Jack in the Box wants its franchisees to close some restaurants. Just not all of them.
The fast-food chain is asking a Washington state court to keep a big franchisee from closing 38 restaurants in a dispute over marketing fees.
The San Diego-based company is asking a court for a restraining order to prevent the operator, AJP Enterprises, from closing the restaurants after the franchisee threatened to do so after it was terminated over $1.4 million in unpaid marketing fees last month.
AJP and a sister operator, NHG Enterprises, are both owned by the same franchisee, Steve Wazny.
The franchisee sued Jack in the Box last year over a previous termination of its franchise agreements. The franchisor terminated the locations after AJP previously closed eight underperforming restaurants. The franchisee said that Jack in the Box terminated the locations to force a sale of its company at a “distressed valuation.”
Jack in the Box argued that AJP acted without the brand’s consent but ultimately agreed not to terminate the remaining restaurants. The franchisee, according to a court filing, agreed not to “unilaterally close” any remaining locations and that it would abide by their obligations under the franchise agreements.
But Jack in the Box said that AJP stopped paying marketing fees on those remaining 38 locations.
The franchisor last month declared AJP in default over the unpaid marketing fees and gave the operator 30 days to fix the problems.
AJP, in response, notified Jack in the Box that it plans “to commence closure of the restaurants impacted by” the franchisor’s actions, the court filing said.
Jack in the Box argues that AJP has “no contractual right” to close those restaurants, much like it argued that the franchisee did not have the right to close the eight restaurants it initially shut down.
AJP apparently plans to close the restaurants on April 22 unless Jack in the Box (JIB) withdraws its default notice.
“AJP is trying to use a threat to close the restaurants … to force JIB to abandon its attempt to require AJP to pay its marketing fees,” Jack in the Box said in its filing.
The dispute comes as Jack in the Box is actively working with franchisees to close as many 200 underperforming restaurants, noting that doing so can improve their finances while generating stronger sales at remaining locations.
“We are focusing on franchisee economics by closing underperforming restaurants,” CEO Lance Tucker told analysts in February.
Franchisees closed 12 locations last quarter, Tucker said in February. Operators closed a net of 55 restaurants last calendar year, according to data from Restaurant Business sister company Technomic. The closure effort “is moving a little slower than we would have expected, as franchisees are evaluating lease dynamics and sales transfer benefits on a case-by-case basis,” Tucker said.
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