What are the financial consequences if a Belocal franchisee commences a court action related to the franchise agreement before an arbitrator's final decision?
Belocal Franchise · 2025 FDDAnswer from 2025 FDD Document
Further, if prior to an arbitrator's final decision, either Franchisee, any of Franchisee's Principals, or Franchisor commences an action in any court for a claim that arises out of or relates to this Agreement (except for the purpose of enforcing this arbitration provision or as otherwise permitted by this Agreement), the party bringing the action in court shall be responsible for the other party's expenses of enforcing this arbitration provision, including court costs, arbitration filing fees, and other costs and attorneys' fees.
Source: Item 22 — CONTRACTS (FDD page 71)
What This Means (2025 FDD)
According to Belocal's 2025 Franchise Disclosure Document, if a franchisee initiates a court action related to the franchise agreement before the arbitrator makes a final decision, the franchisee will be responsible for the other party's expenses. These expenses include the costs of enforcing the arbitration provision, such as court costs, arbitration filing fees, other associated costs, and attorney's fees. This provision is designed to ensure that disputes are resolved through arbitration as agreed upon in the franchise agreement, and to discourage parties from circumventing the arbitration process by filing lawsuits prematurely.
This clause has significant implications for prospective Belocal franchisees. It means that if a franchisee attempts to resolve a dispute through the court system before completing the arbitration process, they could incur substantial financial penalties. These penalties are in addition to their own legal expenses. The franchisee would be responsible for covering Belocal's legal costs and other expenses related to enforcing the arbitration agreement. This could create a significant financial burden for the franchisee, especially if the case is complex or requires extensive legal work.
Franchisees should be aware of this provision and understand the importance of adhering to the arbitration process outlined in the franchise agreement. Before initiating any legal action, franchisees should carefully consider whether the dispute is subject to arbitration and whether they have fully complied with the required mediation and arbitration procedures. Failure to do so could result in unexpected and potentially significant financial liabilities. This is a fairly standard clause in franchise agreements, intended to control dispute resolution costs and ensure consistency.