Quist v. Best Western Intern., Inc.

• Decision Date: 18 July 1984
• Docket Number: No. 10571,10571
• Parties: Peter A. QUIST, Securities Commissioner of the State of North Dakota, Appellee, v. BEST WESTERN INTERNATIONAL, INC., an Arizona nonprofit corporation, Appellant. Civ.
• Court: North Dakota Supreme Court

Page 656

354 N.W.2d 656

Peter A. QUIST, Securities Commissioner of the State of

North Dakota, Appellee, v. BEST WESTERN INTERNATIONAL, INC., an Arizona nonprofit

corporation, Appellant.

Civ. No. 10571.

Supreme Court of North Dakota.

July 18, 1984.

Kermit Edward Bye (argued), of Vogel, Brantner, Kelly, Knutson, Weir & Bye, Fargo; and Jerry C. Bonnett, Phoenix, Ariz., of counsel, of Evans, Kitchel & Jenckes, Phoenix, Ariz., for appellant.

Peter A. Quist, Securities Commissioner, State Capitol, Bismarck, for appellee.

GIERKE, Justice.

This is an appeal from a judgment of the District Court of Burleigh County affirming an order of the North Dakota Securities Commissioner, which required the appellant, Best Western International, Inc., an Arizona corporation, to refrain and desist from the further offer or sale of membership agreements in North Dakota until the offer or sale of these agreements has been registered with the Securities Commissioner, pursuant to the North Dakota Franchise Investment Law, Chapter 51-19, N.D.C.C.

This action was begun by way of a declaratory judgment action commenced by Best Western to determine its status under the North Dakota Franchise Investment Law (FIL). The district court in which the action was filed concluded that a determination of Best Western's status was a matter to be pursued through the administrative processes available to the Commissioner. The Commissioner then commenced his own action seeking an order requiring that Best Western register its offers of membership agreements in compliance with the requirements of the FIL. Best Western's answer alleges that the FIL was inapplicable, or, alternatively, that Best Western was exempt from its provisions. Best Western further alleges that if its activities were within the contemplation of the FIL and not exempt, the law itself was unconstitutional as violative of Article I, Secs. 21 and 22 of the North Dakota Constitution, and the Commerce, Due Process, and Equal Protection Clauses of the United States Constitution. Best Western also alleges that the broad authority delegated to the Commissioner by the FIL rendered it facially unconstitutional.

On June 24, 1982, a hearing was conducted before Mr. Douglas L. Johnson, hearing officer, pursuant to Sec. 28-32-05, N.D.C.C. The hearing officer issued his proposed findings of fact, conclusions of law, and order on March 2, 1983. The hearing officer concluded that the agreements between Best Western and its members were "franchises" as defined in Sec. 51-19-02(5), N.D.C.C.; that Best Western had offered or sold franchises in North Dakota in violation of the registration provisions of Sec. 51-19-03, N.D.C.C.; that Best Western did not qualify for the statutory exemptions from registration; that Best Western had not been exempted by rule from registration; and that the Commissioner had not applied the FIL in a discriminatory manner. The Securities Commissioner, by his order dated March 3, 1983, adopted the proposed findings of fact and conclusions of law, and ordered Best Western to refrain and desist from offering memberships in its organization until the offers are registered with the Securities Commissioner, pursuant to the provisions of the FIL.

Best Western then appealed from the Commissioner's order to the District Court of Burleigh County, pursuant to Sec. 28-32-15, N.D.C.C. The district court affirmed the Commissioner's order and judgment was entered accordingly. From that judgment, Best Western appeals.

Best Western raises three issues on appeal:

1. Does Best Western's operation constitute a franchise as contemplated by the North Dakota Franchise Investment Law?

2. Does the application of the registration provisions of the Franchise Investment Law violate Best Western's rights under Article 1, Secs. 21 and 22 of the North Dakota Constitution and the Commerce, Due Process, and Equal Protection Clauses of the United States Constitution?

3. Is the Franchise Investment Law facially unconstitutional because it delegates broad discretionary authority to the Commissioner without establishing proper standards or guides for the exercise of that discretion?

We will discuss these issues in the order listed above.

I

The material facts of this case are not in dispute. Evidence regarding the structure and operation of the Best Western organization was presented by Best Western itself and it was on that evidence that the Commissioner based his determination. ¹ Best Western nevertheless asserts that the Legislature did not intend that cooperative associations, such as Best Western, should be subject to registration under the FIL.

