Who is responsible for the litigation costs incurred by a non-party if they are named in an action related to the Kidokinetics franchise agreement?
Kidokinetics Franchise · 2024 FDDAnswer from 2024 FDD Document
Franchisee and Franchisee's principals agree to indemnify, defend and hold Franchisor, its affiliates, and its respective members, directors, officers, employees, agents, partners, shareholders, agents, contractors, successors, assignees, personal representatives, heirs and legatees of all these persons or entities ("Indemnitees") harmless to the fullest extent permitted by law, from and against and to reimburse them for all claims, obligations, liabilities and damages ("Claims"), including any and all taxes, directly or indirectly arising out of, in whole or in part: (a) the operation of Franchisee's Kidokinetics Business, and Franchisee's advertising; (b) the use of the Marks and other Confidential Information; (c) the transfer of any interest in this Agreement or Franchisee's Kidokinetics Business in any manner not in accordance with this Agreement; (d) the infringement, alleged infringement, or any other violation or alleged violation by Franchisee or any of Franchisee's principals of any patent, mark or copyright or other proprietary right owned or controlled by third parties; or (e) libel, slander or any other form of defamation of Franchisor, the System, or System franchisees by Franchisee or any of Franchisee's principals.
For purposes of this indemnification, "Claims" will mean and include all obligations, actual, consequential, punitive and other damages, and costs reasonably incurred in the defense of any action, including attorneys', attorney assistants' and expert witness fees, costs of investigation and proof of facts, court costs, other litigation expenses, and travel and living expenses, whether or not such claims exceed the amount of insurance coverage available to Franchisor through Franchisee.
Franchisor has the right to defend any such claim against Franchisor in the manner Franchisor deems appropriate or desirable in Franchisor's discretion.
Such an undertaking by Franchisor will, in no manner or form, diminish Franchisee's and each of Franchisee's principals' obligations to indemnify the Indemnitees and to hold them harmless.
Source: Item 22 — CONTRACTS (FDD page 59)
What This Means (2024 FDD)
According to Kidokinetics's 2024 Franchise Disclosure Document, the franchisee is responsible for indemnifying the franchisor and related parties from claims, which include costs incurred in defending against any action. This indemnification extends to claims arising directly or indirectly from the operation of the Kidokinetics business, use of trademarks, or any infringement of proprietary rights. The franchisee must cover all obligations, damages, and costs, including attorney fees, investigation expenses, court costs, and other litigation expenses.
Kidokinetics retains the right to defend any claim against it in the manner it deems appropriate, without diminishing the franchisee's obligation to indemnify and hold harmless the franchisor. This means that even if Kidokinetics takes control of the defense, the franchisee is still responsible for covering the associated costs. The definition of "Claims" is broad, encompassing all damages and costs reasonably incurred in defense, regardless of whether these claims exceed the insurance coverage available to Kidokinetics through the franchisee.
In practical terms, this means a Kidokinetics franchisee could be responsible for significant legal expenses, even if the claim involves a third party. For example, if a customer sues Kidokinetics over an injury sustained during a class at the franchisee's location, the franchisee would likely be responsible for covering Kidokinetics's legal defense costs, as well as any damages awarded. This indemnification clause highlights a potentially substantial financial risk for franchisees, as they could be liable for costs far exceeding their initial investment depending on the nature and extent of any legal claims.
Prospective franchisees should carefully consider this indemnification clause and consult with a legal professional to fully understand the scope of their potential liability. It would also be prudent to discuss with Kidokinetics what types and amounts of insurance coverage are necessary to mitigate these risks and whether there have been instances where franchisees have had to utilize this indemnification clause.