Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: IHOP accused of racial discrimination, breach of franchise agreements, (Apr 22, 2015)

By Greg Hammond, J.D.

The International House of Pancakes (IHOP), LLC has been named in a lawsuit by a franchisee claiming that the franchisor breached two franchise agreements as part of a pattern and practice of intentional racial discrimination against Muslim individuals of South Asian and/or Middle Eastern descent, in the greater Chicagoland market. The franchisee filed suit yesterday in the federal district court in Chicago, alleging breach of contract and violations of the Civil Rights Act (Chaudhry v. International House of Pancakes, LLC, Case No. 15-cv-3504).

Plaintiff Azhar Chaudhry is a Muslim American who emigrated from Pakistan and is a naturalized American citizen. He owned and operated IHOP franchises in Bridgeview, Arlington Heights, and St. Charles, Illinois. However, Chaudhry alleges that IHOP unlawfully terminated the St. Charles agreement in 2013 and unlawfully terminated the Arlington Heights agreement by letter dated April 17, 2015.

Specifically, Chaudhry alleges that he performed or substantially performed all of his obligations under the Arlington Heights IHOP franchise agreement; that he was not in material default of any provisions of the franchise agreement; and that the Arlington Heights IHOP restaurant enjoys substantial customer acceptance and generates substantial revenues for both Chaudhry and IHOP. Chaudhry also argues that IHOP, through inspections, began giving the Arlington Heights location lower inspection grades and continuously “moved the goal posts” to prevent Chaudhry from ever being in full compliance. None of the defaults declared by IHOP had merit, and each of the defaults was cured by Chaudhry at considerable expense, he alleged.

Chaudhry consequently brought a two-count complaint, alleging that IHOP breached both the St. Charles and Arlington Heights franchise agreements, along with the implied covenant of good faith and fair dealing. Count two alleged a pattern and practice of racial discrimination by IHOP against Muslim franchisees of Middle Eastern or South Asian background who own IHOP franchises in the greater Chicago market and/or the Midwest region, as defined by IHOP. Specifically, Chaudhry alleges that the pattern and practice of racial discrimination can be proved through the “IHOP ConnectAB Systems-Wide Rankings,” which publishes grades assigned by IHOP and which is accessible to IHOP franchisees.

Choudhry seeks preliminary and permanent injunctive relief against the termination of the Arlington Heights franchise and against continued racial discrimination; damages, including punitive; and costs, attorney fees, and reasonable expert witness fees.

Attorneys: Shane D. Valenzi (Carmen D. Caruso Law Firm) for plaintiffs.

Companies: International House of Pancakes, LLC

News: FranchisingDistribution IllinoisNews