What did 360 Painting offer to the two Maryland franchisees as part of the rescission offer?
360_Painting Franchise · 2025 FDDAnswer from 2025 FDD Document
On August 18, 2016, the defendants entered into a Consent Order with the Securities Commissioner, in which they agreed, without admitting or denying any of the Commissioner's statements of fact or conclusions of law, except as to the Commissioner's jurisdiction in the proceeding, (1) to immediately and permanently cease and desist from the offer and sale of franchises in violation of the Maryland Franchise Registration and Disclosure Law; (2) to promptly file with the Securities Division and diligently pursue the completion of an initial application to register the 360 Painting franchise offering in Maryland; and (3) to send offers of rescission to two Maryland Franchisees, offering them the right to rescission of their 360 Painting franchise agreements and to obtain a refund of initial franchise fees. In an Order Modifying Consent Order dated January 4, 2017, the Consent Order was modified so that 360 Painting was not required to register its 360 Painting franchise offering in Maryland as long as no offers or sales of 360 Painting franchises were made in Maryland or to any Maryland residents. In the Consent Order, the Commissioner concluded that defendants had violated §§ 14-214, 14-216, 14- 228 and 14-229 of the Maryland Franchise Registration and Disclosure Law by offering and selling franchises in Maryland and to Maryland residents while not registered to offer and sell franchises in Maryland and using a Franchise Disclosure Document that failed to set forth all information the Securities Division requires to be included in a Maryland registered Franchise Disclosure Document under the Maryland Franchise Registration and Disclosure Law and Maryland's Franchise Regulations. Specifically, the Commissioner found that, in the Franchise Disclosure Documents distributed to the Maryland Franchisees, defendants had failed to disclose the lawsuit filed by Leslie Owens Brown referenced above in Item 3. 360 Painting has corrected this error. The two Maryland Franchisees accepted the rescission offer.
Source: Item 3 — LITIGATION (FDD pages 13–18)
What This Means (2025 FDD)
According to the 2025 FDD, 360 Painting offered rescission of the franchise agreements and a refund of the initial franchise fees to two Maryland franchisees. This offer was made following an investigation by the Securities Division of the Office of the Attorney General of the State of Maryland, which concluded that 360 Painting had violated Maryland franchise laws by offering and selling franchises without proper registration and by using a Franchise Disclosure Document that did not include all required information. The specific missing information was the lawsuit filed by Leslie Owens Brown. The two Maryland franchisees accepted the rescission offer.
This type of rescission offer is a legal remedy often required when a franchisor fails to comply with franchise registration and disclosure laws. It allows franchisees to exit the franchise agreement and recover their initial investment, effectively undoing the franchise relationship. The fact that 360 Painting made this offer and that it was accepted by the franchisees suggests that the violations were significant enough to warrant such action.
For a prospective franchisee, this situation highlights the importance of verifying that a franchisor is in full compliance with all applicable franchise laws and regulations in their state. It also demonstrates the potential consequences for a franchisor who fails to meet these requirements. While the FDD indicates that 360 Painting has corrected the error that led to the rescission offer, a prospective franchisee should carefully review the litigation history and any regulatory actions taken against the franchisor to assess the overall risk of investing in the franchise.