DALLAS — A lawsuit by a Dairy Queen franchise owner revealed more details about what may have led to the closure of 25 Texas restaurants recently.
The suit involved a dispute between the Dairy Queen company and the franchisee who owned the locations over royalty fees and transfer payments, according to court documents.
Dairy Queen, through a spokesperson, declined to comment on the lawsuit, citing the pending litigation.
However, a spokesperson for the chain confirmed that 25 stores owned by the same franchisee closed, including three in North Texas – one in North Richland Hills, one in Hillsboro and one in Farmers Branch.
The “complete contents” of many of the 25 shuttered restaurants were up for auction online. The auction closed last week. The North Richland Hills location raised the most at $27,000 and one in Diboll raised $6,500, the auction website shows.
Lawsuit details why Texas Dairy Queen stores may have closed
In a lawsuit filed in Dallas County, Project Lonestar, which said it operates 38 Dairy Queen stores in Texas, including the 25 that recently closed, sought to prevent Dairy Queen from closing the stores it operated or interfering with food or other supplies to the stores.
In court documents, Project Lonestar says it was notified in September 2024 that American Dairy Queen Corporation (ADQC) would close their franchises for “not remodeling” the stores.
That same month, the two sides agreed that Project Lonestar would be given 30 days to find a buyer for the restaurants, according to the lawsuit. Under the agreement, Dairy Queen also had 30 days to evaluate and approve the buyer.
“The Agreement further provided that, if [ADQC] did not approve a buyer, [Project Lonestar] would have another 30 days to locate a substitute buyer, and [Project Lonestar] would have another 30 days to evaluate the substitute buyer,” a court document reads. “The Agreement further provided that all transfer requirements needed to be complete within six months from the date that [ADQC] approved the prospective buyer.”
Project Lonestar told American Dairy Queen Corporation that it had found a buyer Sept. 25, 2024, it said in court records.
ADQC then notified Project Lonestar that certain transfer fees would need to be paid before they could evaluate the buyer which was not stated in their original agreement, Project Lonestar alleges in the lawsuit.
The prospective buyer filled out an application to become a Dairy Queen franchisee in October, which triggered the 30-day period under the agreement for ADQC to evaluate to determine whether the buyer met the requirements to be a franchisee, according to court documents.
Project Lonestar alleges in the lawsuit that ADQC notified them in November 2024 that it wouldn’t review the buyer’s application until the transfer fees were paid.
Project Lonestar says it paid the transfer fee shortly thereafter, but ADQC still wouldn’t process the application because it said Project Lonestar fell behind on royalty payments, according to court documents.
ADQC and the prospective buyer began discussions between Nov. 16 and 19 and Project Lonestar alleges ADQC told the prospective buyer about their agreement and the need to close on the sale, according to court documents.
“Upon information and belief, subsequent to the suspected breach of confidentiality…the prospective buyer reduced its offer to purchase the franchise rights by several million dollars,” Project Lonestar alleged in court documents.
The prospective buyer approached Project Lonestar about renegotiating the terms of the sale Nov. 20 and they reached an agreement to sell some of the stores, according to court records.
Project Lonestar alleges in the lawsuit that ADQC still wouldn’t process the buyer’s application, citing missing royalty payments.
Project Lonestar said in court documents that it believed it had caught up on the royalty payments by Jan. 25, but ADQC disputed that.
“After much back and forth,” ADQC agreed that Project Lonestar had caught up on the payments, but still didn’t move forward with transferring the franchises to the buyer, according to the lawsuit.
By Jan. 30, ADQC informed Project Lonestar that it had terminated 25 of its franchise agreements and “demanded that [Project Lonestar] comply with post-termination obligations,” according to court records.
Project Lonestar alleges that while their other stores remained in operation, ADQC told a supplier “all shipments of DQ products need to stop immediately,” which would have resulted in the restaurants running out of food, court records show.
The lawsuit alleges damages of least $4 million, according to court documents.
A spokesperson previously confirmed to WFAA that Texas still leads the country in the number of Dairy Queen stores. The Fort Worth Star-Telegram reported that more than 500 Dairy Queens remain in the Lone Star State, despite the recent spate of closures.
Which Dairy Queen stores were impacted?
Here’s the full list of closures across the state:
- 301 N. 2nd Street in Canadian
- 609 W. Broadway Street in Fritch
- Highway 60 E in Panhandle
- 801 E. Park Avenue in Hereford
- 1612 U.S. Highway 70 W in Olton
- 108 Chesnut Street in Idalou
- 5441 Rufe Snow Drive in North Richland Hills
- 1509 Corsicana Highway in Hillsboro
- 200 Legacy Drive in Hewitt
- 1701 W. Pecan Street in Pflugerville
- 304 Highway 79 East in Franklin
- 4101 Gilmer Road in Longview
- 580 N. Interstate 20 E. in Waskom
- 1001 E Sabine Street in Carthage
- 175 N. Dickinson Drive in Rusk
- 3121 N. Street in Nacodoches
- 202 N. Temple Drive in Diboll
- 602 Interstate 45 S. in Huntsville
- 14421 FM 2920 Road in Tomball
- 515 S. Washington Avenue in Cleveland
- 24022 E. Lake Houston Parkway in Huffman
- 104 Highway 90 East in Dayton
- 345 Highway 105 West in Sour Lake
- 34250 US Highway 96 South in Buna
- 2421 Valwood Parkway in Farmers Branch