Wendy's Franchisee Bankruptcy Tests Franchisor Control

Meritage Hospitality Group, one of the largest Wendy's franchisees in the U.S., is fighting to retain control of its restaurants after Wendy's moved to terminate its franchise agreements just before the operator filed for bankruptcy. The dispute, reported by Bloomberg Law, raises questions about how much control a franchisor retains when a major franchisee seeks bankruptcy protection.

Meritage operated 314 Wendy's restaurants in 15 states when it filed for bankruptcy protection in federal court in western Michigan on Sept. 17. A day earlier, Wendy's emailed notice ending all of the operator's franchise agreements, citing unpaid royalties and fees.

Meritage has asked the court to rule that the notice was defective, while Wendy's maintains the agreements were properly terminated. Judge James W. Boyd will decide the dispute.

Bankruptcy court ruling

The timing of the termination notice could determine how much of Meritage's business remains available for restructuring. Bankruptcy attorneys told Bloomberg Law that franchise agreements still in force when an operator files are generally shielded from cancellation while the case proceeds. If the agreements were terminated before the filing, Meritage could have far less to reorganize around because its ability to operate under the Wendy's brand is central to the value of its restaurants.

James T. Markus, co-founder of Denver law firm Markus Williams LLC, said the dispute is “all about who gets to control the process.”

The legal standard may depend in part on where the case is heard. Federal appeals courts are split on whether a bankrupt franchisee can keep or sell its agreements without the franchisor's consent. One standard favors franchisors, while another gives operators more room to retain agreements if they can catch up on what they owe. No controlling precedent resolves the issue for Michigan's bankruptcy courts, though other courts in the Sixth Circuit have recently applied the more operator-friendly standard.

Franchisor control and influence

Meritage's challenge would not necessarily give it the final say over who runs the restaurants. Burger King showed how much influence a franchisor can retain in 2023, when bankrupt franchisee Meridian Restaurants Unlimited sold most of its locations to the brand and approved operators.

The disagreement over which restaurants should close shows how much is at stake beyond the court's ruling. Meritage is closing 41 restaurants, but Wendy's recently objected to 10 of the planned closures and offered to substitute seven other locations, a proposal Meritage declined, Nation's Restaurant News reported. Citing court filings, the outlet reported that the restaurants Meritage chose to close averaged about $1.15 million in sales over the past year, well below the roughly $2 million system average reported for 2025.

The outcome could also affect how lenders assess risk across the Wendy's system. Michael Ingram, a vice president at business brokerage National Franchise Sales, told Bloomberg Law that the way creditors fare in a case like this can influence whether other franchisees can borrow money for remodels and new locations at a reasonable cost.

For franchisees, the Meritage case shows how a dispute over default and termination provisions can threaten the business itself, not just the right to remain in a particular location. For franchisors, it highlights the importance of following the agreement's notice and termination requirements when an operator falls behind on its obligations. Both sides have a stake in understanding what the contract allows before financial problems reach the point of bankruptcy.