Rice Enterprises, an 8-unit McDonald’s franchisee based in Pittsburgh, declared bankruptcy last week amid legal issues stemming from the rape of a 14-year-old employee by one of its former managers.
The franchisee, which has been in business since 1987, lists between $10 million and $50 million in assets but just $1 million to $10 million in liabilities. The company employs 435 people.
The company does not list a secured creditor. The company also lists McDonald’s as an unsecured creditor over a $1 million indemnification claim, which Rice Enterprises disputes.
Rice Enterprises says it plans to use the bankruptcy process to preserve its assets and restructure its debt, “provide breathing space, time to reduce litigation expenses and maximize the value of its estate for all creditors and interests.”
The filing is a rare one in the McDonald’s brand, as its franchisees rarely take that step. A five-unit operator out of Iowa took that step in 2016, for instance.
But it comes as franchisees’ typical per-store cash flow declined by $100,000 last year. It is the fourth multi-unit franchisee of note to declare bankruptcy this year, following two bankruptcy filings by Burger King and another by a Popeyes franchisee earlier this week. Rising costs for food and labor have eaten into operator profits.
But Rice Enterprises doesn’t appear to have much in the way of debt, outside of ongoing legal filings. The operator has been defending itself in a lawsuit filed in 2021 by a 14-year-old girl who was raped in the bathroom of one of the locations by a manager, Walter Garner, who would plead guilty. Garner was hired despite a 2003 conviction for indecent assault involving a 10-year-old girl.
Rice Enterprises denied the allegations. McDonald’s, which was also sued, unsuccessfully fought to have claims against it dismissed, arguing that it was not involved in Garner’s hiring as the franchisor.
The franchisee in its bankruptcy filing listed the legal action as a potential claim, saying it was currently disputed with the amount “unknown.”
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