Effective April 1, 1989.

Section 680. 1. The legislature hereby finds and declares that the widespread sale of franchises is a relatively new form of business which has created numerous problems in New York. New York residents have suffered substantial losses where the franchisor or his representative has not provided full and complete information regarding the franchisor-franchisee relationship, the details of the contract between the franchisor and franchisee, the prior business experience of the franchisor, and other factors relevant to the franchise offered for sale.

2. It is hereby determined and declared that the offer and sale of franchises, as defined in this article, is a matter affected with a public interest and subject to the supervision of the state, for the purpose of providing prospective franchisees and potential franchise investors with material details of the franchise offering so that they may participate in the franchise system in a manner that may avoid detriment to the public interest and benefit the commerce and industry of the state. Further, it is the intent of this law to prohibit the sale of franchises where such sale would lead to fraud or a likelihood that the franchisor's promises would not be fulfilled.

Sec. 681. 1. "Advertisement" includes any written or printed communication, or any communication by means of recorded telephone messages or spoken on radio, television, or similar communications media, published in connection with an offer or sale of a franchise.

2. "Department" means the department of law.

3. "Franchise" means a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:

(a) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor, and the franchisee is required to pay, directly or indirectly, a franchise fee, or

(b) A franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate, and the franchisee is required to pay, directly or indirectly, a franchisee fee.

A franchise under this article shall not include any agreement, contract, or franchise subject to the provisions of article eleven-B of this chapter or section one hundred ninety-nine of this chapter, or any agreement or contract for the sale of motor fuel.

4. A "franchisee" is a person to whom a franchise is granted.

5. A "franchisor" is a person who grants a franchise.

6. "Area franchise" means a contract or agreement between a franchisor and a subfranchisor whereby the subfranchisor is granted the right, for consideration given in whole or in part for such right, to sell or negotiate the sale of franchises in the name or on behalf of the franchisor; unless specifically stated otherwise, "franchise" includes "area franchise".

7. "Franchise fee" means any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay directly or indirectly for the right to enter into a business under a franchise agreement or otherwise sell, resell or distribute goods, services, or franchises under such an agreement, including, but not limited to, any such payment for goods or services. The following are not the payment of a franchise fee:

(a) The purchase or agreement to purchase goods at a bona fide wholesale price;
(b) The payment of a reasonable service charge to the issuer of a credit card by an establishment accepting or honoring such credit card;
(c) Amounts paid to a trading stamp company by a person issuing trading stamps in connection with the retail sale of merchandise or services;
(d) The purchase or lease, at fair market value, of real property or agreement to so purchase or lease real property necessary to enter into the business or to continue the business under the franchise agreement;
(e) The payment of a fee which on an annual basis does not exceed five hundred dollars where the payor receives sales materials of an equivalent or greater value than his payment;
(f) The purchase of sales demonstration equipment and materials furnished at cost for use in making sales and not for resale;
(g) A lease, license or other agreement by a retailer permitting the lessee, licensee or beneficiary to offer, sell or distribute goods or services on or about the premises occupied by said retailer.

8. "Franchise sales agent" means a person who directly or indirectly engages in the offer or sale of any franchise on behalf of another. Franchisors, subfranchisors, and their employees are not to be considered franchise sales agents.

9. "Franchise salesman" means each and every person employed by a franchisor or franchise sales agent for the purpose of representing such franchisor or franchise sales agent in the offer or sale of any franchise.

10. "Fraud," "fraudulent practice," and "deceit" are not limited to common law fraud or deceit, and include:

(a) Any deception, concealment, suppression, device, scheme or artifice employed by a franchisor, franchise sales agent, subfranchisor or franchise salesman to obtain any money, promissory note, commitment or property by any false or visionary pretense, representation or promise;
(b) Any material misrepresentation in any registered prospectus filed under this article; or
(c) The omission of any material fact in any registered prospectus filed under this article.

11. "Offer" or "offer to sell" includes any attempt to offer to dispose of, or solicitation of an offer to buy, a franchise or interest in a franchise for value. The terms "offer" and "offer to sell" do not include the renewal or extension of an existing franchise where there is no interruption in the operation of the franchised business by the franchisee.

12. (a) An offer or sale of a franchise is made in this state when an offer to sell is made in this state, or an offer to buy is accepted in this state, or, if the franchisee is domiciled in this state, the franchised business is or will be operated in this state.

(b) An offer to sell is made in this state when the offer either originated from this state or is directed by the offeror to this state and received at the place to which it is directed. An offer to sell is accepted in this state when acceptance is communicated to the offeror from this state.
(c) An offer to sell is not made in this state merely because a publisher circulates or there is circulated on his behalf in this state a bona fide newspaper or other publication of general, regular and paid circulation which has had more than two-thirds of its circulation outside this state during the past twelve months, or a radio or television program originating outside this state is received in this state.

