When CJR exercises a right or discretion under the Carls franchise agreement, can it consider its own best interests, even if it adversely affects the Developer?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
CJR's judgment of what is in the best interests of the Carl's Jr.
System, at the time its decision is made or its right or discretion is exercised, can be made without regard to whether: (1) other reasonable alternative decisions or actions, or even arguably preferable alternative decisions or actions, could have been made by CJR; (2) CJR's decision or the action taken promotes its financial or other individual interest; (3) CJR's decision or the action taken applies differently to Developer and one or more other developers or franchisees or CJR company-operated or affiliateoperated operations; or (4) CJR's decision or the action taken is adverse to Developer's interests.
CJR will have no liability to Developer for any such decision or action.
CJR and Developer intend that the exercise of CJR's right or discretion will not be subject to limitation or review.
If applicable law implies a covenant of good faith and fair dealing in this Agreement, CJR and Developer agree that such covenant will not imply any rights or obligations that are inconsistent with a fair construction of the terms of this Agreement and that this Agreement grants CJR the right to make decisions, take actions and/or refrain from taking actions not inconsistent with Developer's rights and obligations under this Agreement.
- F. Developer agrees that no past, present or future director, officer, employee, incorporator, member, partner, stockholder, subsidiary, affiliate, controlling party, entity under common control, ownership or management, vendor, service provider, agent, attorney or representative of CJR will have any liability for: (1) any obligations or liabilities of CJR relating to or arising from this Agreement; (2) any claim against CJR based on, in respect of, or by reason of the relationship between Developer and CJR; or (3) any claim against CJR based on any alleged unlawful act or omission of CJR.
This provision does not include a release of claims arising from representations in the Carl's Jr.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to the 2024 Carls Franchise Disclosure Document, when CJR (Carl Karcher Enterprises, Inc.) exercises a right or discretion, it can consider its own best interests, even if it adversely affects the Developer. CJR's decisions regarding the Carl's Jr. system can be made without considering whether other, possibly better, alternatives exist, whether the decision benefits CJR financially, whether the decision affects Developers differently, or whether the decision is adverse to a Developer's interests. CJR will not be liable to the Developer for such decisions.
This means that Carls has significant latitude in making decisions that impact the franchise system, even if those decisions negatively impact individual developers. The agreement intends that CJR's exercise of its rights or discretion will not be limited or reviewed. While applicable law might imply a covenant of good faith and fair dealing, this covenant will not grant rights or obligations inconsistent with the agreement, which allows CJR to make decisions and take actions not inconsistent with the Developer's rights and obligations.
Furthermore, the agreement stipulates that no director, officer, employee, or affiliate of CJR will be liable for obligations, claims, or unlawful acts of CJR related to the agreement. This provision does not release claims arising from representations in the Carl's Jr. Franchise Disclosure Document. This indicates that Carls retains broad authority in its decision-making processes, potentially prioritizing the overall system's interests over those of individual developers, with limited recourse for the developer.
Prospective Carls developers should carefully consider this clause, as it highlights the potential for decisions that may not align with their individual interests. It is important to seek legal counsel to fully understand the implications of this provision and to assess the potential risks associated with investing in a Carls franchise.