Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Colo.: Magistrate recommends a default judgment in restaurant franchise breach, (Jul 9, 2026)

By Donielle Tigay Stutland, J.D.

Teriyaki Experience franchises and five Smashburger franchises failed to pay royalties and infringed on the franchisor’s trademarks after termination.

The federal district court in Denver, Colorado has recommended that franchisor’s motion for default judgment against a franchisee for breach of various franchise agreements be granted in large part. The court concluded that the franchisor had established the elements of breach of contract for Franchise Agreements for the operation of four Teriyaki Experience restaurants in Costa Rica and Five Smashburger restaurants in Costa Rica. However, the court determined that the parties would be bound by the arbitration clause within Franchise Agreement between the parties for the operation of seventeen Quiznos locations. The court recommended that the preliminary injunction be made permanent, and that the franchisee be responsible for monetary damages (QSR International L.D.C. v. QZCR S.R.L., No. 1:25-cv-01750-GPG-CYC (D. Colo. Jul. 1, 2026)).

Background. The plaintiff QSR International L.D.C. is Cayman Islands corporation with its principal place of business in Denver, Colorado. It brought suit against defendants QZCR S.R.L., a Costa Rican limited liability company whose sole member is Shehzad Ali, a Costa Rican citizen, and Shehzad Ali individually, alleging that the defendants, as franchisees, breached multiple franchise agreements by failing to pay royalties and other amounts due and by continuing to operate and use the franchisor’s trademarks and systems after termination at formerly franchised locations in Costa Rica. The agreements at issue covered four Teriyaki Experience restaurants, five Smashburger restaurants (four of which are still operating), and seventeen Quiznos restaurants.

In August 2025 the franchisor obtained a preliminary injunction. The franchisor’s suit brings six claims for relief: one breach of contract claim for pre-termination actions and one for post-termination actions under the agreements governing each of the three restaurant groups.

Breach of contract. The court recommended that default judgment be entered against the franchisees on the breach-of-contract claims arising from the Teriyaki Experience agreements and the Smashburger agreements.

The court first addressed the breach of contract claims with respect to the Teriyaki Experience franchises. The court found that the franchisor established the elements of breach of contract, as the franchisor demonstrated through its allegations and through evidentiary support that it and the franchisees’ entered into agreements governing the operation of four Teriyaki Experience restaurants in Costa Rica, that it performed under the contracts, and that the franchisees breached those agreements through their failure to pay the required royalties from May through October 2024, and their continued use of the trademarks and system licensed to them under the Teriyaki Experience agreements.

With respect to the Smashburger Franchise Agreements, which contained an arbitration clause, the court indicated that clause was not triggered because the franchisees did not make an arbitration demand. The court also found that for the Smashburger franchises, he franchisor established the elements of breach of contract, as the franchisor demonstrated through its allegations and through evidentiary support that it and the franchisees’ entered into agreements governing the operation of the five Smashburger franchises in Costa Rica, and the franchisor demonstrated the franchisees’ breach of those agreements through, among other things, their failure to pay the required royalties, continuing to use the tradename as to the four locations they still operate, and failing to return confidential materials.

The court did not recommend default judgment for the claims arising from the Quiznos agreements. As to the Franchise Agreements for “at least one” of the Quiznos franchises, the court noted that one of the locations’ agreement contained a mandatory arbitration provision. One of the other Quiznos agreements in form was similar to the Smashburger form which mandated arbitration “on demand of either party,” however, the location did not clearly match any location alleged in the complaint, Because the franchisor did not clarify which form of agreement governed which of the 17 Quiznos locations, the court declined to make a recommendation for a default judgment with respect to the Quiznos franchises.

Injunction. The court recommended that the preliminary injunction be made permanent. As such, the franchisees must immediately:

• Cease all use of the Teriyaki Experience and Smashburger trademarks, trade dress, and systems at the specified formerly franchised locations in Costa Rica.

• Comply with the post-termination non-compete covenants for two years (no operation of or interest in competing Japanese-style food or hamburger businesses within a 5-mile radius of the listed locations or other operating “Made in Japan Teriyaki Experience” or Smashburger restaurants).

• Immediately cease the use of and cancel any telephone numbers associated with the formerly franchised locations.

Monetary Relief. The franchisor sought damages for payments it was owed under the Teriyaki Experience agreements and the Smashburger agreements, as well as liquidated damages under the terms of each agreement, and interest. The court recommended that the franchisees be ordered to pay the franchisor a total of $1,493,310.03 in damages. The damages for Teriyaki Experience included $90,042.58 for unpaid royalties, post-termination sales, and interest through July 31, 2025, and $385,690.33 in liquidated damages; and the damages for Smashburger included $165,701.06 in unpaid royalties and $851,876.06 in liquidated damages.

The Case is No. 1:25-cv-01750-GPG-CYC.

Judge: Chung, C.

Attorneys: Joseph Warren Mark (Lathrop GPM LLP) for QSR International L.D.C.

Companies: QSR International L.D.C.; QZCR S.R.L.

Cases: FranchisingDistribution ColoradoNews