The Calabasas-based restaurant chain Burgerim is being sued by the U.S. Attorney General, the Federal Trade Commission has announced, accusing the chain and its owner, Oren Loni, of enticing consumers to purchase franchises using false promises and withholding key information from franchisees.
In the suit filed Monday with the U.S. District Court of the Central District of California, Burgerim and Loni are alleged to have knowingly downplayed the risk involved in running a restaurant to sell more franchises, falsely promised business assistance to new owners and failed to provide necessary disclosures in the franchise disclosure documents.
“Defendants’ unlawful activities have harmed people across the country. Many franchisees find themselves crushed by substantial debt or ruined credit, in addition to the time and effort they exerted to make their entrepreneurial aspirations a reality,” the official complaint read.
The move is the latest action against Burgerim, which has been embroiled in controversy and legal battles over its operations for years. In the fall of 2019, out of the blue, the company’s owner and entire corporate branch appeared to have mysteriously walked away from operations, cutting off support to franchisees and leaving a wake of restaurant operators filing for bankruptcy and left to fend for themselves. Loni is believed to have relocated to Israel, according to Restaurant Business, but the company has been fined upwards of $4 million for its business practices and ordered to refund operators their franchise fees.
The company allegedly targeted veterans and people without prior business experience to open restaurants, downplaying the financial risk and promising to provide assistance with securing locations and financing. Such assistance was not consistently provided, according to the lawsuit.
Burgerim also guaranteed refunds to franchises that could not find financing or adequate lease space. Since 2017, the chain sold more than 1,500 franchises across the United States, generating tens of millions of dollars in franchise fees ranging from $10,000 to $50,000 per location.
Despite receiving payments from prospective franchisees for the right to open a Burgerim restaurant, the majority of those franchises never opened, according to the complaint, and the company backed out of its promise to refund thousands of franchise fees worth $57 million in total.
“Although BurgerIM pocketed tens of millions of dollars in such fees, the majority of the people who paid them were never able to open restaurants,” the complaint said.