Tilted Kilt Pub & Eatery restaurants has filed suit against a company that develops Tilted Kilt franchises in northern Illinois, southern Wisconsin and northwest Indiana, claiming the developer misled potential franchise operators, opening Tilted Kilt to liability and a damaged reputation.
Tilted Kilt, through attorney Fredric A. Cohen, of Cheng Cohen LLC, filed suit in federal court Nov. 17. In the complaint, the restaurant chain’s franchising arm asserted 1220 LLC, owned by brothers Robert, Emil, Anthony and Peter Baroud, violated the terms of its area developer agreement. The suit asked the court to immediately terminate the agreement between the two companies, award unspecified damages and indemnify Tilted Kilt against any damages the Barouds may try to claim.
There are about 17 years left on the 25-year area developer agreement, according to the complaint.
According to court documents, area developers are responsible for soliciting potential franchisees in their territory, helping those franchisees find and acquire suitable sites for their restaurants, and providing “opening and ongoing operational support.” Under the area developer agreement, developers are held responsible for knowing all state and federal laws regulating the sale of franchises in their area. According to court documents, Tilted Kilt also offered regular training sessions on those laws, but the complaint alleged 1220 has repeatedly violated them since becoming a Tilted Kilt developer in 2007.
“[The defendants’] unlawful misconduct not only violated state and federal law by deceiving and defrauding prospective Tilted Kilt franchisees (and setting them up for certain failure), it has as well exposed Tilted Kilt … to substantial liabilities,” the suit claims.
Court documents noted it is a violation of state and federal law to provide prospective franchisees with financial projections. Nonetheless, the lawsuit claimed that is exactly what 1220 did in 2009, when two men approached them about opening a Tilted Kilt franchise in Kenosha, Wis.
At their first meeting with the prospective franchisees, Emil and Robert Baroud presented inflated numbers as average revenues at Tilted Kilt restaurants, the suit alleged. Four months later, the men signed a franchise agreement and began shopping with the Barouds for a good location in Kenosha.
The lawsuit claimed the Barouds continued to provide illegal financial representations, telling the men various sites in Kenosha had the potential to generate $3 million or more per year. Before that location had even opened, the men had also signed on to open a Tilted Kilt in Vernon Hills.
According to court documents, Anthony Baroud emailed one of the partners a projection showing revenues and expenses for locations in both Gurnee and Kenosha. The lawsuit claimed Anthony Baroud also presented those numbers to a group of investors who agreed to acquire the franchise rights in Gurnee.
After opening in 2013, the Kenosha location sustained heavy losses, the lawsuit said. Last March, the owners of the franchise contacted Tilted Kilt demanding a refund of their franchise fees and a release from their agreement, because the restaurant had never come close to reaching the revenues 1220 projected. According to the complaint, that correspondence marked the first time Tilted Kilt was made aware of the Baroud brothers’ actions.
According to court documents, when confronted with the email in which they allegedly made projections for the Kenosha and Gurnee locations, the Barouds’ lawyer allegedly claimed the numbers had been filled in after the fact by someone other than the Barouds. Tilted Kilt alleged it has “forensically determined” the projection was complete before it was sent.
Tilted Kilt has asked for the court to declare 1220 LLC materially breached the developer agreement and grant Tilted Kilt the right to terminate the agreement.