Under what condition must an Indemnified Party reimburse funds advanced by a Cream franchisee for indemnification?
Cream Franchise · 2025 FDDAnswer from 2025 FDD Document
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; provided, however, that if (and only to the limited extent that) any such claim is ultimately determined not to be indemnifiable under this Section 16.D in a final, unappealable ruling issued by a court with
competent jurisdiction or arbitrator, such Indemnified Party must reimburse any portion of such funds that are attributable to such non-indemnifiable claims.
Source: Item 23 — RECEIPTS (FDD pages 61–192)
What This Means (2025 FDD)
According to Cream's 2025 Franchise Disclosure Document, an Indemnified Party may demand that a franchisee advance funds to cover claims that are indemnifiable. However, the Indemnified Party is obligated to reimburse a portion of those funds if a court or arbitrator issues a final, unappealable ruling determining that the claim was not indemnifiable. The reimbursement is limited to the portion of the funds that are attributable to the non-indemnifiable claims.
This means that Cream franchisees may be required to provide funds upfront to cover legal claims or other expenses for which Cream or its affiliates seek indemnification. This could place a significant financial burden on the franchisee, especially if the claims are substantial. Franchisees need to be aware of this potential obligation and ensure they have sufficient resources to meet such demands.
However, the franchisee is not without recourse. If a final, unappealable ruling determines that the claim was not indemnifiable, Cream must reimburse the franchisee for the portion of the advanced funds that relate to the non-indemnifiable claims. This provides some protection to the franchisee, but it may require them to pursue legal action to obtain such a ruling. It is important for prospective franchisees to carefully consider the indemnification provisions in the franchise agreement and seek legal advice to understand their rights and obligations.
This type of indemnification clause is fairly standard in franchise agreements, as franchisors seek to protect themselves from liabilities arising from the franchisee's operations. However, the requirement for the franchisee to advance funds for indemnification is a significant obligation that franchisees should carefully evaluate.