ADMINISTRATIVE PROCEEDING BEFORE THE SECURITIES COMMISSIONER OF MARYLAND IN THE MATTER OF: * * RMG Rehabilitation Management Group, LP * Case No. 2011-0462 Respondent * * * * * * * * * * * * * * * CONSENT ORDER WHEREAS, the Securities Division of the Office of the Attorney General of Maryland (the Securities Division ) initiated an inquiry into the franchise-related activities of RMG Rehabilitation Management Group, LP ( RMG ) under the authority granted under the Maryland Franchise Registration and Disclosure Law, MD. BUS. REG. CODE ANN. 14-201 et seq. (2010 Repl. Vol. and Supp. 2011) (the Maryland Franchise Law ); and WHEREAS, based on information presented by the Securities Division, the Maryland Securities Commissioner (the Commissioner ) concluded that grounds exist to allege that RMG violated the registration and disclosure provisions of the Maryland Franchise Law, in relation to the offer and sale of RMG franchises in Maryland; and WHEREAS, before the holding of a hearing in this matter, without trial or final adjudication of any issue of fact or law, and without RMG admitting or denying any violation of law, the Commissioner and RMG have reached an agreement to enter into this Consent Order; NOW, THEREFORE, IT IS HEREBY ORDERED AND DECREED:
I. JURISDICTION 1. The Commissioner has jurisdiction in this proceeding pursuant to Section 14-210 (a) of the Maryland Franchise Law. II. STATEMENT OF FACTS 2. RMG Rehabilitation Management Group, LP ( RMG ) is a Texas Limited Partnership with its principal business address at 1300 West Sam Houston Parkway South, Houston, Texas 77042. 3. RMG offers and sells franchises for the establishment of a program to provide intraarticular joint injection procedures ( IAJP Services ) for the treatment of osteoarthritis, degenerative joint disease and other musculoskeletal and pain related conditions at medical clinics. RMG trains the medical clinic staff in the IAJP services and provides such clinic with a statement of accreditation which allows the clinic to provide IAJP services under the name and mark OsteoArthritis Centers of America ( OA ). 4. RMG has never been registered by the Securities Division to offer and sell franchises in Maryland. 5. On July 28, 2011, RMG filed an initial application of its franchise registration with the Securities Division. The Securities Division reviewed that initial application and, on August 30, 2011, sent counsel for RMG a comment letter outlining deficiencies that RMG had to correct in order to register its franchise offering in Maryland. One of those comments was a request for information regarding franchise sales in Maryland. During its review of the initial application, the Securities Division noted that RMG disclosed two (2) franchise agreements in Maryland for which an outlet had not opened as of December 31, 2010. 6. On September 21, 2011, in response to the Securities Division s August 30, 2011 letter, 2
RMG submitted additional disclosure for inclusion in the Franchise Disclosure Document ( FDD ). RMG also represented there was one potential franchisee in the State of Maryland. The Securities Division reviewed this submission and, on October 12, 2011, sent counsel for RMG a comment letter outlining outstanding deficiencies RMG had to correct before its pending registration would be made effective in Maryland. One of those comments was a request for documentation regarding the franchise sale in Maryland. 7. On October 21, 2011, in response to the Securities Division s October 12, 2011 letter, RMG submitted documents related to its offer and sale of franchises in Maryland. RMG acknowledged that it entered into franchise agreements to operate RMG franchises in Maryland when it was not registered to offer and sell franchises in Maryland. 8. Specifically, on March 31, 2011, RMG entered into an Accreditation and Management Agreement and an Osteoarthritis Training and Set-Up Services Agreement with CCG Healthcare Investment, LLC ( CCG ), a Utah limited liability company, to operate ten (10) medical clinics to offer IAJP services in various areas of the United States; two (2) such medical clinics to be located within the Baltimore and Columbia-Rockville geographic areas in Maryland. CCG paid RMG a $40,000.00 initial fee for each Maryland clinic in the geographic areas identified in the agreements. The agreements also provide for the option to operate an additional eight (8) OA accredited clinics in these Maryland territories. Commencing six months from the effective date of the agreements, CCG was to pay RMG a $4,000.00 monthly manager service fee for each accredited OA clinic providing IAJP services in the geographic areas. 9. RMG represented to the Securities Division that RMG did not provide a copy of an FDD to CCG prior to its purchase of the RMG franchise as required pursuant to the Maryland 3
Franchise Law and Amended FTC Franchise Rule. 10. On July 8, 2011, RMG sent a letter to CCG, with an FDD attached, informing CCG that CCG may rescind its contractual arrangements to continue in the OA Accreditation Program with RMG. The FDD provided to CCG was not registered in Maryland. 11. On August 5, 2011, CCG rejected RMG s offer to rescind and signed an acknowledgment provided by RMG. This acknowledgment required CCG to waive any right of rescission under applicable franchise laws or regulations, and to waive its right to any other claims or actions against RMG under applicable state franchise laws in connection with RMG s original offer and sale of the franchise to CCG, in violation of the Maryland Franchise Law. 12. RMG represents that CCG paid a total of $80,000.00 in initial fees to RMG, its parent and/or affiliates. These initial fees include all franchise, training, interior design and staffing fees. 13. RMG represents that, other than the offer and sale to CCG described in this Consent Order, RMG did not offer or sell any franchises to any Maryland residents, or to any other residents for a franchise territory located in whole or in part in Maryland. 14. RMG represents that it has ceased offering and selling franchises in Maryland and to any Maryland residents. 15. RMG represents that it has implemented compliance procedures to ensure that, in the future, RMG complies with all required provisions of the Maryland Franchise Law. IV. CONCLUSIONS OF LAW 16. By engaging in the above activities, the Commissioner has concluded that RMG violated 14-214, 14-216, 14-226, and 14-228 of the Maryland Franchise Law. 4
