What is the Cream franchisee's obligation regarding legal defense costs incurred by an Indemnified Party?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
, income, property, or other taxes, whether levied upon you or your Shop, due to the business you conduct (except for our income taxes). You are responsible for paying these taxes and must reimburse us for any such taxes that we must pay to any state taxing authority on account of your operation or payments that you make to us.
D. INDEMNIFICATION.
You agree to indemnify, defend, and hold harmless us, our affiliates, and each of our and their respective affiliates, owners, directors, managers, officers, employees, agents, successors, and assignees (the "Indemnified Parties") against, and to reimburse any one or more of the Indemnified Parties for, all claims, obligations, and damages directly or indirectly arising out of: (i) the development and operation of your Shop; (ii) the business you conduct under this Agreement; (iii) your breach of this Agreement; (iv) your employment practices, instituted by your employees or by others; and/or (v) the actions or omissions of you, your owners, or your and their respective representatives, unless (and then only to the extent that) the claims, obligations, or damages are determined to be caused solely by the Indemnified Party's intentional misconduct in a final, unappealable ruling issued by a court with competent jurisdiction or arbitrator. For purposes of this indemnification, "claims" include all obligations, damages (actual, consequential, or otherwise), and costs that any Indemnified Party reasonably incurs in defending any claim against it, including reasonable accountants', arbitrators', attorneys', and expert witness fees, costs of investigation and proof of facts, court costs, travel and living expenses, and other expenses of litigation or alternative dispute resolution, regardless of whether litigation or alternative dispute resolution is commenced.
Each Indemnified Party may defend any claim against it at your expense and agree to settlements or take any other remedial, corrective, or other actions. This indemnity will continue in full force and effect subsequent to and notwithstanding this Agreement's expiration or termination. An Indemnified Party need not seek recovery from any insurer or other third party, or otherwise mitigate its losses and expenses, in order to maintain and recover fully a claim against you under this subparagraph. You agree that a failure to pursue a recovery or mitigate a loss will not reduce or alter the amounts that an Indemnified Party may recover from you under this Section 16.D. Any Indemnified Party may demand that you advance funds to such Indemnified Party to pay for any claims that are indemnifiable under this Section 16.D, and you will advance such funds promptly upon demand;
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, franchisees have extensive obligations to cover the legal defense costs of Cream and its affiliates under certain circumstances. Cream defines "Indemnified Parties" broadly to include Cream itself, its affiliates, and their respective owners, directors, managers, officers, employees, agents, successors, and assignees.
The franchisee must indemnify, defend, and hold harmless the Indemnified Parties against all claims, obligations, and damages that directly or indirectly arise from the franchisee's operations. This includes aspects such as the development and operation of the Cream shop, the business conducted under the franchise agreement, any breach of the agreement by the franchisee, the franchisee's employment practices, and the actions or omissions of the franchisee or their representatives. The definition of "claims" is comprehensive, encompassing all obligations, damages (actual, consequential, or otherwise), and costs that an Indemnified Party reasonably incurs while defending against any claim. These costs specifically include reasonable accountants', arbitrators', attorneys', and expert witness fees, costs of investigation and proof of facts, court costs, travel and living expenses, and other expenses related to litigation or alternative dispute resolution, regardless of whether a formal proceeding is initiated.
Cream can demand that the franchisee advance funds to cover claims that are subject to indemnification. The franchisee is obligated to provide these funds promptly. However, there is a provision that if a claim is ultimately determined not to be indemnifiable in a final, unappealable ruling by a competent court or arbitrator, Cream must reimburse the franchisee for the portion of the advanced funds attributable to the non-indemnifiable claims. Cream is not required to seek recovery from any insurer or mitigate its losses before seeking full recovery from the franchisee.
This indemnification clause is quite broad, potentially placing a significant financial burden on Cream franchisees. Franchisees should be aware that they could be responsible for substantial legal costs incurred by Cream, even in cases where the franchisee's actions are only indirectly related to the claim. The franchisee's only protection is if the damages are determined to be caused solely by the Indemnified Party's intentional misconduct. Franchisees should carefully consider this obligation and consult with a legal professional to fully understand the scope of their potential liability.