ARC Burger vs Hardee’s Lawsuit: $6.5M, Counterclaim, Bankruptcy

The ARC Burger and Hardee’s lawsuit is a breach-of-contract case Hardee’s Restaurants LLC filed in November 2025 against ARC Burger LLC, a 77-restaurant franchisee, seeking more than $6.5 million in unpaid royalties, advertising fees, and rent tied to 28 locations.¹ ARC Burger denied the allegations, filed a counterclaim accusing Hardee’s of concealing the true condition of the restaurants at acquisition, and then filed for Chapter 7 bankruptcy in April 2026, which froze both sides of the litigation.²

What Hardee’s Alleged

According to Hardee’s, ARC Burger began missing royalty, advertising, and rent payments in December 2024, less than 18 months after acquiring 80 Hardee’s restaurants out of a prior franchisee’s bankruptcy for $16 million.³¹ Hardee’s issued a first notice of default in June 2025 and a second in late August, and says it proposed a repayment plan that ARC refused.

Hardee’s terminated ARC Burger’s franchise and sublease agreements in September 2025 but let the restaurants keep operating while both sides looked for a buyer, on the condition that ARC stay current on ongoing obligations. According to the lawsuit, ARC made a single payment and then stopped again.⁴⁵

The suit was filed November 21, 2025 in the U.S. District Court for the Middle District of Tennessee, Case No. 3:25-cv-01359, before Judge Aleta A. Trauger.⁶²⁷

ARC Burger’s Counterclaim

ARC Burger answered on March 2, 2026 and filed a counterclaim.⁸ It alleged that during due diligence for the 2023 acquisition it had been prevented from fully inspecting the restaurants, and that after taking over it discovered failing equipment, outdated technology, and deteriorating physical conditions that forced more than $10 million in unplanned capital expenditures. ARC also alleged persistent point-of-sale and connectivity failures, inadequate marketing support, and supply chain problems.²

Hardee’s denied concealing operational conditions and said its actions were consistent with the franchise agreements.² It moved to dismiss the counterclaim on March 23, 2026. Judge Trauger denied the motion the next day, allowing ARC’s claims to proceed.⁶

The Bankruptcy That Froze the Case

Less than a month later, on April 20, 2026, ARC Burger filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Northern District of Georgia, Case No. 26-55202.⁹¹⁰ The filing stated no funds would be available for unsecured creditors after administrative expenses.² Listed debts included $403,569 owed to the Georgia Department of Revenue and roughly $19,000 in unpaid wages to former employees.¹ Michael J. Bargar was appointed Chapter 7 trustee, and as of mid-2026 the case was designated “no asset,” meaning no liquidation proceedings are underway.¹¹

The bankruptcy triggered an automatic stay under federal law. That same day, Judge Trauger stayed the Tennessee lawsuit and canceled the initial case management conference, noting that ARC Burger also cannot pursue its counterclaim against Hardee’s while under bankruptcy protection.⁶ With assets far below debts and a “no asset” designation, Hardee’s prospects of recovering the $6.5 million through the bankruptcy appear limited.

What Happened to the Stores and Workers

The closures put more than 1,600 employees out of work.² The roughly $19,000 in unpaid wages listed in the bankruptcy indicates at least some workers were not fully paid before the doors shut.¹

Hardee’s parent CKE Restaurants Holdings planned to take about 40 of the former ARC Burger locations as company-owned units, re-franchise about 30, and permanently close 9.¹²¹³ Hardee’s said it planned to reopen all four Florida locations (Bonifay, Chattahoochee, Chipley, and Graceville), with job listings for the Chipley and Graceville stores describing them as “now corporate owned.”¹⁴

Not the Only Hardee’s Franchise Fight

The ARC Burger dispute is not an isolated event in the Hardee’s system. S&P Global Ratings noted that this case, together with “a handful of other franchisees” failing to make royalty payments and the closure of rent-paying franchise locations, contributed to an 8.7% year-over-year decline in the brand’s debt service coverage, though S&P affirmed CKE’s securitization ratings in March 2026.¹²

Separately, another large franchisee, Paradigm Investment Group, which runs 76 Hardee’s in Tennessee, Alabama, Mississippi, and Florida, sued CKE in April 2025 alleging that Hardee’s used operating manual amendments to impose technology fees and service requirements not in the original franchise agreements. A jury trial is scheduled for March 30, 2027.¹⁵ The two cases involve different franchisees and different legal theories, but each has surfaced during a period when Hardee’s has lost hundreds of domestic locations and cycled through multiple rounds of executive leadership.¹⁶

1
The Washington Times. Hardees Franchisee ARC Burger Files Chapter 7 Bankruptcy
2
QSR Magazine. 77-Unit Hardees Franchisee Files Chapter 7 Bankruptcy
3
QSR Magazine. Hardees Launches Legal Battle With 77-Unit Franchisee
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KCTV5. Kansas City Hardees Locations Close as Franchisee Faces Lawsuit
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Restaurant Business Online. Struggling Hardees Terminates Large Franchisee
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PacerMonitor. Hardees Restaurants LLC v ARC Burger LLC, et al
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So Yummy. Hardees Locations Close Across 8 States as Franchise Deal Falls Apart
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Justia. Hardees Restaurants LLC v ARC Burger LLC, Docket
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Yahoo Finance Singapore. Major Burger Chain Franchisee Files for Bankruptcy
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People. Popular Fast-Food Chain Franchisee Files for Chapter 7 Bankruptcy
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Inforuptcy. Bankruptcy Case ARC Burger LLC
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S&P Global Ratings. CKE Restaurants Holdings
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Fast Company. Hardees Reopening Restaurants From Closed ARC Burger Locations
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Tallahassee Democrat. Hardees Florida Restaurants Closed and Open After Bankruptcy
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Franchise Times. Large Hardees Franchisee Sues Franchisor Over Termination Attempt
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Restaurant Business Online. Struggling Hardees in Dispute With One of Its Biggest Franchisees