Rehoboth Hooters named in federal lawsuit
Hooters has filed a federal lawsuit against its Rehoboth Beach franchisee, Hoot Owl Restaurants LLC, for abandoning the First Street Station restaurant.
Hooters and its franchising company, HOA Systems, say in their lawsuit that closing the Rehoboth location harmed the company’s business reputation. Hooters now wants to terminate all franchise agreements with Hoot Owl, which has Hooters franchises in Delaware, Rhode Island, Pennsylvania and New Jersey. However, because Hooters is a Georgia-based corporation, there is a question of which state laws apply. Hooters is seeking to try the case under Georgia law, which would allow the chain to immediately terminate Hoot Owl’s franchise rights.
Hooters claims in court documents that because the Rehoboth restaurant was abandoned, the parent company can, by franchise agreement, revoke the right of Hoot Owl to operate any Hooters franchise. Hooters says Hoot Owl left the restaurant vacant, and all signs were removed. The Rehoboth restaurant’s Facebook page stated the location is permanently closed, and Hooters pointed to a message from one disappointed customer as an example that Hoot Owl’s abandonment of the restaurant is damaging to the Hooters brand. The building sits empty, with no signs; ladders and scattered equipment are visible inside.
If the federal court determines that Georgia law does not govern the case, Hooters has asked the court to define how the company can get out of its other franchise agreements with Hoot Owl, which Hooters says willfully breached its franchise agreement by abandoning restaurants in Rehoboth and Warwick, R.I.
According to court documents, Hoot Owl operated the Rehoboth restaurant on a seasonal basis, and was supposed to open May 15. On that date, court documents say Hooters franchise business director Jim Marr sent an email to Hoot Owl CEO Phillip Moran wondering when the Rehoboth restaurant would open. Moran did not reply for 10 days, court documents say, and when he did, he told Marr the restaurant would not be reopening.
Of the Rhode Island franchise, court documents state Hoot Owl allowed the condition of the restaurant to deteriorate. Hooters says Hoot Owl assured the corporate office that remodeling would be done, but when the roof was damaged by a winter storm, the restaurant closed for good.
Until the court determines which state law will apply, the suit states, Hooters cannot move forward with terminating the Hoot Owl franchise agreement without possibly violating state law.
In addition, Hooters is also seeking damages for what the company claims is trademark infringement, unfair competition and breach of contract related to Hoot Owl-controlled franchises in Pennsylvania. Hooters says Hoot Owl continues to use the Hooters trademarks even after it was sent a termination notice by the corporate office.
