from the seller assisted
marketing plan being offered. The data left by the seller must, at a
minimum, disclose:
(1) The length of time the seller has been selling the particular
seller assisted marketing plan being offered;
(2) The number of purchasers from the seller known to the seller
to have made at least the same sales, income or profits as those
represented; and
(3) The percentage the number represents of the total number of
purchasers from the seller.
(e) Use the trademark, service mark, trade name, logotype,
advertising or other commercial symbol of any business which does not
either control the ownership interest in the seller or accept
responsibility for all representations made by the seller in regard
to the seller assisted marketing plan, unless the nature of the
seller's relationship to such other business entity is set forth
immediately adjacent to and in type size equal to or larger than that
used to depict the commercial symbol of such other business. If a
member of a trade association, the seller may use the logo or
registration mark of the trade association in advertisements and
materials without regard to this subdivision.
(f) Place or cause to be placed any advertisement for a seller
assisted marketing plan which does not include the actual business
name of the seller, and if it differs, the name under which the
seller assisted marketing plan is operated and the street address of
the principal place of business of the seller.
1812.205. At the first in-person communication with a potential
purchaser or in the first written response to an inquiry by a
potential purchaser, whichever occurs first, wherein the seller
assisted marketing plan is described, the seller or his or her
representative shall provide the prospective purchaser a written
document, the cover sheet of which is entitled in at least 16-point
boldface capital letters "DISCLOSURE REQUIRED BY CALIFORNIA LAW."
Under the title shall appear in boldface of at least 10-point type,
the statement: "The State of California has not reviewed and does not
approve, recommend, endorse or sponsor any seller assisted marketing
plan. The information contained in this disclosure has not been
checked by the state. If you have any questions about this purchase,
see an attorney or other financial adviser before you sign a contract
or agreement." Nothing shall appear on the cover sheet except the
title and the statement required above. The disclosure document shall
contain the following information:
(a) The name of the seller, the name under which the seller is
doing or intends to do business and the name of any parent or
affiliated company that will engage in business transactions with
purchasers or accept responsibility for statements made by the
seller.
(b) A statement of the initial payment to be paid by the purchaser
to the seller, or when not known, a statement of the approximate
initial payment charged, the amount of the initial payment to be paid
to a person inducing, directly or indirectly, a purchaser to
contract for the seller assisted marketing plan.
(c) A full and detailed description of the actual services the
seller will undertake to perform for the purchaser.
(d) When the seller makes any statement concerning earnings or
range of earnings that may be made through the seller assisted
marketing plan, he must comply with subdivision (d) of Section
1812.204 and set forth in complete form in this disclosure statement
the following:
"No guarantee of earnings or ranges of earnings can be made. The
number of purchasers who have earned through this business an amount
in excess of the amount of their initial payment is at least ______,
which represents ___ percent of the total number of purchasers of
this seller assisted marketing plan."
(e) If training of any type is promised by the seller, a complete
description of the training and the length of the training.
(f) If the seller promises services to be performed in connection
with the placement of the equipment, product or supplies at a
location from which they will be sold or used, the full nature of
those services as well as the nature of the agreements to be made
with the owner or manager of the location at which the purchaser's
equipment, product or supplies will be placed, must be set forth.
(g) If the seller represents orally or in writing when soliciting
or offering for sale or lease or selling or leasing a seller assisted
marketing plan that there is a "buy-back" arrangement or that the
initial payment is in some manner protected from loss or "secured,"
the entire and precise nature of the "buy-back", "protection" or
"security" arrangement shall be completely and clearly disclosed.
1812.206. At least 48 hours prior to the execution of a seller
assisted marketing plan contract or agreement or at least 48 hours
prior to the receipt of any consideration, whichever occurs first,
the seller or his or her representative shall provide to the
prospective purchaser in writing a document entitled "SELLER ASSISTED
MARKETING PLAN INFORMATION SHEET." The seller may combine the
information required under this section with the information required
under Section 1812.205 and, if done, shall utilize the single title
"DISCLOSURES REQUIRED BY CALIFORNIA LAW," and the title page required
by Section 1812.205. If a combined document is used, it shall be
given at the time required by Section 1812.205, provided that this
time meets the 48-hour test of this section. The information sheet
required by this section shall contain the following:
(a) The name of and the office held by the seller's owners,
officers, directors, trustees and general or limited partners, as the
case may be, and the names of those individuals who have management
responsibilities in connection with the seller's business activities.
(b) A statement whether the seller, any person identified in
subdivision (a), and any other company managed by a person identified
in subdivision (a):
(1) Has been convicted of a felony or misdemeanor or pleaded nolo
contendere to a felony or misdemeanor charge if the felony or
misdemeanor involved an alleged violation of this title, fraud,
embezzlement, fraudulent conversion or misappropriation of property.
(2) Has been held liable in a civil action by final judgment or
consented to the entry of a stipulated judgment if the civil action
alleged a violation of this title, fraud, embezzlement, fraudulent
conversion or misappropriation of property or the use of untrue or
misleading representations in an attempt to sell or dispose of real
or personal property or the use of unfair, unlawful or deceptive
business practices.
(3) Is subject to any currently effective agreement, injunction,
or restrictive order, including, but not limited to, a "cease and
desist" order, an "assurance of discontinuance," or other comparable
agreement or order, relating to business activity as the result of an
action or investigation brought by a public agency or department,
including, but not limited to, an action affecting any vocational
license.
The statements required by paragraphs (1), (2) and (3) of this
subdivision shall set forth the terms of the agreement, or the court,
the docket number of the matter, the date of the conviction or of
the judgment and, when involved, the name of the governmental agency
that initiated the investigation or brought the action resulting in
the conviction or judgment.
(4) Has at any time during the previous seven fiscal years been
the subject of an order for relief in bankruptcy, been reorganized
due to insolvency, or been a principal, director, officer, trustee,
general or limited partner, or had management responsibilities of any
other person, as defined in subdivision (b) of Section 1812.201,
that has so filed or was so reorganized, during or within one year
after the period that the individual held that position. If so, the
name and location of the person having so filed, or having been so
reorganized, the date thereof, the court which exercised
jurisdiction, and the docket number of the matter shall be set forth.
(c) The length of time the seller:
(1) Has sold seller assisted marketing plans.
(2) Has sold the specific seller assisted marketing plan being
offered to the purchaser.
(d) If the seller is required to secure a bond or establish a
trust account pursuant to the requirements of Section 1812.204, the
information sheet shall state either:
(1) "Seller has secured a bond issued by
_________________________________________________,
(name and address of surety company)
a surety company admitted to do business in this state. Before
signing a contract to purchase this seller assisted marketing plan,
you should check with the surety company to determine the bond's
current status," or
(2) "Seller has deposited with the office of the Attorney General
information regarding its trust account. Before signing a contract to
purchase this seller assisted marketing plan, you should check with
the Attorney General to determine the current status of the trust
account."
(e) A copy of a recent, not more than 12 months old, financial
statement of the seller, together with a statement of any material
changes in the financial condition of the seller from the date
thereof. That financial statement shall either be audited or be under
penalty of perjury signed by one of the seller's officers,
directors, trustees or general or limited partners. The declaration
under penalty of perjury shall indicate that to the best of the
signatory's knowledge and belief the information in the financial
statement is true and accurate; the date of signature and the
location where signed shall also be indicated. Provided, however,
that where a seller is a subsidiary of another corporation which is
permitted by generally accepted accounting standards to prepare
financial statements on a consolidated basis, the above information
may be submitted in the same manner for the parent if the
corresponding financial statement of the seller is also provided and
the parent absolutely and irrevocably has agreed to guarantee all
obligations of the seller.
(f) An unexecuted copy of the entire seller assisted marketing
plan contract.
(g) For purposes of this section, "seller's owners" means any
individual who holds an equity interest of at least 10 percent in the
seller.
1812.207. Every contract for sale or lease of a seller assisted
marketing plan in this state shall be in writing and shall be subject
to the provisions of this title. A copy of the fully completed
contract and all other documents the seller requires the purchaser to
sign shall be given to the purchaser at the time they are signed.
