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Tim Hortons franchisee closing two St. Louis doughnut shops amid legal spat with chain

A franchisee of Tim Hortons who once planned to open 40 outposts of the Canadian doughnut and coffee chain in St. Louis is closing two local restaurants amid a legal fight with new ownership.

The Tim Hortons on Tucker Boulevard downtown and one in the Central West End’s Cortex Innovation District both were permanently closed over the Thanksgiving holiday weekend. Both locations opened in 2015, and together employed 24 people.

Tim Hortons restaurants in Maplewood, Lafayette Square, and O’Fallon, Ill., and an express cafe co-located with a Reliance Bank branch in Frontenac will remain open, said Eric Sigurdson, president of Show Me Hospitality, the St. Louis area franchisee for Tim Hortons.

A legal fight with Tim Hortons’ owner prompted the closures, Sigurdson said in an interview last week at Show Me Hospitality’s Brentwood office.

“We’re at a standstill on development,” Sigurdson said. “We had to stop development on more than a half dozen projects as a result of the lawsuit.”

When Sigurdson’s Show Me Hospitality signed a franchise agreement with Tim Hortons in early 2014 to bring Tim Hortons to St. Louis, the franchisee agreed to open 40 standalone restaurants and smaller spaces within arenas or hospitals in the St. Louis region over five years, with an option to add 90 restaurants in 15 years. The expansion to St. Louis at the time was part of a larger push by the chain to add 300 U.S. restaurants by the end of 2018.

Before Show Me Hospitality opened its first location, Tim Hortons was acquired by Burger King, then became a subsidiary of Restaurant Brands International, a company controlled by Brazilian investment group 3G Capital.

After the change in ownership, Tim Hortons representatives wanted Show Me Hospitality to agree to a new franchise agreement to commit to open 205 restaurants in the St. Louis area within a decade and invest $20 million in capital, which was not part of the initial agreement, Sigurdson alleges.

Tim Hortons slowed down its process for approving new sites in the St. Louis area after Show Me Hospitality refused to sign a new franchise agreement, according to a lawsuit Show Me Hospitality filed against Tim Hortons USA in federal court in Miami in July.

In the lawsuit, Show Me Hospitality alleges Tim Hortons suspended its marketing in St. Louis, charged unreasonable mark-ups on equipment and failed to provide other support for the St. Louis restaurants.

Show Me Hospitality also alleges the new owners of Tim Hortons favored standalone restaurants versus smaller kiosks and carts and refused to approve proposed Tim Hortons carts at Ballpark Village, the Gateway Motorsports Park race track in Madison, Ill.; and “told Sigurdson not to even bother with a proposal for a non-standard restaurant (kiosk) at the Saint Louis Zoo,” according to the lawsuit.

“As a direct and proximate cause of ( Tim Hortons USA’s) tortious interference with its business expectancy, Show Me Hospitality lost an ideal and promising partner that had committed to infusing millions of dollars in capital to Show Me Hospitality at a crucial time,” the lawsuit states. “Show Me Hospitality is now without the capital required to move forward with its Development Schedule.”

Show Me Hospitality is seeking more than $50 million in damages to compensate for the loss of business opportunity based on a projection of the value of the business over 10 to 15 years.

“The new owners are just as obligated to do what they’re supposed to do under the contract as the old owners,” said Scott Korzenowski, Show Me Hospitality’s attorney.

An attorney representing Tim Hortons said the company’s policy was to decline to comment on pending litigation.

Show Me Hospitality’s lawsuit follows other recent disputes among Tim Hortons’ franchisees. Canadian franchisees filed lawsuits seeking class action status earlier this year, alleging Restaurant Brands breached obligations. A group called the Great White North Franchisee Association, comprising Tim Hortons franchisees in Canada, issued a statement this year decrying cost-cutting measures by Restaurant Brands International “that result in Tim Hortons’ quality going down.”

A U.S. alliance of Tim Hortons’ franchisees alleged in June that Restaurant Brands diverted ad funding and increased costs for coffee and bacon.

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