Can an arbitrator award punitive damages against Brain Balance or the franchisee in a dispute?
Brain_Balance Franchise · 2025 FDDAnswer from 2025 FDD Document
20.01. Except as provided in Section 20.02 below, COMPANY and FRANCHISEE agree that any and all disputes between them, and any claim by either party that cannot be amicably settled (including tort as well as contract claims, claims based upon any federal, state, or local statute, law, order, ordinance, or regulations, and claims arising from any relationship prior to, at the time of entering, during the term of, or upon or after expiration or termination of this Agreement) except for claims relating to the Marks or other service marks or commercial symbols of COMPANY, shall be determined solely and exclusively by arbitration under the Federal Arbitration Act, as amended, and in accordance with the rules then obtaining of the American Arbitration Association or any successor in Wilmington, Delaware, unless the parties otherwise agree in writing. COMPANY and FRANCHISEE consent to personal jurisdiction and hereby waive all objections to personal jurisdiction or venue for the purpose of carrying out the purposes of this Paragraph 20.01. The arbitrator(s) may not under any circumstance: (i) stay the effectiveness of any pending termination; (ii) assess punitive, speculative, or exemplary damages; or (iii) make any award that extends, modifies, or suspends any lawful term of this Agreement or any reasonable standard of business performance set by COMPANY in good faith.
Source: Item 22 — CONTRACTS (FDD pages 70–72)
What This Means (2025 FDD)
According to Brain Balance's 2025 Franchise Disclosure Document, in disputes subject to arbitration, the arbitrator is explicitly prohibited from awarding punitive, speculative, or exemplary damages. This limitation applies to any disputes between Brain Balance and the franchisee that are resolved through arbitration, ensuring that neither party can be assessed these types of damages. This restriction is outlined within the arbitration clause of the franchise agreement.
This provision offers a degree of predictability and risk management for both Brain Balance and its franchisees. By precluding punitive damages, the agreement aims to limit the potential financial exposure in case of a dispute. This can make the franchise opportunity more attractive to prospective franchisees who may be concerned about the risk of large, unpredictable damage awards. It also protects Brain Balance from the same risk.
However, it is important to note that this limitation applies specifically to arbitration proceedings. The FDD also states that Brain Balance retains the right to seek injunctive relief in court for breaches or threatened breaches of the agreement by the franchisee, meaning that Brain Balance can pursue court orders to stop a franchisee from violating the agreement. This carve-out allows Brain Balance to protect its brand and system standards through court intervention, regardless of the arbitration clause's limitations on damages.
In summary, while arbitration is the primary method for resolving disputes, and punitive damages are not allowed in arbitration, Brain Balance retains the right to pursue injunctive relief in court under certain circumstances. Prospective franchisees should carefully consider these provisions and consult with legal counsel to fully understand their rights and obligations under the franchise agreement.