A Tim Hortons coffee shop is pictured in Toronto, Ont., on Feb 6 2019.Fred Lum/The Globe and Mail
Just as Tim Hortons is getting close to settling franchisee disputes in Canada, the country’s largest coffee chain faces a fresh legal spat in the United States.
Tim Minn Inc., a Tim Hortons franchisee in Minnesota with the right to develop more than 260 restaurants in the state, sued the Oakville, Ont.-based restaurateur on Wednesday, alleging it had misrepresented the financial performance potential of the business.
The 10-count complaint contends that Tim Hortons USA Inc. and its parent, Restaurant Brands International Inc. (RBI), made false financial representations to fraudulently induce Tim Minn to open more Tim Hortons restaurants than any other “area developer” in the United States.
“The false and/or misleading financial representations provided to [Tim Minn] by [Tim Hortons] caused [Tim Minn] to invest a substantial amount of money, time, and effort into building out the Tim Hortons’ restaurants brand in Minnesota, but the anticipated income from the venture … never materialized because those numbers were flawed, incomplete and lacked crucial variables,” says the lawsuit in the U.S. District Court for the District of Minnesota.
The legal action comes as Tim Hortons is hammering out the details of a tentative, non-binding settlement of Canadian franchisees’ long-running legal battles with the chain.
Tim Hortons and its RBI parent have faced a number of franchisee lawsuits on both sides of the border over claims of mismanagement and overcharging restaurant owners for supplies – the latter being another complaint of the legal action in Minnesota.
Meanwhile, Tim Hortons is racing to improve its business south of the border where it has struggled for years to build the chain amid shifting strategies and stiff competition from Dunkin’ Donuts and others.
RBI spokeswoman Jane Almeida said it disagrees with the U.S. franchisee’s allegations, adding the Minnesota restaurant operator “did not find success with a proven business model that thousands of others in Canada have already succeeded with.”
She said the company will resolve the matter in normal dealings with the franchisee or by asking the court to enforce the franchise agreement that the operator “knowingly agreed to.”
Jerry Marks, a lawyer representing Tim Minn, said in an interview the Minnesota franchisee is seeking “millions of dollars” and will hire forensic experts to determine the precise amount of the losses.
“We found the financial representations that were given were false,” said Mr. Marks of law firm Marks & Klein LLP of Red Bank, N.J. So far, Tim Minn has launched 14 restaurants in Minnesota, he said.
The complaint says the company failed to provide Tim Minn with operational, development or training manuals. “My client had to, in essence, do-it-yourself,” he said.
Mr. Marks also represents a broader group of discontented Tim Hortons franchisees who almost two years ago formed a U.S. branch of the Great White North Franchisee Association, which was set up in early 2017 in Canada to voice concerns about the chain’s alleged mismanagement that franchisees said was hurting their bottom line.
The U.S. association launched a lawsuit last summer saying its members were being overcharged for a number of items such as bacon and vinyl gloves, which they are required to buy from the company’s designated suppliers. The legal action alleged that franchisees faced “equity theft" because those looking to sell their franchises were forced to first offer their restaurants to Tim Hortons for the price of their depreciated furniture, fixtures and equipment. Tim Hortons, which has almost 700 U.S. restaurants and 3,955 in Canada, said the allegations were not based on facts nor reflect its commitment to U.S. success.
Franchisee tensions heightened after Brazilian private-equity firm 3G Capital took over Tim Hortons in late 2014 and merged it with its Burger King chain to create RBI. It moved quickly to put the 3G stamp of heavy cost-cutting on Tim Hortons, prompting pushback from some franchisees. Still, the company has made big changes in the past year or so to try to appease the association, including installing new executives and introducing new marketing and menu items. It also bought out some key franchisee association leaders, who have left the company.