Wendy's International has the beef, all right. It's with Carl Karcher Enterprises.
The nation's third-ranking fast-food chain is sizzling over Karcher Enterprises' purchase earlier this year of 10 Wendy's restaurants in Arizona from a franchisee.
On Monday, Wendy's filed a lawsuit against Anaheim-based Karcher Enterprises and the Wendy's franchisee, seeking total damages of $119 million.
According to the suit, filed in U.S. District Court in Tucson, Karcher Enterprises "secretly consummated" the restaurant purchases after being warned repeatedly that Wendy's would object to the sale.
The "deliberate . . . unprecedented raid" by Karcher Enterprises, operator of the Carl's Jr. hamburger chain, destroyed Wendy's 10-year effort to gain a foothold in the Arizona market, according to the lawsuit.
In a prepared statement, Karcher executives said the lawsuit "is totally without merit." The sale was completed only after Wendy's was offered--and declined--the chance to bid for the properties, according to Richard Celio, general counsel with Karcher Enterprises.
Karcher Enterprises previously had bought Wendy's locations from other franchisees in the San Fernando Valley and the Sacramento area, Celio said. The Southern California locations have been converted to Carl's Jr. restaurants, and the Sacramento properties are in the process of becoming Carl's outlets, said Karcher executives.
But there's a difference, according to Wendy's. In Southern California, there are many franchisees who own scores of restaurants. In the Tucson area, Wendy's has only one franchisee--Ronald Brown, who in 1985 purchased the exclusive right to operate Wendy's restaurants in the Tucson area. By early this year, Brown had 14 Wendy's--12 in the Tucson area, one in Flagstaff and one in Prescott, Ariz.
When Brown sold 10 restaurants to Karcher Enterprises in late March, it left Wendy's with only four stores in the Tucson area. "We lost 10 prime locations--Wendy's presence in Tucson was wiped off the face of the earth overnight," said Danny Lynch, Wendy's spokesman. "We didn't like the sales (to Karcher) in Southern California, but we had other owners," leaving Wendy's with a number of restaurants in the Southland.
The lawsuit contends that Brown's franchise agreement required him to get Wendy's consent to any sale. It asks for $41.2 million in current and future income from Brown and his company, Wendy's of Tucson Inc., for selling the 10 restaurants without consent.
Karcher Enterprises, according to the lawsuit, is at fault for interfering with Wendy's contract with its franchisee. The action seeks $41.2 million in estimated lost profits and $37.5 million in punitive damages because Karcher Enterprises allegedly "pirated prime Wendy's locations" and caused "irreparable harm to Wendy's and its franchise system" by destroying the chain's market presence in the Tucson area.
That market presence "will now be very expensive, if not impossible to re-create," said Lawrence E. Schauf, Wendy's vice president and general counsel.
Brown, the Wendy's franchisee, could not be reached for comment.
Celio, the Karcher Enterprises attorney, said the company has completed its purchase of the Arizona properties and expects to convert the stores to Carl's Jr. restaurants on schedule. When Karcher Enterprises announced the purchase in April, the company said it would convert the Wendy's within two to five months as part of its plans to add more than 120 stores to its inventory in the Western U.S. over the next two years.
Karcher Enterprises owns and franchises 498 Carl's Jr. restaurants in California, Arizona, Nevada and Oregon. Wendy's, which ranks behind McDonald's and Burger King in market share, has about 1,100 company-owned restaurants and 2,500 franchise units in 49 states.