Is the liquidated damages payment to Gold Star considered a penalty?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
The COMPANY is not obligated to take any action but may take any action it deems appropriate. FRANCHISEE also agrees not to contest or aid in contesting, directly or indirectly, the COMPANY's right, title, ownership or interest in or to, or the validity or enforceability of, any copyrights, Confidential Material or the System, or contest the COMPANY's sole right to register, use or franchise or license others to use any such copyrights, the System or the Confidential Material, during or after the term of this Agreement or any extension or renewal thereof.
- 12.2 Damages for Violations. If FRANCHISEE discloses any Confidential Material to any person, firm or entity or otherwise breaches its obligations under this Section 12, or if one of the Related Parties or any other person subject to FRANCHISEE's control makes such a disclosure or otherwise breaches its obligations under this Section 12 as a result of the failure
Source: Item 23 — Receipts (FDD pages 53–163)
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, the liquidated damages for violations related to disclosing confidential material are explicitly stated not to be a penalty.
The FDD specifies that if a franchisee discloses confidential information or breaches obligations under Section 12, they must pay Gold Star $100,000 for each breach. Gold Star emphasizes that this sum is considered liquidated damages, representing a reasonable pre-estimate of actual damages, rather than a penalty.
This distinction is important because it suggests that Gold Star has attempted to reasonably quantify the potential harm from breaches of confidentiality. However, the agreement does not prevent Gold Star from pursuing injunctive or equitable relief, meaning they could seek a court order to stop the franchisee from further breaches in addition to the liquidated damages. Prospective franchisees should understand the scope of confidential information and ensure they have adequate safeguards in place to prevent unauthorized disclosures, as the financial consequences could be significant.