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Franchisee Closes Two of Six Stores after Suing Tim Hortons for $50M

A franchisee closed two of his six stores in St. Louis, Missouri over the Thanksgiving Day holiday weekend, issuing a statement on his company website that the closings are directly related to the failure of the franchisor, Tim Hortons USA Inc., to meet its obligations in its franchise agreements.

St. Louis News reported that the franchisee entity, Show Me Hospitality, sued Tim Hortons and its parent company Restaurant Brands International (RBI), controlled by 3G Capital, an investment group in Brazil that also owns Burger King, last July in U.S. District Court for the Southern District of Florida. The complaint alleges Tim Hortons new owner failed to honor the original franchise agreement after a new deal with the franchisor went sour. The company "failed to provide branding and advertising at a critical time when the franchisee company was entering the St. Louis market, withheld approval of new partners and necessary capital investment, and said that if Show Me Hospitality did not commit to the 200-restaurant program, Tim Hortons would terminate the area development agreement." St. Louis News reported that "the franchisee is asking for more than $50 million to compensate for the loss of a business opportunity they claim was projected to have been worth more than $125 million in 10 to 15 years."

Attorney for Show Me Hospitality, Scott Korzenowski of Dady & Gardner, said RBI demanded that his client sign a new franchise agreement requiring him to put up an additional investment of $20 million and a commitment to develop more than 200 new locations in 10 years. A report in St. Louis News said, "That would be one restaurant per every 15,000 people in the St. Louis territory. Korzenowski stated, "To put this into perspective, McDonald's has approximately 130 restaurants in the St. Louis region, which it built over several decades."

Show Me Hospitality refused to sign the new contract, opting to stick with the original franchise agreement. Korzenowski said because the new owners of Tim Hortons were not willing to honor all the terms of the original agreement they made the decision to file the lawsuit. The franchisee claims when they refused to sign the new document, RBI also began charging unreasonable markups on equipment, and refused to approve kiosk locations in three areas of St. Louis.

Litigation growing inside Tim Hortons system

Show Me Hospitality is only one North American franchisee suing Restaurant Brands. There are two class action lawsuits seeking approximately $1.5 billion in damages.

Last September Restaurant Brands International accused Tim Horton franchisees of leaking confidential corporate information to a Canadian news journal, Globe and Mail. The Great White North Franchisee Association (GWNFA) said that their board members had been served with notices of default because of the leaking incident, which they stated was false. GWNFA said that in its view, the sole purpose of the notices of default was to continue the pattern of conduct of TDL Group Corp., a subsidiary of Tim Hortons' legal division, to intimidate the franchisee association in order to advance their interests consistent with their rights under the Arthur Wishart Act.

The GWNFA said the TDL Group is actively and in bad faith interfering with franchisees' right to associate and directly or indirectly penalizing or threatening franchisees who choose to associate.  "That pattern of conduct will no longer be tolerated and we are in the process of directing our counsel, Himelfarb Proszanski, to take appropriate legal action to restrain such conduct including a claim seeking damages," the association stated.

Restaurant Business reported yesterday that Tim Horton has also "sued large franchisees in Minnesota and Missouri this month over unpaid royalty fees, putting a pair of key markets in jeopardy at a time the company is eager to grow its business in the U.S." The report says the franchisor has also sued a seven-unit operator in the Minneapolis area just 18 months after the brand entered the market with a 14-year development deal.


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About Janet Sparks

Janet Sparks's picture

Public Profile

Janet Sparks is the former publisher of the Continental Franchise Review, an industry newsletter that covered the franchise community for over 30 years. She has also been a columnist for a leading franchise magazine for the past 13 years. Today she is an independent journalist who engages in investigative reporting, tackling complex issues that impact the franchise industry.

Janet can be reached at jsparks@bluemaumau.org or at 303-799-7398.