Wendy’s Restaurants Sues Maryland-Based Franchisee

What business and contract requirements can a franchisor impose on a franchisee

Wendy’s, the fast-food restaurant chain, has sued one of its largest franchisees for failing to meet company requirements, including remodeling restaurants and installing new technology. DavCo Restaurants LLC and DavCo Acquisition Holding Inc. (DavCo), based in Crofton, Maryland, run 152 Wendy’s restaurants in Maryland, Virginia and Washington, DC. Wendy’s lawsuit  seeks to terminate DavCo’s franchise agreements.

Wendy’s has a growth plan in place including an “Image Activation” remodeling initiative and efforts to increase technology use inside of its restaurants. An important feature for Wendy’s is a point-of-sale program that allows customers to use their mobile devices to order and pay. Wendy’s plans to have 60 percent of its restaurants remodeled by 2020. Wendy’s wants the new point-of-sale system adopted by its franchisees by July 2015.

According to Wendy’s, DavCo is the only franchisee refusing to comply with its programs, and it has been trying to resolve the issue with DavCo for months. Wendy’s lawsuit alleges that DavCo has made it clear that it does not intend to perform its obligations because it believes that Wendy’s, as franchisor, does not have the authority to make the requirements.

DavCo maintains that Wendy’s Image Activation program is economically unviable and that the point-of-sale system is inoperable. DavCo asserts that the real motivation behind Wendy’s lawsuit is to take over its restaurants. Wendy’s has been making purchase offers since 2010, according to DavCo, and it would not allow a 2011 merger with another franchisee. DavCo believes it is being made an example of so Wendy’s can send a message to other franchisees, which DavCo says are beginning to question the direction of the Wendy’s brand.

The business law attorneys at Longman & Van Grack have extensive experience counseling clients about contract disputes and business law. We can help you understand whether a breach of contract has occurred and what each party’s responsibilities are. Adam Van Grack and Theodore Kiviat specialize in business litigation cases. In every case, we provide thorough advice on how to achieve the best possible outcome. Contact our Bethesda and Rockville, Maryland offices today at (301) 291-5027 to discuss your business matter.