Does the Checkersrallys agreement require the franchisee to indemnify the franchisor's directors?
Checkersrallys Franchise · 2025 FDDAnswer from 2025 FDD Document
10.10 Limitations on Damages. EXCEPT WITH RESPECT TO YOUR OBLIGATION TO INDEMNIFY US FOR THIRD PARTY CLAIMS UNDER SECTION 5.02, AND EXCEPT WITH RESPECT TO THE CONFIDENTIAL INFORMATION IN SECTION 6.01, FRANCHISOR AND FRANCHISEE (AND ITS OWNERS) EACH WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO OR CLAIM FOR ANY PUNITIVE OR EXEMPLARY DAMAGES AGAINST THE OTHER. YOU AND EACH OF YOUR OWNERS WAIVE TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO RECOVER CONSEQUENTIAL, SPECIAL AND INCIDENTAL DAMAGES FOR ANY CLAIM DIRECTLY OR INDIRECTLY ARISING FROM OR RELATING TO THIS AGREEMENT.
Source: Item 23 — RECEIPTS (FDD pages 92–384)
What This Means (2025 FDD)
According to the 2025 Checkersrallys Franchise Disclosure Document, the franchisee's obligation to indemnify Checkersrallys extends to third-party claims as outlined in Section 5.02 of the agreement. Specifically, Section 10.10 states that the waiver of punitive or exemplary damages does not apply to the franchisee's duty to indemnify Checkersrallys for these third-party claims. This means that while Checkersrallys and the franchisee waive rights to punitive damages against each other, the franchisee remains responsible for covering Checkersrallys's losses resulting from claims made by outside parties, as defined in Section 5.02.
In practical terms, this means that if a third party sues Checkersrallys and the lawsuit is related to the franchisee's operations or actions, the franchisee may be required to cover Checkersrallys's legal costs and any resulting damages. This indemnification obligation is a significant responsibility for the franchisee, as it could potentially involve substantial financial exposure depending on the nature and extent of the third-party claim. Franchisees should carefully review Section 5.02 to understand the specific circumstances under which they would be required to indemnify Checkersrallys.
Furthermore, the agreement emphasizes that this indemnification obligation is an exception to the general waiver of certain types of damages. This highlights the importance Checkersrallys places on protecting itself from liabilities arising from the franchisee's conduct. Prospective franchisees should assess their risk tolerance and consider obtaining appropriate insurance coverage to mitigate potential losses associated with this indemnification clause. It is also advisable to seek legal counsel to fully understand the implications of this provision and how it may affect their business operations and financial stability.
In the broader context of franchising, indemnification clauses are relatively common, as franchisors seek to protect themselves from liabilities caused by the actions of their franchisees. However, the specific scope and terms of these clauses can vary significantly. Therefore, it is crucial for prospective Checkersrallys franchisees to carefully evaluate the indemnification provision in their franchise agreement and understand the potential financial risks involved.