13. "Person" means an individual, corporation, partnership, joint venture, association, company, trust, unincorporated organization or other entity and shall include any other person that has a substanial interest in or effectively controls such person, as well as the individual officers, directors, general partners, trustees or other individuals in control of the activities of each such person.

14. "Publish" means publicly to issue or circulate by newspaper, mail, radio or television, or otherwise to disseminate to the public.

15. "Sale" or "sell" includes every contract or agreement of sale, contract to sell, or disposition of, a franchise or interest in a franchise for value.

16. "State" means any state, territory, or possession of the United States, the District of Columbia and Puerto Rico.

17. "Subfranchisor" means a franchisee who has the right to sell or subdivide his franchise to another or others, known as "subfranchisees," while having and retaining all or part of the franchisor's interest or rights under franchise agreements with such subfranchisee. Under this article and in this situation, the subfranchisee shall be considered the franchisee, and both the principal franchisor and the subfranchisor shall be considered the franchisor.

18. In any proceeding under this article, the burden of proving an exemption or an exception from a definition is upon the person claiming it.

Sec. 682. The disclosure requirements mandated by this article apply to all written or oral arrangements between a franchisor and franchisee in connection with the offer or sale of a franchise, including, but not limited to, the franchise offering, the franchise agreement, sales of goods or services, leases and mortgages of real or personal property, promises to pay, security interests, pledges, insurance, advertising, construction or installation contracts, servicing contracts, and all other arrangements in which the franchisor or subfranchisor has an interest.

Sec. 683. 1. It shall be unlawful and prohibited for any person to offer to sell or sell in this state any franchise unless and until there shall have been registered with the department of law, prior to such offer or sale, a written statement to be known as an "offering prospectus" concerning the contemplated offer or sale, which shall contain the information and representations set forth in and required by this section. Any uniform disclosure document approved for use by any agency of the federal government or sister state may be utilized and sought to be registered, provided that said uniform disclosure documents comply with the provisions of this article.

2. The offering prospectus sought to be registered with the department of law shall be filed with the department, accompanied by an application for registration on forms prescribed by the department, and shall contain the following:

(a) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transactions with franchisees.
(b) The franchisor's principal business address and the name and address of its agent in this state authorized to receive process.
(c) The business form of the franchisor, whether corporate, partnership, or otherwise.
(d) Such information concerning the identity and business experience of persons affiliated with the franchisor as the department of law may by rule prescribe.
(e) A statement as to whether the franchisor and its principals, officers, partners, directors, or any other person identified in the application for registration:

(1) Has been convicted of a felony, or pleaded nolo contendere to a felony charge, or held liable or enjoined in a civil action by a final judgment if such civil action involved fraud, embezzlement, fraudulent conversion or misappropriation of property.
(2) Is subject to any currently effective order of the United States securities and exchange commission or the securities administrator of any state denying the registration of or barring, revoking or suspending the registration of such person as a securities broker or dealer, or investment advisor, or securities agent or registered representative, or is subject to any currently effective order of any national securities association or national securities exchange, as defined in the Securities and Exchange Act of 1934, suspending or expelling such person from membership in such association or exchange.
(3) Is subject to a currently effective order or ruling of the federal trade commission.
(4) Is subject to any currently effective injunctive or restrictive order relating to business activity as a result of an action brought by a public agency or department, including, without limitation, actions affecting a license as a real estate broker or salesman.

Such statement shall set forth the court, date of conviction or judgment, any penalty imposed or damages assessed, or the date, nature and issuer of such order.

