Who is responsible for Alloy's attorneys' fees and costs in a franchisee's bankruptcy proceeding?
Alloy Franchise · 2025 FDDAnswer from 2025 FDD Document
Item 17
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- California Business & Professions Code Sections 20000 through 20043 provide rights to you concerning termination, transfer or nonrenewal of a franchise. If the franchise agreement contains a provision that is inconsistent with the law, the law will control.
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- Termination of the franchise agreement by us because of your insolvency or bankruptcy may not be enforceable under applicable federal law (11 U.S.C.A. 101 et seq.).
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- The franchise agreement contains a covenant not to compete which extends beyond the termination of the franchise. This provision may not be enforceable under California law.
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- The Franchise Agreement contains a waiver of punitive damages and jury trial provision. These provisions may not be enforceable under California law.
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- The franchise agreement requires binding arbitration. The arbitration will occur at Indianapolis, Indiana with the costs being borne by the non-prevailing party. You are encouraged
Source: Item 23 — RECEIPTS (FDD pages 69–245)
What This Means (2025 FDD)
According to Alloy's 2025 Franchise Disclosure Document, the agreement's enforceability regarding termination due to a franchisee's insolvency or bankruptcy may be limited by federal law, specifically 11 U.S.C.A. 101 et seq. This section of the U.S. Code outlines bankruptcy laws. This statement is included as an addendum for California franchisees.
This suggests that certain clauses in the Alloy franchise agreement that allow Alloy to terminate the agreement if a franchisee declares bankruptcy might not be upheld in court due to federal bankruptcy protections. This is particularly relevant for prospective franchisees in California, as California law takes precedence over conflicting terms in the franchise agreement.
However, the FDD does not explicitly state who is responsible for Alloy's attorneys' fees and costs in a franchisee's bankruptcy proceeding. Prospective franchisees should seek clarification from Alloy regarding the allocation of these costs and how they are handled in practice, especially in light of the potential unenforceability of termination clauses due to bankruptcy.