What costs and expenses relating to the defense of a legal action is a Budget licensee responsible for indemnifying the Budget Indemnified Parties for if Budget withholds consent to a settlement offer?
Budget Franchise · 2025 FDDAnswer from 2025 FDD Document
If Budget withholds its consent to a settlement offer received by Licensee with respect to such a claim, and Licensee advises Budget that it desires to accept such offer, Budget will take over the defense of such legal action at such time as it withholds its consent (if Budget has not done so previously), and Licensee will be responsible for and will indemnify the Budget Indemnified Parties for all costs and expenses relating to the defense of such legal action incurred by the Budget Indemnified Parties up to such time as Budget withholds its consent, and subject to the following paragraph, Budget will be responsible for and will indemnify Licensee for all costs and expenses relating to such legal action incurred by Licensee after such time as Budget withholds its consent. Furthermore, if Budget withholds its consent to a settlement offer received by Licensee with respect to such a claim, and Licensee advises Budget that it desires to accept such offer, and the actual settlement or judgment amount (or combination thereof) is greater than such rejected settlement offer, Licensee will be responsible for and will indemnify the Budget Indemnified Parties for up to and including the amount of such rejected settlement offer, and Budget will be responsible for and will indemnify Licensee for the amount by which the actual settlement or judgment amount (or combination thereof) exceeds such rejected settlement amount.
If Budget withholds its consent to a settlement offer received by Licensee and Licensee has advised Budget that it desires to accept such offer as contemplated above, and the actual settlement or judgment amount (or combination thereof) is less than such rejected settlement offer, then Licensee, in addition to its indemnification obligations set forth in the immediately preceding paragraph (i.e., paying costs and expenses of defense accrued prior to the time Budget withheld its consent and paying the actual settlement or judgment amount or combination thereof), will indemnify the Budget Indemnified Parties for the additional costs and expenses incurred by the Budget Indemnified Parties relating to such legal action not to exceed the amount by which the rejected settlement amount exceeds the actual judgment settlement amount (or combination thereof).
Source: Item 23 — RECEIPTS (FDD pages 80–426)
What This Means (2025 FDD)
According to Budget's 2025 Franchise Disclosure Document, a licensee has specific indemnification responsibilities when Budget withholds consent to a settlement offer. If a Budget licensee receives a settlement offer and wishes to accept it, but Budget withholds its consent, Budget will then take over the legal defense. However, the licensee remains responsible for all costs and expenses related to the legal defense that the Budget Indemnified Parties incurred up to the point when Budget withheld its consent. This means the licensee is liable for legal costs accrued before Budget assumed control of the defense.
Furthermore, the Budget franchisee's financial responsibility extends beyond the initial costs. If the actual settlement or judgment amount is ultimately greater than the rejected settlement offer, the licensee is responsible for indemnifying the Budget Indemnified Parties up to the amount of the rejected settlement offer. Budget will cover any amount exceeding the rejected settlement offer. Conversely, if the final settlement or judgment is less than the rejected offer, the licensee must indemnify Budget for the costs and expenses, including the settlement or judgment amount, and additional costs related to the legal action, up to the amount by which the rejected settlement offer exceeds the actual settlement amount.
In practical terms, this means a Budget franchisee needs to carefully consider the potential financial implications if Budget decides to reject a settlement offer they find acceptable. The franchisee could be responsible for significant legal costs incurred before Budget took over the defense, and potentially for a portion of the final settlement or judgment if it exceeds the rejected offer. This arrangement highlights the importance of clear communication and alignment between the franchisee and Budget regarding settlement strategies and risk assessment in legal matters. Franchisees should seek clarification and legal counsel to fully understand their obligations and potential liabilities under these circumstances.