(f) The length of time the franchisor: (1) has conducted a business of the type to be operated by the franchisees, (2) has granted franchises for such business, and (3) has granted franchises in other lines of business.
(g) The most recent financial statement of the franchisor, together with a statement of any material changes in the financial condition of the franchisor from the date thereof. The department of law may by rule or order prescribe (1) the form and content of financial statements required under this article, (2) the circumstances under which consolidated financial statements shall be required, and (3) the circumstances under which financial statements shall be audited by independent certified public accountants.
(h) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not uniform and the same in all cases.
(i) A statement describing any payments or fees other than franchise fees that the franchisee or subfranchisor is required to pay to the franchisor, including royalties and payments of fees which the franchisor collects in whole or in part on behalf of a third party or parties.
(j) A statement of the conditions under which the franchise agreement may be terminated or renewal refused or repurchased at the option of the franchisor.
(k) A statement as to whether, by the terms of the franchise agreement or by other device or practice, the franchisee or subfranchisor is required to purchase from the franchisor or his designee services, supplies, products, fixtures or other goods relating to the establishment or operation of the franchise business, together with a description and the terms and conditions thereof.
(l) A statement as to whether, by the terms of the franchise agreement or other device or practice, the franchisee is limited in the goods or services offered by him to his customers.
(m) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his agent or affiliate.
(n) A statement of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee or subfranchisor in whole or in part.
(o) Any representation of estimated or projected franchisee earnings or income, together with a statement setting forth the data, methods and computations upon which such estimate or projection is based.
(p) A statement of any compensation or other benefit given or promised to a public figure arising, in whole or in part, from (1) the use of the public figure in the name or symbol of the franchise, or (2) the endorsement or recommendation of the franchise by the public figure in advertisements.
(q) A statement of the total number and location of franchises presently operating and proposed to be sold.
(r) A statement as to whether franchisees or subfranchisors receive an exclusive area or territory.
(s) A representation that the registered prospectus does not knowingly omit any material fact or contain any untrue statement of a material fact.
(t) Other information which the franchisor may desire to present.
(u) Other information or such additional disclosures related to the offer or sale of the franchise as the department of law may prescribe by rules or regulations promulgated under section six hundred ninety-four of this article as will afford prospective franchisees an adequate basis upon which to found their judgment.
(v) When the person filing the application for registration of an offering prospectus is a subfranchisor, the prospectus shall also include the same information concerning the subfranchisor as is required from the franchisor pursuant to this article.

3. Applications for registration of an offering prospectus shall be signed and verified by the franchisor or by the subfranchisor in the same manner provided in the civil practice law and rules for the verification of pleadings.

4. Every application by a franchisor for registration of an offering prospectus shall be accompanied by a copy of the typical franchise contract or agreement proposed for use or in use in this state, including all amendments, deletions, variations, and supplements thereto.

5. Every application by a franchisor for registration of an offering prospectus shall be accompanied by such materials, data, records, or other information as the department may by rule require in connection with its consideration of the application.

6. The offering prospectus shall recite in bold type of not less than twelve-point that registration does not constitute approval, recommendation, or endorsement by the department of law. The department may require that the applicant set forth in its prospectus potentially adverse information in designated positions and in a type size acceptable to the department.

7. Unless otherwise provided by regulation issued by the department, applications to register the offering prospectus required by subdivision one of this section shall be filed with the department of law at its office in the city of New York prior to the offering of the franchise involved. No offer, advertisement, or sale of such a franchise shall be made in or from the state of New York until the department has issued to the franchisor or other offeror a letter stating that the offering prospectus sought to be registered has been accepted for filing and filed. The department, not later than thirty days after such filing, shall issue such a letter or, in the alternative, a notification in writing indicating the respect in which the application for registration or the proposed offering prospectus itself is deficient or otherwise fails to make adequate disclosure. A refusal to register an offering prospectus, and notification thereof, shall be forthcoming if the department finds:

(a) That there has been a failure to comply with any of the provisions of this article or the rules of the department pertaining thereto.
(b) That the offer or sale of the franchise would constitute misrepresentation to, or deceit or fraud of, prospective franchisees.
(c) That the application for registration of the offering prospectus or the proposed offering prospectus itself is incomplete in any material respect or contains any statement which is, in light of the circumstances under which it was made, false or misleading with respect to any material fact.
(d) That the franchisor's method of business includes or would include activities which are illegal where performed.
(e) That a person identified in the application has been convicted of an offense described in subparagraph one of paragraph (e) of subdivision two of this section, is subject to an administrative order, or has had a civil judgment entered against him involving the illegal offering of franchises or securities, and the department determines that the involvement of the person in the sale or management of the franchise creates an unreasonable risk to prospective franchisees.
(f) That the franchise offering sought to be registered is the subject of a permanent or temporary injunction entered under any federal or state act applicable to the offering.
(g) That the franchisor has failed to pay the proper fee.

8. A franchise which is subject to registration under this article shall not be sold without first providing to the prospective franchisee, a copy of the offering prospectus, together with a copy of all proposed agreements relating to the sale of the franchise at the earlier of (a) the first personal meeting between the franchisor or its agent and the prospective franchisee, (b) at least ten business days prior to the execution of a binding franchise or other agreement, or (c) at least ten days prior to the receipt of any consideration in connection with the sale or proposed sale of a franchise. For the purposes of this chapter, the words: (i) "first personal meeting" shall mean the first face to face meeting between a franchisor or franchisor's agent or any representative or employee thereof and a prospective franchisee which is held for the purpose of discussing the sale or possible sale of a franchise; (ii) "other agreement" shall mean an agreement imposing a binding legal obligation on such prospective franchisee, about which the franchisor, franchise sales agent, or any agent, representative or employee thereof, knows or should know, in connection with the sale or proposed sale of a franchise; and, (iii) "receipt of any consideration" shall mean the payment by a prospective franchisee, about which the franchisor, franchise sales agent, or any agent, representative or employee thereof, knows or should know, of any consideration in connection with the sale or proposed sale of a franchise.

