Last year, Fat Brands announced a pair of deals bringing two of its concepts into France, first with a 30-unit deal with Fatburger and then a 10-unit agreement with Buffalo’s Café. The latter was to be in the form of a fast-casual concept.
One year later, the operator received a notice from Fat Brands: Stop using the Buffalo’s name in France.
Apparently, Fat Brands missed a key point in the agreement: Registering the Buffalo’s trademark.
Another company, Buffalo Grill SAS, already owned the trademark. According to court filings in the Fat Brands bankruptcy, the franchisee believes it is out $10 million in various expenses plus “reputational harm.”
The claim is one of several made by franchisees in the complex bankruptcy of Fat Brands, which owned and operated 16 different restaurant chains, most of which are franchised. Their claims add up to tens of millions of dollars.
The company was formed in 2017 when Fatburger bought Ponderosa and Bonanza. It mostly acquired small, low-priced franchised chains until 2020, when it started buying up larger, more expensive chains using securitized debt.
Fat Brands increasingly struggled under the burden of that debt while founder Andy Wiederhorn faced investigations over a $47 million loan scheme. Fat Brands filed for bankruptcy earlier this year with $1.5 billion in debt while Wiederhorn and his family have left the company.
The company appears set to be sold largely in four deals worth nearly $1 billion, though the bulk will be in two different credit deals to Fat Brands’ lenders, who will convert debt to equity. In most cases, franchisees are set to receive nothing for their claims, which run secondary to other creditors.
Yet those claims show the extent of the challenges franchisees have had with the way Fat Brands has operated over the past few years.
The claims feature some of the controversies that have engulfed the company over the past several years: Misused ad funds, rebates diverted to Fat Brands and general damage done to the brands under the company’s ownership. But there are also other claims, such as the trademark claim and complaints about overcharges for cookie ingredients.
Starting in 2021, franchisees of Great American Cookies, which Fat Brands acquired when it bought Global Franchise Group, said prices for cookie ingredients began increasing at a more rapid clip than they had in the years beforehand. Prices for chocolate chip batter went up 8% in 2022, 20% in 2023 and 44% in 2024, franchisees said.
Since July 2021, the price for that batter went up 88%. They went up 85% for cookie cake batter and 78% for white icing.
“It appears that these price increases are merely a mechanism by which Fat Brands has sought to service and reduce its billions of dollars in debt owed to bondholders, which ultimately triggered this bankruptcy proceeding,” the cookie franchisees said in a filing. Franchisees are claiming $9.9 million in damages from the alleged overcharges.
One of the biggest complaints among franchisees of the company’s brands was its misuse of ad funds.
Fat Brands in the year leading up to the bankruptcy filing was sued multiple times, by Hurricane Grill operators and then Round Table Pizza franchisees, over the use of the ad fund.
Franchisees pay a fee for advertising and marketing. Those funds are supposed to be set aside and used to market the brand. Yet Fat Brands routinely diverted these funds for other uses.
The company used at least $8.6 million in ad funds as a source of liquidity, according to court documents.
Franchisees of Hurricane Grill sued the brand last year over ad fund issues. Fat Brands acquired the chain in 2018 for $8 million in cash and $4.5 million in stock. The company almost immediately demanded overdue payments from franchisees, leading to a settlement on the issue.
Yet operators have argued that the marketing department was understaffed and underfunded.
Franchisees said in court filings in the Fat Brands bankruptcy that they were owed tens or even hundreds of thousands of dollars in marketing funds that didn’t go to actual marketing.
Hurricane franchisees also argue that the company didn’t fulfill its obligations as a franchisor and instead diverted the royalties “for the benefit of certain insiders rather than use them to support brand growth, infrastructure and franchisee-benefiting economies of scale.”
Because those royalties were diverted for other uses, franchisees argue that they paid higher costs for products and received less support from the franchisor. And so operators are asking for both royalties and for “brand degradation.”
One two-unit franchisee, Premier Restaurants, is claiming $1.9 million in marketing and royalty fees and brand damage. Several other Hurricane Grill franchisees made similar claims, according to court documents.
Hurricane wasn’t the only brand to say that their marketing funds were diverted. Round Table Pizza franchisees sued the franchisor last year over similar issues, arguing that the company missed a payment to the marketing vendor, leading the system without advertising for months.
Round Table franchisees also argue that the franchisor diverted rebates from the company’s beverage vendor, Pepsi, that were supposed to go to store owners. The Round Table Owners Association, a franchisee association that filed the lawsuit, said it was unable to provide a true accounting of the damages because Fat Brands did not share information.
UPDATE: This story has been updated to correct that Fat Brands bought Ponderosa and Bonanza.
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