A group of Hurricane Grill and Wings franchisees, representing half of the chain’s locations, is suing the chain and parent company Fat Brands, accusing the company of raiding the marketing fund and damaging the brand.
The lawsuit, filed in a Florida state court, accuses the company of underfunding marketing, ultimately leading to declines in sales and store closures. The operators filing the lawsuit represent 19 of the chain’s 38 stores.
The complaint accuses the company of violating a settlement agreement between Hurricane and operators, which was signed in early 2018, before Fat Brands acquired the chain.
The lawsuit draws a connection between the lack of marketing support and accusations from the U.S. Securities and Exchange Commission that Fat Brands and its founder, Andy Wiederhorn, misappropriated more than $27 million.
“Simply put, defendants (Hurricane and Fat Brands) have used the marketing fund and royalty payments for other purposes as demonstrated by the lack of marketing strategy, lack of marketing calendar and lack of support,” the lawsuit states. The SEC’s lawsuit against Fat Brands and Wiederhorn “only serves to amplify these concerns.”
Fat Brands in a statement denied the allegations.
“This is a meritless lawsuit filled with false allegations,” the company said. “Since purchasing Hurricane Grill & Wings in 2018, Fat Brands has invested significant time and resources to strategically grow the brand through marketing initiatives, from menu development to modernizing the guest experience. We look forward to disproving these ridiculous claims and fighting this lawsuit in court.”
Fat Brands acquired Hurricane Grill in 2018 for $8 million in cash and $4.5 million in stock. It was among the first acquisitions by the Los Angeles-based Fat Brands, which went public earlier that year.
The wing chain operated 50 U.S. locations at the end of that year, according to data from Restaurant Business sister company Technomic. It has since shrunk to 38 locations, according to the franchisees.
System sales declined 26% from 2018 through 2023, according to Technomic, while average unit volumes declined 8.2%, to $1.9 million. Larger rivals Buffalo Wild Wings and Wingstop have added locations and unit volumes over that period.
Hurricane charges its franchisees 3% of their weekly revenues for marketing. The franchise agreement requires Hurricane to use those funds only for marketing and the lawsuit says that the company agreed to maintain that fund separately from its own funds.
Shortly after the 2018 acquisition, according to the lawsuit, Wiederhorn personally issued notices of default to Hurricane franchisees demanding payment of marketing contributions. The lawsuit says that Wiederhorn had “no intent to use the marketing fund for its intended and contractually required purpose.”
Earlier that year, following mediation, Hurricane agreed to a confidential settlement over accusations of marketing fund misuse. That deal was filed under seal, but it required the brand to provide regular budgets and proposed marketing calendars through 2019.
The lawsuit says that franchisees have been making payments to the marketing fund as required since January of 2019 and based on those contributions “there certainly should be funds to adequately staff a marketing department,” the lawsuit said. “Despite this, the marketing department is understaffed, underperforming and/or not performing.”
Franchisees say the company has not run any “meaningful, other than shooting from the hip marketing campaigns” outside of those that franchisees have run in their own markets.
The lawsuit says that Hurricane has not provided either quarterly or annual budgets, or proposed marketing calendars, since 2018.
The lawsuit also repeats allegations in a federal lawsuit and charges against Fat Brands and Wiederhorn. The SEC accused Wiederhorn of misusing company funds and he was charged in a $47 million false loan scheme.
Franchisees in the lawsuit argue that they were misled by the financial management and operational support provided by Fat Brands and Hurricane.
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