Pizza Hut is suing one of its largest franchisees over multiple breaches of contract, namely repeated financial mismanagement.

EYM Pizza—which recently shuttered 15 units in Indiana, according to the Times of Northwest Indiana—operates approximately 140 restaurants across five states: Georgia, South Carolina, Illinois, Indiana, and Wisconsin. Franchise agreements mandate the operator maintain specific operational standards, make timely financial payments, and undertake necessary restaurant upgrades and transitions to delivery-focused models. However, from 2019 to 2023, while Pizza Hut’s overall system saw a 7 percent increase in same-store sales, EYM’s locations experienced a 10 percent decline—a 17 percent disparity. Operational performance also fell short, with EYM’s restaurants failing quality assessments at a rate significantly higher than the average Pizza Hut franchise.

According to court documents, the franchisee consistently failed to make timely payments for royalties, advertising fees, and vendor services, accruing past-due debt exceeding $3 million by December 2022. These financial shortfalls prompted Pizza Hut to issue multiple default notices throughout 2022 and 2023.

Pizza Hut entered into a forbearance agreement with EYM in August 2023. This agreement was intended to provide the franchisee with the opportunity to sell its restaurants and rectify its financial and operational missteps. The terms required EYM to meet various milestones, including timely financial payments, operational standards, and specific sale milestones.

Despite the forbearance agreement’s intentions, EYM failed to comply with its conditions. Notable breaches included:

  • Missed Sale Milestones: EYM delayed putting its Georgia and South Carolina restaurants on the market and neglected to pursue multiple letters of intent from potential buyers.
  • Payment Failures: EYM repeatedly missed deadlines for required payments during the forbearance period.
  • Operational Standards: EYM’s restaurants continued to perform poorly, failing to meet Pizza Hut’s sales and operations metrics.

Pizza Hut ultimately terminated the forbearance agreement in February. Despite this, the pizza giant allowed EYM additional opportunities to comply with terms through a Limited Term Reinstatement Agreement (LTRA) in April, the lawsuit states. However, EYM’s breaches continued, prompting Pizza Hut to send final termination notices in June.

This lawsuit follows a prior legal dispute where EYM sued Pizza Hut, claiming breach of contract and seeking temporary and permanent injunctive relief. EYM’s lawsuit highlighted grievances over Pizza Hut’s management practices and sought judicial intervention to prevent immediate termination of their franchise agreements. However, the court denied the operator’s request for a preliminary injunction, allowing Pizza Hut to proceed with enforcing its contractual rights.

EYM entered the Pizza system in 2016 when it bought franchisee territories in Illinois for $10.85 million and Indiana for $8.67 million. The group followed that up with the acquisition of stores in Georgia and South Carolina for $9.02 million. In 2018, EYM took over units in Wisconsin for $6.88 million and bought another 16 restaurants for $1.56 million. The franchisee was highly critical of Pizza Hut in its lawsuit, citing the brand lost its title as the largest pizza chain in terms of systemwide sales to Domino’s in 2017 and that the company wasn’t keeping up with modern times and adapting to current technology.

Fast Food, Franchising, Legal, Pizza, Story, Pizza Hut