How does the Exit litigation history (Item 3) relate to the franchisee's obligations regarding financial investments (Item 7)?
Exit Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 3: LITIGATION]
ITEM 3 LITIGATION
Subfranchisor
EXIT Realty Upper Midwest
No litigation is required to be disclosed in this ITEM.
Franchisor EXIT Realty Corp. International
Bruce Evans v. Christy Dwyer, EXIT Realty Lake Country, EXIT Realty Corp. International, et al. Superior Court Hart County, Georgia, Case No. 22-HV-00484, filed December 29, 2022. The plaintiff alleges that he is due commissions of $88,344 from EXIT Realty Lake Country, an EXIT Franchisee. EXIT filed an answer denying the allegations and demanding that it be dismissed from the case. Evans' claim was dismissed against EXIT as part of a settlement on September 30, 2024; however, EXIT continues to pursue its indemnity claims against EXIT's franchisee and guarantors.
71353 Newfoundland & Labrador Inc. and Baushape Design, Inc. v. EXIT Realty Corp. International. Ontario, Canada Superior Court of Justice, Case No. CV-16-565447, filed December 6, 2016. The plaintiff claims that it has incurred damages of $2,500,000 because EXIT breached a contract and claims EXIT owes it the sum of $975,000 pursuant to a Guarantee that it claims was signed by EXIT. EXIT denied the claims and filed a counterclaim demanding payment of $1,278,090.55 pursuant to a Promissory Note signed by the Plaintiff, 71353 Newfoundland & Labrador Inc., and dated November 13, 2015. The plaintiff has not pursued the case for over four (4) years.
Gregory Wallerstein v. EXIT Realty Corp. International. United State District Court for the District of Columbia, Case No. 24-CV-01653-RDM, filed June 7, 2024. The Plaintiff, a member of the general public with no prior connection to EXIT, is seeking certification of action as a class proceeding and is proposing to advance the claim on behalf of all persons who received a robocall from one of EXIT's former franchisees. The Plaintiff alleged that EXIT is vicariously liable for the actions of its former franchisee. EXIT has filed an Answer denying the allegations and demanding the case be dismissed.
Other than these actions, no litigation is required to be disclosed in this ITEM.
16. TERMINATION BY SUBFRANCHISOR
16.1. Events of Default
- (A) Right to Cure. Set forth below are events of default which, upon their occurrence, shall give Subfranchisor the right to terminate this Agreement after notice to Franchisee and a right to cure as described in Section 16.2:
- (i) Franchisee, or any entity controlled by Franchisee or by one or more of the equity holders of Franchisee, fails to pay, when due, any of its financial obligations to EXIT, Subfranchisor, other EXIT subfranchisor, or the Brokers' Council, including payments due under any promissory note executed by Franchisee pursuant to the terms of this Agreement.
11.2. Audit Rights
EXIT and Subfranchisor shall have the right to inspect and audit all of Franchisee's books, records, and procedures. Franchisee shall permit, and understands that it should expect, regular and frequent inspection at reasonable times, by agents or representatives of EXIT and/or Subfranchisor of all books, records, MLS agent rosters and MLS transaction reports, procedures, and services of Franchisee in order to determine compliance with this Agreement. All discrepancies shall be paid within ten (10) days after the date Franchisee receives notice of such discrepancy. If any underpayment exceeds five percent (5%) of the amount due, then Franchisee shall pay all costs and expenses relating to the audit, including, but not limited to, travel, lodging, meals, attorneys', accountants' and other professional fees.
What This Means (2025 FDD)
According to Exit's 2025 Franchise Disclosure Document, Item 3, which covers litigation history, indirectly relates to a franchisee's financial obligations. While Item 3 itself does not explicitly detail the franchisee's initial or ongoing financial investments, it does disclose instances where Exit has been involved in legal disputes, including those with franchisees. These disputes can arise from issues such as unpaid commissions or breaches of promissory notes, which highlights the importance of meeting all financial obligations to Exit.
Specifically, the litigation history shows that Exit has pursued legal action to recover amounts owed by franchisees. For example, Exit filed a counterclaim demanding payment of $1,278,090.55 pursuant to a Promissory Note signed by one plaintiff. This underscores the potential financial risks and legal ramifications for franchisees who fail to meet their financial commitments. Additionally, the litigation history reveals that Exit pursues indemnity claims against franchisees, meaning that franchisees may be responsible for covering Exit's losses resulting from the franchisee's actions.
Item 23 further clarifies that a franchisee's failure to meet their financial obligations can lead to termination of the franchise agreement. If a franchisee fails to pay any financial obligations to Exit, the subfranchisor has the right to terminate the agreement after providing notice and an opportunity to cure the default. Moreover, Exit retains the right to inspect and audit the franchisee's books and records to ensure compliance with the agreement, and discrepancies exceeding 5% can result in the franchisee being responsible for all audit-related costs, including attorney's fees. Therefore, while Item 3 doesn't directly outline the initial investment, it provides context for the potential financial and legal consequences of not adhering to the financial terms of the franchise agreement, as detailed elsewhere in the FDD.