A Tim Hortons franchisee accused the coffee chain on Wednesday of baiting him into spending “millions” on an ill-fated expansion, according to a lawsuit filed in Minnesota district court.
The franchisee — Tim-Minn Inc. — is wholly owned by an Ontario company led by Paul Durigon, a Canadian whose construction firm helped build several Tim Hortons locations across Canada. Though Durigon’s company served as a landlord to “a few” of the franchises, according to the lawsuit he had no experience in franchising or the restaurant industry. In 2016, his Tim-Minn group nevertheless spearheaded Tim Hortons’ ambitious push into Minnesota, agreeing to open 280 franchises in a state in which previously there had been none.
In the complaint Wednesday, Tim-Minn said Tim Hortons USA Inc. and its parent, Restaurant Brands International Inc., “took advantage” of the new franchisee’s inexperience, allegedly charging high markups on supplies and selling used equipment to Tim-Minn restaurants “at current market value for new equipment.”
Tim-Minn said the expansion project has stalled, with only 14 of 280 stores actually open — none of which are as profitable as Tim Hortons USA allegedly signalled in a “data pack” that they would be, according to Tim-Minn’s lawyer.
“They baited my client with these figures from the data pack, which had no basis in reality,” said the lawyer, Jerry Marks of the New Jersey-based firm Marks & Klein LLP. “My clients have been operating these 14 stores … and they don’t produce the type of income that the data pack said they would produce.”
On Wednesday, Restaurant Brands International dismissed the claims, casting Tim-Minn as a rare failure among thousands of successful franchisees.
“This is an issue of a restaurant operator in the U.S. who says he did not find success with a proven business model that thousands of others in Canada have already succeeded with,” RBI spokeswoman Jane Almeida said in a statement. She did not answer questions Wednesday.
“It’s not our practice to comment on this type of individual action, other than to say that we clearly disagree with his point of view,” the statement reads. “We will seek to resolve this in our normal course dealings with him or by asking the court to enforce the franchise agreement he knowingly agreed to.”
Tim-Minn said Tim Hortons started the process by negotiating the franchise agreement in bad faith, providing Durigon and his team with “incomplete, incorrect, and misleading financial information.”
In one instance during negotiations, Tim-Minn alleges, more than a dozen pages in a franchise disclosure document sent by Tim Hortons USA were blank or “totally obscured.” The same documents, registered with the Minnesota Commerce Department as required by the Minnesota Franchise Act, were “complete … intact and present,” the lawsuit claims.
The suit argues that while Tim Hortons claimed it would charge a “reasonable” markup for goods franchisees such as Tim-Minn were required to purchase from the company or an approved vendor, the markups were “objectively unreasonable.”
Tim-Minn was charged … between 20-50 per cent above market rate for necessary items it was contractually prohibited from purchasing through another source
lawsuit put forth by Tim-Minn owner Paul Durigon
In some cases, the suit claims, “Tim-Minn was charged … between 20-50 per cent above market rate for necessary items it was contractually prohibited from purchasing through another source.”
On top of its issues with the franchise agreement, Tim-Minn accused Tim Hortons of squelching its growth in Minnesota, where the coffee chain had “no brand recognition.” The chain, Tim-Minn said, was obligated to invest in marketing efforts to boost the brand in Minnesota. But it “spent carelessly and interfered with the marketing agencies it hired to do the work,” the lawsuit reads.
The franchisee alleged that his business was further undermined by “an unnecessary and wasteful lawsuit” filed against it by Tim’s in Florida. The suit, according to the Star Tribune, was about outstanding franchise fee payments. Tim-Minn said the 2017 lawsuit was “dismissed less than a week after it was filed in admitted error.”
Despite the dismissal, Tim-Minn alleges that lawsuit “caused and continues to cause unnecessary and expensive delays,” and says local property owners are no longer willing to deal with Tim-Minn on terms that are “fiscally responsible” for the franchisee.
The franchisee is seeking a jury trial and monetary compensation and damages. The lawsuit did not specify an amount.
It has accused Tim Horton’s of 10 counts of wrongdoing, including fraud, negligent misrepresentation, breach of contract, unjust enrichment, and breach of implied covenant of good faith and fair dealing.
None of the allegations have been proven in court.
The lawsuit comes after Tim Hortons recently made a significant step toward reaching a settlement in two class-action lawsuits from a group of Canadian franchisees. The company and The Great White North Franchisee Association submitted a term sheet to a judge earlier this month outlining the key points they’ve agreed to in a future settlement in the two cases.
—with file from Canadian Press