Two grandsons of Carl’s Jr. founder Carl Karcher are facing a lawsuit saying they swindled companies in a real estate scheme that involved promising to open restaurants that never materialized.
On Sept. 16, investors with the corporate entities known as KMK Group, LLC and Nine Crown, LLC filed suit in federal court in Chicago, suing brothers Jason and Carl LeVecke and two companies in which the brothers are principals, JC123 Holdings LLC and LeVecke & Co. LLC.
In addition to being the managing member of JC123 and LeVecke & Co., Jason LeVecke is also the managing member of Frontier Star, a CKE Restaurants franchisee that operates more than 200 Carl’s Jr. and Hardee’s restaurants across seven states.
According to court documents, the brothers would offer for sale parcels of land that did not belong to them, that were either vacant or had fast-food franchises operating on them. They would offer the properties at a marked-up price, saying the purchase included a 20-year lease for Frontier Star to operate a restaurant on the site.
To justify the higher price, court documents said the brothers would provide potential investors with Frontier Star’s financials, which showed a successful and growing operation, and promise attractive rates of return on the investment.
When an investor agreed to buy the lot, the brothers would purchase it for its actual value, then immediately sell it to the investor at the higher price. The promised restaurant would never open, and Frontier Star would then back out of the lease, claiming it was unenforceable because CKE Restaurants had never agreed to place a franchise at that location.
The lawsuit says KMK fell victim to this scheme in March, when it bought a parcel of land in McHenry from JC123.
Once KMK agreed to pay more than $1.5 million for the property, JC123 bought it for $1.1 million, then sold it to KMK a week later. JC123 paid rent of nearly $10,000 a month for the first two months of the 20-year lease, then backed out of it, telling KMK the promised Hardee’s would not be built.
Similarly, Nine Crown purchased a property in Mokena from JC123 around the same time. JC123 paid $1.35 million for the property and sold it to Nine Crown the same day for $1.7 million, court documents said. Nine Crown expected to collect $119,000 per year in rent from the Hardee’s restaurant the brothers promised to open. As in the case of KMK, Frontier Star paid the rent for the first two months, then stopped.
In July, Frontier Star filed for Chapter 11 bankruptcy.
The lawsuit charges all the defendants with conspiracy to defraud and violation of the Illinois Consumer Fraud and Deceptive Practices Act, and asks the court to rescind the sales of the Mokena and McHenry properties and refund the money paid by KMK and Nine Crown. Alternatively, the suit says the plaintiffs would accept damages in the amount they paid over the value of the properties, plus punitive damages determined by the court.
Since the purchases came with personal guarantees from Jason and Carl LeVecke, the suit also asks that if the purchases are not rescinded, the court require the brothers to make good on the guarantees and fulfill all requirements of the leases, including paying rent, regardless of whether a restaurant ever opens on the site.
Both plaintiffs are represented by Alan I. Becker of Litchfield Cavo, LLP.