Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Tex. App.: Judgment against fast food franchisee Chapter 7 bankruptcy trustee upheld on appeal, (Nov 18, 2025)

By Kenneth H. Ryesky, M.B.A., J.D.

Bankruptcy trustee's operative fifth amended petition considered by the court did not properly name the appropriate franchising entity within the franchising organization.

An appellate court in Fort Worth, Texas has upheld a "take nothing" trial court ruling against a bankruptcy trustee of a fast-food multiple franchisee debtor. The franchisee had filed for bankruptcy while trying to negotiate solutions to its floundering chain, by which time the national franchisor had already filed suit against it for breach of the franchise agreements. The bankruptcy trustee intervened into the litigation to assert claims on behalf of the franchisee's bankruptcy estate. The trial court had ruled against the trustee on all counts; that final judgment was affirmed on appeal (Garner v. Jack In The Box Inc., No. 02-23-00276-CV (Tex. App. Oct. 9, 2025)).

Background. The organization that franchises the Jack in the Box® fast food restaurant chain is headed by Jack in the Box Inc. (JIB), a California-based public company traded on the Nasdaq exchange. JIB's wholly owned second tier subsidiary entity, Texas entity Jack in the Box Eastern Division LP (JIBED), franchises the physical and operational aspects of Jack in the Box® restaurants, while JIB itself franchises the trademarks, logos, and other intellectual property aspects of the franchisee.

In 2011, 37 company-owned Jack in the Box® restaurants in Texas were franchised to the J&D Restaurant Group, LLC (J&D). J&D signed two franchise contract documents for each location, (1) real estate lease agreements with JIBED; and (2) intellectual property agreements with JIB. J&D gave JIB a security interest in J&B's assets to secure the contractually-required payment of the royalties. J&B's venture soon began to fail. Following changes to its initial ownership and operators, and in the course of negotiations with JIB, JIBED, and with other parties to which J&D attempted to sell its interests in the franchises, J&D, which had been sued by JIB and JIBED, filed for bankruptcy.

Garner, who was appointed Trustee in the bankruptcy proceedings, was given permission to intervene in the lawsuits filed by JIB and/or JIBED against J&B in Texas state court and stayed upon J&B's bankruptcy filing. When Garner intervened in that litigation, she alleged claims under Texas and California law. The Texas trial court's ultimate ruling after a jury trial awarded Garner nothing. Garner appealed the trial court's ruling to a Texas state appellate court.

California Unfair Practices Act. The appellate court let stand the trial court's denial of Garner's claim under the California Unfair Practices Act (CUPA). Here, Garner had alleged that JIB secretly accorded relief to other franchisees in rent and royalty payments while similar accommodations were not given to the J&B franchises, and that JIB's refusal to so accommodate J&B caused financial impairment that compelled J&B to sell its franchise contract interests to other parties for far less than J&B had initially paid for them.

Garner's filed papers all either named the JIB entity, or generically referred to the defendant as "Jack in the Box." It was JIBED, an entity separate from (albeit subsidiary to) JIB, who made all of the franchise decisions alleged by Garner to have impaired or injured J&B. JIB was not shown to have done anything complained of by Garner, and JIBED, the entity arguably complained of, was not named in the petition or in Garner's proposed jury charges and therefore not the subject of the jury's factfinding instructions from the judge. Here, the judge had propounded the jury instructions as requested by Garner, so Garner's objections were over an error she herself had invited.

Other claims. The appellate court upheld the trial court's rulings on Garner's other claims. The breach of the implied covenant of good faith and fair dealing under the California Uniform Commercial Code version and Texas version were superfluous to her breach of contract claims. Summary judgment against Garner was proper on the claim under the Texas Uniform Fraudulent Transfer Act (TUFTA) because J&B's surrender of its restaurants and associated assets resulted from an unexcused default of its lease agreement with JIBED. The losses alleged by Garner as resulting from fraud by nondisclosure were solely "economic loss of a contractual expectancy" and therefore, the trial court's summary judgment against Garner was correct.

The Case is No. 02-23-00276-CV.

Judge: Kerr, E.

Attorneys: Christopher R. Knight (Haynes and Boone, LLP) for Marilyn D. Garner. Brett D. Kutnick (Jackson Walker LLP) for Jack in the Box Inc. and Jack in the Box Eastern, Division L.P.

Companies: Jack in the Box Inc.; Jack in the Box Eastern, Division L.P.

Cases: Antitrust FranchisingDistribution TexasNews