What is the significance of the pending litigation against Checkers (Item 3) for a potential franchisee?
Checkers Franchise · 2025 FDDAnswer from 2025 FDD Document
ITIGATION**
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6, 2021 order and do not appear to be actively pursuing their claims, although the arbitration action has not been withdrawn at this time.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:
Breandan Cotter, individually and on behalf of all others similarly situated v. Checkers Drive-In Restaurants, Inc., (Case 8:19-cv-01386), U.S. District Court for the Middle District of Florida; Jack Dinh, Individually and On Behalf of All Others Similarly Situated v. Checkers Drive-In Restaurants, Inc., (Case 8:19-cv-01310), U.S. District Court for the Central District of Florida, Southern Division.
On June 6, 2019, a civil complaint was filed against us on behalf of plaintiff Breandan Cotter and similarly situated customers (the "Cotter Complaint").
What This Means (2025 FDD)
According to Checkers' 2025 Franchise Disclosure Document, Item 3 discloses pending litigation that could be significant for potential franchisees. One case involves Checkers Drive-In Restaurants, Inc., v. Baby Buford, LLC, et. al. This litigation originated from a dispute with former Checkers franchisees (Baby Buford, LLC, and related entities) who had their franchise agreements terminated on December 19, 2019, due to failure to pay required advertising contributions. Baby Buford filed a Demand for Arbitration against Checkers seeking $299,999 in damages, alleging wrongful termination and misappropriation of advertising contributions. Checkers denies any wrongdoing. The court initially ordered separate arbitrations for each franchise entity on January 6, 2021, and the claimants have not actively pursued their claims since then. Although the arbitration action has not been withdrawn, the lack of recent activity suggests the matter may not pose an immediate threat.
Another pending litigation involves Southern Shoals, LLC v. 2-32C Wheeler Road, Inc. et al., where Southern Shoals, LLC, alleges it can foreclose on collateral at three franchised Checkers Restaurants due to a Loan and Security Agreement. Checkers is named as a defendant and has filed a cross claim seeking indemnification from the franchisee.
For a potential franchisee, these litigations highlight potential risks associated with the franchise system. The dispute with Baby Buford, LLC, indicates possible issues with franchise agreement enforcement and advertising fund management. While Checkers denies wrongdoing, the initial claim for $299,999 suggests the potential for substantial financial disputes. The litigation with Southern Shoals, LLC, points to risks related to franchisee loan defaults and the potential for Checkers to seek indemnification from franchisees. A prospective franchisee should investigate the details of these cases, assess the potential financial and legal risks, and consider how Checkers manages franchisee relationships and advertising funds to avoid similar disputes.