California Department of Corporations Sanctions Restaurant Franchisor for
Violations of California Franchise Investment Law
By Mario Herman, Esq.
On July 30, 2012, the California Department of Corporations (“Department”)
issued sanctions against Pho Citi Franchising Company and its two principals for
violations of the California Franchise Investment Law. The sanctions include
penalties payable to the state and orders of restitution of $280,000 for at
least four previous franchisees.
Pho Citi Franchising Company is in the business of offering and selling
franchises for Vietnamese-style restaurants in the Los Angeles area. Myong Bok
Lee (aka Jason Lee) and Kyung Park (aka Sandra Park) are officers of Pho Citi.
The Department is responsible for administering and enforcing the California
Franchise Investment Law, and registering the offer and sale of franchises in
California. To register a franchise, a franchisor must file a disclosure known
as a Uniform Franchise Disclosure Document or Franchise Disclosure Statement
with the Department for review and approval. The Department reviews the
disclosure document to help protect prospective franchisees from
misrepresentation by franchisors.
“As the regulator of franchising in California, the Department of
Corporations oversees disclosure requirements to provide complete and accurate
information about the franchisor and its franchise offering to the prospective
franchise, prior to a purchase decision,” said Corporations Commissioner Jan
Lynn Owen. “In this case, we are able to seek restitution to franchisees that
were provided misleading and inaccurate information.”
The Department’s actions against Pho Citi include a Desist & Refrain order
preventing the company and its principals from violating several provisions of
the California Franchise Investment Law. Additionally, Lee, Park and Pho Citi
are ordered to pay restitution to four franchisees in an amount of $280,000.
They are also ordered to pay the Department an administrative penalty of $87,500
and attorney’s fees of $10,000.
The Department’s action specifically alleges that Pho Citi and its principals
committed multiple violations of state law by misrepresenting facts to the
Department and prospective franchisees. Moreover, they failed to disclose
important information including civil lawsuits that had been filed against the
company. They also failed to provide disclosure documents to prospective
franchisees, and failed to register the franchise with the Department.
Mr. Herman based in Washington, D.C., represents franchisees