Is the liquidated damages payment considered a penalty for a Bombs Away franchise?
Bombs_Away Franchise · 2024 FDDAnswer from 2024 FDD Document
- 14.5 Liquidated Damages. If Bombs Away Franchising terminates this Agreement based upon Franchisee's default (or if Franchisee purports to terminate this Agreement except as permitted under Section 14.1), then within 10 days thereafter Franchisee shall pay to Bombs Away Franchising a lump sum (as liquidated damages and not as a penalty) calculated as follows: (x) the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Bombs Away Franchising under this Agreement for the 12-month period preceding the date on which Franchisee ceased operating the Business; multiplied by (y) the lesser of (1) 24 or (2) the number of months remaining in the then-current term of this Agreement.
If Franchisee had not operated the Business for at least 12 months, then (x) will equal the average Royalty Fees and Marketing Fund Contributions that Franchisee owed to Bombs Away Franchising during the period that Franchisee operated the Business.
The "average Royalty Fees and Marketing Fund Contributions that
Franchisee owed to Bombs Away Franchising" shall not be discounted or adjusted due to any deferred or reduced Royalty Fees and Marketing Fund Contributions set forth in an addendum to this Agreement, unless this Section 14.5 is specifically amended in such addendum. Franchisee acknowledges that a precise calculation of the full extent of Bombs Away Franchising's damages under these circumstances is difficult to determine and the method of calculation of such damages as set forth in this Section is reasonable. Franchisee's payment to Bombs Away Franchising under this Section will be in lieu of any direct monetary damages that Bombs Away Franchising may incur as a result of Bombs Away Franchising's loss of Royalty Fees and Marketing Fund Contributions that would have been owed to Bombs Away Franchising after the date of termination; however, such payment shall be in addition to all damages and other amounts arising under Section 14.3 and Section 14.4, Bombs Away Franchising's right to injunctive relief for enforcement of Article 13, and any attorneys' fees and other costs and expenses to which Bombs Away Franchising is entitled under this Agreement. Except as provided in this Section, Franchisee's payment of this lump sum shall be in addition to any other right or remedy that Bombs Away Franchising may have under this Agreement or otherwise.
Source: Item 22 — CONTRACTS (FDD pages 35–36)
What This Means (2024 FDD)
According to the 2024 Bombs Away Franchise Disclosure Document, the liquidated damages payment is not considered a penalty. The FDD specifies that if Bombs Away terminates the Franchise Agreement due to the franchisee's default, or if the franchisee attempts to terminate the agreement without proper cause, the franchisee must pay Bombs Away a lump sum as liquidated damages, which is explicitly stated as "not as a penalty."
The liquidated damages are calculated based on the average Royalty Fees and Marketing Fund Contributions owed by the franchisee to Bombs Away over the 12-month period preceding the termination. This average is then multiplied by the lesser of 24 or the number of months remaining in the agreement's term. If the franchisee operated the business for less than 12 months, the calculation uses the average fees and contributions owed during the actual period of operation.
The FDD states that this payment is intended to compensate Bombs Away for the loss of future Royalty Fees and Marketing Fund Contributions. However, the liquidated damages payment does not cover all potential damages. Bombs Away retains the right to pursue additional damages and amounts under other sections of the agreement, such as those related to indemnification, intellectual property enforcement, and legal fees. This payment is in addition to any other remedies Bombs Away may have under the agreement or otherwise.