Does the seller's indemnification of the buyer in the Noodles & Company agreement extend to settlement payments?
Noodles_Company Franchise · 2025 FDDAnswer from 2025 FDD Document
5.02 Indemnification. You agree to indemnify us, our Affiliates and our respective directors, officers, employees, shareholders, agents, successors, and assigns (collectively "Indemnitees"), and to hold the Indemnitees harmless to the fullest extent permitted by law, from any and all losses and expenses (as defined below) incurred in connection with any litigation or other form of adjudicatory procedure, claim, demand, investigation, formal or informal inquiry (regardless of whether it is reduced to judgment) or any settlement thereof which arises directly or indirectly from, or as a result of, a claim of a third party against any one or more of the Indemnitees in connection with the development, ownership, operation or closing of any of your Noodles & Company restaurants (collectively "Event"), and regardless of whether it resulted from any strict or vicarious liability imposed by law on the Indemnitees, provided, however, that this indemnity will not apply to any liability arising from the negligent acts of Indemnitees (except to the extent that joint liability is involved, in which event the indemnification provided herein will extend to any finding of comparative or contributory negligence attributable to you). The term "losses and expenses" includes compensatory, exemplary, and punitive damages; fines and penalties; attorneys' fees; experts' fees; court costs; costs associated with investigating and defending against claims; settlement amounts; judgments; compensation for damages to our reputation and goodwill; and all other costs associated with any of the foregoing losses and expenses. We agree to give you reasonable notice of any Event of which we become aware for which indemnification may be required and we may elect (but are not obligated) to direct the defense thereof,
Source: Item 23 — RECEIPT (FDD pages 99–350)
What This Means (2025 FDD)
According to the 2025 Noodles & Company Franchise Disclosure Document, the indemnification agreement does extend to settlement payments. Specifically, Noodles & Company requires the franchisee to indemnify them from losses and expenses incurred from claims made by a third party against Noodles & Company in connection with the franchisee's restaurant.
The FDD defines "losses and expenses" to include settlement amounts, among other costs. This definition means that if a third party sues Noodles & Company due to the operations of the franchisee's restaurant, and Noodles & Company chooses to settle the lawsuit, the franchisee is responsible for covering the settlement amount as part of their indemnification obligations.
However, this indemnification does not apply to liability arising from the negligent acts of Noodles & Company, unless joint liability is involved. In cases of joint liability, the franchisee's indemnification extends to any comparative or contributory negligence attributed to them. Noodles & Company is required to provide reasonable notice of any event that may require indemnification and may elect to direct the defense, subject to the franchisee's consent regarding the selection of counsel, which cannot be unreasonably withheld or delayed. This section remains in effect even after the agreement expires or terminates.