Trio of Rulings Shift New York’s Franchise Sales Act Litigation

Courts and practitioners have wrestled for decades with the relationship between two seemingly contradictory sections of the New York Franchise Sales Act. Section 683 governs registration and disclosure, while Section 684 creates several exemptions from those requirements.

Since 1988, Olivieri v. McDonald’s Corp. set the precedent for this relationship. The ruling held that franchisors who were exempt under Section 684 still had to comply with Section 683’s disclosure rules. On that basis, franchisees repeatedly brought claims alleging non-compliant earnings disclosures.

But a trio of decisions—including one from 2025—have rejected Olivieri and embraced a more text-driven interpretation of the statute. Franchisors who qualify for the Section 684 exemption are now excused from both the registration requirement and the disclosure obligations in Section 683. This shift has several practical implications.

A Growing Shift

The first break from Olivieri came in 1992 in Dunkin’ Donuts v. HWT Associates, where New York Appellate Division, Second Department, held that franchisors qualifying for the Section 684 exemption weren’t obligated to follow certain Section 683 disclosure provisions. Although significant, the decision didn’t immediately displace Olivieri in federal practice.

A major acceleration came in 2021 with Arizona Family Florists v. 1-800-Flowers.com, which held unequivocally that a franchisor exempt under Section 684(3) is “excused from providing the complete statutory disclosures required by Section 683(2).”

The court rejected Olivieri as outdated and inconsistent with Dunkin’ Donuts and insufficiently grounded in the statutory text. It also cited the New York Practice Treatise confirming that Section 683 doesn’t apply to franchisors meeting the net-worth threshold.

Most recently, Community Care Companions v. Interim Healthcare granted summary judgment to a franchisor above the statutory net-worth threshold, holding that the exemption covers both registration and disclosure obligations. Claims based on alleged failures to provide compliant earnings-claim disclosures could not survive as a matter of law.

Together, these cases create a consistent and increasingly settled interpretive trend across New York federal and state courts.

Analytical Basis

The emerging decisions all follow a straightforward textual analysis. Section 684 exempts franchisors from the “registration provisions” of Section 683, and the disclosures in Section 683 are part of—and inseparable from—the offering prospectus required as part of registration.

If a franchisor is exempt from preparing or filing a prospectus, courts reason, it can’t logically be required to include specific disclosures in a document it need not prepare. This reading aligns the structure and purpose of the statute, unlike Olivieri’s severed approach.

Practical Implications

Franchisors exceeding the $15 million net-worth threshold now have strong authority supporting exemption from Section 683’s registration requirement and the associated disclosure obligations, including substantiation for financial performance representations.

Courts increasingly dismiss Section 683-based statutory claims against high-net-worth franchisors on this basis.

Exemption from Section 683 doesn’t eliminate all exposure. Claims may still arise under:

• Common-law fraud and negligent misrepresentation
• Section 687 of the Franchise Sales Act (fraud provisions)
• Contractual misrepresentation and breach theories
• The FTC Franchise Rule, which has no net-worth exemption
• State franchise-relationship statutes governing termination, renewal, and good faith

As a result, franchisors should continue to exercise caution when making any earnings-related statements, whether formal or informal. Some recommendations for compliance:

Confirm and document the Section 684 exemption. Maintain audited financial statements evidencing compliance with the net-worth threshold at the time of franchise sales.

Avoid unintended financial performance representations. Even if Section 683 is inapplicable, informal statements may still create exposure under common-law or federal rules.

Align disclosure practices with federal requirements. The Federal Trade Commission’s Franchise Rule remains fully applicable and is often the primary disclosure framework for national systems.

Continue monitoring appellate developments. Because higher courts haven’t spoken, this remains an evolving area.

Looking Forward

With Dunkin’ Donuts, Arizona Family Florists, and Community Care Companions now aligned in their interpretation of the New York Franchise Sales Act, the theory endorsed in Olivieri has been substantially curtailed.

While franchisees may continue to bring fraud-based claims, statutory claims premised on Section 683 disclosure violations are increasingly untenable against franchisors meeting the Section 684 net-worth exemption. Although final resolution awaits higher-court review, the modern trend is clear. For now, franchisors have meaningful, though not absolute, certainty.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Jared Foley is a partner at Michelman Robinson and leads its class action and complex litigation practice group.

Jesse Contreras is counsel at Michelman Robinson and a members of its class action and complex litigation practice group.

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