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Log In / Register | Jun 21, 2018

Butterfly Fitness’ Timetable of Regulatory Troubles in California

SACRAMENTO – Below is the timetable of franchising firm Butterfly Fitness and its regulatory problems with California's Department of Corporations through the years. This timetable relates to the articles, Free Speech Wins! Butterfly Fitness Ex-CEO Mark Golob, Lawyer Nikolaus Reed Lose Defamation Suit against Unhappy Franchisee and Freedom of the Press includes Bloggers.

  • Early April, 2004 - California's then Department of Corporations calls Butterfly Fitness to require the franchisor change its Uniform Franchise Offering Circular* to say that it will collect initial franchise fees from buyers ONLY after their training session

  • Apr 21, 2004 – Butterfly writes to the Department of Corporations, confirming an earlier phone conversation with the Department and that franchisor Butterfly will comply (see attachment) in changing its disclosure document.

  • June 9, 2004 –Butterfly Fitness complies. Its Item 5 now is amended to say: "The initial franchise fee is payable $10,000 after completion of your initial orientation training for your first location, and the remaining $10,000 at least 30 days prior to delivery of the required exercise and fitness equipment and the remaining $9,500 at least 30 days prior to the opening of the franchised center."

  • 2005Non-compliance by franchisor Butterfly Fitness

  • 2006Non-compliance by franchisor Butterfly Fitness. The Uniform Franchise Offering Circulars registered with the state of California shows Butterfly still HAD NOT COMPLIED with the commissioner's orders to change Item 5

  • 2007Non-compliance by the franchisor. Item 5 non-compliantly reads, "The initial franchise fee is payable upon the signing of the Franchise Agreement and is nonrefundable."

  • Feb 13, 2008 – Department of Corporations writes to Butterfly Fitness that there is "no stop order in effect pursuant to section 31115** of the Franchise Investment Law."

  • March 12, 2009 – Franchisor Butterfly Life of California is sold to Diversified Health and Fitness of Florida

  • March 24, 2009 – A few years late and a few days after the franchisor's sale, the Department of Corporations issues a cease order for Butterfly Fitness (pdf) to desist selling franchises in California.

  • June 11, 2009 – The commissioner's cease and desist order was withdrawn (see attached Withdrawal of DR Order) because it was discovered that the offending action was initiated against a franchise outside of California.

  • Sep 30, 2011Butterfly Fitness, Inc. petitions for bankruptcy (pdf)


*Note: The Uniform Franchise Offering Circular was updated in 2008 by the Federal Trade Commission with new rules to be now called the Franchise Disclosure Document

** California's Section 31115 specifies that the commissioner may summarily issue a stop order denying the effectiveness of or suspending or revoking effectiveness of any registration because he feels there has been fraud in selling to franchisees or that the franchisor has failed to comply with any order by the commissioner.

Related reading:

AttachmentSize
Withdrawal of DR Order for Butterfly.pdf184.04 KB
CA franchise fee deferral Butterfly Fitness.pdf117.01 KB
Golob Cease & Desist Order.pdf482.39 KB
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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.