What are the implications of the pending litigation in Item 3 for a potential Checkersrallys franchisee, especially concerning their obligations under the Franchise Agreement as detailed in Item 9?
Checkersrallys 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
What This Means (2025 FDD)
According to the 2025 FDD, Item 3 discloses pending litigation involving Checkers Drive-In Restaurants, Inc., and a group of former franchisees known as "Baby Buford." The litigation began with Checkersrallys terminating franchise agreements with Baby Buford due to failure to pay required advertising contributions. Subsequently, Baby Buford filed a Demand for Arbitration seeking $299,999 in damages, alleging wrongful termination and misappropriation of advertising contributions. While Checkersrallys denies any wrongdoing and successfully compelled separate arbitrations for each franchise entity, the matter remains unresolved, although the claimants do not appear to be actively pursuing their claims.
For a prospective Checkersrallys franchisee, this pending litigation highlights the importance of adhering to the obligations outlined in the Franchise Agreement, particularly those related to advertising contributions as detailed in Item 9. Failure to meet these obligations can lead to termination of the franchise agreement, potentially resulting in legal disputes. The table in Item 9 outlines various franchisee obligations, including site selection, pre-opening purchases, site development, training, fees, compliance with standards, trademarks, restrictions on products, maintenance, insurance, advertising, indemnification, management, records, inspections, transfer, renewal, post-termination obligations, non-competition, and dispute resolution. Each obligation is tied to specific sections within the Franchise Agreement and relevant items in the Disclosure Document.
The litigation also underscores the dispute resolution process outlined in the Franchise Agreement, as detailed in Item 17. The agreement stipulates that all claims, disputes, and controversies shall be arbitrated on demand by either party, with Florida law generally applying, subject to state law. This means that any disagreements between Checkersrallys and a franchisee will likely be resolved through arbitration rather than in court, which can have implications for the cost and speed of resolving disputes. Prospective franchisees should carefully review these sections to understand their rights and responsibilities regarding dispute resolution.
In summary, the pending litigation serves as a reminder of the importance of fulfilling all obligations under the Franchise Agreement and understanding the dispute resolution mechanisms in place. While the litigation itself may not directly impact a new franchisee's operations, it highlights the potential consequences of non-compliance and the legal processes involved in resolving disputes with Checkersrallys.