Does the Dog Haus franchise agreement create a fiduciary relationship between the parties?
Dog_Haus Franchise · 2025 FDDAnswer from 2025 FDD Document
21.14 Business Judgment. Notwithstanding any provision in this Agreement to the contrary, Franchisee and the Owners acknowledge and agree that:
21.14.1 This Agreement (and the relationship of the Parties which arises from this Agreement) grants Franchisor the discretion to make decisions, take actions or refrain from taking actions not inconsistent with the explicit rights and obligations of Franchisee and the Owners hereunder that may affect Franchisee and the Owners' interests favorably or adversely. Franchisor shall use its Business Judgment in exercising such discretion based on its assessment of its own interests and balancing those interests against the interests, promotion, and benefit of the Dog Haus System and other Dog Haus Franchisees, Dog Haus Restaurants generally, and specifically without considering the individual interests of Franchisee or the Owners or the individual interests of any other Dog Haus Franchisee. Franchisee and the Owners acknowledge and agree that Franchisor shall have no liability to Franchisee or the Owners for the exercise of its discretion in this manner; and even if Franchisor has numerous motives for a particular action or decision, so long as at least one motive is a reasonable business justification, no trier of fact in any legal action shall substitute his or her judgment for Franchisor's judgment so exercised and no such action or decision shall be subject to challenge for abuse of discretion. If Franchisor takes any action or Franchisor chooses not to take any action in its discretion with regard to any matter related to this Agreement and its actions or inaction are challenged for any reason, the Parties expressly direct the trier of fact to find that Franchisor's reliance on a business reason in the exercise of its discretion is to be viewed as a reasonable and proper exercise of its discretion, without regard to whether other reasons for its decision may exist and without regard to whether the trier of fact would independently accord the same weight to the business reason.
Source: Item 22 — CONTRACTS (FDD page 87)
What This Means (2025 FDD)
According to Dog Haus's 2025 Franchise Disclosure Document, the franchise agreement does not establish a fiduciary relationship between the franchisor and franchisee. Instead, Dog Haus retains the discretion to make decisions based on its own interests and the overall benefit of the Dog Haus system, without specifically considering the individual interests of a franchisee.
The agreement specifies that Dog Haus will use its judgment in exercising discretion, balancing its own interests against those of Dog Haus franchisees generally. The agreement explicitly states that Dog Haus will not consider a franchisee's individual interests. Furthermore, Dog Haus assumes no liability for exercising its discretion, provided it is not done in bad faith. This means that as long as Dog Haus acts with a reasonable business justification, its decisions are protected from legal challenges, even if those decisions adversely affect individual franchisees.
This arrangement is typical in franchising, where franchisors need the flexibility to manage the brand and system for the collective good. However, it also means that Dog Haus franchisees have limited recourse if the franchisor's decisions, while benefiting the system as a whole, negatively impact their individual businesses. Prospective franchisees should carefully consider this aspect and seek legal counsel to fully understand their rights and obligations under the franchise agreement.