What are the consequences if either party initiates litigation or arbitration against Face Foundrie without complying with the mediation obligation?
Face_Foundrie Franchise · 2025 FDDAnswer from 2025 FDD Document
- 16.3.1 Except for the matters identified above where Franchisor or Area Developer are permitted to seek injunctive relief without first mediating the dispute, if either party initiates litigation or arbitration without complying with their obligation to mediate in accordance with this paragraph (unless the other party has failed to respond on a timely basis or has indicated it will not engage in mediation in accordance with the provisions of this Section), then upon petition of whichever of the parties has a lawsuit or arbitration proceeding brought against it, the court or arbitrator will dismiss the litigation or arbitration without prejudice, and award reasonable attorneys' fees and costs to the party seeking dismissal in an amount equal to the reasonable attorneys' fees and costs the party seeking dismissal incurred.
If the court or arbitrator refuses for any reason to dismiss the action, then regardless of the outcome of the action, or of any award given in the action, the party initiating the litigation or arbitration will be responsible for all reasonable attorneys' fees and costs incurred throughout the litigation or arbitration by the other party as damages for failing to comply with the provisions of this Section.
Source: Item 23 — RECEIPTS (FDD pages 74–257)
What This Means (2025 FDD)
According to Face Foundrie's 2025 Franchise Disclosure Document, both Face Foundrie and the Area Developer are obligated to mediate disputes before initiating litigation or arbitration, with certain exceptions for seeking injunctive relief. If either party violates this mediation obligation by starting litigation or arbitration without attempting mediation, the other party can petition the court or arbitrator to dismiss the case without prejudice.
If the court or arbitrator grants the dismissal, the party that failed to mediate will be responsible for covering the reasonable attorney's fees and costs incurred by the other party in seeking the dismissal. This aims to discourage parties from bypassing mediation and ensures compliance with the dispute resolution process outlined in the franchise agreement.
However, if the court or arbitrator refuses to dismiss the action, the party that initiated the litigation or arbitration without mediating will be liable for all reasonable attorney's fees and costs incurred by the other party throughout the entire legal proceeding, regardless of the final outcome. This provision serves as a significant deterrent against prematurely initiating litigation or arbitration and underscores the importance of adhering to the mediation requirement to resolve disputes amicably and cost-effectively.