How does the litigation involving Gold Star (Item 3) potentially affect the franchisee's obligations for site selection and acquisition/lease (Item 9)?
Gold_Star Franchise · 2025 FDDAnswer from 2025 FDD Document
igation**
Pending Item:
Gold Star Chili, Inc. and GSC Properties, LLC v. 21 Partners Group LLC and Rasem Daoud. Gold Star and GSC Properties filed a complaint against 21 Partners Group LLC, an existing franchisee, and Rasem Daoud, its owner, on June 14, 2024. On June 9, 2017, the
defendants executed a Lease Agreement with GSC Properties and a Franchise Agreement with Gold Star pursuant to which defendants operated a franchise (the "Hartwell Gold Star") at 21 East Galbraith Road, Cincinnati, Ohio 45216 (the "Property").
On October 9, 2021, there was a fire at the Property that resulted in a total loss of the Hartwell Gold Star. After the fire, the defendants ceased operating, never rebuilt, and retained insurance proceeds which were to be used to rebuild, the Hartwell Gold Star. Defendant 21 Partners was issued a check for $157,990.41 for replacement of furniture, fixtures, and equipment, but never provided Gold Star with these proceeds, despite having a contractual obligation to do so. Defendant 21 Partners provided Gold Star with building replacement insurance proceeds totaling $455,642.92, but the total cost for restoration is $1,106,670.00, a cost for which defendants are responsible.
The lawsuit was initiated in order to resolve these issues and is currently in the discovery phase.
Other than the foregoing, no litigation is required to be disclosed in this Item.
What This Means (2025 FDD)
According to Gold Star's 2025 Franchise Disclosure Document, Item 3 discloses a pending litigation case involving Gold Star Chili, Inc. and GSC Properties, LLC against 21 Partners Group LLC and Rasem Daoud. The litigation stems from a fire at a franchised location (the "Hartwell Gold Star") that resulted in a total loss, and the subsequent handling of insurance proceeds. The franchisee, 21 Partners, allegedly did not rebuild the location and retained insurance proceeds that should have been used for rebuilding. Specifically, 21 Partners was issued a check for $157,990.41 for replacement of furniture, fixtures, and equipment, but never provided these proceeds to Gold Star, and while they provided $455,642.92 in building replacement insurance proceeds, the total restoration cost is $1,106,670.00, which the defendants are responsible for. The lawsuit aims to resolve these issues and is currently in the discovery phase. This litigation does not directly impact a new franchisee's obligations for site selection and acquisition/lease as detailed in Item 9. Item 9 outlines the franchisee's obligations, referencing sections in the Franchise Agreement and other Items in the Disclosure Document related to site selection, acquisition/lease, pre-opening purchases/leases, and other requirements.
However, the litigation could indirectly affect a prospective franchisee's relationship with Gold Star. The outcome of the litigation might influence Gold Star's financial stability or its approach to enforcing franchise agreement terms, including those related to site maintenance and insurance requirements. While the FDD states that there is no other litigation required to be disclosed, prospective franchisees should be aware of this pending case and its potential implications.
Prospective franchisees should carefully review Item 9 and related sections of the Franchise Agreement to fully understand their obligations regarding site selection, acquisition, and lease. They should also consider asking Gold Star about the potential impact of the pending litigation on the franchise system and any support or guidance Gold Star might offer in ensuring compliance with site-related obligations.