To Be or Not to Be a Franchise, That Is the Question

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F R O C H I S E

The Hornswaggled Players Present

HORNSWAGGLED

Dispatches from the Deep End of Franchise Law

Episode XVII · A Tragicomedy in Five Acts · E.D.N.Y. · 2:20-cv-02877

"To Be or Not to Be a Franchise, That Is the Question"

Everyone in the theatre already knows the answer — the regulator, the lender, the operator, the federal judge, and Sea Tow's own marketing department. Everyone, that is, except Sea Tow's litigators.

A Public-Records Satire · Sourced to the Docket

▶ The Prologue in Brief (TL;DR)

Whether a business is a "franchise" is not a matter of opinion — it is a matter of statutory definition. Measured against that definition, five different vantage points (New York State, the SBA, the franchisees, the federal court, and Sea Tow's own website) all point the same way. Only Sea Tow's courtroom position points the other way — resting, as far as we know, largely on the argument that the money flows in the operator's favor. A federal judge has already weighed that argument and found the payment structure "fits comfortably within" the franchise-fee definition. And yet: the ship sails on.

Prologue

I. What, Exactly, Is a Franchise?

Strip away the branding and a "franchise" is a legal creature with a checklist. It is not defined by what a company calls its arrangement — "license," "membership," "management agreement" — but by what the arrangement actually does. Two rulebooks matter here.

The federal test (FTC Franchise Rule, 16 C.F.R. § 436.1(h)) asks three questions: (1) Does the operator use the company's trademark and brand identity? (2) Does the company exert significant control or assistance over how the business is run — a marketing plan, an operating system? (3) Does the operator make a required payment to get in and stay in?

The New York test (General Business Law Article 33, § 681) is, if anything, broader. Under New York law an arrangement is a franchise when the operator pays a franchise fee and either operates under a marketing plan prescribed by the franchisor or runs a business substantially associated with the franchisor's trademark. In New York you don't need all three legs — you need the fee plus one of the other two.

Hold that checklist in your mind's eye. Because as we walk the stage from perspective to perspective, the same three elements keep taking their bows: trademark ✓ · system ✓ · fee ✓. The only question ever seriously in dispute has been the fee. Keep your eye on the fee.

The Crown's Chorus

II. New York State — Where the House Sits

Sea Tow Services International is headquartered in Southold, New York, and always has been. That single fact plants it squarely under New York's franchise law — the New York Franchise Sales Act, codified at General Business Law Article 33 (§§ 680–695). Under the NYFSA, a franchisor that offers or sells franchises "in and from" New York must register a prospectus with the Department of Law before selling. Skip that step, and the operator may hold a right of rescission under § 691 — a refund of what was paid, with interest.

So what has New York State actually said about Sea Tow? The record is not new. It runs back thirty-eight years.

The 1988 File — In the State's Own Words

On April 18, 1988, the New York Attorney General's Investor Protection & Securities Bureau wrote to Sea Tow's president. The subject line was not "license sales." It was franchise sales.

"An examination of the agreements made between Sea Tow and its licensees shows that Sea Tow has granted franchises… The offer and sale of franchises in and from the State of New York has been regulated by statute since January 1, 1981… Our records show no registration of a Sea Tow prospectus."

— NY Dept. of Law letter · filed as Doc. 192-2, PageID 6339–6340

By December 1989 the matter closed with an Assurance of Discontinuance, in which Sea Tow agreed to cease collecting an initial fee "except in compliance with the registration requirements" of the statute (Doc. 192-3). The escape hatch, engineered by general counsel Mitchell A. Stein, was not to argue Sea Tow wasn't a franchise — it was to restructure a single 1989 agreement to remove the one element the statute keyed on: the fee. Everything else — the trademark, the system, the territory, the ongoing revenue share — was left intact.

Did Sea Tow ever register, in any year since? According to a February 27, 2023 FOIL response from the Attorney General's office, no — Sea Tow has never been registered as a franchisor in New York. Not in 1988. Not after the 2022 franchise-fee ruling. Not today, as far as we know.

