June 30, 2025|Franchise Frontlines
June 30, 2025 | U.S. Bankruptcy Court for the District of Kansas | Unpublished Opinions
Executive Summary
In two unpublished decisions issued the same day, Chief Bankruptcy Judge Dale L. Somers denied Applebee’s Franchisor, LLC’s request for discretionary abstention and recommended that the District of Kansas deny Applebee’s companion motion to withdraw the reference. Applebee’s argued that state-law contract issues and a parallel federal action made the district court the more appropriate forum. The debtor, Apple Central KC, LLC, alleged that the dispute should remain in the bankruptcy court because its contract-related allegations were tied to the debtor’s objection to Applebee’s proof of claim. Judge Somers ultimately concluded—based on the allegations before him and the procedural posture unique to this particular Chapter 11 case—that the bankruptcy court should retain the matter. His rulings rest heavily on case-specific timing, filings, and the structure of this adversary proceeding.
Relevant Background
According to the allegations in the pleadings, Apple Central KC operated eight Applebee’s restaurants in the Kansas City area under Franchise Agreements executed between 2015 and 2017. The debtor asserts that it assumed certain leases from Applebee’s affiliates and agreed to operate the restaurants to brand standards while paying monthly royalties and advertising fees.
The debtor further alleges that it closed some restaurants on October 30, 2024 without Applebee’s consent, which Applebee’s disputes. Applebee’s filed a civil complaint the same day against the debtor’s principal and guarantors, alleging they were liable for the debtor’s purported breaches of the Franchise Agreements and related lease obligations. The debtor filed its Chapter 11 petition that same day. Applebee’s subsequently filed a proof of claim for $10,836,208.80 based on its own allegations of breach.
The debtor then initiated an adversary proceeding asserting its own contract-based allegations and an objection to Applebee’s proof of claim. Applebee’s denied those allegations, asserted affirmative defenses, and filed a counterclaim. Applebee’s moved for discretionary abstention and for withdrawal of the reference, seeking to return the dispute to the district court.
Decision
A. Discretionary Abstention Denied
Judge Somers declined to abstain under 28 U.S.C. § 1334(c)(1). His reasoning was grounded in the procedural posture of this specific bankruptcy case rather than any broader rule affecting franchisors. The court noted that the district court action had seen very little activity before it was stayed, while the bankruptcy court had already presided over multiple hearings involving the same parties.
The court emphasized that it was required to address the debtor’s objection to Applebee’s proof of claim—a statutory, core function under 28 U.S.C. § 157(b)(2)(B). Judge Somers explained that, based on the allegations before him, the state-law contract issues were “inextricably tied” to the claim-allowance process. He found this specific integration of issues significant, because it meant the contract allegations could not be efficiently separated from the proof-of-claim objection. The court also stated that Applebee’s filing of a proof of claim placed the dispute within the bankruptcy court’s equitable jurisdiction for purposes of adjudicating the claim. He clarified that the attempted disclaimer within Applebee’s proof of claim did not override the statutory framework.
Judge Somers made clear that his conclusion—that abstention “will not serve the objectives of this bankruptcy case”—was rooted in the facts alleged, the procedural timing, and the particular motions presented in this case. The decision does not articulate a general principle limiting franchisor rights in other bankruptcy contexts.
B. Withdrawal of the Reference Not Recommended
In the companion Report and Recommendation, Judge Somers recommended that the district court deny Applebee’s request to withdraw the reference. He again grounded his analysis in the allegations and procedural alignment unique to this case. He noted that the debtor’s allegations, Applebee’s counter-allegations, and the proof of claim were sufficiently interwoven to fall within the statutory definition of core proceedings involving claims allowance and counterclaims asserted against an entity that filed a claim.
Judge Somers also pointed to the substantial activity already conducted in the bankruptcy court—including hearings concerning cash collateral, contract assumption and rejection, confirmation-related issues, and two restaurant-sale motions. This case-specific activity supported keeping the litigation consolidated in the bankruptcy forum. He further observed that any judgment entered in the adversary proceeding would be capable of having preclusive effect in the related federal case involving guarantors, reducing the risk of inconsistent outcomes.
The court’s recommendation, like its abstention ruling, rests on specific circumstances: the allegations presented, the procedural stage of each forum, and the statutory structure governing claim objections. Nothing in the decision creates or implies a broader rule that would disadvantage franchisors in future disputes.
Looking Forward
These rulings illustrate how bankruptcy courts may approach disputes when a franchisor files a proof of claim that is met with a direct objection, and when the allegations in the adversary proceeding substantially overlap with that objection. The decisions are tied closely to the procedural posture of this case—including the timing of filings, the early stage of the federal action, and the allegation-driven nature of the adversary proceeding. They do not limit franchisor enforcement rights outside of this setting.
For franchisors, the decisions highlight the importance of evaluating the implications of filing a proof of claim while parallel litigation is pending. Where allegations concerning brand-standard compliance or contract performance become intertwined with a claim-objection process, a bankruptcy court may emphasize administrative efficiency and centralized adjudication. This outcome, however, is heavily dependent on the allegations and timing presented in this specific matter. In most cases, franchisors may still pursue enforcement actions in federal or state courts without encountering the unusual alignment of factors present here.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
