A group of former Dickey’s Barbecue Pit franchisees are suing the franchisor and a Minnesota-based bank for alleged fraud and misrepresentation.
The former franchisees claim Luminate Bank and former Dickey’s employees provided incorrect financial information and didn’t disclose other key financial details about profitability and operational costs. The franchisor claims the allegations are without merit and the suit was filed for publicity.
Among the plaintiffs are Daniel Unsworth, who owns DLU LLC in Ohio, and Jeremy and Nicole Kolbach, who own Star BBQ LLC in Idaho. They filed the lawsuit against Dickey’s and Luminate in the United States Federal District Court for the Northern District of Ohio’s Eastern Division. David Nichol of Roderick Linton Belfance represents the franchisees.
“Dickey’s is unconcerned with the failure of its initial franchisees like Unsworth and Kolbach,” the suit stated. “Its modus operandi is to fraudulently induce investors to open new franchises, (typically at a cost of $800,000.00 to one million dollars), and when the revenues cannot sustain the debt incurred and the original franchisee inevitably fails, Dickey’s controls the secondary market for the re-sale of franchisee.”
Jeff Gruber, Dickey’s senior vice president of franchise relations, said the claims are meritless. “We’ve stayed within the guidelines the entire time we’ve been dealing with all our prospective candidates the same way for years,” he said. “There was nothing out of the ordinary.”
Gruber said this isn’t the first lawsuit the parties have filed, despite Dickey’s having an arbitration clause in its franchise agreement. Article 27 of the agreement states except for certain claims, all disputes must be mediated and, if not resolved, arbitrated in Texas, where Dickey’s is based.
“They still filed the lawsuit in federal court. It’s going to get removed, it’s going to go to arbitration,” Gruber said. “From our perspective, this is very much a publicity stunt with meritless claims.”
According to the lawsuit, Unsworth and the Kolbaches invested in the franchise based on “the same false marketing information by Dickey’s” in January and February of 2022.
The Kolbaches closed their restaurant “within months of opening” and sold to a new franchisee who paid $30,000. Even after the sale, The Kolbaches owed 95 percent of their loan from Luminate. Unsworth also closed his restaurant after a few months, but no one bought the location.
Dickey’s former Vice President of Global Franchise Sales Ray Bodnar and former Senior Director of Finance and Real Estate Development Steven Mullett allegedly told the franchisees they’d make between $150,000 and $250,000 in net revenue in their first year, and that amount would increase thereafter. Unsworth signed a franchise agreement January 21, 2022, and the Kolbaches signed their agreement February 1, 2022.
Unsworth and the Kolbaches were then referred to Luminate Bank for financing.
“Mullet then sent written pro forma profit and loss statements containing the same or similar false information,” the suit stated, to both parties and Luminate Bank for loans in January and February 2022.
Dickey’s provided each franchisee listed in the suit with the same break-even point of just over four years, according to the complaint.
“It is impossible that this number could be the same for both locations and there was absolutely no basis or justification for providing this grossly inflated number that was based on intentionally understated costs and overstated revenues,” the lawsuit stated.
The difference in costs for labor, materials and utilities was about 20 percent for Unsworth’s and the Kolbaches’ locations on opposite sides of the country. But the profit and loss statement Dickey’s provided allegedly didn’t reflect those differences, aside from a 1.2 percent different in labor costs and varying minimum wages.
The suit claimed Luminate was aware the numbers were fabricated.
“Luminate had also previously processed and approved several other loans for Dickey’s franchisees and were very familiar with the actual numbers, as opposed to the fabricated numbers that Dickey’s was using to fraudulently solicit investors, including the plaintiffs,” according to court documents. “Luminate took no action to verify the numbers as required because it knew that the numbers would not pass any genuine scrutiny.”
After the loans were finalized, Unsworth told Luminate he thought Dickey’s lied about the performance numbers. A bank employee listed in the suit, Jackie Pratt, allegedly “agreed with Unsworth and stated that she was surprised that none of the prior Dickey’s franchisees and Luminate borrowers had sued Dickey’s yet.”
The Kolbaches’ grand opening—their best day, according to the suit—didn’t generate the $2,400 in sales needed daily to achieve the $900,000 Dickey’s told them they’d generate the first year. Another Idaho operator with three stores told Jeremy Kolbach they weren’t even close to the $900,000 mark in their first years, the complaint noted. On average, they reported about $700,000 in average unit volume, according to the suit.
The lawsuit alleged Dickey’s resells the closed stores for less than $50,000, which lets the franchisor continue collecting its franchise and marketing fees. “The new operator can afford to pay 9% of revenues to Dickey’s because they are not burdened with a nearly million-dollar debt.”
The former operators demanded a jury trial in hopes of retrieving monetary damages.
On September 9 a four-unit Dickey’s franchisee filed for bankruptcy protection, citing the franchisor’s actions as reason for financial difficulties. Smokin’ Dutchman, based in Kalamazoo, Michigan, listed debts of about $2.1 million.
Dickey’s is no stranger to lawsuits, coming in at No. 4 out of 150 franchisors with more than 500 units on a list that ranked brands based on number of lawsuits per 1,000 units listed in a franchise disclosure document.
The U.S. store count for Dickey’s meanwhile, continues to decline. The company in its most recent FDD reported franchisees closed 97 units during the company’s 2024 fiscal year, which ended May 31. Franchisees sold another 106 locations to other owners. The brand’s “churn rate,” a term that takes into account ceased operations, transfers, terminations, non-renewals and units reacquired by the franchisor, is 46 percent.
Dickey’s opened 19 units during the measurement period. It ended its fiscal year with 385 total locations, including 19 international units. In 2022, it started the year with 485 total outlets.