Franchise Finance
Sun Gir Inc. operates 59 Carl's Jr. locations and says the $20 fast-food minimum wage drove monthly losses past $600,000.
Sun Gir Inc., the lead debtor in the case, is part of Friendly Franchisees Corporation, which operates 59 Carl's Jr. restaurants across California and employs roughly 1,000 people. The group filed Chapter 11 in April 2026 and is moving to reject 10 leases as part of its restructuring.
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The 10 leases identified in court filings include locations in Tarzana, Arcadia, Covina, Pomona, Granada Hills, Reseda, Santa Rosa, Diamond Bar, Pasadena, and San Gabriel. Some restaurants have operated for decades. The franchisee has hired National Franchise Sales to market certain locations, with bids expected in July and an auction possible in August.
Model labor with the $20 fast-food minimum wage as a floor, not a ceiling. Friendly Franchisees Corporation's filings show that even mature, high-revenue stores can lose hundreds of thousands of dollars per month at current cost structures, and franchisor support letters cannot offset rent and wage math at a single underperforming box.
California has been billed for years as a high-AUV but high-cost franchise market, where strong sales make up for elevated labor. A Chapter 11 docket filed by the state's largest Carl's Jr. franchisee group this month suggests that math no longer works at the bottom of the bell curve, and any buyer modeling a California QSR investment needs to know why.
Friendly Franchisees Corporation, which calls itself California's largest Carl's Jr. operator, filed for Chapter 11 bankruptcy protection in April 2026 along with several affiliated entities tied to founder Harshad Dharod. Together, the companies run 59 Carl's Jr. locations across California and employ roughly 1,000 workers 1. In May, lead debtor Sun Gir Inc. moved the bankruptcy court to reject leases at 10 underperforming restaurants, a step that typically leads to closure or sale during a Chapter 11 restructuring 1.
The 10 locations identified in court filings include Tarzana, Arcadia, Covina, Pomona, Granada Hills, Reseda, Santa Rosa, Diamond Bar, Pasadena, and San Gabriel 1. Some have operated for decades. Sun Gir has hired the business brokerage National Franchise Sales to market a portion of the portfolio, with bids expected in July and a court-supervised auction potentially scheduled for August 2.
In its filings, the franchisee said the targeted restaurants have struggled since California's $20 minimum wage for fast-food workers took effect in April 2024, layered on top of rising operating costs, increased competition, and weakening sales 1.
This is the second-order effect of AB 1228, California's $20 fast-food wage law, and it is showing up in the franchisee P&L rather than the franchisor's income statement. CKE Restaurants, Carl's Jr.'s parent, has explicitly distanced itself from the bankruptcy by characterizing the issues as franchisee-specific 1. That is technically accurate and strategically irrelevant to a prospective franchisee, who would inherit the same cost structure at the same stores.
Buyers evaluating California QSR opportunities should treat the Sun Gir docket as a case study in two failure modes. First, labor: the $20 hourly floor compounds with payroll taxes, benefits, scheduled overtime, and turnover costs into a per-hour all-in number well above $25 in many markets. Second, lease cost: long-tenured stores often have rent escalators that have already stepped up two or three times, and rejecting the lease in bankruptcy is the only legal way to reset that obligation outside negotiation. Neither risk is fully captured in Item 7's initial investment range.
The other lesson is brand decay. Carl's Jr. operated 588 California locations in 2025, down from 613 in 2023, and consumer spending at the chain reportedly fell 4% last year 1. Franchisees buying into a brand with declining store counts in its largest market should request Item 20 detail by state, not just system totals.
Court filings put the group's revenue at more than $6 million per month, against losses exceeding $600,000 per month in 2026 1. One Arcadia location alone reportedly lost more than $400,000 over a two-year period 1. Those numbers are aggregated across the affected restaurants, not the whole 59-store base, but they show what a no-margin or negative-margin store looks like at scale: roughly a 10% operating loss after every fixed and variable cost.
The filing is not isolated. NRPF Group Two, a major Applebee's franchisee, expanded its own Chapter 11 closures to 15 locations across Florida and Georgia this spring 2. The pattern across multiple casual and QSR franchisees is the same: mid-tier operators with capital-light models are exhausting balance-sheet capacity faster than franchisors can adjust royalty and marketing-fee structures.
Bids on Sun Gir's marketed locations are expected in July, with an auction possible in August 2. That timeline gives the market a real-world clearing price for distressed California QSR boxes, which is information any prospective buyer should track.
The auction outcome will set a reference point for California QSR resale values, including the discount buyers demand for inheriting a $20 wage floor. Franchisees in other multi-unit groups under similar pressure (Carl's Jr., Burger King, KFC, Pizza Hut in California) will watch closely. Expect more lease-rejection motions from operators with weak unit-level economics through the summer.
For buyers, the practical next step is to underwrite any California QSR with explicit sensitivity to a wage floor 10% to 15% higher than today. If the unit only works at current labor costs, it does not work for the next five years.