1812.208. The purchaser shall have the right to cancel a seller
assisted marketing plan contract for any reason at any time within
three business days of the date the purchaser and the seller sign the
contract. The notice of the right to cancel and the procedures to be
followed when a contract is canceled shall comply with Section
1812.209.
1812.209. Every seller assisted marketing plan contract shall set
forth in at least 10-point type or equivalent size if handwritten,
all of the following:
(a) The terms and conditions of payment including the initial
payment, additional payments, and downpayment required. If the
contract provides for the seller to receive more than 20 percent of
the initial payment before delivery to the purchaser of the
equipment, supplies or products or services to be furnished under the
terms of the contract, the contract shall clearly set forth for the
escrow account established pursuant to subdivision (b) of Section
1812.210 and the name and address of the escrow account holder, as
well as the institution, branch, and account number of the escrow
account. If the contract provides for payment of any amount in excess
of 20 percent of the initial payment prior to delivery of the
equipment, supplies or products or services to be furnished under the
terms of the contract, the contract shall set forth that payment of
the amount in excess of 20 percent shall be by separate instrument
made payable to the escrow account.
(b) Immediately above the place at which the purchaser signs the
contract the following notification, in boldface type, of the
purchaser's right to cancel the contract:
"You have three business days in which you may cancel this
contract for any reason by mailing or delivering written notice to
the seller assisted marketing plan seller. The three business days
shall expire on
________________________
(last date to mail
or deliver notice)
and notice of cancellation should be mailed or delivered to
________________________.
(seller assisted marketing
plan seller's name and
business street address)
If you choose to mail your notice, it must be placed in the United
States mail properly addressed, first-class postage prepaid, and
postmarked before midnight of the above date. If you choose to
deliver your notice to the seller directly, it must be delivered to
him by the end of his normal business day on the above date. Within
five business days of receipt of the notice of cancellation, the
seller shall return to the purchaser all sums paid by the purchaser
to the seller pursuant to this contract. Within five business days
after receipt of all such sums, the purchaser shall make available at
his address or at the place at which they were caused to be located,
all equipment, products and supplies provided to the purchaser
pursuant to this contract. Upon demand of the seller, such equipment,
products and supplies shall be made available at the time the
purchaser receives full repayment by cash, money order or certified
check."
(c) A full and detailed description of the acts or services the
seller will undertake to perform for the purchaser.
(d) The seller's principal business address and the name and the
address of its agent, other than the Secretary of State, in the State
of California authorized to receive service of process.
(e) The business form of the seller, whether corporate,
partnership or otherwise.
(f) The delivery date or, when the contract provides for a
staggered delivery of items to the purchaser, the approximate
delivery date of those products, equipment or supplies the seller is
to deliver to the purchaser to enable the purchaser to begin or
maintain his business and whether the products, equipment or supplies
are to be delivered to the purchaser's home or business address or
are to be placed or caused to be placed by the seller at locations
owned or managed by persons other than the purchaser.
(g) A complete description of the nature of the "buy-back",
"protection", or "security" arrangement, if the seller has
represented orally or in writing when selling or leasing, soliciting
or offering a seller assisted marketing plan that there is a
"buy-back" or that the initial payment or any part of it is
"protected" or "secured."
(h) A statement which accurately sets forth a purchaser's right to
void the contract under the circumstances and in the manner set
forth in subdivisions (a) and (b) of Section 1812.215.
(i) The name of the supplier and the address of such supplier of
the products, equipment, or supplies the seller is to deliver to the
purchaser to enable the purchaser to begin or maintain his business.
1812.210. (a) No seller assisted marketing plan contract shall
require or entail the execution of any note or series of notes by the
purchaser which, when separately negotiated, will cut off as to
third parties any right of action or defense which the purchaser may
have against the seller.
(b) If the contract referred to in Section 1812.209 provides for a
downpayment to be paid to the seller, the downpayment shall not
exceed 20 percent of the initial payment amount. In no event shall
the contract payment schedule provide for the seller to receive more
than 20 percent of the initial payment before delivery to the
purchaser, or to the place at which they are to be located, the
equipment, supplies or products, unless all sums in excess of 20
percent are placed in an escrow account as provided for in
subdivision (c) of Section 1812.214. Funds placed in an escrow
account shall not be released until the purchaser notifies the escrow
holder in writing of the delivery of such equipment, supplies or
products within the time limits set forth in the seller assisted
marketing plan contract. Notification of delivery by the purchaser to
the escrow holder shall not be unreasonably withheld.
1812.211. Any assignee of the seller assisted marketing plan
contract or the seller's rights is subject to all equities, rights
and defenses of the purchaser against the seller.
1812.212. No seller shall make or authorize the making of any
reference to its compliance with this title.
1812.213. Every seller shall at all times keep and maintain a
complete set of books, records and accounts of seller assisted
marketing plan sales made by the seller. All documents relating to
each specific seller assisted marketing plan sold or leased shall be
maintained for four years after the date of the seller assisted
marketing plan contract.
1812.214. (a) Every seller of seller-assisted marketing plans other
than a California corporation shall file with the Attorney General
an irrevocable consent appointing the Secretary of State or successor
in office to act as the seller's attorney to receive service or any
lawful process in any noncriminal suit, action or proceeding against
the seller or the seller's successor, executor or administrator,
which may arise under this title. When service is made upon the
Secretary of State, it shall have the same force and validity as if
served personally on the seller. Service may be made by leaving a
copy of the process in the office of the Secretary of State, but it
shall not be effective unless:
(1) The plaintiff forthwith sends by first-class mail a notice of
the service upon the Secretary of State and a copy of the process to
the defendant or respondent at the last address on file with the
Attorney General; and
(2) The plaintiff's affidavit of compliance with this section is
filed in the case on or before the return date of the process, if
any, or within such further time as the court allows.
(b) If, pursuant to subdivision (c) of Section 1812.204, a seller
must obtain a surety bond or establish a trust account, the following
procedures apply:
(1) If a bond is obtained, a copy of it shall be filed with the
Attorney General; if a trust account is established, notification of
the depository, the trustee and the account number shall be filed
with the Attorney General.
(2) The bond or trust account required shall be in favor of the
State of California for the benefit of any person who is damaged by
any violation of this title or by the seller's breach of a contract
subject to this title or of any obligation arising therefrom. The
trust account shall also be in favor of any person damaged by these
practices.
(3) Any person claiming against the trust account for a violation
of this title may maintain an action at law against the seller and
the trustee. The surety or trustee shall be liable only for actual
damages and not the punitive damages permitted under Section
1812.218. The aggregate liability of the trustee to all persons
damaged by a seller's violation of this title shall in no event
exceed the amount of the trust account.
(4) The bond or the trust account shall be in an amount equal to
the total amount of the "initial payment" section of all
seller-assisted marketing plan contracts the seller has entered into
during the previous year or three hundred thousand dollars
($300,000), whichever is less, but in no case shall the amount be
less than fifty thousand dollars ($50,000). The amount required shall
be adjusted twice a year, no later than the tenth day of the first
month of the seller's fiscal year and no later than the tenth day of
the seventh month of the seller's fiscal year. A seller need only
establish a bond or trust account in the amount of fifty thousand
dollars ($50,000) at the commencement of business and during the
first six months the seller is in business. By the tenth day of the
seller's seventh month in business, the amount of the bond or trust
account shall be established as provided for herein as if the seller
had been in business for a year.
(c) If, pursuant to subdivision (b) of Section 1812.210, a seller
utilizes an escrow account to receive those portions of the
downpayment in excess of 20 percent of the initial payment before
delivery to the purchaser of the equipment, supplies or products or
services to be furnished under the terms of the contract, the
following procedures shall apply:
(1) The holder of the escrow account shall be independent of the
seller, and the seller shall not have any authority to direct
disbursements from the escrow account by the holder except upon
written notification by the purchaser to the holder of the escrow
account of the delivery of the equipment, supplies, or products as
required by and within the time limits set forth in the seller
assisted marketing plan contract.
