What are the potential risks associated with the pending litigation described in Item 3, and how might these risks impact the estimated initial investment for a Checkersrallys franchise as detailed in Item 7?
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6, 2021 order and do not appear to be actively pursuing their claims, although the arbitration action has not been withdrawn at this time.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 Checkersrallys's 2025 Franchise Disclosure Document, Item 3 outlines pending litigation that could pose potential risks, although the direct impact on the estimated initial investment detailed in Item 7 is not explicitly stated. The pending litigation involves Checkers Drive-In Restaurants, Inc., v. Baby Buford, LLC, et. al., where Baby Buford, a group of former Checkersrallys franchisees, filed a Demand for Arbitration seeking $299,999 in damages. The franchisees allege wrongful termination of their franchise agreements and misappropriation of advertising contributions. While Checkersrallys denies any wrongdoing and the court has ordered separate arbitrations, the possibility remains that Checkersrallys could incur legal expenses or be required to pay damages if the arbitration is not resolved favorably.
While the FDD does not directly link the pending litigation to the initial investment costs, potential legal expenses or settlement costs resulting from the litigation could indirectly affect Checkersrallys's financial stability. This could potentially influence the franchisor's ability to support franchisees or maintain the brand's reputation, which could, in turn, affect the franchisee's business. However, the litigation does not appear to directly influence any of the listed expenditures such as the initial franchise fee ($20,000 - $30,000), advertising deposit ($15,000), restaurant building ($785,150- $1,112,973), or equipment costs ($122,976- $329,538).
Prospective franchisees should consider the implications of ongoing litigation when evaluating the overall risk associated with investing in a Checkersrallys franchise. It would be prudent to inquire with Checkersrallys about the current status of the litigation, the potential financial exposure, and how the company plans to mitigate any adverse effects on its franchisees. Understanding these factors can help a prospective franchisee make a more informed decision about their investment.
The FDD also mentions another pending litigation, Southern Shoals, LLC v. 2-32C Wheeler Road, Inc. et al., where Checkersrallys is seeking indemnification from a franchisee due to a loan default. This action does not appear to directly impact the initial investment for new franchisees.