What is the effect of the 'covenant not to sue' given to Potbelly Sandwich Works by the franchisee?
Potbelly_Sandwich_Works Franchise · 2025 FDDAnswer from 2025 FDD Document
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Consistent with the previous introduction, you, on behalf of yourself and your successors, heirs, executors, administrators, personal representatives, agents, assigns, partners, owners, directors, officers, principals, employees, and affiliated entities (collectively, the "Releasing Parties"), hereby forever release and discharge us and our parent and other affiliated entities, and our and their respective current and former officers, directors, owners, principals, employees, agents, representatives, successors, and assigns current and former officers, directors, owners, principals, employees, agents, representatives, successors, and assigns (collectively, the "Potbelly Parties") from any and all claims, damages, demands, debts, causes of action, suits, duties, liabilities, costs, and expenses of any nature and kind, whether presently known or unknown, vested or contingent, suspected or unsuspected (all such matters, collectively, "Claims"), that you and any other Releasing Party now have, ever had, or, but for this Consent, hereafter would or could have against any Potbelly Party (1) arising out of or related in any way to the Potbelly Parties' performance of or failure to perform their obligations under the Franchise Agreement before the date of your signature below, (2) arising out of or related in any way to our offer and grant to you of your Potbelly Shop franchise, or (3) otherwise arising out of or related in any way to your and the other Releasing Parties' relationship, from the beginning of time to the date of your signature below, with any of the Potbelly Parties. You, on behalf of yourself and the other Releasing Parties, further covenant not to sue any Potbelly Party on any Claim released by this paragraph and represent that you have not assigned any Claim released by this paragraph to any individual or entity that is not bound by this paragraph.
We also are entitled to a release and covenant not to sue from your owners. By his, her, or their separate signatures below, your owners likewise grant to us the release and covenant not to sue provided above.
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The following language applies only to transactions with California franchisees
The parties granting the release above acknowledge a familiarity with Section 1542 of the Civil Code of the State of California, which provides as follows:
"A general release does not extend to claims which the creditor does not know or suspect to exist in his favor at the time of executing the release which, if known by him, must have materially affected the settlement with the debtor."
Each party granting the release above recognizes that he, she, or it may have some claim, demand, or cause of action against the released parties of which he, she, or it is unaware and unsuspecting, and which he, she, or it is giving up by signing this release.
Source: Item 23 — RECEIPTS (FDD pages 79–355)
What This Means (2025 FDD)
According to Potbelly Sandwich Works's 2025 Franchise Disclosure Document, a franchisee provides a release and covenant not to sue Potbelly Sandwich Works and related parties under certain conditions. This means the franchisee and their successors, heirs, and other affiliated parties agree to release Potbelly Sandwich Works from any claims, damages, or liabilities related to the Franchise Agreement. This release covers issues arising from Potbelly Sandwich Works's performance or failure to perform under the agreement before the date of signing, issues related to the offer and grant of the franchise, and any other issues related to the relationship between the franchisee and Potbelly Sandwich Works.
By agreeing to the covenant not to sue, the franchisee also promises not to initiate any legal action against Potbelly Sandwich Works regarding the released claims. This includes a representation that the franchisee has not assigned any of these claims to another party. Potbelly Sandwich Works also requires a similar release and covenant not to sue from the franchisee's owners, ensuring comprehensive protection from potential legal actions.
For California franchisees, the document acknowledges Section 1542 of the California Civil Code, which states that a general release does not cover claims the creditor is unaware of at the time of signing the release, which, if known, would have materially affected the settlement. The franchisee specifically waives their rights and benefits under this section and any similar statute, indicating they are knowingly giving up rights to potential unknown claims against Potbelly Sandwich Works. This waiver is intended to be as comprehensive as legally possible, protecting Potbelly Sandwich Works from future litigation even for claims that are not yet known or suspected.