(2) The name and address of the escrow account holder, the name of
the institution, the branch and account number of the escrow account
shall be reported to the Attorney General by the seller.
(3) Any person claiming against the escrow account for a violation
of this title may maintain an action at law against the seller and
the escrow account holder. The escrow account holder shall be liable
only for actual damages and not the punitive damages permitted under
Section 1812.218. The aggregate liability of the escrow account
holder to all persons damaged by a seller's violation of this title
shall in no event exceed the amount of the escrow account.
1812.215. (a) If a seller uses any untrue or misleading statements
to sell or lease a seller assisted marketing plan, or fails to comply
with Section 1812.203, or fails to give the disclosure documents or
disclose any of the information required by Sections 1812.205 and
1812.206, or the contract does not comply with the requirements of
this title, then within one year of the date of the contract at the
election of the purchaser upon written notice to the seller, the
contract shall be voidable by the purchaser and unenforceable by the
seller or his assignee as contrary to public policy and the purchaser
shall be entitled to receive from the seller all sums paid to the
seller when the purchaser is able to return all equipment, supplies
or products delivered by the seller; when such complete return cannot
be made, the purchaser shall be entitled to receive from the seller
all sums paid to the seller less the fair market value at the time of
delivery of the equipment, supplies or products not returned by the
purchaser, but delivered by the seller. Upon the receipt of such
sums, the purchaser shall make available to the seller at the
purchaser's address or at the places at which they are located at the
time the purchaser gives notice pursuant to this section, the
products, equipment or supplies received by the purchaser from the
seller. Provided, however, if the seller inadvertently has failed to
make any of the disclosures required by Section 1812.205 or 1812.206
or the contract inadvertently fails to comply with the requirements
of this title, the seller may cure such inadvertent defect by
providing the purchaser with the correct disclosure statements or
contract if at the time of providing such correct disclosures or
contract the seller also informs the purchaser in writing that
because of the seller's error, the purchaser has an additional 15-day
period after receipt of the correct disclosures or contract within
which to cancel the contract and receive a full return of all moneys
paid in exchange for return of whatever equipment, supplies or
products the purchaser has. If the purchaser does not cancel the
contract within 15 days after receipt of the correct disclosures or
contract, he may not in the future exercise his right to void the
contract under this section due to such noncompliance with the
disclosure or contract requirements of this title.
(b) If a seller fails to deliver the equipment, supplies or
product within 30 days of the delivery date stated in the contract,
unless such delivery delay is beyond the control of the seller, then
at any time prior to delivery or within 30 days after delivery, at
the election of the purchaser upon written notice to the seller, the
contract shall be voidable by the purchaser and unenforceable by the
seller or his assignee as contrary to public policy.
The rights of the purchaser set forth in this section shall be
cumulative to all other rights under this title or otherwise.
1812.216. (a) Any waiver by a purchaser of the provisions of this
title shall be deemed contrary to public policy and shall be void and
unenforceable. Any attempt by a seller to have a purchaser waive
rights given by this title shall be a violation of this title.
(b) In any proceeding involving this title, the burden of proving
an exemption or an exception from a definition is upon the person
claiming it.
1812.217. Any person, including, but not limited to, the seller, a
salesman, agent or representative of the seller or an independent
contractor who attempts to sell or lease or sells or leases a seller
assisted marketing plan, who willfully violates any provision of this
title or employs, directly or indirectly, any device, scheme or
artifice to deceive in connection with the offer or sale of any
seller assisted marketing plan, or willfully engages, directly or
indirectly, in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any person in connection
with the offer, purchase, lease or sale of any seller assisted
marketing plan shall, upon conviction, be fined not more than ten
thousand dollars ($10,000) for each unlawful transaction, or
imprisoned in the state prison, or imprisoned in county jail for not
more than one year, or be punished by both such fine and
imprisonment.
1812.218. Any purchaser injured by a violation of this title or by
the seller's breach of a contract subject to this title or of any
obligation arising from the sale or lease of the seller assisted
marketing plan may bring any action for recovery of damages. Judgment
shall be entered for actual damages, plus reasonable attorney's fees
and costs, but in no case shall the award of damages be less than
the amount of the initial payment provided the purchaser is able to
return all the equipment, supplies or products delivered by the
seller; when such complete return cannot be made, the minimum award
shall be no less than the amount of the initial payment less the fair
market value at the time of delivery of the equipment, supplies or
products that cannot be returned but were actually delivered by the
seller. An award, if the trial court deems it proper, may be entered
for punitive damages.
1812.219. The provisions of this title are not exclusive. The
remedies provided herein for violation of any section of this title
or for conduct proscribed by any section of this title shall be in
addition to any other procedures or remedies for any violation or
conduct provided for in any other law.
Nothing in this title shall limit any other statutory or any
common law rights of the Attorney General, any district attorney or
city attorney, or any other person. If any act or practice proscribed
under this title also constitutes a cause of action in common law or
a violation of another statute, the purchaser may assert such common
law or statutory cause of action under the procedures and with the
remedies provided for in such other law.
1812.220. If any provision of this act or if any application
thereof to any person or circumstance is held unconstitutional, the
remainder of the title and the application of such provision to other
persons and circumstances shall not be affected thereby.
1812.221. (a) When a deposit has been made in lieu of bond pursuant
to paragraph (1) of subdivision (b) of Section 1812.214 and Section
995.710 of the Code of Civil Procedure, the person asserting a claim
against the deposit shall, in lieu of the provisions of Section
996.430 of the Code of Civil Procedure, establish the claim by
furnishing evidence to the Attorney General of a money judgment
entered by a court together with evidence that the claimant is a
person described in paragraph (2) of subdivision (b) of Section
1812.214.
(b) When a person has completely established the claim with the
Attorney General, the Attorney General shall forthwith review and
approve the claim and enter the date of approval thereon. The claim
shall be designated an "approved claim. "
(c) When the first claim against a particular deposit account has
been approved, it shall not be paid until the expiration of a period
of 240 days after the date of its approval by the Attorney General.
Subsequent claims which are approved by the Attorney General within
the same 240-day period shall similarly not be paid until the
expiration of the 240-day period. Forthwith upon the expiration of
the 240-day period, the Attorney General shall pay all approved
claims from that 240-day period in full unless there are insufficient
funds in the deposit account in which case each approved claim shall
be paid a proportionate amount to exhaust the deposit account.
(d) When the Attorney General approves the first claim against a
particular deposit account after the expiration of a 240-day period,
the date of approval of that claim shall begin a new 240-day period
to which subdivision (c) shall apply with respect to the amount
remaining in the deposit account.
(e) After a deposit account is exhausted, no further claims shall
be paid by the Attorney General. Claimants who have had their claims
paid in full or in part pursuant to subdivisions (c) and (d) shall
not be required to make a contribution back to the deposit account
for the benefit of other claimants.
(f) When a deposit has been made in lieu of bond, the amount of
the deposit shall not be subject to attachment, garnishment, or
execution with respect to an action or judgment against the seller,
other than as to an amount as no longer needed or required for the
purpose of this title which would otherwise be returned to the seller
by the Attorney General.
1812.200. (a) The Legislature finds and declares that the
widespread sale of seller assisted marketing plans, often connected
with the sale of vending machines, racks or work-at-home
paraphernalia, has created numerous problems in California for
purchasers which are inimical to good business practice. Often
purchasers of seller assisted marketing plans are individuals
inexperienced in business matters who use their life savings to
purchase the seller assisted marketing plan in the hope that they
will earn enough money in addition to retirement income or salary to
become or remain self-sufficient. Many purchasers are the elderly who
are seeking a way to supplement their fixed incomes. The initial
payment is usually in the form of a purchase of overpriced equipment
or products. California purchasers have suffered substantial losses
when they have failed to receive full and complete information
regarding the seller assisted marketing plan, the amount of money
they can reasonably expect to earn, and the previous experience of
the seller assisted marketing plan seller. Seller assisted marketing
plan sellers have a significant impact upon the economy and
well-being of this state and its local communities. The provisions of
this title relating to seller assisted marketing plans are necessary
for the public welfare.
