Lean times for Back Yard Burgers?

Suing over $1.1 million in what it says are unpaid fees, vendor claims fast-food chain is in financial trouble and has misappropriated franchisee funds

It's not just what they said, but how they said it.

Back Yard Burgers Inc., based in Nashville and run by veteran restaurant chain executive Steve Lynn, is facing legal action from a vendor that not only seeks $1.1 million in damages, but also makes potentially damaging assertions about BYB's financial condition.

Nashville culinary marketing specialty firm Agility Marketing Group filed suit late last month against BYB in Davidson County Chancery Court (document available at this link). Agility was under contract to provide advertising and other marketing services to BYB, and it says that its payments normally came out of a special trust set up for the benefit of franchisees who run BYB restaurants.

Last July, the complaint asserts, BYB "began pressuring" Agility "to complete and roll out as much product and service as quickly as possible." The real reason for that pressure is said to be that BYB "was experiencing and continues to experience financial difficulties, and its senior management sought to cut expenses by refusing to pay for the goods and services" that it had ordered.

BYB, claims Agility, "knew that it was not going to pay... and accelerated the purchasing of media and production services in an effort to get as much work done by Agility as possible before Plaintiff realized it was not going to get paid for its work."

Agility calls itself a third-party beneficiary of the franchisees' fund and says BYB "diverted and/or misappropriated" assets from it, "potentially constituting a breach of the trust documents and of the fiduciary duties owed to the franchisees. The marketing firm seeks an injunction to force BYB to treat the trust fund according to its rules, as well as $1.1 million or more in damages.

Bryan Pieper and Stacey Middleton of Drescher & Sharp in Nashville filed the complaint for Agility.

BYB says Agility has blown the matter out of proportion. "This is an ordinary commercial dispute between a vendor and a client about matters related to budgets and management fees," Chief Executive Officer Lynn said in a statement released after NashvillePost.com requested an interview.

"We are very disappointed by our vendor’s actions, in light of our extraordinary efforts to resolve this matter in a commercially appropriate and mutually beneficial way."

The few publicly available indicators of how things may be going at BYB are inconclusive.

Newspapers in South Carolina have reported that two multi-unit BYB franchisees have closed most of their restaurants in the past year. In August, the sudden closure of two South Carolina units led to public protests by employees who claimed that a franchisee had not given them their final paychecks.

As of January 2008, the company's Web site listed 172 locations in operation across 20 states, with most units in the Southeast and a majority in the hands of franchisees rather than company-owned. Most of the site has now been taken down, and the home page displays an "under construction" logo.

But the company may just be too busy to tend to such matters, as business records in several states appear to indicate that it has opened at least 25 new restaurants in 2008 and now has a total well in excess of 172.

Lynn, a former CEO of the Sonic and Shoney's restaurant chains, led an investment group that took BYB private in a $38 million deal that closed a year ago today. The company subsequently moved its headquarters from Memphis to Nashville.

My bad. We always include the

My bad. We always include the names of counsel in litigation stories, and I had them in this one until I inadvertently deleted a paragraph. Now updated to note that Pieper & Middleton of D&S are counsel to plaintiffs. Thanks for alerting me. --Tom