Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Sonic claims franchisees failed to pay fees, breached license agreement, (Jun 27, 2016)

By Linda O’Brien, J.D., LL.M.

Five franchisees of Sonic drive-in restaurants and their guarantor have breached their license agreements by failing to pay required royalty, advertising, and technology fees as well as paying for their promotional marketing kits, according to a complaint filed in the federal district court in Oklahoma City (Sonic Industries LLC v. Halleran, June 23, 2016).

Sonic Franchising LLC is the franchisor of the Sonic drive-in restaurant chain. Sonic Industries Services Inc. (SISI) provides franchising services to Sonic franchises and administers three funds on behalf of Sonic franchisees—the Sonic Brand Fund (SBF), System Marketing Fund (SMF), and Brand Technology Fund (BTF).

The complaint states that, in August 2007, Sonic and real estate investor Arthur Halleran entered into an area development agreement that granted Halleran the exclusive rights to develop 20 Sonic restaurants in Miami-Dade and Broward counties in Florida. In June and August 2011, Sonic entered into license agreements with OKS Campbell, LLC, OKS Commercial & U, LLC, OKS Beach Place, LLC, and OKS Stadium, LLC that authorized the entities to own and operate Sonic restaurants. Halleran executed a guaranty and restriction agreement under which he personally guaranteed the financial and non-financial obligations of the four entities under the license agreement.

In April 2015, OKS Hialeah Gardens, LLC signed a license agreement that would have authorized the entity to own and operate a Sonic drive-in restaurant located in Hialeah Gardens, Florida. Halleran as guarantor was supposed to have executed a guaranty and restriction agreement under which he would personally guarantee the financial and non-financial obligations of OKS Hialeah Gardens, LLC under the license agreement. However, the complaint states, he failed to do so after Sonic issued the license to OKS Hialeah Gardens, LLC.

According to the complaint, under the license agreements, the OKS franchisees agreed to pay royalty, advertising, and technology fees based on a percentage of their monthly gross sales. Additionally, the OKS franchisees regularly ordered and received monthly point-of-purchase promotional marketing kits from SISI. To date, the five OKS franchisees have failed to pay to Sonic the required royalty, advertising, and technology fees and purportedly owe Sonic amounts exceeding $75,000. The OKS franchisees also have allegedly failed to pay SISI for the promotional marketing kits they ordered and received.

Sonic claims that the OKS franchisees are in default of the licensing agreements and have been unjustly enriched by failing to pay for the promotional marketing kits. Sonic also claims that Halleran was notified of his default under the area development and guaranty agreements in March 2016 and failed to cure that default.

The plaintiffs assert claims for breach of contract and unjust enrichment. The action seeks the amounts due under the license agreements, contract and pre-and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:16-cv-00709-C.

Attorneys: Joe M. Hampton and Amy J. Pierce (Corbyn Hampton Barghols Pierce PLLC) for Sonic Industries, Inc., Sonic Franchising LLC, and Sonic Industries Services Inc.

Companies: Sonic Industries, Inc.; Sonic Franchising LLC; Sonic Industries Services Inc.

News: FranchisingDistribution OklahomaNews