9. (a) A franchisor shall promptly notify the department in writing, by an appliction to amend the registered offering prospectus, of any material change in the information contained in the prospectus as originally submitted or amended. The department may further define by rule what is a material change for the purpose and circumstances under which an amendment of a registered prospectus shall be mandatory.

(b) An amendment to a registered offering prospectus filed after the effective date of the registration of the original offering prospectus, if the amendment is approved by the department, shall become effective on such date the department may determine, having due regard for the public interest and the protection of franchisees.

10. (a) Neither the fact that an application for registration of an offering prospectus under this article has been filed, nor the fact that such registration has become effective, constitutes a finding by the department that any document filed under this article, including the registered offering prospectus, is true, complete or not misleading. Neither any such fact nor the fact that an exemption is available for a transaction means that the department has passed in any way upon the merits or qualifications of, or recommended or given approval to, any person, franchise, or transaction.

(b) It is unlawful to make or cause to be made to any prospective purchaser or offeree a representation inconsistent with paragraph (a) of this subdivision.

11. No offer of a franchise shall be made except by the offering prospectus registered with the department of law pursuant to this section. Any advertisement in whatever form, including periodicals or on radio or television, shall contain a statement that no offer of such franchise is made except by such offering prospectus, and all such advertising shall be consistent with the representations and information required to be set forth in such prospectus as hereinbefore in this section provided.

12. In all literature employed in the offer and sale of a franchise and in all advertising in connection therewith, there shall be contained, in easily readable print on the face thereof, a statement that the filing of an application for registration of an offering prospectus or the acceptance and filing thereof by the department of law as required by this section does not constitute approval of the offering or the sale of such franchise by the department of law or the attorney general of this state.

13. A person shall not offer to sell or sell a franchise in this state on behalf of a franchisor or subfranchisor, except in transactions exempted under this article, unless the franchisor or subfranchisor and the person file a franchise agent's application with the department of law on the form prescribed by the department, and the department issues an order of registration for such person. The department may prescribe rules relating to the qualifications, conduct, and denial, suspension, or revocation or registrations of franchise sales agents.

14. (a) Every franchisor or subfranchisor offering franchises for sale in this state shall keep and maintain a complete set of books and records and shall keep and maintain accounts of franchise sales in accordance with generally accepted accounting principles, and shall make and file with the department such reports as the department may by rule prescribe, including an annual report setting forth the franchises sold by it and the proceeds derived therefrom, and shall furnish to the department such materials relating to the offer or sale of the franchise as it may by rule require. All such records are subject at any time to reasonable periodic, special, or other examinations by a representative of the department, within or without this state, as the department deems necessary or appropriate in the public interest or for the protection of investors.

(b) The department may consider the opinions, appraisals, and reports of engineers, appraisers, or other experts which may be presented by an applicant or any interested party, on any question of fact concerning or affecting the franchises proposed to be offered and sold. In lieu of, or in addition to, such opinions, appraisals, and reports, the department may have any or all matter concerning or affecting such franchises investigated, appraised, passed upon, and certified to it by engineers, appraisers, or other experts selected by it. The experts' cost of travel and lodging relating to such investigation, and the costs of experts' fees, shall be borne by the applicant and shall be paid before effectiveness of its registration, provided that the applicant shall have agreed in writing with the department to bear such costs and fees, or shall have had the opportunity to establish that no good cause exists for such investigation or expenditure, or shall have himself furnished the desired information to the department.
(c) If information that the department deems necessary relating to the franchise is requested by the department and is not furnished by the applicant, or the department deems information submitted to be unreliable or substantially incomplete, the department may investigate any or all matters concerning or affecting such franchise. The costs of all travel and lodging expenses relating to investigations outside of this state shall be borne by the applicant and shall be paid before effectiveness of its registration.

15. The department may by rule require the filing and approval prior to use of any pamphlet, circular, form letter, advertisement, or other sales literature or advertising communication addressed to or intended for distribution to prospective franchisees.

Sec. 684. 1. The department of law is hereby authorized and empowered to exempt by rule or regulation any person, franchise, or transaction from any provision of section six hundred eightythree of this article or from any rule or regulation thereunder if the department finds that such action is not inconsistent with the public interest or the protection of prospective franchisees.

