In the suit, AFC claims Church's, which is owned by private equity firm Arcapita, Inc., tortiously induced and colluded with Popeyes' former franchise group, CVI Company, Ltd. and its principals, to breach their binding franchise, development, and guaranty agreements with Popeyes and sell their franchised restaurants to Church's for cash with the intent to harm Popeyes.
"Popeyes welcomes honest competition. But when a competitor instead chooses egregious acts with the intent to harm another's brand, we are compelled to respond. This is the reason for our filing suit today," says AFC Enterprises Chief Executive Officer Ken Keymer, who has been in the franchising industry more than 25 years.
According to AFC's complaint, Church's had direct knowledge the restaurants they purchased, and have begun converting, were being operated pursuant to franchise agreements with Popeyes. And because Church's and Popeyes operate under virtually identical franchise agreements, AFC believes Church's had full knowledge of the terms of the franchise agreements prohibiting the sale.
From November 1992 to December 2004, AFC Enterprises owned both Church's and Popeyes.
AFC asserts in its complaint that Church's knew CVI was prohibited from selling their franchises to Church's and also knew CVI was prohibited from converting their restaurants to the Church's brand. According to its complaint, AFC alleges Church's actions are part of a malicious scheme to harm Popeyes.
Pursuant to the terms of the binding franchise agreements, CVI, among other obligations, could not change the restaurants' names, brands, logos, affiliations, or food products without the express written consent of AFC. Also pursuant to the terms of the binding franchise agreements, CVI could not close the restaurants for business, convert the restaurants to another restaurant concept, or divest business to a competitor without the express written consent of AFC. As outlined in the suit, Church's and CVI kept the transaction secret from AFC and no express written consent was requested nor given.
"To our valued guests in the Rio Grande Valley, Popeyes intends to return to your area and we are currently exploring options to do so," Keymer says.
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