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Dive Brief:

• River Sub, a Subway franchisee operating 48 stores in Texas filed for Chapter 11 on June 20, just over a week after a Texas appeals judge rejected the operator’s effort to vacate an arbitrator’s decision to award nearly $3 million in a wrongful death case.

• In 2021, Marisela Cadena, a manager employed by River Sub, was murdered by her ex-boyfriend who had previously kidnapped her. River Sub allegedly refused a transfer request by Cadena following the kidnapping and declined to take further security measures.

• River Sub owes Cadena’s survivors approximately 38 times as much money as its next largest creditor, a landlord to which River Sub owes $78,000, according to documents filed by the franchisee.

Dive Insight:

The franchisee said its store footprint peaked at 69 restaurants in 2012, declining to 48 at the time of filing, according to documents one of its owners filed in support of its Chapter 11 petition. River Sub said it saw sales fall by 80% during the COVID-19 pandemic. Last year its restaurants managed about $30 million in sales, and the franchisee currently employs about 454 people. Subway does not include information on the financial performance of franchisees in Item 19 of its Franchise Disclosure Document, making it difficult to compare River Sub’s performance to a company standard.

River Sub tried to avoid the arbitrator’s award to Cadena’s survivors by alleging the arbitrator was biased. A trial court and an appeals court rejected the claim.

While River Sub did not disclose a specific reason for seeking Chapter 11, its filing is not the first example in recent years of a franchisee seeking bankruptcy while facing the prospect of a significant payment following violence against an employee. Rice Enterprises, for instance, a multi-unit McDonald’s operator, sought Chapter 11 protections to reduce liability in a suit after a manager employed by Rice raped an employee; Rice eventually settled for $4.35 million. Subway is currently facing a similar lawsuit against itself and franchisee GRB Investments.