Ohio Applebee's franchisee fends off corporate attempt to seize stores

Credit: DaytonDailyNews

Caption
Bankruptcy court judge?€™s ruling may be good news for at least one of the chain?€™s restaurants in Kettering

Credit: DaytonDailyNews

Bankruptcy court judge’s ruling may be good news for at least one of the chain’s restaurants in Kettering

Applebee's Grill & Bar’s corporate parent, Dine Brands Global, has lost the first round of its legal battle against its Ohio franchisee, RMH Franchise Holdings, when a judge earlier this week rejected the parent company’s effort to seize control over all Applebee's restaurants in the state.

That may be good news for one Dayton-area Applebee’s restaurant in particular that appeared to be on the chopping block if the judge had granted Applebee’s parent company’s request. However, many legal issues remain unresolved in the franchisee’s restructuring bankruptcy filing in U.S. Bankruptcy Court in Delaware, and Applebee’s parent company vowed Wednesday to continue to vigorously protect the restaurant chain’s brand and business.

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RMH Franchise Holdings — the Atlanta-based restaurant franchise company that operates nearly 150 Applebee’s locations in 15 states, including Ohio — filed for Chapter 11 re-organization bankruptcy in May. Under such a re-structuring bankruptcy filing, RMH Franchise Holdings will continue operating, and its restaurants will remain open, while it seeks relief from its debts. Those debts included $14.2 million owed to Applebee’s International Inc. for royalty fees and advertising costs, according to bankruptcy court records.

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Applebee’s corporate parent, Dine Brands Global, challenged portions of its franchisee’s bankruptcy filing in its own lawsuit filed three weeks after the initial bankruptcy court action. Applebees/Dine Brands Global claimed that the Applebees restaurants operated by RMH Franchise Holdings should not be regarded as assets under RMH’s Chapter 11 bankruptcy filing because RMH had reneged on its franchise agreement. Dine Brands had asked a judge for a court order ruling that all of of the restaurants operated by RMH now essentially belong to Applebee’s corporate parent, Dine Brands, rather than its franchisee.

Each side filed its own motion for summary judgment, seeking a swift court ruling in its favor before going to a potentially long,  drawn out legal process. And on Tuesday, U.S. Bankruptcy Judge Brendan Linehan Shannon issue a ruling granting RMH Franchise Holdings request, and rejected Applebee’s corporate parent Dine Brands Global request.

The judge ruled that the Applebee’s corporate parent did not provide its franchisee with the required “clear and unambiguous notice” that it was terminating its franchise agreement prior to the bankruptcy filing, meaning that for now, the restaurants remain under the control of RMH Franchise Holdings.

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A spokeswoman for Applebee’s corporate parent on Wednesday declined to respond specifically to the judge’s ruling and its significance, but said, “Our priority is to position Applebee’s for long-term growth as America’s favorite Neighborhood Grill and Bar. We took meaningful steps to address a specific franchisee who was negatively impacting our brand and fellow franchisees. We will continue to take necessary measures to address anything that may negatively impact our brand and business.”

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Dine Equity’s attorneys had argued in court filings that RMH admitted it stopped paying royalties and advertising fees and that Dine Equity had the right to  terminate the franchise agreements “immediately upon providing written notice.”

But attorneys for RMH Franchise and its creditors had argued the termination of franchise agreements would have had “a devastating effect” on RMH’s restaurants and properties. “Termination of the Franchise Agreements, at a minimum, would cause great uncertainty for (RMH’s) almost 9,000 employees and numerous landlords and vendors that support” the 146 restaurants operated by the franchisee, attorneys said.

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Dine Brands Global had said in its lawsuit that if a judge granted its request, it would assume control of the vast majority of RMH’s restaurants and continue operating them as Applebee’s.

But the Applebee’s parent company attached to its lawsuit a list of 20 RMH-operated restaurants it would not seek to take over, meaning those 20 restaurants would “need to immediately de-affiliate from using the Applebee’s” name and trademarks if the judge had ruled in favor of Dine Brands, according to the lawsuit.

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That list included three Ohio restaurants, including one at 1795 Delco Park Drive in Kettering.

A spokeswoman for Applebee’s Grill & Bar said in June that the restaurant chain’s owners want to “keep as many restaurants open as possible” after filing the lawsuit seeking to gain control of the brand’s restaurants in the Dayton area and elsewhere in Ohio from its franchisee.

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Dine Brands Global had claimed in its lawsuit that RMH Franchise owes it a total of nearly $23.4 million in royalties and fees, and in future royalties and fees lost after RMH Franchise shut down some of the stores it operated. Those closures included the RMH-operated restaurant on Wilmington Pike restaurant in Sugarcreek Twp., which shut down June 9.

Other RMH-operated Applebee’s restaurants are located in Huber Heights, Xenia, Springboro, Springfield, Sidney, Mason and on Ohio 741 near the Dayton Mall.