(b) It is the intent of this title to provide each prospective
seller assisted marketing plan purchaser with the information
necessary to make an intelligent decision regarding seller assisted
marketing plans being offered; to safeguard the public against deceit
and financial hardship; to insure, foster and encourage competition
and fair dealing in the sale of seller assisted marketing plans by
requiring adequate disclosure; to prohibit representations that tend
to mislead; and to prohibit or restrict unfair contract terms. This
title shall be construed liberally in order to achieve the foregoing
purposes.
1812.201. For the purposes of this title, the following definitions
shall apply:
(a) "Seller assisted marketing plan" means any sale or lease or
offer to sell or lease any product, equipment, supplies, or services
that requires a total initial payment exceeding five hundred dollars
($500), but requires an initial cash payment of less than fifty
thousand dollars ($50,000), that will aid a purchaser or will be used
by or on behalf of the purchaser in connection with or incidental to
beginning, maintaining, or operating a business when the seller
assisted marketing plan seller has advertised or in any other manner
solicited the purchase or lease of the seller assisted marketing plan
and done any of the following acts:
(1) Represented that the purchaser will earn, is likely to earn,
or can earn an amount in excess of the initial payment paid by the
purchaser for participation in the seller assisted marketing plan.
(2) Represented that there is a market for the product, equipment,
supplies, or services, or any product marketed by the user of the
product, equipment, supplies, or services sold or leased or offered
for sale or lease to the purchaser by the seller, or anything, be it
tangible or intangible, made, produced, fabricated, grown, bred,
modified, or developed by the purchaser using, in whole or in part,
the product, supplies, equipment, or services that were sold or
leased or offered for sale or lease to the purchaser by the seller
assisted marketing plan seller.
(3) Represented that the seller will buy back or is likely to buy
back any product made, produced, fabricated, grown, or bred by the
purchaser using, in whole or in part, the product, supplies,
equipment, or services that were initially sold or leased or offered
for sale or lease to the purchaser by the seller assisted marketing
plan seller.
(b) A "seller assisted marketing plan" shall not include:
(1) A security, as defined in the Corporate Securities Law of 1968
(Division 1 (commencing with Section 25000) of Title 4 of the
Corporations Code), that has been qualified for sale by the
Department of Corporations, or is exempt under Chapter 1 (commencing
with Section 25100) of Part 2 of Division 1 of Title 4 of the
Corporations Code from the necessity to qualify.
(2) A franchise defined by the Franchise Investment Law (Division
5 (commencing with Section 31000) of Title 4 of the Corporations
Code) that is registered with the Department of Corporations or is
exempt under Chapter 1 (commencing with Section 31100) of Part 2 of
Division 5 of Title 4 of the Corporations Code from the necessity of
registering.
(3) Any transaction in which either the seller or purchaser or the
lessor or lessee is licensed pursuant to and the transaction is
governed by the Real Estate Law, Division 4 (commencing with Section
10000) of the Business and Professions Code.
(4) A license granted by a general merchandise retailer that
allows the licensee to sell goods, equipment, supplies, products, or
services to the general public under the retailer's trademark, trade
name, or service mark if all of the following criteria are satisfied:
(A) The general merchandise retailer has been doing business in
this state continually for five years prior to the granting of the
license.
(B) The general merchandise retailer sells diverse kinds of goods,
equipment, supplies, products, or services.
(C) The general merchandise retailer also sells the same goods,
equipment, supplies, products, or services directly to the general
public.
(D) During the previous 12 months the general merchandise retailer'
s direct sales of the same goods, equipment, supplies, products, or
services to the public account for at least 50 percent of its yearly
sales of these goods, equipment, supplies, products, or services made
under the retailer's trademark, trade name, or service mark.
(5) A newspaper distribution system distributing newspapers as
defined in Section 6362 of the Revenue and Taxation Code.
(6) A sale or lease to an existing or beginning business
enterprise that also sells or leases equipment, products, supplies,
or performs services that are not supplied by the seller and that the
purchaser does not utilize with the equipment, products, supplies,
or services of the seller, if the equipment, products, supplies, or
services not supplied by the seller account for more than 25 percent
of the purchaser's gross sales.
(7) The sale in the entirety of an "ongoing business." For
purposes of this paragraph, an "ongoing business" means a business
that for at least six months previous to the sale has been operated
from a particular specific location, has been open for business to
the general public, and has had all equipment and supplies necessary
for operating the business located at that location. The sale shall
be of the entire "ongoing business" and not merely a portion of the
ongoing business.
(8) A sale or lease or offer to sell or lease to a purchaser (A)
who has for a period of at least six months previously bought
products, supplies, services, or equipment that were sold under the
same trademark or trade name or that were produced by the seller and,
(B) who has received on resale of the product, supplies, services,
or equipment an amount that is at least equal to the amount of the
initial payment.
(9) The renewal or extension of an existing seller assisted
marketing plan contract.
(10) A product distributorship that meets each of the following
requirements:
(A) The seller sells products to the purchaser for resale by the
purchaser, and it is reasonably contemplated that substantially all
of the purchaser's sales of the product will be at wholesale.
(B) The agreement between the parties does not require that the
purchaser pay the seller, or any person associated with the seller, a
fee or any other payment for the right to enter into the agreement,
and does not require the purchaser to buy a minimum or specified
quantity of the products, or to buy products for a minimum or
specified period of time. For purposes of this paragraph, a "person
associated with the seller" means a person, including an individual
or a business entity, controlling, controlled by, or under the same
control as the seller.
(C) The seller is a corporation, partnership, limited liability
company, joint venture, or any other business entity.
(D) The seller has a net worth of at least ten million dollars
($10,000,000) according to audited financial statements of the seller
done during the 18 months preceding the date of the initial sale of
products to the purchaser. Net worth may be determined on a
consolidated basis if the seller is a subsidiary of another business
entity that is permitted by generally accepted accounting standards
to prepare financial statements on a consolidated basis and that
business entity absolutely and irrevocably agrees in writing to
guarantee the seller's obligations to the purchaser. The seller's net
worth shall be verified by a certification to the Attorney General
from an independent certified public accountant that the audited
financial statement reflects a net worth of at least ten million
dollars ($10,000,000). This certification shall be provided within 30
days following receipt of a written request from the Attorney
General.
(E) The seller grants the purchaser a license to use a trademark
that is registered under federal law.
(F) It is not an agreement or arrangement encouraging a
distributor to recruit others to participate in the program and
compensating the distributor for recruiting others into the program
or for sales made by others recruited into the program.
(c) "Person" includes an individual, corporation, partnership,
limited liability company, joint venture, or any business entity.
(d) "Seller" means a person who sells or leases or offers to sell
or lease a seller assisted marketing plan and who meets either of the
following conditions:
(1) Has sold or leased or represents or implies that the seller
has sold or leased, whether in California or elsewhere, at least five
seller assisted marketing plans within 24 months prior to a
solicitation.
(2) Intends or represents or implies that the seller intends to
sell or lease, whether in California or elsewhere, at least five
seller assisted marketing plans within 12 months following a
solicitation.
For purposes of this title, the seller is the person to whom the
purchaser becomes contractually obligated. A "seller" does not
include a licensed real estate broker or salesman who engages in the
sale or lease of a "business opportunity" as that term is used in
Sections 10000 to 10030, inclusive, of the Business and Professions
Code, or elsewhere in Chapter 1 (commencing with Section 10000),
Chapter 2 (commencing with Section 10050), or Chapter 6 (commencing
with Section 10450) of Part 1 of Division 4 of the Business and
Professions Code.
(e) "Purchaser" means a person who is solicited to become
obligated or does become obligated on a seller assisted marketing
plan contract.
(f) "Equipment" includes machines, all electrical devices, video
or audio devices, molds, display racks, vending machines, coin
operated game machines, machines that dispense products, and display
units of all kinds.
(g) "Supplies" includes any and all materials used to produce,
grow, breed, fabricate, modify, develop, or make any product or item.
(h) "Product" includes any tangible chattel, including food or
living animals, that the purchaser intends to:
(1) Sell or lease.
