How does the litigation involving Checkers, as described in Item 3, potentially impact a new franchisee's investment, as estimated in Item 7?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
[Item 3: LITIGATION]
ITEM 3 LITIGATION
Pending Litigation:
Checkers Drive-In Restaurants, Inc., v. Baby Buford, LLC, et. al., (Case No. 20-21749- Civ-COOKE), U.S. District Court for the Southern District of Florida
Baby Buford, LLC, Baby Buford HP, LLC, Baby Buford Warren, LLC, Baby Buford 8 Mile, LLC, Baby Buford Southfield, LLC, Baby Buford 23 Mile Road, LLC, Baby Buford Livernois, LLC, Baby Buford Woodward, LLC, Baby Buford 14 Mile, LLC, Baby Buford Port Huron, LLC, Baby Buford Ypsilanti, LLC, Baby Buford Sylvan Lake, LLC, and Baby Buford Harper, LLC (collectively hereafter referred to as "Baby Buford") are former Checkers franchisees. On December 19, 2019, we terminated the franchise agreements based on failure
to pay required advertising contributions. On March 30, 2020, Baby Buford filed a single Demand for Arbitration against us seeking $299,999 in damages and alleging that (i) their franchise agreements had been wrongfully terminated in violation of the Michigan Franchise Investment Law, and (ii) we misappropriated and comingled advertising contributions made by Baby Buford. We deny any wrongdoing in this matter and all claims made by Baby Buford. On April 27, 2020, we filed a Petition to Compel Arbitration in Federal Court in which we asserted that the franchise agreements require a separate arbitration for each franchise entity. The Court agreed and, on January 6, 2021, the Court entered an Order staying the current arbitration and requiring separate arbitrations should Baby Buford wish to proceed. The claimants have taken no further action since the Court's January 6, 2021 order and do not appear to be actively pursuing their claims, although the arbitration action has not been withdrawn at this time.
Concluded Litigation:
[Item 3: LITIGATION]
Franchisor Initiated Litigation in the Past Fiscal Year:
Claim for Indemnification – Loan Default
Southern Shoals, LLC v. 2-32C Wheeler Road, Inc. et al., Index No.: 620912/2023, pending in the Supreme Court of New York, County of Suffolk. Southern Shoals, LLC, alleges that it is the assignee of a Loan and Security Agreement entitling it to foreclose on collateral located at three franchised Checkers Restaurants. Checkers was incorrectly named as a defendant and subsequently filed a cross claim seeking indemnification from the franchisee .
Other than the actions above, no litigation is required to be disclosed in this Item.
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, Item 3 outlines ongoing and concluded litigation involving the company. One pending case involves Checkers suing former franchisees, Baby Buford, LLC, for terminating their franchise agreements due to failure to pay required advertising contributions. Baby Buford filed a demand for arbitration seeking $299,999 in damages, alleging wrongful termination and misappropriation of advertising contributions. While Checkers denies any wrongdoing and the court ordered separate arbitrations, the claimants have taken no further action since January 6, 2021, though the arbitration action has not been withdrawn. Additionally, Southern Shoals, LLC alleges it can foreclose on collateral at three franchised Checkers Restaurants, and Checkers filed a cross claim seeking indemnification from the franchisee. These legal disputes could potentially impact a new franchisee's investment.
Item 7 provides an estimate of the initial investment required to open a Checkers restaurant. While Item 7 does not directly address the impact of litigation, the existence of legal disputes, as detailed in Item 3, introduces an element of uncertainty and potential risk for new franchisees. The estimated initial investment covers various costs, including pre-opening expenses and working capital. However, it does not explicitly account for potential costs associated with litigation, such as increased insurance premiums or potential legal fees if the franchisee becomes involved in related disputes.
Prospective franchisees should carefully review Item 3 to understand the nature and scope of Checkers' litigation history. They should also consider consulting with legal and financial advisors to assess the potential impact of these disputes on their investment. While the estimated initial investment in Item 7 provides a general guideline, franchisees should be prepared for unforeseen expenses, including those that may arise from ongoing or future litigation involving Checkers. Understanding these potential risks is crucial for making an informed decision about investing in a Checkers franchise.