And most recently, a New York State judge looked at the same question. On January 12, 2026, in the related Suffolk County action, Justice John J. Andrews issued a Short Form Order staying the state case — and, in his reasoning, identified "a plausible finding that the management agreement which is a basis of the plaintiffs' claims is a franchise agreement," adding that operating "without proper registration in violation of New York General Business Law," if willful, "would allow rescission and damages."

Source: Suffolk County Supreme Court, Index No. 606928/2025 — Short Form Order, NYSCEF Doc. No. 55 (Andrews, J.S.C., Jan. 12, 2026). New York state filings are accessible via NYSCEF (iapps.courts.state.ny.us/nyscef).

In 1988 New York's Attorney General called Sea Tow a franchisor. In 2023 the State confirmed Sea Tow never registered as one. In 2026 a New York justice found its agreement "plausibly" a franchise. On this question, New York has never changed its answer.

New York State · 1988–2026

The Exchequer

III. The SBA — Where the Money Gate Stands

The U.S. Small Business Administration maintains a Franchise Directory: a registry of franchise brands whose agreements have been reviewed for SBA-guaranteed lending. If a brand is listed, buyers of its units can obtain SBA-backed loans. If it's not listed, they generally can't. For franchise resale — the mechanism by which an operator turns years of sweat into retirement equity — that directory is the gate. In or out. Binary.

To sit inside that gate, a franchisor must sign a certification affirming that it operates a franchise system. And here the tragedy tightens. In federal court, Sea Tow has spent six years arguing the opposite — that its agreements are "license agreements," that it charges no "franchise fee," that franchise law does not reach it. A brand cannot comfortably tell a federal judge "we are not a franchise" and tell a federal lending agency "we are a franchise" in the same season.

The Impossible Choice

Either Sea Tow is a franchise — in which case its decades of unregistered operation under New York law come into view — or it is not a franchise, in which case it arguably has no place in the SBA Directory, and its operators may lose access to SBA financing for buyers.

The SBA re-certification deadline was June 30, 2026. The current Directory file is dated effective July 1, 2026. Per SBA notices, any brand that did not execute the new certification by the deadline is removed and its franchisees become ineligible for SBA loans.

So where does Sea Tow stand in the post-deadline Directory? As far as we know, that remains unconfirmed on the public record — the machine-readable Directory file has not been independently verifiable to us at the row level. It is the single most consequential open question for every operator hoping to sell: Did Sea Tow check the box — and if so, which box? A brand that quietly lets its SBA eligibility lapse to avoid conceding franchise status would be trading its operators' resale value for its own litigation posture. That is a question worth asking, in writing, at the next annual meeting.

The Groundlings

IV. The Franchisee — Where the Money Comes From

Ask the operators what they bought, and they will tell you: a franchise. They were recruited as franchisees, trained as franchisees, and — critically — they were sold franchises. This is not the newsletter's characterization. It is Sea Tow's own, published on Sea Tow's own website, live as of this writing.

Sea Tow's Franchise Ownership page markets "Sea Tow Franchise Ownership," describes "over 100 Sea Tow franchises," and walks a prospect through a "franchise offering," a "franchise closing," and "franchise training." It names Sea Tow Services International, Inc. as "the franchisor." And — read this part twice — it lists, under "The Investment," a line item called a "Franchise Fee," ranging from roughly $15,000 for the smallest territory to about $35,000 for the largest.

The Word That Does All the Work

In federal court: "Sea Tow contends that it does not collect a franchise fee." (Doc. 216, p. 27)

On Sea Tow's own website, right now, under "The Investment": a charge labeled, in Sea Tow's own words, a Franchise Fee — $15,000 to $35,000 by territory size.

seatow.com/franchise-ownership · vs · E.D.N.Y. Doc. 216

The secondary market agrees. Sea Tow territories are openly advertised for resale — a Hampton Roads listing on a business-for-sale marketplace describes a "well established Sea Tow Franchise," notes "training and support from… Franchisor," and states that a lender found it meets SBA financing criteria. The operators, in other words, live inside the franchise reality every day: they paint the boats yellow, they answer Sea Tow's phones, they run Sea Tow's system, and by the network's own accounting they route roughly 15% of gross revenue back to Southold.

