After Applebee’s second largest franchisee RMH Franchise Holdings Inc. filed for bankruptcy protection in May, Applebee’s parent company, Glendale-based Dine Brands Global Inc., sued to prevent RMH from liquidating its restaurants. Dine Brands, which also owns the IHOP chain, alleges that Nebraska-based RMH is also on the hook for more than $23 million in damages stemming from unpaid royalty fees and improper store closures. It seeks to terminate RMH’s franchise rights to Applebee’s locations in Arizona and Texas and take control of the 35 locations. RMH owns more than 146 Applebee’s restaurants in 15 states, accounting for nearly 8 percent of all Applebee’s locations. In June, RMH filed a counterclaim in bankruptcy court alleging Dine Brands’ poor management and ill-advised promotional campaigns caused sales to drop. In the claim, RMH cited the company’s move from Kansas City to Glendale along with the hiring of former chief executive Jill Stewart in 2014 as catalysts for the downturn. “As a result of this exodus, resulting in a massive loss of institutional knowledge, and Ms. Stewart’s misguided leadership, the franchisor quickly lost touch with the Applebee’s brand, with key positions either left unfilled for years or filled by newcomers without relevant restaurant industry experience or a clear sense of Applebee’s roots,” RMH wrote in the filing. RMH went on to blame Applebee’s introduction of upscale menu items and expensive wood-fired grills for increasing costs and hurting sales. The company also pointed to Dine Brand’s high-profile marketing campaign for IHOP’s new burgers as damaging the Applebee’s brand and eating into Applebee’s burger sales, which it said account for 16 percent of revenue. “Finally, adding insult to the injury, the franchisor announced on June 11, 2018, that it intended to rebrand IHOP to become ‘IHOb’—the ‘b’ standing for ‘burgers,’” the filing reads. “Yet much of the recent Applebee’s advertising campaign — for which Dine Brands asked Applebee’s franchisees to pay for an increased portion of the bill — is focused on advertising burgers.” In an interview with Business Insider, Applebee’s President John Cywinski denied the IHOP campaign had affected Applebee’s franchises, pointing to a 5.7 percent increase in comparable same-store sales last quarter. “We have fundamentally different occasions that we target,” he said. “From my perspective, from a Dine Brands standpoint, that’s a win-win, and not a concern at all for me or our franchisees.” David Henkes, an analyst at foodservice consulting firm Technomic Inc., agrees with Cywinki’s assessment. “It’s very hard to see a link between the IHOb campaign and some challenges with sales at Applebee’s franchisees,” Henkes told the Business Journal. “Consumers have nearly infinite options for burgers, and I’m not sure there’d be any way to prove causation.” RMH’s bankruptcy proceedings and the pending litigation with Dine Brands are ongoing. The Wall Street Journal reported that RMH’s parent firm, Acon Investments LLC, plans to accept bids on the franchisee’s assets at the end of September. ‘No Poach’ Demise In an agreement with Washington State Attorney General Bob Ferguson, Dine Brands restaurant chains IHOP and Applebee’s agreed to end their policies of prohibiting employees from moving from one restaurant franchise to another. The move follows an investigation led by Ferguson in January into so-called “no poach” contracts, which critics say limit worker mobility and depress wages. “Businesses can’t rig the system to avoid competition,” said Ferguson in a statement. “My goal is to eliminate no-poach clauses in the fast-food industry nationwide. This is a major step forward in achieving that goal, but we’re not done. Other fast-food companies that use no-poach provisions are now on the clock to accept a similar deal or face litigation from my office.” In addition to Dine Equity, Church’s Chicken, Five Guys, Jamba Inc., Little Caesar Enterprises Inc., Panera Bread and Sonic Drive-In will remove no-poach language from worker contracts. In July, seven other chain restaurants agreed to stop enforcing no-poach provisions. They include Arby’s, Auntie Anne’s, Buffalo Wild Wings Inc., Carl’s Jr. Restaurants, Cinnabon and Jimmy John’s Franchise. Ferguson said he will continue to investigate restaurants that use no-poach contracts and is prepared to file complaints against companies who fail to come to come to an agreement. Staff Reporter Ethan Varian can be reached at (818) 316-3130 or [email protected].