The legal feud between Wendy’s and one of its largest franchisees got particularly frosty this week after the fast food giant tried to intervene in a round of store closures that are planned for this weekend.
Meritage Hospitality Group, a franchisee that filed for Chapter 11 bankruptcy protection last month, is in the process of closing at least 30 locations, roughly 10% of its sprawling fleet of 314 Wendy’s restaurants.
After shutting down 10 restaurants over the last two weekends, the franchisee has slated another 10 stores to be closed today, court documents reveal.
But The Wendy’s Company is not happy with the stores that are being marked for closure, lawyers for the burger giant told the court this week.
In a docket filed on Wednesday, Wendy’s said it tried to engage with Meritage to avoid the permanent closure of some restaurants on the list—proposing to swap them out with locations that it deemed more suitable for closure—but the franchisee rejected the offer.
Wendy’s even offered to cover any losses that Meritage might incur from the swap process, the filing says, but Meritage still refused.
Worse still, it offered no reason for the rejection.
“[The] refusal falls outside the scope of reasonable business judgement,” Wendy’s said, citing a standard used by bankruptcy courts to determine whether or not to allow certain actions, like closing stores or canceling leases.
Wendy’s requested an emergency hearing on the matter, but a judge denied that request on Thursday, meaning the 10 stores are now likely to close today.
Reached for comment by Fast Company, a Wendy’s spokesperson characterized bankruptcy-related store closures as routine. It did not provide additional specifics about its legal disagreements with Meritage.
“Our focus remains on serving our customers, supporting our franchise system and strengthening the long-term health of the brand,” Wendy’s said in a statement. “The goal is to keep as many restaurants open as possible while strengthening the Wendy’s system for the future.”
Meritage Hospitality Group did not respond to a request for comment.
Which stores are closing?
In a filing on Thursday, Wendy’s listed 10 stores that it said Meritage intends to close on Friday, October 9. The stores are located in Michigan, Georgia, Florida, and Oklahoma.
Wendy’s had intervened to save the following seven stores:
- Michigan: Store name: Grosse Pointe Farms
- Michigan: Store name: Hudsonville
- Georgia: Store name: Windy Hill
- Florida: Store name: Commonwealth
- Florida: Store name: Heckscher
- Oklahoma: Store name: Moore
- Oklahoma: Store name: Choctaw
In addition to those seven stores, three additional Oklahoma restaurants are also slated for closure, but Wendy’s did not dispute the closure of those locations.
- Oklahoma: Store name: I40 & MacArthur
- Oklahoma: Store name: 178th and Western
- Oklahoma: Store name: Rockwell and Memorial
The stores appeared to still be open as of early Friday, though employees reached by phone declined to comment. The list could still change, as Meritage has yet to confirm its plans. We’ll update this story as we learn new details.
However, if history is any guide, Meritage will move to shutter the locations quickly. It has closed a wave of stores over the last two Fridays and has laid out a schedule to close at least 30 loss-making locations by Friday, October 16. Meritage agreed to close the stores as part of a cash collateral deal.
Here’s the beef
The disagreement over store closures underscores growing hostility between Wendy’s and Meritage—a longtime franchisee that has operated Wendy’s stores for almost 30 years.
Meritage’s bankruptcy was triggered in mid-September after Wendy’s slapped the restaurant operator with a franchise termination notice. The burger chain claims to be owed more than $146 million in past-due royalties and other fees.
In response, Meritage not only disputed the legitimacy of the termination but also blamed its unstable financial situation on Wendy’s own diminishing brand equity. Meritage has attacked Wendy’s marketing as ineffective and said its profits were squeezed by discount-heavy national promotions.
Wendy’s, meanwhile, has maintained that Meritage no longer has a right to operate the restaurants. In a court filing this week, it reasserted that it considers Meritage a “former” franchisee.
Shares of The Wendy’s Company (NYSE: WEN) are down a staggering 72% over the last five years. The company is due to report third-quarter earnings on November 5.
This story is developing…