(2) Use to perform a service.
(3) Resell or attempt to resell to the seller assisted marketing
plan seller.
(4) Provide or attempt to provide to the seller assisted marketing
plan seller or to any other person whom the seller suggests the
purchaser contact so that the seller assisted marketing plan seller
or that other person may assist, either directly or indirectly, the
purchaser in distributing, selling, leasing, or otherwise disposing
of the product.
(i) "Services" includes any assistance, guidance, direction, work,
labor, or services provided by the seller to initiate or maintain or
assist in the initiation or maintenance of a business.
(j) "Seller assisted marketing plan contract" or "contract" means
any contract or agreement that obligates a purchaser to a seller.
(k) "Initial payment" means the total amount a purchaser is
obligated to pay to the seller under the terms of the seller assisted
marketing plan contract prior to or at the time of delivery of the
equipment, supplies, products, or services or within six months of
the purchaser commencing operation of the seller assisted marketing
plan. If the contract sets forth a specific total sale price for
purchase of the seller assisted marketing plan which total price is
to be paid partially as a downpayment and then in specific monthly
payments, the "initial payment" means the entire total sale price.
(l) "Initial cash payment" or "downpayment" means that portion of
the initial payment that the purchaser is obligated to pay to the
seller prior to or at the time of delivery of equipment, supplies,
products, or services. It does not include any amount financed by or
for which financing is to be obtained by the seller, or financing
that the seller assists in obtaining.
(m) "Buy-back" or "secured investment" means any representation
that implies in any manner that the purchaser's initial payment is
protected from loss. These terms include a representation or
implication of any of the following:
(1) That the seller may repurchase either all or part of what it
sold to the purchaser.
(2) That the seller may at some future time pay the purchaser the
difference between what has been earned and the initial payment.
(3) That the seller may in the ordinary course buy from the
purchaser items made, produced, fabricated, grown, bred, modified, or
developed by the purchaser using, in whole or in part, the product,
supplies, equipment, or services that were initially sold or leased
to the purchaser by the seller.
(4) That the seller or a person to whom the seller will refer the
purchaser may in the ordinary course sell, lease, or distribute the
items the purchaser has for sale or lease.
1812.202. (a) An offer to sell or offer to lease a seller assisted
marketing plan shall occur in this state whenever:
(1) The offer to sell or offer to lease is made in this state;
(2) The purchaser resides in this state at the time of the offer;
or
(3) The offer to sell or offer to lease either originates from
this state or is directed by the seller or lessor to this state and
received at the place to which it is directed.
(b) A sale or lease of a seller assisted marketing plan shall
occur in this state whenever:
(1) The offer to sell or offer to lease is accepted in this state;
(2) The purchaser resides in this state at the time of the sale;
or
(3) The acceptance is communicated to a seller situated in this
state.
1812.203. (a) The seller of any seller assisted marketing plan
shall pay an annual fee in the amount of one hundred dollars ($100)
and annually file with the Attorney General a copy of the disclosure
statements required under Sections 1812.205 and 1812.206, as well as
a list of the names and resident addresses of those individuals who
sell the seller assisted marketing plan on behalf of the seller. The
first filing shall be made at least 30 days prior to placing any
advertisement or making any other representations to prospective
purchasers. The first filing shall not be deemed to be effective
until a notice of filing has been issued by the Attorney General. The
seller may not make any advertisement or other representation to
prospective purchasers until a notice of filing has been issued by
the Attorney General. The disclosure statements on file shall be
updated through a new filing and payment of a fee in the amount of
thirty dollars ($30), whenever material changes occur during the year
following the annual filing and the updated filing shall include all
disclosure statements required by Sections 1812.205 and 1812.206 and
a list of the names and resident addresses of all current
salespersons and all salespersons who have acted on behalf of the
seller since the previous filing, whether the annual filing or an
updated filing, indicating which salespersons are still active and
which no longer act on behalf of the seller. Each seller of a seller
assisted marketing plan shall file the annual renewal filing, whether
or not any update filings have been made, at least 10 days before
one year has elapsed from the date of the notice of filing issued by
the Attorney General, and at least 10 days before the same date every
year thereafter. The annual renewal filing shall include all
disclosure statements required by Sections 1812.205 and 1812.206 and
a list of the names and addresses of the residences of all current
salespersons and all salespersons who have acted on behalf of the
seller since the previous filing (whether the annual filing or an
updated filing), indicating which salespersons are still active and
which no longer act on behalf of the seller. The annual renewal
filing fee shall be one hundred dollars ($100). If an annual renewal
filing is not filed as required, the previous filing shall be deemed
to have lapsed and the seller shall be prohibited from placing any
seller assisted marketing plan advertisements or making any other
representations to prospective purchasers of seller assisted
marketing plan until a new annual filing is made and a new notice of
filing has been issued by the Attorney General.
(b) The Attorney General may send by certified mail to the address
set forth in the seller assisted marketing plan filing an intent to
issue a stop order denying the effectiveness of or suspending or
revoking the effectiveness of any filing if he or she finds the
following:
(1) That there has been a failure to comply with any of the
provisions of this title.
(2) That the offer or sale of the seller assisted marketing plan
would constitute a misrepresentation to, or deceit of, or fraud on,
the purchaser.
(3) That any person identified in the filing has been convicted of
an offense under paragraph (1) of subdivision (b) of Section
1812.206, or is subject to an order or has had a civil judgment
entered against him or her as described in paragraphs (2) and (3) of
subdivision (b) of Section 1812.206, and the involvement of that
person in the sale or management of the seller assisted marketing
plan creates an unreasonable risk to prospective purchasers.
(c) The notice referred to shall include facts supporting a
suspension or revocation. If the seller assisted marketing plan does
not submit to the Attorney General, under penalties of perjury signed
by an owner or officer of the seller assisted marketing plan, within
10 days of receipt of the intent to issue a stop order, a refutation
of each and every supporting fact set forth in the notice, and each
fact not refuted shall be deemed, for purposes of issuance of the
order, an admission that the fact is true. If, in the opinion of the
Attorney General, and based upon supporting facts not refuted by the
seller assisted marketing plan, the plan is offered to the public
without compliance with this title, the Attorney General may order
the seller to desist and refrain from the further sale or attempted
sale of the seller assisted marketing plan unless and until a notice
of filing has been issued pursuant to this section. Until that time,
the registration shall be void. The order shall be in effect until
and unless the seller assisted marketing plan files a proceeding in
superior court pursuant to Section 1085 or 1094.5 of the Code of
Civil Procedure or seeks other judicial relief and serves a copy of
the proceeding upon the Attorney General.
1812.204. In selling, leasing, or offering to sell or lease a
seller assisted marketing plan in this state, sellers shall not:
(a) Use the phrase "buy-back" or "secured investment" or similar
phrase orally or in writing when soliciting, offering, leasing, or
selling a seller assisted marketing plan if the "security" is the
value of the equipment, supplies, products or services supplied by
the seller to the purchaser.
(b) Use the phrase "buy-back" or "secured investment" or similar
phrase orally or in writing when soliciting, offering, leasing, or
selling a seller assisted marketing plan unless there are no
restrictions or qualifications whatsoever preventing or limiting a
purchaser from being able to invoke the "buy-back" or "secured"
portion of the seller assisted marketing plan contract at any time
the purchaser desires during the one-year period following the
contract date. Upon invocation of the "buy-back" or "security"
provision, the minimum amount a purchaser shall be entitled to have
returned to him is the full amount of his initial payment, less the
amount actually received by him from the operation of the seller
assisted marketing plan. The "amount actually received" means either
the amount the purchaser actually obtained from the seller for any
product resold to the seller or the amount of money the purchaser
received for use of the purchaser's product, equipment, supplies or
services, less any amount: (1) the purchaser has paid the owner or
manager of the location at which the purchaser's products, equipment,
supplies or services are placed; and (2) the purchaser has paid to
obtain other items needed in order to sell, make, produce, fabricate,
grow, breed, modify, or develop the item which the seller assisted
marketing plan purchaser intends to sell, lease, distribute, or
otherwise dispose of.
