Does the Chocolate Bash franchise agreement allow for punitive damages?
Chocolate_Bash Franchise · 2024 FDDAnswer from 2024 FDD Document
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Attachment 6 to Franchise Agreement
STATE ADDENDA TO THE FRANCHISE AGREEMENT
FOR THE STATE OF CALIFORNIA
This Addendum to the Franchise Agreement is agreed to this day of, 20, is by and between Chocolate Bash Franchising LLC and
- New Section 17.6 is inserted into the Franchise Agreement and states as follows:
If termination is the result of Franchisee's default, Franchisee will pay to Franchisor a lump sum payment (as liquidated damages for causing the premature termination of this Agreement and not as a penalty) equal to the total of all Royalty Fee payments for: (a) the twenty-four (24) calendar months of operation of Franchisee preceding Franchisee's default; (b) the period of time Franchisee has been in operation preceding the notice, if less than twenty-four (24) calendar months, projected on a twenty-four (24) calendar month basis; or (c) any shorter period as equals the unexpired term at the time of termination.
Source: Item 22 — CONTRACTS (FDD pages 38–39)
What This Means (2024 FDD)
According to the 2024 Chocolate Bash Franchise Disclosure Document, the franchise agreement includes a section regarding liquidated damages in the event of termination due to the franchisee's default, specifically for franchisees in California. This section stipulates that the franchisee will pay a lump sum to Chocolate Bash Franchising LLC, calculated based on royalty fees, not as a penalty but as liquidated damages to compensate for the premature termination. The amount is equal to the total of all Royalty Fee payments for: (a) the twenty-four (24) calendar months of operation of Franchisee preceding Franchisee's default; (b) the period of time Franchisee has been in operation preceding the notice, if less than twenty-four (24) calendar months, projected on a twenty-four (24) calendar month basis; or (c) any shorter period as equals the unexpired term at the time of termination.
This payment is intended to cover the damages incurred by Chocolate Bash due to the termination and is not exclusive of other remedies, such as attorneys' fees and costs. However, the California addendum also notes that under California Civil Code Section 1671, certain liquidated damages clauses may be unenforceable. This means that while the agreement specifies a liquidated damages clause, its enforceability is subject to California law, which may deem it unenforceable under certain conditions.
While the franchise agreement outlines the payment of liquidated damages upon termination due to franchisee default, it explicitly states that this payment is not a penalty. The agreement does not specifically mention punitive damages. Therefore, it is essential for prospective franchisees to seek legal counsel to fully understand their rights and obligations, especially concerning the enforceability of the liquidated damages clause under California law. It would be prudent to clarify with Chocolate Bash Franchising LLC whether punitive damages could be sought under other circumstances not explicitly covered in this section.