It is Best Western's position that the statutory definition of "franchise" is ambiguous, and that, when properly interpreted in light of its legislative history and underlying policy, the term "franchise" does not include cooperative marketing associations. This argument is outlined in Best Western's brief as follows:

"The definition of 'franchise' is manifestly circular. Under the first element of the test, a marketing plan or system must be prescribed in substantial part by a franchisor. A 'franchisor', on the other hand, is 'a person who grants a franchise'. Sec. 51-19-02(8). Neither the term 'franchise' nor the term 'franchisor' has a self-evident meaning; one cannot be fully and unequivocally defined merely be referring to the other. Hence, some analysis of the legislative intent must be undertaken to arrive at what the Legislature meant by 'franchisor'.

The statutory definition of "franchise" is found in Sec. 51-19-02(5)(a), N.D.C.C., as follows:

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

"(1) 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;

"(2) The operation of the franchisee's business pursuant to such plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and

"(3) The franchisee is required to pay, directly or indirectly, a franchise fee."

A "franchise fee" is defined in Sec. 51-19-02(6), N.D.C.C., as:

"... any fee or charge that a franchisee or subfranchisor is required to pay or agrees to pay for the right to enter into a business under a franchise agreement, including, but not limited to, any such payment for such goods or services...."

In construing the above statute we are guided by Secs. 1-02-02, 1-02-03, and 1-02-05, N.D.C.C., which provide:

"1-02-02. Words to be understood in their ordinary sense.--Words used in any statute are to be understood in their ordinary sense, unless a contrary intention plainly appears, but any words explained in this code are to be understood as thus explained.

"1-02-03. Language--How construed.--Words and phrases shall be construed according to the context and the rules of grammar and the approved usage of the language. Technical words and phrases and such others as have acquired a peculiar and appropriate meaning in law, or as are defined by statute, shall be construed according to such peculiar and appropriate meaning or definition.

"1-02-05. Construction of unambiguous statute.--When the wording of a statute is clear and free of all ambiguity, the letter of it is not to be disregarded under the pretext of pursuing its spirit."

The primary purpose of statutory construction is to ascertain the intent of the Legislature, McCroskey v. Cass County, 303 N.W.2d 330 (N.D.1981), and that intent must first be sought in the language of the statute. State v. Nordquist, 309 N.W.2d 109 (N.D.1981); McCroskey v. Cass County, supra. Furthermore, a statute must be viewed as a whole, with a view at arriving at the Legislature's intent. Horst v. Guy, 219 N.W.2d 153 (N.D.1974). Legislative intent is presumed to be clear from the face of the statute. Morton County v. Henke, 308 N.W.2d 372 (N.D.1981); Barnes County Ed. Ass'n v. Barnes County Special Ed. Bd., 276 N.W.2d 247 (N.D.1979). Resort may be had to extrinsic aids in the event that the statutory language is ambiguous. Morton County v. Henke, supra.

Applying the rules of statutory construction set forth above, we cannot agree with Best Western's contention that the statutory definition of "franchise" is ambiguous. Under the plain meaning of the statute, a "franchise" is simply a contract or agreement between two parties by which one party grants and the other party receives certain statutorily delineated rights and obligations. In return, the grantor, or "franchisor", receives a "franchise fee". The statute contains no exception for cooperative marketing agreements.

Furthermore, it is apparent that the statutory definition of "franchise", when viewed within the context of Chapter 51-19, N.D.C.C., the Franchise Investment Law, as a whole, was intended to be a broad definition. The variety of business organizations and their purposes preclude a precise definition of the term. Instead, the Legislature has broadly defined "franchise" and provided certain exemptions from the definition. Of particular importance in the statutory scheme is the exemption found at Sec. 51-19-04(3), N.D.C.C.:

"3. There shall be exempted from the provisions of section 51-19-03 any other transaction which the commissioner by rule exempts as not being comprehended within the purposes of the chapter and the registration of which he finds is not necessary or appropriate in the public interest or for the protection of investors."

By this method, the Legislature broadly defined the area of regulation and authorized the Commissioner to determine on a case-by-case basis whether or not the protection of the public requires registration of a particular business arrangement. The administration of the FIL is an...