16 C.F.R. § 436.9

Additional prohibitions

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It is an unfair or deceptive act or practice in violation of Section 5 of the Federal Trade Commission Act for any franchise seller covered by part 436 to:

(a) Make any claim or representation, orally, visually, or in writing, that contradicts the information required to be disclosed by this part.

(b) Misrepresent that any person:

(1) Purchased a franchise from the franchisor or operated a franchise of the type offered by the franchisor.

(2) Can provide an independent and reliable report about the franchise or the experiences of any current or former franchisees.

(c) Disseminate any financial performance representations to prospective franchisees unless the franchisor has a reasonable basis and written substantiation for the representation at the time the representation is made, and the representation is included in Item 19 (§ 436.5(s)) of the franchisor's disclosure document. In conjunction with any such financial performance representation, the franchise seller shall also:

(1) Disclose the information required by §§ 436.5(s)(3)(ii)(B) and (E) of this part if the representation relates to the past performance of the franchisor's outlets.

(2) Include a clear and conspicuous admonition that a new franchisee's individual financial results may differ from the result stated in the financial performance representation.

(d) Fail to make available to prospective franchisees, and to the Commission upon reasonable request, written substantiation for any financial performance representations made in Item 19 (§ 436.5(s)).

(e) Fail to furnish a copy of the franchisor's disclosure document to a prospective franchisee earlier in the sales process than required under § 436.2 of this part, upon reasonable request.

(f) Fail to furnish a copy of the franchisor's most recent disclosure document and any quarterly updates to a prospective franchisee, upon reasonable request, before the prospective franchisee signs a franchise agreement.

(g) Present for signing a franchise agreement in which the terms and conditions differ materially from those presented as an attachment to the disclosure document, unless the franchise seller informed the prospective franchisee of the differences at least seven days before execution of the franchise agreement.

(h) Disclaim or require a prospective franchisee to waive reliance on any representation made in the disclosure document or in its exhibits or amendments. Provided, however, that this provision is not intended to prevent a prospective franchisee from voluntarily waiving specific contract terms and conditions set forth in his or her disclosure document during the course of franchise sale negotiations.

(i) Fail to return any funds or deposits in accordance with any conditions disclosed in the franchisor's disclosure document, franchise agreement, or any related document.

Notes of Decisions

Cited in 6 cases, 2010–2020 · leading case: Hyatt Franchising, L.L.C. v. Shen Zhen New World I, LLC, 876 F.3d 900 (7th Cir. 2017).

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Hyatt Franchising, L.L.C. v. Shen Zhen New World I, LLC, 876 F.3d 900 (7th Cir. 2017). “Consider, for example, its contention that Hyatt violated one of the FTC’s franchise-disclosure rules, 16 C.F.R. § 436.9 (g), by not furnishing changes in the draft agreement at least seven days in advance' of signing.”

Vino 100, LLC v. Smoke On Water, LLC, 864 F. Supp. 2d 269 (E.D. Pa. 2012). · cites it 2× “See 16 CFR § 436.9 (c). Generally, Rule 436 specifies that franchisors must provide to prospective franchisees disclosure documents that contain prescribed information about the business opportunity being offered.”

Cluck-U Chicken, Inc. v. Cluck-U Corp., 358 F. Supp. 3d 1295 (M.D. Fla. 2017). “203 (3), Plaintiffs argue it was a deceptive act for Defendants to misrepresent the initial investment costs for franchisees, fail to update their financial and projected growth disclosures, and fail to train Plaintiffs' employees.”

859 Boutique Fitness, LLC v. CycleBar Franchising, LLC, 699 F. App'x 457 (6th Cir. 2017). “Boutique Fitness brought this suit in December 2015, alleging breach of contract, promissory estoppel, breach of warranty, negligent and fraudulent misrepresentation, violations of the Kentucky Consumer Protection Act (“KCPA”), violation of 16 C.F.R. § 436.9 , and punitive…”

Hetrick v. Ideal Image Dev. Corp., 758 F. Supp. 2d 1220 (M.D. Fla. 2010). · cites it 3× “Citing Federal Trade Commission Franchise Rule 16 C.F.R. § 436.9 , incorporated into the Florida Deceptive and Unfair Trade Practices Act pursuant to Fla.”

MTR Capital, LLC v. Lavida Massage Franchise Dev., Inc. (E.D. Mich. 2020). “Financial performance representations First, Plaintiff cites 16 C.F.R. § 436.9 (c), which states that it is a violation of the FTC Act (and therefore a violation of the FDUTPA) for a franchise seller to “[d]isseminate any financial performance representations to prospective…”

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