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Yum! Brands sued by franchisee for fraud

September 21, 2010

Yum! Brands is facing another lawsuit, this time by a Lexington, Ky.-based company operating franchised Long John Silver's and A&W restaurants. The company, Treasure Isles Inc. claims the Louisville-based Yum! fraudulently stated its restaurants would be a success co-branded. Instead, the dual-concept restaurants became an "abject failure."

According to the Lexington Herald-Leader, Treasure Isles Inc. operates 26 Long John Silver’s restaurants in Illinois. In 2000, Treasure Isles was the first franchise company to open the co-branded A&W/Long John Silver's, investing almost $5.4 million into the unit conversions.

Treasure Isles filed for bankruptcy protection in February, citing Yum!'s failure to support the co-branding with marketing, and not taking into account the increased investment of the dual-restaurant concept, including higher equipment and maintenance costs.

Treasure Isles claims Yum! did not use about $15 million that was set aside for advertising the dual-unit restaurants.

The bankruptcy protection filing came after Yum! Brands demanded payment from Treasure Isles or be faced with the removal of its franchise rights.

In August, the company was sued for a salmonella outbreak. One of Yum! Brands' companies, Kentucky Fried Chicken, is also going to court over a marketing control dispute.