(c) Represent that a purchaser's initial payment is "secured" in
any manner or to any degree or that the seller provides a "buy-back"
arrangement unless the seller has, in conformity with subdivision (b)
of Section 1812.214, either obtained a surety bond issued by a
surety company admitted to do business in this state or established a
trust account at a federally insured bank or savings and loan
association located in this state.
(d) Represent that the seller assisted marketing plan provides
income or earning potential of any kind unless the seller has data to
substantiate the claims of income or earning potential and discloses
this data to the purchaser at the time the claim is made, if made in
person, or if made through written or telephonic communication, at
the first in-person communication thereafter and, when disclosed, the
data is left with the purchaser. A mathematical computation of the
number of sales multiplied by the amount of profit per sale to reach
a projected income figure is not sufficient data to substantiate an
income or earning potential claim. Income or earning potential claims
cannot be made or implied at all unless they are based on the
experience of at least 10 purchasers from the seller assisted
marketing plan being offered. The data left by the seller must, at a
minimum, disclose:
(1) The length of time the seller has been selling the particular
seller assisted marketing plan being offered;
(2) The number of purchasers from the seller known to the seller
to have made at least the same sales, income or profits as those
represented; and
(3) The percentage the number represents of the total number of
purchasers from the seller.
(e) Use the trademark, service mark, trade name, logotype,
advertising or other commercial symbol of any business which does not
either control the ownership interest in the seller or accept
responsibility for all representations made by the seller in regard
to the seller assisted marketing plan, unless the nature of the
seller's relationship to such other business entity is set forth
immediately adjacent to and in type size equal to or larger than that
used to depict the commercial symbol of such other business. If a
member of a trade association, the seller may use the logo or
registration mark of the trade association in advertisements and
materials without regard to this subdivision.
(f) Place or cause to be placed any advertisement for a seller
assisted marketing plan which does not include the actual business
name of the seller, and if it differs, the name under which the
seller assisted marketing plan is operated and the street address of
the principal place of business of the seller.
1812.205. At the first in-person communication with a potential
purchaser or in the first written response to an inquiry by a
potential purchaser, whichever occurs first, wherein the seller
assisted marketing plan is described, the seller or his or her
representative shall provide the prospective purchaser a written
document, the cover sheet of which is entitled in at least 16-point
boldface capital letters "DISCLOSURE REQUIRED BY CALIFORNIA LAW."
Under the title shall appear in boldface of at least 10-point type,
the statement: "The State of California has not reviewed and does not
approve, recommend, endorse or sponsor any seller assisted marketing
plan. The information contained in this disclosure has not been
checked by the state. If you have any questions about this purchase,
see an attorney or other financial adviser before you sign a contract
or agreement." Nothing shall appear on the cover sheet except the
title and the statement required above. The disclosure document shall
contain the following information:
(a) The name of the seller, the name under which the seller is
doing or intends to do business and the name of any parent or
affiliated company that will engage in business transactions with
purchasers or accept responsibility for statements made by the
seller.
(b) A statement of the initial payment to be paid by the purchaser
to the seller, or when not known, a statement of the approximate
initial payment charged, the amount of the initial payment to be paid
to a person inducing, directly or indirectly, a purchaser to
contract for the seller assisted marketing plan.
(c) A full and detailed description of the actual services the
seller will undertake to perform for the purchaser.
(d) When the seller makes any statement concerning earnings or
range of earnings that may be made through the seller assisted
marketing plan, he must comply with subdivision (d) of Section
1812.204 and set forth in complete form in this disclosure statement
the following:
"No guarantee of earnings or ranges of earnings can be made. The
number of purchasers who have earned through this business an amount
in excess of the amount of their initial payment is at least ______,
which represents ___ percent of the total number of purchasers of
this seller assisted marketing plan."
(e) If training of any type is promised by the seller, a complete
description of the training and the length of the training.
(f) If the seller promises services to be performed in connection
with the placement of the equipment, product or supplies at a
location from which they will be sold or used, the full nature of
those services as well as the nature of the agreements to be made
with the owner or manager of the location at which the purchaser's
equipment, product or supplies will be placed, must be set forth.
(g) If the seller represents orally or in writing when soliciting
or offering for sale or lease or selling or leasing a seller assisted
marketing plan that there is a "buy-back" arrangement or that the
initial payment is in some manner protected from loss or "secured,"
the entire and precise nature of the "buy-back", "protection" or
"security" arrangement shall be completely and clearly disclosed.
1812.206. At least 48 hours prior to the execution of a seller
assisted marketing plan contract or agreement or at least 48 hours
prior to the receipt of any consideration, whichever occurs first,
the seller or his or her representative shall provide to the
prospective purchaser in writing a document entitled "SELLER ASSISTED
MARKETING PLAN INFORMATION SHEET." The seller may combine the
information required under this section with the information required
under Section 1812.205 and, if done, shall utilize the single title
"DISCLOSURES REQUIRED BY CALIFORNIA LAW," and the title page required
by Section 1812.205. If a combined document is used, it shall be
given at the time required by Section 1812.205, provided that this
time meets the 48-hour test of this section. The information sheet
required by this section shall contain the following:
(a) The name of and the office held by the seller's owners,
officers, directors, trustees and general or limited partners, as the
case may be, and the names of those individuals who have management
responsibilities in connection with the seller's business activities.
(b) A statement whether the seller, any person identified in
subdivision (a), and any other company managed by a person identified
in subdivision (a):
(1) Has been convicted of a felony or misdemeanor or pleaded nolo
contendere to a felony or misdemeanor charge if the felony or
misdemeanor involved an alleged violation of this title, fraud,
embezzlement, fraudulent conversion or misappropriation of property.
(2) Has been held liable in a civil action by final judgment or
consented to the entry of a stipulated judgment if the civil action
alleged a violation of this title, fraud, embezzlement, fraudulent
conversion or misappropriation of property or the use of untrue or
misleading representations in an attempt to sell or dispose of real
or personal property or the use of unfair, unlawful or deceptive
business practices.
(3) Is subject to any currently effective agreement, injunction,
or restrictive order, including, but not limited to, a "cease and
desist" order, an "assurance of discontinuance," or other comparable
agreement or order, relating to business activity as the result of an
action or investigation brought by a public agency or department,
including, but not limited to, an action affecting any vocational
license.
The statements required by paragraphs (1), (2) and (3) of this
subdivision shall set forth the terms of the agreement, or the court,
the docket number of the matter, the date of the conviction or of
the judgment and, when involved, the name of the governmental agency
that initiated the investigation or brought the action resulting in
the conviction or judgment.
(4) Has at any time during the previous seven fiscal years been
the subject of an order for relief in bankruptcy, been reorganized
due to insolvency, or been a principal, director, officer, trustee,
general or limited partner, or had management responsibilities of any
other person, as defined in subdivision (b) of Section 1812.201,
that has so filed or was so reorganized, during or within one year
after the period that the individual held that position. If so, the
name and location of the person having so filed, or having been so
reorganized, the date thereof, the court which exercised
jurisdiction, and the docket number of the matter shall be set forth.
(c) The length of time the seller:
(1) Has sold seller assisted marketing plans.
(2) Has sold the specific seller assisted marketing plan being
offered to the purchaser.
(d) If the seller is required to secure a bond or establish a
trust account pursuant to the requirements of Section 1812.204, the
information sheet shall state either:
(1) "Seller has secured a bond issued by
_________________________________________________,
(name and address of surety company)
a surety company admitted to do business in this state. Before
signing a contract to purchase this seller assisted marketing plan,
you should check with the surety company to determine the bond's
current status," or
(2) "Seller has deposited with the office of the Attorney General
information regarding its trust account. Before signing a contract to
purchase this seller assisted marketing plan, you should check with
the Attorney General to determine the current status of the trust
account."