2. The department of law may, upon application and within its discretion, exempt from the registration requirements of section six hundred eighty-three of this article the offer and sale of a franchise if:

(a) The franchisor has a net worth on a consolidated basis, according to its most recently audited financial statement, of not less than five million dollars; or the franchisor has a net worth, according to its most recently audited financial statement, of not less than one million dollars and is at least eighty percent owned by a corporation which has a net worth on a consolidated basis, according to its most recently audited financial statement, of not less than five million dollars; and
(b) The franchisor files with the department of law an application for an exemption, on forms and in the manner prescribed by the department, and a consent to service of process on the form required by the department; and
(c) The franchisor discloses in writing to each prospective franchisee, at least seven days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least seven days prior to the receipt of any consideration, whichever occurs first, the following information:

(1) The name of the franchisor, the name under which the franchisor is doing or intends to do business, and the name of any parent or affiliated company that will engage in business transaction with the franchisee.
(2) The franchisor's principal business address and the name and address of its agent in this state authorized to receive process.
(3) The business form of the franchisor, whether corporate, partnership, or otherwise.
(4) Such information concerning the identity and business experience of persons affiliated with the franchisor as the department may by rule prescribe.
(5) The business experience of the franchisor, including the length of time the franchisor (i) has conducted a business of the type to be operated by franchisees, (ii) has granted franchises for such business, and (iii) has granted franchises in other lines of business.
(6) A copy of the typical franchise contract or agreement proposed for use and in use in this state, including all amendments, deletions, variations, and supplements thereto.
(7) A statement of the franchise fee charged, the proposed application of the proceeds of such fee by the franchisor, and the formula by which the amount of the fee is determined if the fee is not uniform and the same in all cases.
(8) A statement describing any payments or fees other than franchise fees that the franchisee is required to pay to the franchisor, including royalties and payments or fees which the franchisor collects in whole or in part on behalf of a third party or parties.
(9) A statement of the conditions under which the franchise agreement may be terminated or renewal refused, or repurchased at the option of the franchisor.
(10) A statement as to whether, by the terms of the agreement or by other device or practice, the franchisee is required to purchase from the franchisor or his designee services, supplies, products, fixtures or other goods relating to the establishment or operation of the franchise business, together with a description and the terms and conditions thereof.
(11) A statement as to whether, by the terms of the franchise agreement or by other device or practice, the franchisee is limited in the goods or services offered by him to his customers.
(12) A statement of the terms and conditions of any financing arrangements when offered directly or indirectly by the franchisor or his agent or affiliate.
(13) A statement of any past or present practice or of any intent of the franchisor to sell, assign, or discount to a third party any note, contract, or other obligation of the franchisee in whole or in part.
(14) If any statement of estimated or projected franchisee earnings or income is used, a statement of such estimate or projection and the data, methods and computations upon which such estimate or projection is based.
(15) A statement as to whether franchisees receive an exclusive area or territory.
(16) Other information related to the offer and sale of the franchise as the department of law may reasonably require.

(d) Applications for exemptions shall be signed and verified by the franchisor in the same manner provided in the civil practice law and rules for the verification of pleadings, and shall be filed with the department of law at its office in the city of New York.

3. There shall be exempted from the registration provisions of section six hundred eighty-three of this article the offer and sale of a franchise if:

(a) (i) The franchisor has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than fifteen million dollars; or the franchisor has a net worth, according to its most recent audited financial statement, of not less than three million dollars and is at least eighty percent owned by a corporation which has a net worth on a consolidated basis, according to its most recent audited financial statement, of not less than fifteen million dollars; and

(ii) The franchisor discloses in writing to each prospective franchisee, at least seven days prior to the execution by the prospective franchisee of any binding franchise or other agreement, or at least seven days prior to the receipt of any consideration, whichever occurs first, such information as is required to be disclosed under subparagraph two of paragraph (c) of subdivision two of this section.

(b) The offer or sale is to a bank, savings institution, trust company, insurance company, investment company, or other financial institution, association, or institutional buyer, or to a broker-dealer, where the purchaser is acting for itself or in some fiduciary capacity.
(c) The transaction is pursuant to an offer directed by the franchisor to not more than two persons, other than persons specified in this subdivision, if the franchisor does not grant the franchisee the right to offer franchises to others, a commission or other remuneration is not paid directly or indirectly for soliciting a prospective franchisee in this state, and the franchisor is domiciled in this state or has filed with the department of law its consent to service of process on the form prescribed by the department.
(d) The offer or sale by a franchisor of a franchise to one of his existing franchisees. This exemption shall apply where:

(i) the existing franchisee has actively operated a franchise of the selling franchisor for the eighteen months preceding the offer; and
(ii) the existing franchisee purchases the franchise in order to operate the business and not for the purpose of resale; and
(iii) the franchisor reports the sale to the department of law on the form required by the department within fifteen days of the sale.

4. The department of law may, in its discretion, deny or revoke an exemption with respect to a specific franchisor or transaction, or withdraw or further condition any exemption enumerated in this section.

