Is a Desi District franchisee obligated to indemnify an Indemnitee for actions arising from the Indemnitee's intentional misconduct?
Desi_District Franchise · 2024 FDDAnswer from 2024 FDD Document
- 16.1 Indemnity. Franchisee shall indemnify and defend (with counsel reasonably acceptable to Desi District Franchise Group) Desi District Franchise Group, its parent entities, subsidiaries and affiliates, and their respective owners, directors, officers, employees, agents, successors and assignees (collectively, "Indemnitees") against all Losses in any Action by or against Desi District Franchise Group and/or any Indemnitee directly or indirectly related to, or alleged to arise out of, the operation of the Business. Notwithstanding the foregoing, Franchisee shall not be obligated to indemnify an Indemnitee from Actions arising as a result of any Indemnitee's intentional misconduct or negligence. Any delay or failure by an Indemnitee to notify Franchisee of an Action shall not relieve Franchisee of its indemnity obligation except to the extent (if any) that such delay or failure materially prejudices Franchisee. Franchisee shall not settle an Action without the consent of the Indemnitee. This indemnity will continue in effect after this Agreement ends.
Source: Item 22 — CONTRACTS (FDD page 52)
What This Means (2024 FDD)
According to Desi District's 2024 Franchise Disclosure Document, a franchisee is generally required to indemnify the Indemnitees (which include Desi District Franchise Group and its related entities and personnel) against losses related to the operation of the business. However, the franchisee is not obligated to indemnify an Indemnitee for actions arising from the Indemnitee's intentional misconduct or negligence. This means that if Desi District or its related parties engage in intentional misconduct or negligence, the franchisee is not responsible for covering their losses in related legal actions.
This provision offers a degree of protection to the franchisee, ensuring they are not held liable for the franchisor's own wrongful actions. It is a fairly standard clause in franchise agreements to exclude liability for intentional misconduct, as it would be unreasonable to expect a franchisee to cover such actions. However, franchisees should be aware that determining whether an action constitutes 'intentional misconduct' can be a complex legal matter, and disputes may arise over this interpretation.
Furthermore, the agreement specifies that any delay or failure by an Indemnitee to notify the franchisee of an action does not relieve the franchisee of their indemnity obligation, except to the extent that such delay materially prejudices the franchisee. This means that Desi District must provide timely notice of any claims for which they seek indemnification, or risk losing their right to indemnification if the delay harms the franchisee's ability to defend against the claim. The franchisee is also prohibited from settling any action without the consent of the Indemnitee, giving Desi District some control over the resolution of claims.
This indemnity provision remains in effect even after the franchise agreement ends, meaning that the franchisee's obligation to indemnify Desi District for covered actions continues even after the franchise relationship has terminated. Prospective franchisees should carefully consider the scope of this indemnity obligation and consult with legal counsel to fully understand their potential liabilities.