The Jack in the Box National Franchisee Association has filed a lawsuit against Jack in the Box, Inc. alleging the San Diego company failed to perform its contractual duties.
The franchisees claim in the breach of contract and implied covenant of good faith and fair dealing lawsuit filed in Los Angeles that the company's actions have resulted in a negative impact on their finances, according to a press release.
Specifically, the lawsuit alleges a breach of a 1999 settlement agreement with the NFA, claiming Jack in the Box refused to provide franchisees with an audit of the marketing fund and details of the income and expenditures of the fund. Franchisees contend Jack in the Box inappropriately required them to undergo major remodeling but shifted some of the repair costs, specifically roofing repairs, to them although Jack in the Box was to take full financial responsibility.
The NFA has hired franchisee attorney, Robert Zarco, from the Miami-based law firm Zarco, Einhorn, Salkowski & Brito, P.A.
“The NFA has acted in good faith for years when dealing with their franchisor partners, expecting that their passion for the brand would be matched and their investments protected,” Zarco said in a statement. “They have on multiple occasions made not only their concerns for the direction of the company known, but also their willingness to work in union with Jack in the Box to correct its course. However, their pleas to the franchisor have been ignored. They have been left with no other recourse than to pursue litigation to maintain the appropriate resources and focus that are vital to their continued success.”
When reached for a comment, a Jack in the Box spokesperson said, “The case lacks merit, and we intend to vigorously defend it fully.”
If they prevail, the franchisees are hoping Jack in the Box will have to legally allow them the right to audit the marketing fund and provide full account of the activity of the fund from 2016 till present; and pay reimbursement of the roofing and other corporate mandated capital expenses without being required to undertake unnecessary remodeling projects.
Last month, Reuters reported Jack in the Box Inc. was mulling over the possibility of selling the company. The San Diego company has made other headlines as of late. In October, the national Jack in the Box Franchisee Association asked for the termination of CEO Leonard "Lenny" Comma, and the current leadership team, following a vote of "no confidence." A few weeks later, New York-based hedge fund, Jana Partners disclosed it had trimmed its holdings in Jack in the Box, down to 1,831,007 shares from 2,050,325 shares during the second quarter. The activist investor also signed a confidentiality and standstill agreement in which the hedge fund agreed to keep confidential certain business information regarding the chain restaurant. The agreement expires on Dec. 14 unless the two parties terminate it sooner. And, in early November, Jack in the Box announced plans to lay off 66 corporate employees as of Jan. 4, partially due contractual agreements to support Qdoba terminating at the end of this year.
Jack in the Box has over 2,000 restaurants, 93 percent of which are franchise-owned and operated; 85 percent of those are represented by members of the Jack in the Box National Franchisee Association.