5. The offer or sale of a franchise by a franchisee for his own account or the offer and sale of an entire area franchise owned by a subfranchisor for his own account is exempted from the registration provisions of section six hundred eighty-three of this article if:

(a) The sale is an isolated sale and not part of a plan of distribution of franchises; and
(b) The sale is not effected by or through a franchisor; and
(c) The franchisee furnishes to the prospective purchaser, at least one week prior to the execution of any binding contract or purchase agreement, or at least one week prior to the receipt of any consideration, whichever occurs first, a copy of the offering prospectus of the franchisor (including amendments, if any) currently registered with the department of law.

A sale is not effected by or through a franchisor merely because a franchisor has a right to approve or disapprove a different franchisee.

6. This article shall not be applicable to any transaction relating to a bank credit card plan. "Bank credit card plan" means a credit card plan in which the issuers of credit cards are only: banks regulated by or under the supervision of the Federal Reserve Board; the Federal Deposit Insurance Corporation; the Controller of the Currency of the United states; or the Superintendent of Banks of this state; or persons controlling such banks, provided that the assets of such a bank or banks represent a majority of the assets on a consolidated basis of any holding company system of which such card issuers may be a party; or, persons controlled by such banks.

Sec. 685. If the department of law finds that the applicant for registration has failed to demonstrate that adequate financial arrangements have been made to fulfill obligations to provide real estate, improvements, equipment, inventory, training, or other items included in the offering, the department may require the escrow or impoundment of franchise fees and other funds paid by the franchisee or subfranchisor until the obligations are fulfilled, or, at the option of the franchisor, the furnishing of a surety bond as provided by rule of the department of law if it finds that the requirement is necessary and appropriate to protect prospective franchisees or subfranchisors.

Sec. 686. Any person who shall offer to sell or sell a franchise in this state as a franchisor, subfranchisor or franchise sales agent shall be deemed to have irrevocably appointed the secretary of state as his or its agent upon whom may be served any summons, complaint, subpoena, subpoena duces tecum, notice, order or other process directed to such person, or any partner, principal, officer, salesman or director thereof, or his or its successor, administrator or executor, in any action, investigation, or proceeding which arises under this article or a rule hereunder, with the same force and validity as if served personally on such person. Service of such process upon the secretary of state shall be made by personally delivering to and leaving with him or a deputy secretary of state a copy thereof at the office of the department of state, and such service shall be sufficient provided that notice of such service and a copy of such process are sent forthwith by the department to such person, by registered or certified mail with return receipt requested, at his address as set forth in the application for registration of his offering prospectus or in the registered offering prospectus itself filed with the department of law pursuant to this article, or in default of the filing of such application or prospectus, at the last address known to the department. Service of such process shall be complete upon receipt by the department of a return receipt purporting to be signed by the addressee or a person qualified to receive his or its registered or certified mail, in accordance with the rules and customs of the post office department, or, if acceptance was refused or unclaimed by the addressee or his or its agent, or if the addressee moved without leaving a forwarding address, upon return to the department of the original envelope bearing a notation by the postal authorities that receipt thereof was refused or that such mail was otherwise undeliverable.

Sec. 687. 1. It is unlawful for any person to make any untrue statement of a material fact in any application, notice, statement, prospectus or report filed with the department under this article, or wilfully to omit to state in any such application, notice, statement, prospectus or report any material fact which is required to be stated therein, or to fail to notify the department of any material change as required by this article.

2. It is unlawful for a person, in connection with the offer, sale or purchase of any franchise, to directly or indirectly:

(a) Employ any device, scheme, or artifice to defraud.
(b) Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading. It is an affirmative defense to one accused of omitting to state such a material fact that said omission was not an intentional act.
(c) Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person.

3. It is unlawful for any person to violate any provision of this article, or any rule of the department promulgated hereunder, or any condition to the effectiveness of the registration of an offering prospectus or of an exemption from the registration provisions of this article.

4. Any condition, stipulation, or provision purporting to bind any person acquiring any franchise to waive compliance with any provision of this law, or rule promulgated hereunder, shall be void.

5. It is unlawful to require a franchisee to assent to a release, assignment, novation, waiver or estoppel which would relieve a person from any duty or liability imposed by this article.

Sec. 688. 1. Whenever it shall appear to the department of law, either upon complaint or otherwise, that any person has violated any provision of this article, the department:

(a) may make such investigations within or outside of this state as it deems necessary to determine whether any person has violated any provision of this article or any rule or regulation hereunder, or to aid in the enforcement of this article or in the prescribing of rules and forms hereunder, and
(b) may require or permit any person to file a statement in writing, under oath or otherwise as the attorney general determines, as to all the facts and circumstances concerning the matter to be investigated.

2. The costs of all out of state travel and lodging expenses relating to investigations by the department of persons who appear to the department to have violated any provision of this article shall be borne by such persons upon a judicial determination that said persons have committed unlawful and fraudulent acts or practices, as defined in this article, or so much thereof as is deemed proper by the court.

