Financially troubled Butterfield Equities Corp. is facing a revolt by a group of its Love's restaurants franchisees, who are refusing to pay weekly royalties until the company makes good on promises to provide additional services and support to the barbecue chain, The Times has learned.
The revolt is the latest in a series of problems for the Santa Ana holding company, which also owns Butterfield Savings and Loan Assn. Both operations have been money losers for Butterfield, which lost $21.3 million during the first nine months of the fiscal year ending June 30.
Butterfield S&L said Thursday that it will sell two of its four offices to raise money and shed costs, and officials predicted that the S&L will start making a profit by the end of the year.
During the last few months, the restaurant division has closed five of the eight Love's Woodpit Barbecue Restaurants it owns and operates, after announcing in January a major face lift for the chain, including remodeling and new menu items, and plans to open a separate chain of fast-food barbecue restaurants.
Owners of 17 of Love's 25 franchises, who have withheld $50,000 in royalty payments since mid-May, say the company has not lived up to terms of the franchise agreement; they say the company has failed to provide advertising services or new menu items, according to Mitchell Shapiro, an attorney representing the Southland franchisees. The royalty payments, a percentage of the gross sales, could amount to as much as $1 million annually.
One franchisee who asked not to be identified said Butterfield has "abandoned" the owners.
In response to the allegations, a spokesman for Butterfield said Thursday, "We don't know that there is any legal basis for their actions until our lawyers examine them thoroughly. We are still researching the extent to which we will have to change Love's to make it as successful as we want it to be."
The spokesman confirmed Thursday that Raymond Johnston, chief executive of Butterfield's restaurant division, has left the company. He refused, however, to disclose the reasons for Johnston's departure. Johnston came to Butterfield last year after serving as the head of Campbell Soup Co.'s restaurant division.
Butterfield said it plans to sell its savings and loan branches in Lake Elsinore and Temecula, with $45 million in deposits, to San Diego-based Great American First Savings Bank. The sale must first be approved by the Federal Home Loan Bank Board. Officials from both institutions refused to put a price tag on the deal.
"The whole thrust of our company for the past eight months has been to increase the efficiency and cost-effectiveness of our operation," said Butterfield Savings and Loan President David B. Ross in an interview Thursday. "This is a very important move from our point of view."
Once numbered among the fastest-growing and most innovative of the nation's S&Ls, Butterfield, with $805 million in assets, has been operating at a loss since March 31, 1984.
Butterfield, which relies mainly on telephone solicitation and newspaper ads to attract certificates of deposit and money market accounts, will continue to operate its Santa Ana and Bakersfield branches.