Under what circumstances is a Carls franchisee (Developer) required to reimburse CJR for legal costs and expenses?
Carls Franchise · 2024 FDDAnswer from 2024 FDD Document
representatives (collectively "Indemnitees") from and against all "losses and expenses" (as defined below) incurred in connection with any action, suit, proceeding, claim, demand, investigation, inquiry (formal or informal), judgment or appeal thereof by or against Indemnitees or any settlement thereof (whether or not a formal proceeding or action had been instituted), arising out of or resulting from or connected with Developer's activities under this Agreement, excluding the gross negligence or willful misconduct of CJR. Developer promptly shall give CJR written notice of any such action, suit, proceeding, claim, demand, inquiry or investigation filed or instituted against Developer and, upon request, shall furnish CJR with copies of any documents from such matters as CJR may request.
At Developer's expense and risk, CJR may elect to assume (but under no circumstances will CJR be obligated to undertake), the defense and/or settlement of any action, suit, proceeding, claim, demand, investigation, inquiry, judgment or appeal thereof subject to this indemnification. Such an undertaking shall, in no manner or form, diminish Developer's obligation to indemnify and hold harmless CJR and Indemnitees. CJR shall not be obligated to seek recoveries from third parties or otherwise mitigate losses.
B. As used in this Section, the phrase "losses and expenses" shall include, but not be limited to, all losses; compensatory, exemplary and punitive damages; fines; charges; costs; expenses; lost profits; reasonable attorneys' fees; expert witness fees; court costs; settlement amounts; judgments; compensation for damages to CJR's reputation and goodwill; costs of or resulting from delays; financing; costs of advertising material and media time/space and the costs of changing, substituting or replacing the same; and any and all expenses of recall, refunds, compensation, public notices and other such amounts incurred in connection with the matters described.
Source: Item 23 — RECEIPTS (FDD pages 80–480)
What This Means (2024 FDD)
According to Carls's 2024 Franchise Disclosure Document, a developer is required to indemnify CJR and its representatives against all losses and expenses incurred due to the developer's activities under the Development Agreement. This indemnification excludes instances of gross negligence or willful misconduct by CJR. The developer must promptly notify CJR of any legal actions or claims and provide copies of relevant documents upon request.
CJR has the option, but not the obligation, to assume the defense or settlement of any claim subject to indemnification, which does not reduce the developer's responsibility to indemnify CJR. CJR is not required to seek recoveries from third parties to mitigate losses.
The term "losses and expenses" is broadly defined to include all losses, damages (compensatory, exemplary, and punitive), fines, costs, lost profits, reasonable attorneys' fees, expert witness fees, court costs, settlement amounts, judgments, compensation for damage to Carls's reputation and goodwill, costs of delays, financing, advertising costs, and expenses related to recalls, refunds, and public notices.