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Group of SONIC Drive-In franchisees ordered by court to stop operating under SONIC brand

Ferndale SONIC Drive-In (September 13, 2022). Photo: Whatcom News

FERNDALE, Wash. — Whatcom County’s only SONIC Drive-In location recently closed following customer complaints of unfulfilled orders due to inventory shortages. Today, The Kitsap Sun reported (paywall) that the problems can be traced back to court proceedings between Sonic Industries LLC and a group of franchisees operating in Washington and Oregon in Oklahoma US District Court where Sonic Corporate is based.

According to court documents, Sonic Industries LLC filed a complaint against a Poulsbo-based franchisees, Olympic Cascade Drive-Ins LLC, (OCDI) on June 2, 2022. The complaint states that on or around September 2, 2021, Sonic had delivered a written notice of default and potential termination of license agreement for the SONIC restaurants located in Kennewick, Pasco, Wenatchee, Yakima, Ferndale, Poulsbo, Renton and Ellensburg. This action was said to have been based on the franchisees’ failure to pay almost $2 million in royalties and fees required under their license agreements. The company reported not having received any payments since October of 2021.

In late November 2021, Sonic terminated the franchisees’ license agreement due to not fulfilling their financial obligations in paying royalties and fees. The same was done for 2 Oregon locations in Salem and Keizer in late December 2021, that were purchased by Olympic Cascade Drive-Ins.

The complaint said Sonic offered the franchisees the opportunity to continue operating the restaurants for 90 days (until late February 2022) in order to sell the restaurants.

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In May of 2022, after no progress had reportedly been made on selling the restaurants, Sonic issued a notice of “Immediate Termination” of license agreements for all of the restaurants, demanding they cease operations under the SONIC brand, remove all SONIC brand signage and pay the outstanding royalties and fees, an amount now exceeding $2 million.

The complaint was filed after the requested restaurant closures failed to occur.

According to court records, the court issued an order to the franchisees on August 24th to comply with Sonic’s request to cease operations under the SONIC brand and take down SONIC brand signage. Compliance was to be demonstrated to the court within 10 days of the order.

Since Sonic terminated the agreements and lost the ability to monitor and control the restaurants, there have been reports of serious quality control problems, including: multiple reports of serving raw or undercooked chicken or beef; rancid drinks and shakes; hair and gnats in food; and mildew in food.57 Further, since the restaurants have lost access to Sonic’s suppliers, they have started selling non-Sonic products under the Sonic mark. It is clear that Sonic has lost control over Defendants’ restaurants, that Sonic can no longer monitor the use of the mark to ensure quality control …

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US District Court for the Western District of Oklahoma (August 24, 2022)

Soon after the court order, menu boards were taken down, access to the property blocked by garbage cans and traffic cones and signs stating the following were posted around the SONIC Drive-In at 1851 Main Street in Ferndale.

Sonic Will be Closed Effective 8/31/2022 until Further notice. We are transitioning to new ownership. We truly appreciate your patience and understanding.

OCDI Management

Sign posted at the SONIC Drive-In in Ferndale (September 12, 2022)

As of September 28th, the lawsuit remains open and ongoing.

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