Pizza Hut Cracks Down On Franchise For Alleged Contract Violations

The most recent news on lawsuits is about the war between Pizza Hut and EYM Pizza. EYM Pizza happened to be one of Pizza Hut’s biggest franchises.

Eduardo Diaz founded EYM Pizza in 2008 to operate in the Midwestern and Southern regions. It started operating around 140 Pizza Hut restaurants from the beginning of 2015.

However, Pizza Hut has recorded the closing of over 15 restaurants within the locality of Ohio and west of Indiana.

Pizza Hut claims EYM has breached its contract multiple times and has had issues with multiple financial mismanagement. EYM is no small franchise, though, as it operates many big restaurants across five US states.

EYM Pizza successfully operates in the states of Wisconsin, Illinois, Indiana, South Carolina, and Georgia.

In franchise agreements, it states that EYM Pizza must maintain operational standards, implement restaurant upgrades, and ensure timely financial payout. Moreover, it also states in the agreements that the operator necessarily needs to integrate a delivery-focused framework. 

Regrettably, Pizza Hut experienced a seven percent increase in in-store sales from 2019 to 2023. Whereas EYM Pizza incurred a heavy ten percent decline in its various locations.

In addition, EYM stores are failing quality evaluations at a significantly higher rate than half of the Pizza Hut franchises. This led to significant reduction in the operational performance of EYM Pizza.

The Legal Story Between Pizza Hut And EYM Pizza

In respect to the legal documents submitted, Pizza Hut sues EYM for consistently failing to make prompt payments. EYM Pizza is sued for failure to pay advertising fees, vendor services, and royalties to Pizza Hut.

This financial failure has accrued debt up to over $3 million since December 2022. That made Pizza Hut release diverse default notices in 2022 and 2023.

In August 2023, Pizza Hut and EYM had a forbearance contract, which was envisioned to offer the franchise the chance to sell its stores. The purpose of this contract was to enable EYM Pizza to rectify operational and financial missteps.

The contract required the franchise, EYM, to meet different milestones, which include certain sale milestones. With the intentions of the forbearance contract, Pizza Hut claims that EYM has failed to meet those milestones.

Breaches In The Contract

Here are the significant breaches Pizza Hut included in the lawsuit:

• Payment failures: They claim EYM Pizza consistently missed the deadlines for certain payments during the forbearance contract period. Focusing on the fact that these payments are necessary during this period.
• Not meeting sale milestones: They claimed that the franchise delayed or failed to meet certain sale milestones. Some of these include placing its South Carolina and Georgia restaurants on the market and pursuing other prospective buyers.
• Operational standards: EYM Pizza restaurants across its five operational countries kept performing poorly and failed to meet Pizza Hut’s sales objectives. This gravely affected the overall business of Pizza Hut.

Pizza Hut reportedly ended the forbearance contract in February 2024. However, they did not stop there. They allowed it opportunities to help them comply with some terms using the LTRA (Limited Term Reinstatement Agreement) in 2024.

Despite that, the franchise continued to breach the agreements, which finally caused the Pizza giant to send termination notices. Pizza Hut terminated all operations for all the outlets with the start of June in 2024.

EYM Pizza Fires Back

EYM noted in the suit its purchase of the stores in Illinois and Indiana for $10.8 million and $8.6 million respectively. The intent for this purchase was just to get into Pizza Hut’s system.

It furthermore states that EYM purchased its South Carolina and Georgia markets in 2017 for $9 million. In addition, the Wisconsin stores were bought for $6.8 million in 2018.

All these purchases helped EYM Pizza become the biggest franchise of Pizza Hut.

EYM claims that Pizza Hut ignored the adoption of the modern trends. The business refused to adopt innovative business practices using the latest technological advancements.

Also, it states that Pizza Hut does not have an identity or image that “sticks with patrons.”

In addition, EYM Pizza states in the suit that the Pizza giant neglected its franchises and customers. Because they do not innovate, and when they sometimes do, it “flopped” and chased off loyal customers.

EYM Pizza further added that the rising inflation since the lockdown has affected profit margins. Even the cost of tomato sauce, which increased significantly to 40 percent, affected the operations of the firm.

In this context, Alan Gallup, the lead advisor of Asset Recovery Team has claimed, “The stores were shaken a little bit in terms of top-line sales over the summer, given the issues between the franchisee and franchisor,”.

What Could Be The Finale Of This Lawsuit?

Wondering how this will end or who will win this suit — the franchisee or the franchisor? Well, there are a few possible outcomes of this lawsuit.

Pizza Hut has demanded monetary compensation for the damages incurred by EYM Pizza. They are expecting to financially recover their loss with the compensation they receive from EYM.

However, no one knows if EYM can give them that. EYM Pizza has not made any statements regarding the acceptance of paying compensation to the Pizza giant.

Moreover, with the closing of the various outlets in Indiana and Ohio, EYM Pizza has also experienced financial decline. So, it seems highly unlikely that Pizza Hut will receive its compensation.

“Another way this lawsuit can end is if both parties are guilty of some faults, and the court will rule it as comparative negligence,” says attorney Jason W. Power.

The legal war is still raging on and no resolution has come. And no one can predict the outcome of this bankruptcy story of the Pizza  Hut franchise.

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