The state has ordered fast casual burger chain Burgerim to refund tens of millions of dollars in franchise fees paid by more than 1,500 would-be restaurant operators after finding the Encino company violated California’s franchise regulations.According to a complaint filed this month by the state’s Department of Financial Protection and Innovation, Burgerim; its founder Oren Loni; and a third entity called Burgerim Group Inc. were ordered to return all “ill-gotten funds” to current and former franchisees who have not been made whole. The complaint characterizes Calabasas-based Burgerim Group as an “alter ego” established by the original company to hide assets from franchisees.The financial department’s complaint was first reported by Restaurant Business Online.The department found Burgerim had accepted franchise fees totaling $57.7 million from 1,550 applicants between 2015 and 2019. However, most of those franchises never opened. In 2016, the complaint states, Burgerim sold 83 franchises but opened just two locations. The following year saw 312 franchises sold and just 21 opened. In 2018, 452 franchises were sold. Only 109 ever opened.According to the complaint, franchisees were given unrealistic financing options and false estimates on building and brokers costs.“Other franchisees opened their location but had to close due to struggling sales, high food costs, undisclosed back rent owed, little to no profit and no corporate help with advertising,” the complaint states.The department ordered Loni to pay an administrative penalty of nearly $4 million for more than 1,500 counts for which it alleged Loni misled franchisees with untrue statements and omission of relevant information – a violation of state regulations.Joey McCullough, a former franchisee of three Burgerim restaurants in Virginia and interim chairman of the steering committee at the Independent Association of Burgerim Franchisees, said the department’s order “gives us validation on our fight and what we’ve been doing.”The association formed in January 2020, a few months after Loni cut off all support and communication from his corporate branch and reportedly fled the country. The organization aims to unite Burgerim franchisees, engage legal counsel and aggregate resources to protect their investments.However, McCullough said, the order “gives the false sense that people are like, ‘Great, I can get money back, how do I get my money?’ I have to tell them, ‘Look, there’s no value in anything. There is no money to get back. It’s all gone. It was all taken by Oren.’”He acknowledged the state’s penalties will be difficult to enforce. Loni’s whereabouts remain unknown, and ownership of the Burgerim franchise still technically lies with him.McCullough said the new Burgerim Group entity and its purported Chief Executive Michel Buhbot have attempted to continue collecting royalties and selling new franchise agreements, but have so far been unable to prove the legitimacy of their leadership. The association’s franchise attorney has advised members to steer clear of the entity.
McCullough thinks the order acts as a temporary cease and desist order for parties claiming to be Burgerim’s corporate branch.
While McCullough is rebranding his Burgerim restaurants, he said he and the association are fighting to establish control of the chain’s point of sale systems and negotiate an agreement with vendor U.S. Foods.
Today, Burgerim’s website shows about 100 U.S. locations, though many are marked as closed or temporarily closed.