Can the Itan brand fund be used for legal fees related to claims against franchisees?
Itan Franchise · 2025 FDDAnswer from 2025 FDD Document
We administer a brand and system development fund to promote public awareness of our brand and improve our System. On each royalty fee due date, you must pay us a brand fund fee equal to 2% of Gross Sales for the prior reporting period. We deposit all brand fund fees and noncompliance fees we collect into the fund. We may use the fund to pay for any of the following:
- (a) developing, administering or distributing advertising and marketing materials and programs
- (b) conducting and administering promotions, contests or giveaways;
- (c) public and consumer relations and publicity;
- (d) brand development;
- (e) sponsorships and charitable and non-profit donations and events;
- (f) research and development of technology, products and services;
- (g) website development and search engine optimization;
- (h) development, maintenance and promotion of an ecommerce platform;
- (i) development and implementation of quality control programs and customer satisfaction surveys;
- (j) conducting market research;
- (k) changes and improvements to the System;
- (l) fees and expenses charged by advertising agencies we engage to provide marketing services;
- (m) collecting and accounting for brand fund fees and preparing financial accountings of the fund;
- (n) any other programs or activities we deem appropriate to promote or improve the System;
- (o) legal fees to defend Claims brought against the fund (or against you or other franchisees) based on fund expenditures or activities; and
- (p) direct or indirect labor, administrative, overhead and other expenses incurred by us and/or our affiliates relating to any of these activities, including salary, benefits and other compensation of any of our (and any of our affiliate's) officers, employees or independent contractors based on time spent working on any brand fund matters described above.
Source: Item 23 — RECEIPT (FDD pages 44–190)
What This Means (2025 FDD)
According to Itan's 2025 Franchise Disclosure Document, the brand fund can be used for legal fees under specific circumstances. Itan administers a brand and system development fund to promote public awareness and improve its system. Franchisees are required to pay a brand fund fee equal to 2% of Gross Sales on each royalty fee due date. These fees, along with noncompliance fees, are deposited into the fund.
Itan has the discretion to use the brand fund for various purposes, including developing advertising materials, conducting promotions, public relations, brand development, research and development, website development, quality control programs, market research, and improvements to the system. Critically, the brand fund can also be used to cover legal fees to defend claims brought against the fund itself, or against franchisees, based on fund expenditures or activities.
This means that if a franchisee is involved in a legal claim directly related to the brand fund's activities, such as a marketing campaign that results in a lawsuit, the fund may be used to cover the legal expenses. However, this does not mean the fund will cover all legal claims against franchisees, only those specifically connected to the fund's expenditures or activities. Itan retains sole discretion over these decisions and has no fiduciary obligations to franchisees regarding the fund's administration.