Opinion ID: 510097
Heading Depth: 1
Heading Rank: 1

Heading: Background: The Franchise Sales Act.

Text: 12 Although it is not necessary for us to reach the issue of whether the FSA itself creates a basis for the exercise of personal jurisdiction over these defendants, a description of the purposes and provisions of the act is helpful to an understanding of the circumstances surrounding this case. In response to widespread abuse of the franchise sales system that has accompanied rapid expansion of the franchising market in the past 20 years, the New York legislature joined the majority of other states and adopted legislation, the FSA, designed to prevent abuses in the sales of franchises. N.Y.Gen.Bus.Law Secs. 680 et seq. (McKinney 1984); see Mon-Share Management, Inc. v. Family Media, Inc., 584 F.Supp. 186, 189 (S.D.N.Y. 1984); Kaufmann, Practice Commentary to Article 33, at 587-88 (McKinney 1984); New York State Legislative Annual 1980, at 286-87 (Memorandum of Senator James J. Lack). The FSA is a comprehensive statutory scheme that attempts both to prevent franchise sales abuse--by requiring presale disclosure through a registered prospectus--and to remedy such abuse through post-sale monitoring, investigation, civil and criminal prosecutions, and private civil actions. Mon-Share, 584 F.Supp. at 189; State of New York v. Danny's Franchise Systems, Inc., 131 A.D.2d 746, 747, 517 N.Y.S.2d 157, 158-59 (2d Dep't 1987); Practice Commentary at 590-93. See N.Y.Gen.Bus.Law Sec. 680.2. 13 Section 691.3 of the act dissolves the corporate veil by making corporate officers and directors jointly and severally liable under the FSA if they materially aid[ ] in the act [or] transaction constituting the violation. N.Y.Gen.Bus.Law Sec. 691.3. Section 686 provides for designation of the secretary of state as an agent for service of process directed to (among others) corporate directors and officers of any corporation that sells or offers to sell a franchise in New York. 14 Retail argues that the statutory designation of an agent in New York to receive process directed to nonresident defendants, when read in conjunction with Sec. 691, indicates that the legislature intended to create a basis for jurisdiction as well as a method of service on nonresident defendants. We gave the New York Court of Appeals the opportunity to resolve this question of state law, but they declined. See Retail Software Services, Inc. v. Lashlee, 838 F.2d 661 (2d Cir.1988); Retail Software Services, Inc. v. Lashlee, 71 N.Y.2d 788, 530 N.Y.S.2d 91, 525 N.E.2d 737 (1988). 15 We need not reach the merits of Retail's jurisdictional argument under the FSA however, because a recent decision of the New York Court of Appeals interpreting New York's long-arm statute indicates that a more than adequate basis exists in this case for the exercise of personal jurisdiction under N.Y.Civ.Prac.Laws & Rules Sec. 302(a)(1). 16