Does Brown's Chicken owe a fiduciary obligation to franchisees for administering the Advertising Fund?
Browns_Chicken Franchise · 2025 FDDAnswer from 2025 FDD Document
The Advertising Fund is not Brown's asset. Although the Advertising Fund is not a trust, Brown will hold all Advertising Fund contributions for the benefit of the contributors and use contributions only for the purposes described in this Agreement. Brown does not owe any fiduciary obligation to Franchisee for administering the Advertising Fund or for any other reason. The Advertising Fund shall be accounted for separately from the other funds of Brown and shall not be used to defray any of Brown's general operating expenses, except for such reasonable salaries, administrative costs and overhead as Brown may incur in activities reasonably related to the administration of the Advertising Fund and its advertising programs (including, without limitation, conducting market research, preparing advertising and marketing materials and collecting and accounting for contributions to the Advertising Fund). Brown may spend in any fiscal year an amount greater or less than the aggregate contribution of BROWN'S Stores to the Advertising Fund in that year and the Advertising Fund may borrow from Brown or other lenders to cover deficits of the Advertising Fund or cause the Advertising Fund to invest
any surplus for future use by the Advertising Fund. Franchisee authorizes Brown to collect for remission to the Advertising Fund any advertising monies or credits offered by any supplier to Franchisee based upon purchases by Franchisee. All interest earned on monies contributed to the Advertising Fund will be used to pay advertising costs of the Advertising Fund before other assets of the Advertising Fund are expended. A statement of monies collected and costs incurred by the Advertising Fund shall be prepared annually by Brown and shall be furnished to Franchisee upon written request.
Source: Item 22 — Contracts (FDD page 43)
What This Means (2025 FDD)
According to Browns Chicken's 2025 Franchise Disclosure Document, Browns Chicken does not owe franchisees a fiduciary obligation for administering the Advertising Fund. While the Advertising Fund itself is not considered a trust, Browns Chicken is obligated to hold all contributions for the benefit of the contributors and use them only for the purposes outlined in the Franchise Agreement. Browns Chicken will account for the Advertising Fund separately from its other funds and will not use it to cover general operating expenses, except for reasonable salaries, administrative costs, and overhead related to administering the fund and its advertising programs. These activities include market research, preparing advertising materials, and collecting and accounting for contributions.
Browns Chicken has the right to spend more or less than the aggregate contributions from Browns Chicken stores in any fiscal year. The Advertising Fund can also borrow from Browns Chicken or other lenders to cover deficits or invest surpluses for future use. Franchisees authorize Browns Chicken to collect any advertising monies or credits offered by suppliers based on franchisee purchases. All interest earned on the Advertising Fund will be used to pay advertising costs before using other assets of the fund. Browns Chicken will prepare an annual statement of monies collected and costs incurred by the Advertising Fund, which will be furnished to franchisees upon written request.
Browns Chicken directs all advertising programs financed by the Advertising Fund and has sole discretion over creative concepts, materials, endorsements, and the geographic, market, and media placement and allocation. The advertising contribution that franchisees must pay to the Advertising Fund cannot exceed four percent (4%) of the store's gross sales. Franchisee payments to the Advertising Fund must be made by electronic transfer or automatic debit from the franchisee's bank account.