In a dispute regarding the Annex Brands franchise agreement, which party is entitled to reimbursement of costs and expenses if they substantially prevail in a judicial proceeding or arbitration?
Annex_Brands Franchise · 2025 FDDAnswer from 2025 FDD Document
- F. COSTS AND ATTORNEYS' FEES. If a claim for amounts owed by Franchisor or Franchisee is asserted in any judicial proceeding, arbitration or appeal thereof, or if either party seeks to enforce or interpret this Agreement or Continuing Personal Guarantee (Attachment 2) in any judicial proceeding, arbitration or appeal thereof, the party substantially prevailing in such proceeding will be entitled to reimbursement of its costs and expenses (including reasonable accounting, expert and witness fees, and reasonable attorneys' fees) through appeal.
- G. FRANCHISEE MAY NOT WITHHOLD PAYMENTS. Franchisee agrees that he, she or they will not, on grounds of the alleged nonperformance by Franchisor of any of its obligations under this Agreement and all other agreements, withhold payment of any royalty fees, marketing fees, national convention participation deposits, technology services fees, insurance premiums, or other fees under this Agreement and all other agreements, expenses, equipment lease or rental payments and/or supplies payments, purchases from Franchisor and its affiliates, interest, late fees, or any other indebtedness to Franchisor or its affiliates.
Source: Item 22 — Contracts (FDD pages 109–110)
What This Means (2025 FDD)
According to the 2025 FDD, regarding disputes related to amounts owed or the interpretation/enforcement of the Annex Brands Franchise Agreement, the party that substantially prevails in a judicial proceeding, arbitration, or appeal is entitled to reimbursement of their costs and expenses. This includes reasonable accounting, expert, and witness fees, as well as reasonable attorneys' fees, throughout the appeal process.
This clause means that if an Annex Brands franchisee or Annex Brands itself wins a legal battle related to the franchise agreement, they can recover the costs associated with pursuing the case. This can be a significant benefit, as legal fees can be substantial. The reimbursement covers a wide range of expenses beyond just attorney fees, including expert witnesses and accounting costs, which can be critical in complex franchise disputes.
However, it's important to note that this reimbursement is only for the party that "substantially prevails." This means that a party that wins only on some minor points may not be entitled to full reimbursement. Also, the FDD specifies that the franchisee cannot withhold payments due to alleged nonperformance by Annex Brands, meaning the franchisee must continue to meet their financial obligations even during a dispute.
This type of clause is fairly standard in franchise agreements, as it aims to discourage frivolous lawsuits and ensure that the party in the right is not unduly burdened by legal costs. Prospective Annex Brands franchisees should carefully consider this clause and understand the implications of pursuing legal action against the franchisor.