ARC Burger, whose 77 Hardee’s locations were shut down late last year after their franchise agreements were terminated, filed for Chapter 7 bankruptcy protection this week, all but ending a legal dispute with the franchisor.
The company said in court documents that it had between $500,000 and $1 million in assets and more than $29 million in estimated liabilities.
ARC Burger was formed in 2023, when the private-equity firm High Bluff Capital, owner of the sandwich chain Quiznos and the chicken chain Church’s Texas Chicken, acquired some of the restaurants owned by the bankrupt Summit Restaurant Holdings.
The locations are in Alabama, Florida, Georgia, Illinois, Kansas, Missouri, Montana, South Carolina and Wyoming.
Problems at the operator were revealed late last year when Hardee’s terminated the franchisee over $6.5 million in unpaid royalties, marketing funds and rent on 28 of the 77 locations that ARC owned.
Hardee’s took ARC to court, and the franchisee then closed the locations in December.
In a counter-lawsuit against the fast-food brand filed last month, ARC Burger accused Hardee’s of a litany of sins, including misleading the franchisee about the condition of the restaurants it was acquiring and in the way it operated the brand.
And it suggested that Hardee’s problems led it to back out of a deal to improve the restaurants’ finances and then subsequent negotiations with a lender were thwarted by the franchisor’s termination of some Atlanta locations.
“Hardee’s misconduct includes, but is not limited to, failing to disclose the true condition of the restaurants to ARC, failing to provide the promised marketing and technological support needed for ARC to operate the franchises, and ultimately leaving more than 1,600 employees without jobs just one week before Christmas,” the franchisee said in a counter-lawsuit against Hardee’s last month.
Hardee’s in its response denies many of the allegations in the franchisee’s counterclaim and notes that “ARC failed to take reasonable steps to mitigate its alleged damages,” even though it had the opportunity.
The legal dispute between the two has been stayed in light of the bankruptcy and according to court filings ARC is unlikely to pursue its claims against the franchisor. But it reveals some of the negotiations that took place in the months before the restaurants’ closures.
It also echoes some of the concerns at least two other major franchisees of CKE Restaurants companies have against their franchisor, including a large Carl’s Jr. franchisee that filed for bankruptcy earlier this month.
Hardee’s, which is owned by Carl’s Jr. owner CKE Restaurants, has struggled for years. It closed 86 restaurants in 2025, most of which were ARC locations. System sales declined 5%. The chain generates some of the lowest average-unit volumes among its competitive set at $1.3 million, according to Technomic Top 500 data.
For instance, ARC Burger argued that it was forced to keep running the restaurants during unprofitable hours, echoing an earlier accusation by the franchisee Paradigm Investment Group, which closed its restaurants at 2 p.m. It also noted that the company had “chronic leadership turnover,” echoing a complaint by the Carl’s Jr. franchisee. Hardee’s has had three CEOs and two CFOs between 2023 and 2025.
One notable accusation stems from a chicken tenders promotion in 2024 at a time when prices for tenders were increasing at 30%, leading to a “severely unprofitable promotion.” The operator blamed the problem on a lack of communication between Hardee’s supply chain and marketing departments.
ARC Burger argued that it was not given access to the restaurants’ back-of-house before the sale so it was not aware of some of their challenges, including “major equipment failures, unsafe conditions, and non-functional or obsolete technology systems.”
The franchisee said that the restaurants consistently had point-of-sale and wifi outages that often left the restaurants out of commission and cost the franchisee at least $1 million in annual sales.
ARC said that many of the restaurants had broken-down equipment, “sagging ceilings, broken tables and other forms of damage and deterioration.” Some lacked functional HVAC units. The franchisee said that it had to spend more than $10 million “just to stabilize basic operations” and that it overpaid for the restaurants given their condition.
The franchisee also said that Hardee’s reneged on an agreement to market 27 underperforming restaurants, which further hurt their cashflow.
The operator and the franchisor were in negotiations starting in August of last year on a deal that would have infused the operator with cash. But the franchisee said that it did not accept the terms because “Hardee’s had proven itself to satisfy its obligations as a franchisor.”
The two sides and ARC’s lender then worked to negotiate a deal to renegotiate the franchisee’s debt and pave the way for a sale of the restaurants. Hardee’s through those negotiations demanded payments and ultimately terminated nine locations in Atlanta inm December. Publicity about that termination led the lender to rethink the operation’s valuation.
Hardee’s then terminated the remaining 68 restaurants, on Dec. 22. The franchisee closed the remaining restaurants.
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