When does Del Taco record legal settlement costs?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
itional $9.3 million. These amounts are included within "Accrued liabilities" on our consolidated balance sheet as of September 29, 2024. The Company will continue to accrue for post-judgment interest until the matter is resolved.
Torrez — In March 2014, a former Del Taco employee filed a purported Private Attorneys General Act claim and class action alleging various causes of action under California's labor, wage, and hour laws. The plaintiff generally alleges Del Taco did not appropriately provide meal and rest breaks and failed to pay wages and reimburse business expenses to its California non-exempt employees. On November 12, 2021, the court granted, in part, the plaintiff's motion for class certification. The parties participated in a voluntary mediation on May 24, 2022 and June 3, 2022. On June 4, 2022, we entered into a Settlement Memorandum of Understanding (the "Agreement") which obligates the Company to pay a gross settlement amount of $50.0 million, for which in exchange we will be released from all claims by the parties. On August 8, 2023, the court issued its final approval of the settlement and on August 9, 2023 final judgment was entered. The Company made the full payments for the settlement amounts. As of September 29, 2024, the Company has no further amounts accrued on its consolidated balance sheet.
J&D Restaurant Group — On April 17, 2019, the trustee for a bankrupt former franchisee filed a complaint generally alleging the Company wrongfully terminated the franchise agreements and unreasonably denied two perspective purchasers the former franchisee presented. The parties participated in a mediation in April 2021, and again in December 2022, but the matter did not settle. Trial commenced on January 9, 2023. On February 8, 2023, the jury returned a verdict finding the Company had not breached any contracts in terminating the franchise agreements or denying the proposed buyers. However, while the jury also found the Company had not violated the California Unfair Practices Act, it found for the plaintiff on the claim for breach of implied covenant of good faith and fair dealing, and awarded $8.0 million in damages. On May 9, 2023, the court granted the Company's post-trial motion, overturning the jury verdict and ordering the plaintiff take nothing on its claims. As a result,
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to Del Taco's 2025 Franchise Disclosure Document, the company's handling of legal settlement costs is illustrated by two specific cases: Torrez and J&D Restaurant Group. In the Torrez case, which involved labor law claims, Del Taco entered into a settlement agreement on June 4, 2022, obligating the company to pay $50.0 million. The court gave final approval to the settlement on August 8, 2023, and final judgment was entered on August 9, 2023, after which the company made full payments. As of September 29, 2024, no further amounts were accrued on Del Taco's consolidated balance sheet for this case.
In the J&D Restaurant Group case, concerning a dispute with a bankrupt former franchisee, a jury initially found in favor of the plaintiff and awarded $8.0 million in damages on February 8, 2023. However, on May 9, 2023, the court overturned the jury verdict, leading Del Taco to reverse the $8.0 million accrual. As of September 29, 2024, Del Taco had no amounts accrued for this case on its consolidated balance sheet, although the plaintiff has appealed the trial court's rulings.
These cases demonstrate that Del Taco records legal settlement costs once a settlement agreement is reached or a judgment is made, and adjusts these accruals based on court decisions and the status of appeals. For a prospective franchisee, this indicates that Del Taco actively manages and discloses its legal liabilities, and the financial statements reflect these potential obligations. It is important to note that these costs can be substantial, as seen in the $50.0 million Torrez settlement, and can impact the company's financial performance.