Source for the 15% figure: the Management Agreement, as construed by the Court in Magistrate Judge Locke's Civil Conference Minute Order, which frames Sea Tow's surviving breach-of-contract claim as "15% of gross revenue" under that agreement. E.D.N.Y. Doc. 262 (Mar. 19, 2024).

Here is the question the groundlings are entitled to have answered under oath: If the operators bought franchises, paid a "Franchise Fee," and are marketed as franchisees to this very day — on what basis does Sea Tow tell a federal judge that no franchise exists?

The Verdict Already Rendered

V. The Federal Court — Where the Question Was Answered

This is the act where the suspense should have ended. On September 30, 2022, in a Memorandum & Order resolving the motions to dismiss (Document 216), the Court took up Sea Tow's contention that it collects no franchise fee — and rejected it. The payment structure, the Court held, "fits comfortably within" the statutory definition of a franchise fee.

"The Management Agreement's payment structure fits comfortably within [the statutory definition of a franchise fee]."

Memorandum & Order, Doc. 216, p. 28 · So Ordered by Judge Joanna Seybert · Sept. 30, 2022

Line the ruling up against the checklist from Act I, and the tally is complete:

FEE ✓ The payment structure "fits comfortably within" the franchise-fee definition. (Doc. 216, p. 28) SYSTEM ✓ Sea Tow provided a prescribed marketing plan and system of operation. (Doc. 216, p. 28) MARK ✓ Sea Tow granted the right to use its trademarks as part of the operation. (Doc. 216, p. 28)

A note for the record, since it matters if anyone ever tries to discredit this newsletter over a misplaced name: Document 216 was signed by Judge Joanna Seybert. The case later passed to Judge Nina R. Morrison, and in July 2025 to Judge William F. Kuntz II, who now presides. Different judges, one docket — and the franchise-fee finding sits on that docket regardless of who inherited the gavel.

Nor was 2022 the first time a federal court described Sea Tow this way. Back in 2016, in Sea Tow's own insurance-coverage case — with Mitchell Stein as Sea Tow's counsel — Judge Pamela K. Chen opened her opinion by calling Sea Tow "a franchise-based Marine assistance, towing, and salvage provider with over 90 franchisees nationwide." (211 F. Supp. 3d 528 (E.D.N.Y. 2016)) The same lawyer who accepted "franchise-based" when it helped the company later argued the opposite when it didn't. The contradiction is on the federal record.

The Lady Doth Protest

VI. Sea Tow's View — "We Pay Them More Than They Pay Us"

To be fair to the defendant in its own dispatch, here is Sea Tow's position, stated as its advocates would state it: Sea Tow is not a franchise because the money runs the "wrong" way. Under the arrangement Sea Tow describes, it collects members' dues centrally and remits a portion out to the operator — so, the argument goes, the operator is a paid manager receiving a percentage, not a franchisee paying a franchise fee. No fee in, no franchise. That is the whole ballgame in Sea Tow's telling: characterize the relationship as one in which "we pay them much more than they pay us," and the statute supposedly falls away.

It is a tidy story. It invites two plain questions.

First — do the operators experience it that way? The people actually running the boats describe routing roughly 15% of gross revenue back to headquarters (the Management Agreement figure the Court identified in Doc. 262), paying a five-figure "Franchise Fee" on entry (Sea Tow's own word), and living under Sea Tow's system, marks, territory limits, transfer approvals, and termination authority. Whether a relationship is a franchise turns on the substance of the exchange, not on which ledger column the net lands in. So the question for sworn testimony is direct: net of all the flows — dues, splits, fees, chargebacks, required purchases, the National Marketing Fund — who ends up ahead, and by how much?

Second — is "we pay them more" a description of reality, or a description of an accounting frame? A payment does not stop being a franchise fee because it is routed, renamed, or offset against money flowing the other direction. That was precisely the 1989 maneuver: relabel the $2,500 fee as a $500 purchase of "sales materials," and call the franchise fee gone. The court in 2022 looked past the label and found the structure "fits comfortably within" the franchise-fee definition anyway. Which raises the fair, open question a jury may one day consider: is the "we pay them more" framing a genuine economic reality, or creative accounting dressed for trial?

