A former franchisee has sued Dickey’s Barbecue Pit in an attempt to avoid arbitration after closing nine of the quick-service chain’s Sacramento-area locations last year.
Jared Katzenbarger stands to potentially lose millions if his split with Dickey’s goes to arbitration, according to a lawsuit filed in federal court last month. The barbecue chain demanded $3.1 million in arbitration, or roughly $271,000 to $418,000 per restaurant.
Katzenbarger had entered into or taken over 20-year contracts for each of the nine restaurants between 2011 and 2015, with the earliest expiring in 2031. Each came with a franchise fee of $5,000 to $15,000.
Upset with what he perceived as a lack of support from the Dallas-based corporation, though, Katzenbarger began converting the midtown Dickey’s to what’s now Jyro’s Twisted Gyros in January 2018. Katzenbarger felt the corporation lied to him about the franchise’s financial well-being, marketing support and menu stability, attorney Josh Escovedo of Weintraub Tobin Chediak Coleman Grodin Law Corp. wrote in an email to The Sacramento Bee.
“After fraudulently inducing Plaintiffs into the agreements, Dickey’s then proceeded to neglect and mismanage the franchises in violations of its contractual duties and governing law,” the lawsuit reads. “As a result, Plaintiffs incurred substantial losses trying to operate the franchises while Dickey’s continued to thrive. Plaintiffs were left with no other choice but to close the restaurants and their principal operator, Plaintiff Jared Katzenbarger, was forced to pursue other business ventures instead.”
Dickey’s reacted swiftly. The company first sought more than $360,000 through arbitration for damages caused by the midtown restaurant’s closure before agreeing to a mediation session with retired federal judge Oliver Wanger scheduled for August 2018. All nine franchise agreements require both sides appoint a mediator and wait at least 90 days before beginning arbitration proceedings, according to court documents.
But the mediation session was postponed, and Katzenbarger closed the remaining eight locations in Natomas, West Sacramento, Elk Grove, Rocklin, Auburn, Rancho Cordova, Folsom and south Sacramento in late October and early November. He’s since turned four of the locations into Side Burn BBQ and Brew outposts — slogan: “We don’t talk local. We are local!” — and intends to do the same with the other four.
In a written response to The Sacramento Bee, Dickey’s alleged Katzenbarger said he would work with them in mediation before the company “learned he was not being honest about his intentions.” Dickey’s applied for and was granted emergency arbitration after learning of the October/November closures and Katzenbarger’s plans for Side Burn.
“We worked very hard to make (Katzenbarger) successful. We helped him with marketing, operations and we also offered to fly him to Dallas resolve our differences amicably. He refused,” the statement read. “We were made aware that he was spreading rumors to disparage the brand and launching a competitive concept in violation of the franchise agreement he signed ... we’ll keep working to protect the brand and the investment of every franchisee.”
Katzenbarger was a local real estate investor with no prior experience owning or operating a restaurant, per court documents. He signed each of the 50-page franchise agreements without consulting an attorney, he said in the documents.
A group of seven California franchisees, including one in Davis, have also filed suit against Dickey’s. They allege the company gave them deliberately shoddy financial estimates, opened franchises within protected territory of one another and provided no training, despite promising to do so. Filed in 2015, the case remains in U.S. federal court without resolution.