Chicken fight: Popeyes vs. Church’s in lawsuit
AFC Enterprises Inc. on Wednesday filed a lawsuit against Church’s Chicken and a former Popeyes franchise group in connection with Church’s recent purchase of 10 Popeyes’ franchised restaurants in the Rio Grande Valley, Texas and conversion of most of the units to the Church’s Chicken brand.
Atlanta-based AFC Enterprises (NASDAQ: AFCE), the franchisor and operator of Popeyes Chicken & Biscuits and former owner of Church’s, is seeking more than $20 million in damages.
In the suit, AFC alleges Church’s, which is owned by Atlanta private equity firm Arcapita Inc., “tortiously induced and colluded with Popeyes’ former franchise group, CVI Company Ltd. of McAllen, Texas, and its principals, to breach their binding franchise, development and guaranty agreements with Popeyes and sell their franchised restaurants to Church’s for cash with the intent to harm Popeyes.”
AFC believes Church’s had direct knowledge the restaurants they bought and have begun converting were being operated under franchise agreements with Popeyes. And because Church’s and Popeyes operate under virtually identical franchise agreements, AFC alleges Church’s had full knowledge of the terms of the franchise agreements prohibiting the sale.
AFC argues in the suit that Church’s knew CVI was prohibited from selling their franchises to Church’s and also knew CVI was prohibited from converting their restaurants to the Church’s brand. AFC alleges Church’s actions are part of a malicious scheme to harm Popeyes.
Because of the binding franchise agreements, CVI could not change the restaurants’ names, brands, logos, affiliations, or food products without the express written consent of AFC, the suit said. CVI also could not close the restaurants for business, convert the restaurants to another restaurant concept, or divest business to a competitor without the express written consent of AFC. AFC charges Church’s and CVI kept the transaction secret from AFC and no express written consent was requested nor given.
“Popeyes welcomes honest competition,” said Ken Keymer, AFC Enterprises CEO. “But when a competitor instead chooses egregious acts with the intent to harm another’s brand, we are compelled to respond… Having been in the franchising industry for over 25 years, I have never witnessed such outrageous actions by a franchising company. We believe it is our duty, as a respected franchisor, to protect the franchising industry against companies that do not recognize and honor contractual agreements and, instead, choose to operate outside of industry norms.”
From the Atlanta Business Chronicle
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