A Pizza Hut franchisee filed for bankruptcy protection following lawsuits between the franchisor and franchisee.
EYM Pizza LP, one of Pizza Hut’s largest franchisees, filed for Chapter 11 bankruptcy protection in the Eastern District of Texas July 22. The Irving, Texas-based franchisee listed two creditors: Manufacturers Bank and Pizza Hut, to which EYM owes $21.7 million and $2.2 million, respectively.
Last month, Pizza Hut sued EYM Pizza for allegedly not paying royalties on time and for what the chain called store underperformance. EYM sued Pizza Hut in March to keep the franchisor from terminating its franchise agreements, but a judge dismissed the complaint in April.
The 142-unit EYM reportedly closed more than a dozen stores in Indiana in June, but Pizza Hut said these closures are temporary. The franchisee allegedly closed a Georgia unit in February without the franchisor’s approval, according to court documents.
“While a few EYM franchise-operated restaurants in Indiana have temporarily closed, Pizza Hut remains committed to providing outstanding service and products to our valued customers,” a spokesperson for Pizza Hut said in a statement last month. “The company is working to transition these locations and expects many of them will reopen soon. Other restaurants operated by the franchisee outside the Indiana market remain open.”
EYM Pizza’s Indiana division filed for bankruptcy in the same court on Monday. The company reported assets up to $50,000 and debts from $500,000 to $1 million—most of which is owed to the Internal Revenue Service and Pizza Hut. EYM Indiana owes $398,704 and $274,164 to the creditors, respectively.
EYM’s Alleged Underperformance
Pizza Hut filed its suit against EYM, led by Eduardo Diaz, on June 7 in the U.S. District Court for the Northern District of Texas. Diaz owns restaurants in Wisconsin, Georgia, Indiana, South Carolina and Illinois.
Diaz purchased stores in Illinois for $10.8 million and stores in Indiana for $8.6 million in 2016 to get into the Pizza Hut system, according to court documents. He previously worked as a president of McDonald’s Mexico.
Pizza Hut reported same-store sales increased 7 percent from 2019 to 2023, while EYM’s same-store sales decreased by 10 percent in that time. EYM allegedly doesn’t pay its fees on time and is “among the worst” performing of all large Pizza Hut franchisees, according to the suit.
EYM claimed Pizza Hut neglected its customers and franchisees. The brand doesn’t innovate, according to EYM, and when it does, the options “flopped” and “scared off loyal customers.”
The group reportedly invested $46.6 million in Pizza Hut during its time with the brand, according to court documents, and EYM claimed Pizza Hut tried “to force EYM to sell for pennies on the dollar.”
The franchisor allegedly offered EYM $1.5 million for 15 stores in Indiana, or $100,000 a store, while new stores cost “at least $600,000” to build.
The case is ongoing. Pizza Hut is seeking monetary relief for damages.