Wendy's Files Suit Against Its Fourth-Largest Franchisee

By Christine Kern, contributing writer

Lawsuit argues DavCo Restaurants failed to meet company directives regarding point of sale and remodels.

On December 22, Wendy’s filed a lawsuit to terminate one of its largest franchisees, arguing that DavCo Restaurants LLC, failed to meet company directives to update point of sale systems and complete designated remodels of their restaurants.

"DavCo, a long-time franchisee of Wendy's, apparently believes that the guidelines announced by Wendy's, to be followed by all U.S. and Canadian franchisees, simply do not apply to it," the suit state, according to Columbus Business First. "As a result, DavCo stands virtually alone among Wendy's franchisees in combating and indeed repudiating two key obligations at the core of the franchisor/franchisee relationship."

DavCo, owns 152 Wendy's in Maryland, Virginia and Washington D.C. and is the company's fourth largest franchisee. The lawsuit could force the operator to sell or close those restaurants.

"We work to resolve franchisee questions or concerns through a variety of forums," the company wrote in an email to Columbus Business First.  "After attempting to resolve these differences, we felt we had no other choice than to seek legal relief to terminate DavCo's franchise agreements."

Wendy’s indicated that its dispute with DavCo is unique within the system. “We pride ourselves on our relationship with franchisees,” Liliana Esposito, Wendy’s chief communications officer told the Nation’s Restaurant News. “This unfortunately is an unusual case.”

Although the lawsuit still gives DavCo time to complete the required upgrades, the wording makes it clear that Wendy’s believes they will not do so. 

“DavCo has made clear to Wendy’s by its words and conduct over a long period of time, including again very recently, that it does not intend to perform the obligations expected of it as a Wendy’s franchisee,” the lawsuit says.

The issues revolve around the installation of Aloha, the only POS platform it has ever implemented system wide. Wendy's required all company owned and franchised restaurants – with a few exceptions -- to register for Aloha by March 2014, a deadline that DavCo failed to meet.

Then in October 2014, Wendy's set the goal of refurbishing at least 60 percent of all U.S. and Canadian restaurants to fit a sleeker model by 2020. DavCo again refused to follow company guidelines to update 10 percent of its restaurants per year for the next five years, despite corporate prodding to name the restaurants chosen for remodeling in 2015. Since Wendy’s states that DavCo’s restaurants are in a shabby state, it means a high price tag for remodeling for the franchisee. 

DavCo has not commented on the lawsuit.

This isn’t the first time a dispute between Wendy’s and one of its biggest franchisees over a major corporate initiative has reached a courtroom. In 2011, Wendy’s sued large franchisee WendPartners after it apparently refused to install equipment required for Dave’s Hot ’N Juicy Cheeseburger. The dispute was later resolved and the equipment was installed.

And, in fact, this isn’t the first legal tussle between Wendy’s and DavCo.  In 2007, DavCo filed suit against Wendy’s alleging that the company had inflated the costs of Coca-Cola products and then used the funds for advertising.