3. The department is empowered to subpoena witnesses, compel their attendance, examine them under oath before it or a court of record or a judge or justice thereof, and require the production of any books or papers which it deems relevant or material to the inquiry. Such power of subpoena and examination shall not abate or terminate by reason of any action or proceeding brought by the department under this article.

4. (a) No person is excused from attending and testifying or from producing a document or record, in obedience to the subpoena of the department or in a proceeding instituted by the department, on the ground that the testimony or evidence, documentary or otherwise, required of him may tend to incriminate him or subject him to penalty or forfeiture; but a person may not be prosecuted or subjected to a penalty of forfeiture for or on account of any transaction, matter, or thing concerning which he is compelled, after validly claiming his privilege against self-incrimination, to testify or produce evidence, documentary or otherwise, except that the person testifying is not exempt from prosecution and punishment for perjury or contempt committed in testifying. The department shall compel such testimony or the production of such evidence only after notifying and consulting with any appropriate local prosecuting authorities.

(b) No person shall be excused from attending such inquiry pursuant to the mandate of a subpoena, or from producing a paper or book, or from being examined or required to answer a question, on the ground of failure of tender or payment of a witness fee and/or mileage, unless at the time of such appearance or production, as the case may be, such witness makes demand for such payment as a condition precedent to the offering of testimony or production required by the subpoena and unless such payment is not thereupon made. The provision for payment of witness fees and/or mileage shall not apply to any officer, director, salesman or other person in the employ of any person whose conduct or practice is being investigated.

5. If a person subpoenaed to attend such inquiry fails to obey the command of a subpoena without reasonable cause, or if a person in attendance upon such inquiry shall without reasonable cause refuse to be sworn or to be examined or to answer a question or to produce and permit reasonable examination of a book or paper when ordered so to do by the officer conducting such inquiry, or if a person fails to perform any act required hereunder to be performed, he shall be guilty of a class A misdemeanor punishable as provided in section six hundred ninety of this article.

6. It shall be the duty of all public officers, their deputies, assistants, subordinates, clerks or employees and all other persons to render and furnish to the department or other designated officer when requested all information and assistance in their possession or within their power with respect to all matters being investigated by the department under this article. Any officer participating in such inquiry and any person examined as a witness upon such inquiry who shall disclose to any person other than his attorney or the department the name of any witness examined or any other information obtained upon such inquiry except as directed by the department shall be guilty of a class A misdemeanor punishable as provided in section six hundred ninety of this article.

Sec. 689. 1. Whenever the department shall believe from evidence satisfactory to it that any person has engaged in or is engaged in or is about to engage in any practice or transaction heretofore referred to as and declared to be an unlawful or a fraudulent practice, it may bring an action in the name and on behalf of the people of the state of New York against such person and any other person theretofore concerned in or in any way participating in such unlawful or fraudulent practice, to enjoin such person or persons from continuing such unlawful and fraudulent practice or engaging therein or doing any act or acts in furtherance thereof or, if the department should believe from such evidence that such person actually has or is engaged in any such unlawful or fraudulent practice, it may include in such action an application to enjoin permanently such person and such other person as may have been or may be concerned with or in any way participating in such unlawful or fraudulent practice, from selling or offering for sale within or from this state as franchisor, franchise sales agent, franchise salesman, or a pricipal thereof, any franchise offered or to be offered or sold, or from continuing any such practice. In said action an order or a judgment may be entered awarding the relief applied for or so much thereof as the court may deem proper. Upon a showing by the department in its application for a permanent injunction hereunder that the defendant named in the action or an officer thereof has refused to be sworn or to be examined or to answer a material question or to produce a book or paper relevant to the inquiry when duly ordered to do so by the officer or judge duly conducting an inquiry into the subject matter forming the basis of the application for such injunction, such refusal shall be prima facie proof that such defendant is or has engaged in an unlawful or fraudulent practice as set forth in such application and a permanent injunction may issue from the Supreme Court without further showing by the department. In an action brought under this section the Court may award to the plaintiff a sum not in excess of ten thousand dollars for each defendant as an additional allowance.

2. Upon a showing by the department, in an application for an injunction, that any person engaged in the offer or sale of a franchise in this state has ever been convicted by a court of competent jurisdiction in any state or county of any felony or of any other criminal offense by any such court, whether or not constituting a felony, involving franchises, securities or subdivided land, the Supreme Court after a hearing may issue a permanent injunction awarding the relief applied for, or so much thereof as the Court may deem proper, against such person shown to have been so convicted, in the form and manner provided for in subdivision one of this section in the case of one who actually has or is engaged in any unlawful or fraudulent practice.

