Perkins & Marie Callender’s has moved to oust one of its largest franchisees from its restaurants after the operator failed to pay royalty fees and was forced to close a Perkins location in May over health code violations.
The Memphis, Tenn.-based company last month filed a lawsuit in a federal court in Tennessee against Campbell Land Co. (CLC), which operates 26 Perkins locations in Ohio, Pennsylvania and New York. The franchisor says in its lawsuit that the operator owes the company more than $2 million in royalties, deferred royalties, marketing contributions and other fees.
It’s not a small termination: The 26 units represent 7% of Perkins’ 371 total locations and more than 10% of its 254 franchisee-owned restaurants.
“After innumerable attempts to resolve the situation with the franchisee, and Campbell Land Company's repeated failure to comply, Perkins & Marie Callender's was compelled to terminate their license agreement in early June 2019 and asked the court's assistance in closing the 26 restaurants,” the company said in an emailed statement. The statement noted that a judge granted Perkins' motion for a temporary restraining order, with a hearing set for next week.
The termination comes at an especially sensitive time for the company. Perkins & Marie Callender’s is on the market and may ultimately file for bankruptcy protection in its bid to secure a buyer. System sales at both Perkins and Marie Callender’s, which operates 51 locations in the U.S., have declined each of the past three years.
CLC, based in Pittsburgh, bought 27 Perkins locations out of bankruptcy court in 2018—but only after having to negotiate with the bankruptcy trustee shortly before the deal was to close after questions emerged about CLC’s ability to put up enough cash to fund the deal, according to the lawsuit.
According to legal documents, CLC was soon cited for serving “unapproved products” in the restaurants, including turkey and pork chops.
But the company also failed to pay royalties and marketing fund contributions. The two sides came to an agreement to allow the franchisee to continue operating stores, but Perkins continued to find problems—including quality assurance failures, running “unapproved specials,” not addressing customer complaints and not paying royalties.
Perkins in its lawsuit said it “endeavored to continue the parties’ business relationship.”
And then, in May, health inspectors in Pennsylvania forced the operator to close a location in Grove City.
According to the lawsuit, that prompted a letter to CLC from Perkins & Marie Callender’s CEO Jeff Warne, arguing that “the restaurant’s closure resulted in unfavorable media coverage.”
On June 3, Perkins & Marie Callender’s terminated CLC’s temporary license to operate its restaurants, citing the past-due royalties. CLC has continued to operate its restaurants, prompting Perkins to sue the company to remove the operator from the locations.