(e) A copy of a recent, not more than 12 months old, financial
statement of the seller, together with a statement of any material
changes in the financial condition of the seller from the date
thereof. That financial statement shall either be audited or be under
penalty of perjury signed by one of the seller's officers,
directors, trustees or general or limited partners. The declaration
under penalty of perjury shall indicate that to the best of the
signatory's knowledge and belief the information in the financial
statement is true and accurate; the date of signature and the
location where signed shall also be indicated. Provided, however,
that where a seller is a subsidiary of another corporation which is
permitted by generally accepted accounting standards to prepare
financial statements on a consolidated basis, the above information
may be submitted in the same manner for the parent if the
corresponding financial statement of the seller is also provided and
the parent absolutely and irrevocably has agreed to guarantee all
obligations of the seller.
(f) An unexecuted copy of the entire seller assisted marketing
plan contract.
(g) For purposes of this section, "seller's owners" means any
individual who holds an equity interest of at least 10 percent in the
seller.
1812.207. Every contract for sale or lease of a seller assisted
marketing plan in this state shall be in writing and shall be subject
to the provisions of this title. A copy of the fully completed
contract and all other documents the seller requires the purchaser to
sign shall be given to the purchaser at the time they are signed.
1812.208. The purchaser shall have the right to cancel a seller
assisted marketing plan contract for any reason at any time within
three business days of the date the purchaser and the seller sign the
contract. The notice of the right to cancel and the procedures to be
followed when a contract is canceled shall comply with Section
1812.209.
1812.209. Every seller assisted marketing plan contract shall set
forth in at least 10-point type or equivalent size if handwritten,
all of the following:
(a) The terms and conditions of payment including the initial
payment, additional payments, and downpayment required. If the
contract provides for the seller to receive more than 20 percent of
the initial payment before delivery to the purchaser of the
equipment, supplies or products or services to be furnished under the
terms of the contract, the contract shall clearly set forth for the
escrow account established pursuant to subdivision (b) of Section
1812.210 and the name and address of the escrow account holder, as
well as the institution, branch, and account number of the escrow
account. If the contract provides for payment of any amount in excess
of 20 percent of the initial payment prior to delivery of the
equipment, supplies or products or services to be furnished under the
terms of the contract, the contract shall set forth that payment of
the amount in excess of 20 percent shall be by separate instrument
made payable to the escrow account.
(b) Immediately above the place at which the purchaser signs the
contract the following notification, in boldface type, of the
purchaser's right to cancel the contract:
"You have three business days in which you may cancel this
contract for any reason by mailing or delivering written notice to
the seller assisted marketing plan seller. The three business days
shall expire on
________________________
(last date to mail
or deliver notice)
and notice of cancellation should be mailed or delivered to
________________________.
(seller assisted marketing
plan seller's name and
business street address)
If you choose to mail your notice, it must be placed in the United
States mail properly addressed, first-class postage prepaid, and
postmarked before midnight of the above date. If you choose to
deliver your notice to the seller directly, it must be delivered to
him by the end of his normal business day on the above date. Within
five business days of receipt of the notice of cancellation, the
seller shall return to the purchaser all sums paid by the purchaser
to the seller pursuant to this contract. Within five business days
after receipt of all such sums, the purchaser shall make available at
his address or at the place at which they were caused to be located,
all equipment, products and supplies provided to the purchaser
pursuant to this contract. Upon demand of the seller, such equipment,
products and supplies shall be made available at the time the
purchaser receives full repayment by cash, money order or certified
check."
(c) A full and detailed description of the acts or services the
seller will undertake to perform for the purchaser.
(d) The seller's principal business address and the name and the
address of its agent, other than the Secretary of State, in the State
of California authorized to receive service of process.
(e) The business form of the seller, whether corporate,
partnership or otherwise.
(f) The delivery date or, when the contract provides for a
staggered delivery of items to the purchaser, the approximate
delivery date of those products, equipment or supplies the seller is
to deliver to the purchaser to enable the purchaser to begin or
maintain his business and whether the products, equipment or supplies
are to be delivered to the purchaser's home or business address or
are to be placed or caused to be placed by the seller at locations
owned or managed by persons other than the purchaser.
(g) A complete description of the nature of the "buy-back",
"protection", or "security" arrangement, if the seller has
represented orally or in writing when selling or leasing, soliciting
or offering a seller assisted marketing plan that there is a
"buy-back" or that the initial payment or any part of it is
"protected" or "secured."
(h) A statement which accurately sets forth a purchaser's right to
void the contract under the circumstances and in the manner set
forth in subdivisions (a) and (b) of Section 1812.215.
(i) The name of the supplier and the address of such supplier of
the products, equipment, or supplies the seller is to deliver to the
purchaser to enable the purchaser to begin or maintain his business.
1812.210. (a) No seller assisted marketing plan contract shall
require or entail the execution of any note or series of notes by the
purchaser which, when separately negotiated, will cut off as to
third parties any right of action or defense which the purchaser may
have against the seller.
(b) If the contract referred to in Section 1812.209 provides for a
downpayment to be paid to the seller, the downpayment shall not
exceed 20 percent of the initial payment amount. In no event shall
the contract payment schedule provide for the seller to receive more
than 20 percent of the initial payment before delivery to the
purchaser, or to the place at which they are to be located, the
equipment, supplies or products, unless all sums in excess of 20
percent are placed in an escrow account as provided for in
subdivision (c) of Section 1812.214. Funds placed in an escrow
account shall not be released until the purchaser notifies the escrow
holder in writing of the delivery of such equipment, supplies or
products within the time limits set forth in the seller assisted
marketing plan contract. Notification of delivery by the purchaser to
the escrow holder shall not be unreasonably withheld.
1812.211. Any assignee of the seller assisted marketing plan
contract or the seller's rights is subject to all equities, rights
and defenses of the purchaser against the seller.
1812.212. No seller shall make or authorize the making of any
reference to its compliance with this title.
1812.213. Every seller shall at all times keep and maintain a
complete set of books, records and accounts of seller assisted
marketing plan sales made by the seller. All documents relating to
each specific seller assisted marketing plan sold or leased shall be
maintained for four years after the date of the seller assisted
marketing plan contract.
1812.214. (a) Every seller of seller-assisted marketing plans other
than a California corporation shall file with the Attorney General
an irrevocable consent appointing the Secretary of State or successor
in office to act as the seller's attorney to receive service or any
lawful process in any noncriminal suit, action or proceeding against
the seller or the seller's successor, executor or administrator,
which may arise under this title. When service is made upon the
Secretary of State, it shall have the same force and validity as if
served personally on the seller. Service may be made by leaving a
copy of the process in the office of the Secretary of State, but it
shall not be effective unless:
(1) The plaintiff forthwith sends by first-class mail a notice of
the service upon the Secretary of State and a copy of the process to
the defendant or respondent at the last address on file with the
Attorney General; and
(2) The plaintiff's affidavit of compliance with this section is
filed in the case on or before the return date of the process, if
any, or within such further time as the court allows.
(b) If, pursuant to subdivision (c) of Section 1812.204, a seller
must obtain a surety bond or establish a trust account, the following
procedures apply:
(1) If a bond is obtained, a copy of it shall be filed with the
Attorney General; if a trust account is established, notification of
the depository, the trustee and the account number shall be filed
with the Attorney General.
(2) The bond or trust account required shall be in favor of the
State of California for the benefit of any person who is damaged by
any violation of this title or by the seller's breach of a contract
subject to this title or of any obligation arising therefrom. The
trust account shall also be in favor of any person damaged by these
practices.
(3) Any person claiming against the trust account for a violation
of this title may maintain an action at law against the seller and
the trustee. The surety or trustee shall be liable only for actual
damages and not the punitive damages permitted under Section
1812.218. The aggregate liability of the trustee to all persons
damaged by a seller's violation of this title shall in no event
exceed the amount of the trust account.
(4) The bond or the trust account shall be in an amount equal to
the total amount of the "initial payment" section of all
seller-assisted marketing plan contracts the seller has entered into
during the previous year or three hundred thousand dollars
($300,000), whichever is less, but in no case shall the amount be
less than fifty thousand dollars ($50,000). The amount required shall
be adjusted twice a year, no later than the tenth day of the first
month of the seller's fiscal year and no later than the tenth day of
the seventh month of the seller's fiscal year. A seller need only
establish a bond or trust account in the amount of fifty thousand
dollars ($50,000) at the commencement of business and during the
first six months the seller is in business. By the tenth day of the
seller's seventh month in business, the amount of the bond or trust
account shall be established as provided for herein as if the seller
had been in business for a year.
