Struggling Hardee’s terminates a large franchisee

Hardee’s has closed a number of stores in recent weeks, and could close more. | Photo: Shutterstock.

Hardee’s is having difficulty with another of its large-scale franchisees, and this one just bought their restaurants two years ago.

The fast-food chain late last month filed a lawsuit against ARC Burger, a franchisee owned by the same private-equity firm that owns Church’s Chicken, Taco Del Mar and Quiznos. ARC acquired 80 locations in 2023 following the bankruptcy filing of their former owner, Summit Restaurant Holdings. 

Hardee’s in its lawsuit said that ARC owes the company more than $6.5 million in unpaid royalties, marketing fund and rent on 28 of the locations. ARC’s restaurants are in Alabama, Florida, Georgia, Illinois, Missouri, Montana, South Carolina and Wyoming.

The burger giant said that ARC has refused its efforts to enter into a workout agreement, “and despite partial payments, the total amount owed to [Hardee’s] continues to increase each week,” the company said in its complaint. 

This isn’t the first dispute Hardee’s has gotten into with a large-scale franchisee. The company is currently embroiled in a legal dispute with Paradigm Investment Group, a large franchisee out of Tennessee, Alabama, Mississippi and Florida, over the operator’s refusal to take digital orders or remain open after 2 p.m.  

These issues also come as more Hardee’s locations continue to close. At least 15 Hardee’s locations have closed since Oct. 1, according to various local reports, including several in Minnesota, South Dakota, North Dakota, Illinois and Iowa. 

And those closures come on top of a long-term decline of the chain. System sales have declined 12% over the past decade, according to data from Restaurant Business sister company Technomic. The chain shed close to 200 units over that period. That has been offset somewhat by international growth. 

Both the ARC and the Paradigm disputes threaten dozens more closures.

A typical Hardee’s restaurant generates less than $1.2 million in revenues per year, or about $800,000 less than Wendy’s and $2.7 million less than a typical McDonald’s.

Representatives for ARC and High Bluff Capital have not yet responded to requests for comment.

ARC bought its restaurants in 2023 for $16 million. Summit had closed some 39 restaurants earlier that year and filed for bankruptcy.

High Bluff Capital formed ARC to acquire the restaurants. Yet, according to the lawsuit, High Bluff and ARC agreed to a 10-year “management consulting agreement.”

Under that agreement, ARC was to pay High Bluff either 5% of its prior-year EBITDA, or earnings before interest, taxes, depreciation and amortization, or $1 million, whichever is greater, for “consulting services.” ARC is also to reimburse High Bluff for any expenses, along with “extraordinary services” outside the normal course of business. 

Hardee’s said in its lawsuit that ARC began failing to make payments starting in December 2024. The franchisor declared the franchisee in default by that June. 

The franchisee did not cure the defaults, according to the lawsuit, and by September Hardee’s terminated the operator’s franchise and sublease agreement. Hardee’s agreed to a forbearance in September. The franchisee made one payment and then stopped, according to the lawsuit.

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Restaurant Business Editor-in-Chief Jonathan Maze is a longtime industry journalist who writes about restaurant finance, mergers and acquisitions and the economy, with a particular focus on quick-service restaurants.

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