V. ORDER AND CONSENT 17. THE COMMISSIONER HEREBY ORDERS, AND RMG REPRESENTS AND CONSENTS THAT: A. RMG shall immediately and permanently cease and desist from the offer and sale of franchises in violation of the Maryland Franchise Law; B. RMG shall diligently pursue the application it has filed to register its franchise offering in Maryland; C. RMG shall void the acknowledgment CCG signed on August 5, 2011 rejecting RMG s offer to rescind its franchise agreements and shall provide CCG with applicable documentation signed by RMG confirming that fact; D. RMG shall send to CCG, upon RMG s notification by the Securities Division that RMG s franchise offering has been effectively registered for use in Maryland: (i) a copy of the applicable, effectively registered Maryland Franchise Disclosure Document; and (ii) a letter, in substantially the form attached to this letter as Exhibit 1, notifying CCG that it has the right to rescind its RMG franchises under the terms stated in that letter. If CCG accepts RMG s offer to rescind its franchise purchase in response to the Offer to Rescind Franchise Agreement, RMG agrees to complete payments to CCG within 30 (thirty) days of RMG s receipt of that written Acceptance; and, E. RMG acknowledges that this Consent Order is a discloseable order as described under the Maryland Franchise Law, and Item 3 of the NASAA Franchise Registration and Disclosure Guidelines and Amended FTC Franchise Rule. VI. JURISDICTION RETAINED 18. Jurisdiction shall be retained by the Commissioner for such further orders and directions as may be necessary or appropriate for the construction or enforcement of the Consent Order. VII. CONSEQUENCES OF VIOLATING THIS CONSENT ORDER 19. If RMG fails to comply with any term of this Consent Order, the Securities Division may bring administrative or judicial proceedings against it to enforce this Consent Order 5
or to sanction it for violating an order of the Commissioner, and may take any other action authorized under the Maryland Franchise Law or any other applicable law. In any such proceeding in which, after an opportunity for a hearing, the Commissioner or a court finds that RMG has violated this Consent Order, the Statement of Facts and the violations of the Maryland Franchise Law alleged in the Consent Order shall be deemed admitted and may be introduced into evidence against it. VIII. MODIFICATION OF CONSENT ORDER 20. The terms of this Consent Order may be modified only by a subsequent order issued by the Commissioner. BY CONSENT: SO ORDERED: RMG Rehabilitation Management Group, LP Commissioner s Signature is on File with Original Document /S/ By: Richard Binstein, VP MELANIE SENTER LUBIN SECURITIES COMMISSIONER DATE OF THIS ORDER: January 19, 2012 6
FORM (On Company Letterhead) Certified Mail Return Receipt Requested Re: [Company] Offer to Rescind Franchise Agreement Dear : In accordance with discussions our attorneys have had with the Division of Securities of the Maryland Attorney General's Office (the "Division"), [Insert name of Franchisor] ("we") have agreed to offer rescission to all Maryland residents who purchased franchise agreements, and any other persons who purchased a franchise to be located in Maryland, that we sold in violation of the registration or disclosure provisions of the Maryland Franchise Law. This offer of rescission is made in settlement of the administrative proceeding that the Division may bring for the sale of a franchise in violation of the Maryland Franchise Law and does not affect any civil liability for which we may be responsible. If you elect to rescind and terminate your franchise, we agree to return to you the initial franchise and training fees you paid us or our affiliates, less the cost for any unreturned items and equipment included in the purchase price you paid for the franchise. If you purchased any optional items as part of your franchise agreement, we will reimburse you for the cost you paid us for any of the items that you return. In the event you elect to rescind, you will give up your franchise agreement. You also will give up any rights to use our trademarks and system and be obligated to refrain from using and disclosing any of our trade secrets and any of our confidential and proprietary information. This offer will remain open for thirty (30) days from the date you receive this letter. Please check the appropriate place below and return a signed copy of this letter to me within the time period. If you have any questions, please contact Dale E. Cantone, Assistant Attorney General, at the Division (410-576-6368). Sincerely, THE COMPANY Exhibit 1
ACCEPTANCE OR REFUSAL OF OFFER TO RESCIND FRANCHISE 1. I, the undersigned, acknowledge that I have read the preceding Offer to Rescind Franchise Agreement and understand its contents. 2. I understand that I have not waived my rights under the Maryland Franchise and Disclosure Law by signing this document. 3. I hereby make the following choice to accept or refuse your offer to rescind my franchise agreement: CHECK ONE I hereby accept your offer of rescission and agree to not use your trademarks and system and to not use or disclose to anyone the trade secrets, and confidential and proprietary information that we obtained from you. I do not accept your offer of rescission. I wish to remain a franchisee under my franchise agreement. Date: Franchisee 8