(c) If, pursuant to subdivision (b) of Section 1812.210, a seller
utilizes an escrow account to receive those portions of the
downpayment in excess of 20 percent of the initial payment before
delivery to the purchaser of the equipment, supplies or products or
services to be furnished under the terms of the contract, the
following procedures shall apply:
(1) The holder of the escrow account shall be independent of the
seller, and the seller shall not have any authority to direct
disbursements from the escrow account by the holder except upon
written notification by the purchaser to the holder of the escrow
account of the delivery of the equipment, supplies, or products as
required by and within the time limits set forth in the seller
assisted marketing plan contract.
(2) The name and address of the escrow account holder, the name of
the institution, the branch and account number of the escrow account
shall be reported to the Attorney General by the seller.
(3) Any person claiming against the escrow account for a violation
of this title may maintain an action at law against the seller and
the escrow account holder. The escrow account holder shall be liable
only for actual damages and not the punitive damages permitted under
Section 1812.218. The aggregate liability of the escrow account
holder to all persons damaged by a seller's violation of this title
shall in no event exceed the amount of the escrow account.
1812.215. (a) If a seller uses any untrue or misleading statements
to sell or lease a seller assisted marketing plan, or fails to comply
with Section 1812.203, or fails to give the disclosure documents or
disclose any of the information required by Sections 1812.205 and
1812.206, or the contract does not comply with the requirements of
this title, then within one year of the date of the contract at the
election of the purchaser upon written notice to the seller, the
contract shall be voidable by the purchaser and unenforceable by the
seller or his assignee as contrary to public policy and the purchaser
shall be entitled to receive from the seller all sums paid to the
seller when the purchaser is able to return all equipment, supplies
or products delivered by the seller; when such complete return cannot
be made, the purchaser shall be entitled to receive from the seller
all sums paid to the seller less the fair market value at the time of
delivery of the equipment, supplies or products not returned by the
purchaser, but delivered by the seller. Upon the receipt of such
sums, the purchaser shall make available to the seller at the
purchaser's address or at the places at which they are located at the
time the purchaser gives notice pursuant to this section, the
products, equipment or supplies received by the purchaser from the
seller. Provided, however, if the seller inadvertently has failed to
make any of the disclosures required by Section 1812.205 or 1812.206
or the contract inadvertently fails to comply with the requirements
of this title, the seller may cure such inadvertent defect by
providing the purchaser with the correct disclosure statements or
contract if at the time of providing such correct disclosures or
contract the seller also informs the purchaser in writing that
because of the seller's error, the purchaser has an additional 15-day
period after receipt of the correct disclosures or contract within
which to cancel the contract and receive a full return of all moneys
paid in exchange for return of whatever equipment, supplies or
products the purchaser has. If the purchaser does not cancel the
contract within 15 days after receipt of the correct disclosures or
contract, he may not in the future exercise his right to void the
contract under this section due to such noncompliance with the
disclosure or contract requirements of this title.
(b) If a seller fails to deliver the equipment, supplies or
product within 30 days of the delivery date stated in the contract,
unless such delivery delay is beyond the control of the seller, then
at any time prior to delivery or within 30 days after delivery, at
the election of the purchaser upon written notice to the seller, the
contract shall be voidable by the purchaser and unenforceable by the
seller or his assignee as contrary to public policy.
The rights of the purchaser set forth in this section shall be
cumulative to all other rights under this title or otherwise.
1812.216. (a) Any waiver by a purchaser of the provisions of this
title shall be deemed contrary to public policy and shall be void and
unenforceable. Any attempt by a seller to have a purchaser waive
rights given by this title shall be a violation of this title.
(b) In any proceeding involving this title, the burden of proving
an exemption or an exception from a definition is upon the person
claiming it.
1812.217. Any person, including, but not limited to, the seller, a
salesman, agent or representative of the seller or an independent
contractor who attempts to sell or lease or sells or leases a seller
assisted marketing plan, who willfully violates any provision of this
title or employs, directly or indirectly, any device, scheme or
artifice to deceive in connection with the offer or sale of any
seller assisted marketing plan, or willfully engages, directly or
indirectly, in any act, practice or course of business which operates
or would operate as a fraud or deceit upon any person in connection
with the offer, purchase, lease or sale of any seller assisted
marketing plan shall, upon conviction, be fined not more than ten
thousand dollars ($10,000) for each unlawful transaction, or
imprisoned in the state prison, or imprisoned in county jail for not
more than one year, or be punished by both such fine and
imprisonment.
1812.218. Any purchaser injured by a violation of this title or by
the seller's breach of a contract subject to this title or of any
obligation arising from the sale or lease of the seller assisted
marketing plan may bring any action for recovery of damages. Judgment
shall be entered for actual damages, plus reasonable attorney's fees
and costs, but in no case shall the award of damages be less than
the amount of the initial payment provided the purchaser is able to
return all the equipment, supplies or products delivered by the
seller; when such complete return cannot be made, the minimum award
shall be no less than the amount of the initial payment less the fair
market value at the time of delivery of the equipment, supplies or
products that cannot be returned but were actually delivered by the
seller. An award, if the trial court deems it proper, may be entered
for punitive damages.
1812.219. The provisions of this title are not exclusive. The
remedies provided herein for violation of any section of this title
or for conduct proscribed by any section of this title shall be in
addition to any other procedures or remedies for any violation or
conduct provided for in any other law.
Nothing in this title shall limit any other statutory or any
common law rights of the Attorney General, any district attorney or
city attorney, or any other person. If any act or practice proscribed
under this title also constitutes a cause of action in common law or
a violation of another statute, the purchaser may assert such common
law or statutory cause of action under the procedures and with the
remedies provided for in such other law.
1812.220. If any provision of this act or if any application
thereof to any person or circumstance is held unconstitutional, the
remainder of the title and the application of such provision to other
persons and circumstances shall not be affected thereby.
1812.221. (a) When a deposit has been made in lieu of bond pursuant
to paragraph (1) of subdivision (b) of Section 1812.214 and Section
995.710 of the Code of Civil Procedure, the person asserting a claim
against the deposit shall, in lieu of the provisions of Section
996.430 of the Code of Civil Procedure, establish the claim by
furnishing evidence to the Attorney General of a money judgment
entered by a court together with evidence that the claimant is a
person described in paragraph (2) of subdivision (b) of Section
1812.214.
(b) When a person has completely established the claim with the
Attorney General, the Attorney General shall forthwith review and
approve the claim and enter the date of approval thereon. The claim
shall be designated an "approved claim. "
(c) When the first claim against a particular deposit account has
been approved, it shall not be paid until the expiration of a period
of 240 days after the date of its approval by the Attorney General.
Subsequent claims which are approved by the Attorney General within
the same 240-day period shall similarly not be paid until the
expiration of the 240-day period. Forthwith upon the expiration of
the 240-day period, the Attorney General shall pay all approved
claims from that 240-day period in full unless there are insufficient
funds in the deposit account in which case each approved claim shall
be paid a proportionate amount to exhaust the deposit account.
(d) When the Attorney General approves the first claim against a
particular deposit account after the expiration of a 240-day period,
the date of approval of that claim shall begin a new 240-day period
to which subdivision (c) shall apply with respect to the amount
remaining in the deposit account.
(e) After a deposit account is exhausted, no further claims shall
be paid by the Attorney General. Claimants who have had their claims
paid in full or in part pursuant to subdivisions (c) and (d) shall
not be required to make a contribution back to the deposit account
for the benefit of other claimants.
(f) When a deposit has been made in lieu of bond, the amount of
the deposit shall not be subject to attachment, garnishment, or
execution with respect to an action or judgment against the seller,
other than as to an amount as no longer needed or required for the
purpose of this title which would otherwise be returned to the seller
by the Attorney General.
