Plum Tree v. Seligson , 383 F.Supp. 307 (1974)

What differentiates a franchise from an investment contract, a type of security?

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The District Court held that, according to the US Supreme Court in Howey, an investment contract is an investment of money in an enterprise with an expectation of profit solely from the efforts of others. The agreement with Plum Tree was not in the nature of an investment contract and was a franchise agreement. A franchise agreement grants control of certain elements of an enterprise to the franchisor. Here, Plum Tree specified the location and décor of the store, its operating hours, merchandise mix and display scheme. However, the Seligson was responsible for the day-to-day operations, hiring and firing personnel, maintaining good customer relations, and actually selling the products specified by Plum Tree. This arrangement could hardly be considered to be an investment contract, where profits are to come solely from the efforts of others, even under an expansive reading of the word "solely".

Full case and case summary also available online at: http://www.mlmlegal.com/legal-cases/PlumTree_v_Seligson.php

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Reference Info:Federal, 3rd Circuit, Pennsylvania | United States


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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