Why did 25 Texas Dairy Queens close? Lawsuit filing reveals corporate-franchisee struggle
Last week, 25 Dairy Queen restaurants across the state suddenly shut down, leaving customers with several questions, mainly: Why?
A representative for Dairy Queen, Amie Hoffner, stated that the company does not publicly comment on contract terms or pending litigation. Hoffner did confirm that all 25 locations were owned by one franchise-owner, which continues to own and operate other Dairy Queen restaurants in the state.
A lawsuit, filed by franchisee Project Lonestar against the American Dairy Queen Corporation, offered some insight into what led to the 25 locations shutting down.
Project Lonestar vs American Dairy Queen Corporation alleges corporate's breach of contract in potential sale
According to court documents obtained by the Lubbock Avalanche-Journal last Monday, the lawsuit was first filed in the 160th Judicial District in Dallas County on Feb. 6. In it, Project Lonestar filed a petition for a temporary restraining order to halt American Dairy Queen Corporation (ADQC) from terminating 25 of 38 franchise locations and withholding deliveries to the rest.
The filing stated that in September 2024, ADQC notified Lonestar that it would terminate Lonestar's franchises "for not remodeling them." In that same month, the two came to an agreement where Lonestar would find a buyer for the restaurants.
In that agreement, Lonestar had 30 days to find a buyer, then ADQC had 30 days to approve the buyer. If the company did not, then Lonestar would have another 30 days to find a different buyer. It also stated that "all transfer requirements needed to be complete within six months from the date that (ADQC) approved the prospective buyer."
On Sept. 25, Lonestar told ADQC that a prospective buyer had been found. ADQC claimed that Lonestar had to pay certain transfer fees before the evaluation process could begin, which was not in the original agreement, according to the lawsuit. In October, the prospective buyer filled out a franchisee application, which began the 30-day period for ADQC to approve.
The company, on Nov. 6, 2024, said it would not review until the fee was paid. The following week, the prospective buyer paid the fee. On Nov. 15, ADQC said it would not review until Lonestar caught up on royalty payments.
Between Nov. 16-19, an ADQC representative began meeting with the prospective buyer to open discussions. During this, the company informed the buyer about the agreement, including the need to sell within a 30-day window or else Lonestar's franchises would be terminated. The prospective buyer then "reduced its offer to purchase franchise rights by several million dollars," according to the documents.
A new sale agreement was reached between Lonestar and the prospective buyer on Nov. 20. When Lonestar informed ADQC the following week, ADQC refused to process the buyer's application due to Lonestar's royalty payments being behind. Under the original agreement, the royalty payments needed to be made weekly, not before approval could begin.
By January, Lonestar caught up on royalty payments, but ADQC argued that Lonestar did not. After "much back and forth," ADQC agreed payments were up to date, but the process to transfer franchises to the prospective buyer still did not move forward.
A letter dated Jan. 30, 2025, from ADQC told Lonestar it had terminated 25 of Lonestar's franchise agreements and "demanded that (Lonestar) comply with post-termination obligations." It also stated that while the remaining 11 were active, ADQC had "instructed a key supplier that "all shipments of DQ products need to stop immediately.'"
This would result in the restaurants running out of food within days, according to the documents.
"Consequently, and as a direct result of (ADQC's) breach, (Lonestar) has suffered actual, direct, economic and non-economic damages of at least $4,000,000," the documents stated.
The lawsuit moved to the Northern District Court of Texas on Feb. 11, and 25 locations closed that week. Those Texas locations were:
- 301 N. 2nd St. in Canadian.
- 609 W. Broadway St. in Fritch.
- 1850 County Road 11 in Panhandle.
- 801 E. Park Ave. in Hereford.
- 1612 Highway 70 East in Olton.
- 108 Chestnut St. in Idalou.
- 5441 Rufe Snow Drive in North Richland Hills.
- 1509 Corsicana Highway in Hillsboro.
- 200 Legacy Drive in Hewitt.
- 1701 W. Pecan St. in Pflugerville.
- 304 Highway 79 East in Franklin.
- 4101 Gilmer Road in Longview.
- 580 N. Interstate 20 East in Waskom.
- 847 E. Sabine St. in Carthage.
- 175 N. Dickinson Drive in Rusk.
- 3121 North St. in Nacogdoches.
- 202 N. Temple Drive in Diboll.
- 602 Interstate 45 South in Huntsville.
- 14421 Farm-to-Market 2920 Road in Tomball.
- 515 S. Washington Ave. in Cleveland.
- 24022 E. Lake Houston Parkway in Huffman.
- 104 Highway 90 East in Dayton.
- 345 Highway West in Sour Lake.
- 34250 US Highway 96 South in Buna.
- 2421 Valwood Parkway in Farmers Branch.
Some Texas Dairy Queen locations listed for auction
All locations except Farmers Branch were listed on localauctions.com. All listings state that bids are for "complete contents" of the restaurants.
"Multiple Dairy Queen locations are closing their doors and must liquidate the assets," the auction site stated on its page. "Bid on a large variety of restaurant assets and related items that need to be removed from the location. Buyers are responsible for disassembling and removing purchased assets and must bring their own help and tools."
A court date has been tentatively set for March 24, 2025 to review the case.
Alana Edgin writes about business for the Lubbock Avalanche-Journal. Got a news tip? Contact her via email at aedgin@lubbockonline.com.