3. If a franchise is offered or sold within the state of New York by a non-resident person and such non-resident person has not filed pursuant to laws heretofore or hereafter existing the designation of a person upon whom process against him or it may be served or the designation of the secretary of state as such person, pursuant to section thirteen hundred four of the business corporation law or other laws heretofore or hereafter existing, or in lieu thereof, an instrument in writing duly acknowledged and filed in the office of the secretary of state designating the secretary of state as the person upon whom may be served any subpoena, subpoena duces tecum or other process directed to such nonresident person and issued in any investigation, examination or proceeding pending or about to be instituted under and pursuant to the provisions of this article, the department may serve a notice upon such nonresident person by mailing the same in a securely sealed postpaid wrapper addressed to such nonresident person at its or his last known place of business or residence, and may in such notice require that such nonresident person furnish a written statement under oath, as required in said notice, giving the information therein specified relating to the franchise offered, to be offered or sold in the state of New York by such nonresident person or, in the alternative, that such nonresident person shall appear within a reasonable time from the date of mailing such notice at a designated place within this state for examination and shall produce at the time and place of such examination such books and papers of such nonresident person as may be designated in such notice.

If such non-resident person shall fail to appear pursuant thereto or to produce the books and papers required thereby to be produced, or shall refuse to submit to examination or to answer any proper question, the proof of such failure or refusal shall constitute prima facie evidence that the offer or sale of a franchise by such non-resident person constitutes a fraudulent practice and may in the discretion of the court be treated as a sufficient basis for a permanent injunction against the continuance of such fraudulent practice.

4. In any action brought by the department as provided in this article, the court at any stage of the proceedings may appoint a receiver of any and all property derived by the defendant or defendants or any of them by means of any such unlawful or fraudulent practice, including also all property with which such property has been commingled if such property cannot be identified in kind because of such commingling, together with any or all books of account and papers relating to the same. The judgment entered in such action may provide that such receiver shall take title to any or all such property and books of account and papers relating to the same and liquidate such property or any part thereof for the benefit of all persons intervening in the said action and establishing an interest in such property. The judgment may also provide that all such property, the title to or interest in which has not been established in such action by intervenors or otherwise by due process to be in a person or persons other than defendant or defendants, shall be returned to the defendant or defendants as their interest may appear. Such receiver shall be subject to all the duties of receivers in civil actions as far as practicable except that such provisions relating to commissions or compensation of receivers shall not be applicable to receivers appointed pursuant to this section, but such commissions or compensations shall be fixed by the court in any amount which it may determine to be just and equitable. In any action brought by the department as provided in this article the court may grant such other and further relief as may be proper.

5. Whenever the department has determined to commence an action under this article, it may present to any justice of the supreme court, before beginning such action, an application in writing for an order directing the person or persons mentioned in the application to appear before the justice of the supreme court or referee designated in such order and answer such questions as may be put to them or to any of them, or to produce such papers, documents and books concerning the alleged unlawful or fraudulent practices to which the action which the department has determined to bring relates, and it shall be the duty of the justice of the supreme court to whom such application for the order is made to grant such application. The application for such order may simply show upon information and belief that the testimony of such person or persons is material and necessary. The provisions of the civil practice law and rules, relating to an application for an order for the examination of witnesses before the commencement of an action and the method of proceeding on such examination, shall not apply except as herein prescribed. The order shall be granted by the justice of the supreme court to whom the application has been made with such preliminary injunction or stay as may appear to such justice to be proper and expedient and shall specify the time when and place where the witnesses are required to appear. The justice or referee may adjourn such examination from time to time and witnesses must attend accordingly. The testimony of each witness must be subscribed by him and must be filed in the office of the clerk of the county in which such order for examination is filed.

6. The order for such examination must be signed by the justice making it, and service of a copy thereof with an endorsement by the department to the effect that the person named therein is required to appear and be examined at the time and place before the justice and referee specified in such endorsement, shall be sufficient notice for the attendance of witnesses. Such endorsement may contain a clause requiring such person to produce at such examination all books, papers and documents in his possession or under his control relating to the subject of such examination. The order shall be served upon the person named in the endorsement aforesaid by delivering to and leaving with it or him a certified copy thereof, endorsed as above provided, subject to the payment of witness fees and mileage as and when provided to be paid by paragraph (b) of subdivision four of section six hundred eighty-eight of this article in connection with attendance pursuant to subpoenas authorized to be issued under said section. Service of such an order may also be served under section six hundred eighty-six of this article in cases falling thereunder.

7. The referee appointed as provided in this article possesses all the powers and is subject to all the duties of a referee appointed in a civil action, so far as practicable, and may punish for contempt a witness duly served with the papers as prescribed in this article for non-attendance or refusal to be sworn or to testify or to produce books, papers and documents according to the direction of the endorsement aforesaid in the same manner and to the same extent as a referee to hear, try and determine an issue of fact or law.

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