The Part That Makes It a Tragedy

The court has already weighed the "no franchise fee" argument — the very hinge on which the "we pay them more" theory swings — and rejected it in a dispositive ruling.

E.D.N.Y. · Doc. 216 · Sept. 30, 2022

A separate December 2025 order records that a Sea Tow representation to the court on a discovery matter was found to be "untrue."

E.D.N.Y. · Order of Dec. 29, 2025

And still, Sea Tow doubles down.

The Frochise™ — a franchise that behaves more like a noose than a partnership — would rather relitigate the definition of the water than admit the boat is wet.

To be or not to be a franchise? In a courtroom, that is not a question of will or belief. It is a question of statutory elements — and the elements were counted in 2022. What remains is not really a legal mystery. It is a performance.

Epilogue

What Comes After the Curtain

Discovery has moved from paper to people — and now that stage, too, is behind us. The party depositions ran through the spring, the sittings of Mitchell Stein, Joseph Frohnhoefer III, and Kristen Frohnhoefer among them, and the court's April 23, 2026 deadline to conclude all depositions has passed. As of this writing — July 9, 2026 — depositions are done.

What the record looks like on the far side of that deadline is the subject of our last dispatch — Episode XVI, "The Log Is Closed," which broke down the joint discovery status report the parties filed on July 7, 2026 (Document 318). If you missed it, that is where to pick up the thread.

That leaves one question still genuinely open — and it is the one with the most immediate consequences for every operator's balance sheet: the SBA question. In or out of the Franchise Directory after the June 30 deadline? As far as we know, that remains unconfirmed on the public record.

Whenever the hard questions finally land, Sea Tow has a favorite line for deferring them: that's for Judge Kuntz. Eventually, it will be. And Judge Kuntz will be reading the same docket the rest of us can already see.

Fly the true colors. Merch for the mutinous. Tips for the crow's nest.

Visit the Ship's Store Send Word to the Crew

Fair winds and following seas, Hornswaggled

We may or may not be a crew. We may or may not be near ye right now. Alas, poor Frochise™ — we knew it, Horatio.

##### Satire & Commentary

This dispatch is a work of satire, parody, and protected opinion commentary on matters of public record. Names, characterizations, and rhetorical flourishes are employed for the purpose of commentary and criticism. Where the newsletter poses questions, it poses them as questions — not as findings of fact.

##### First Amendment

This is constitutionally protected speech commenting on public court filings, public regulatory records, and publicly published business materials. Nothing here purports to state a legal conclusion about any person's guilt, liability, or intent; the courts decide those questions.

##### AI-Assisted Content

Portions of this content were created or enhanced with the assistance of artificial intelligence tools as part of the editorial and analytical process. AI-assisted content should be independently verified against the underlying source documents.

##### Public Records Sourcing

All factual assertions are drawn from public sources: the docket in Sea Tow Services International, Inc. v. Tampa Bay Marine Recovery, Inc., et al., No. 2:20-cv-02877-WFK-SIL (E.D.N.Y.), accessible via PACER, including Documents 192-2 through 192-5, 216, and 318; the related Suffolk County Supreme Court action; the New York Attorney General's February 27, 2023 FOIL response; Sea Tow's public website (seatow.com/franchise-ownership); the SBA Franchise Directory; and published opinions including 211 F. Supp. 3d 528 (E.D.N.Y. 2016). Statute references: N.Y. Gen. Bus. Law Art. 33, §§ 680–695 (incl. §§ 681, 683, 691); FTC Franchise Rule, 16 C.F.R. § 436.

##### Unconfirmed Items

Sea Tow's current status in the SBA Franchise Directory following the June 30, 2026 deadline is reported as unconfirmed and is flagged as such. Items described as rumor are identified as rumor.

##### No Legal Advice

This newsletter is not legal advice and creates no attorney-client relationship. If you are a party to a Sea Tow agreement, consult a licensed franchise attorney in your jurisdiction who is not affiliated with Sea Tow.

##### Parties Retain Their Rights

All parties named are entitled to their own accounts, defenses, and day in court. Allegations referenced from court filings are allegations unless and until adjudicated.