What are the potential risks and rewards associated with investing in a Checkersrallys franchise, considering the lack of bankruptcy information (Item 4) and the potential for litigation (Item 3)?
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6, 2021 order and do not appear to be actively pursuing their claims, although the arbitration action has not been withdrawn at this time.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"). The Cotter Compliant asserted claims of breach of confidence, breach of implied contract, negligence, negligence per se, unjust enrichment and violations of the Florida Unfair and Deceptive Trade Practices Act, stemming from our alleged failure to secure and safeguard our customers' credit and debit card numbers and other payment card data and personally identifiable information, and our alleged failure to timely and adequately provide notice to our affected customers. On July 2, 2019, a civil complaint was filed against us on behalf of plaintiff Jack Dinh and similarly situated customers (the "Dinh Complaint" and together with the Cotter Complaint, the "Complaints"). The Dinh Complaint asserted claims of negligence and violations of California Civil Code §§ 1798.80, et seq., and California's Unfair Competition Law, Bus. & Prof. Code §§ 17200 et. seq., stemming from our alleged failure to maintain reasonable security practices to protect the unauthorized access to our customers personal information. The Complaints sought certification of a putative nationwide class of consumers impacted by the alleged breaches and also sought monetary damages, injunctive and equitable relief, attorneys' fees and other costs. We held a joint mediation concerning both Complaints, and subsequently entered into a settlement agreement to dismiss both Complaints with prejudice.
What This Means (2025 FDD)
According to the 2025 Checkersrallys Franchise Disclosure Document, potential risks for franchisees include involvement in litigation and the implications of personal guarantees. Item 3 discloses pending litigation, specifically a case where Checkers Drive-In Restaurants, Inc. is in dispute with former franchisees (Baby Buford, LLC, et al.) who allege wrongful termination of franchise agreements and misappropriation of advertising contributions, seeking $299,999 in damages. Although Checkersrallys denies any wrongdoing and the claimants do not appear to be actively pursuing their claims, franchisees should be aware of the potential for disputes and legal actions. Furthermore, in California and Maryland, the franchise agreement provides for termination upon bankruptcy, but this provision may not be enforceable under federal bankruptcy law.
Another risk involves the personal guarantee that Checkersrallys requires. The FDD states that franchisees and their spouses may be individually liable for financial obligations under the agreement, potentially placing personal assets at risk if the franchise fails. Additionally, franchisees must adhere to a covenant not to compete, which restricts their involvement in competitive businesses during and after their association with Checkersrallys. This could limit future business opportunities. In California, this covenant may not be enforceable beyond the termination of the franchise.
While the FDD does not explicitly detail the rewards of investing in a Checkersrallys franchise within the provided excerpts, it does offer financial performance representations in Item 19, indicating potential financial performance based on past performance of existing restaurants. However, the document cautions that individual results may vary, and there is no assurance of earning as much as some outlets have. Prospective franchisees should request written substantiation for these financial performance representations to better understand the potential rewards and assess the risks involved. It is important to note that Checkersrallys does not authorize employees or representatives to make any financial performance representations other than those provided in Item 19.