UPDATED: Inver Grove Heights Council Sues to Get A&W Restaurant Loan Back

The city of Inver Grove Heights wants its money back.

In 2009, the city loaned the franchisees of an A&W Restaurant $50,000 in gap financing to encourage development of the restaurant, which was located along Concord Boulevard in southern Inver Grove. But when the restaurant closed in February 2011, city officials were left without repayment on the loan.

On Monday, the Inver Grove Heights City Council unanimously decided to open a lawsuit against A&W Restaurants, Inc. and Yum! Brands, Inc., franchisors whom the city alleges gave both city staff and the franchisee misleading revenue projections for the restaurant before the business even opened.

The council also voted to hire the Minneapolis-based legal firm Dady and Gardner, P.A. to pursue the case. That firm is also representing Patrick Nickleson and Patricia Nickleson Enterprises, LLC., the franchisees who developed and operated the A&W in Inver Grove Heights.

In their suits, the city and the Nicklesons allege that A&W Restaurants, Inc. and Yum! Brands Inc. projected that the Nickleson's restaurant would generate as much as $1.3 million in annual revenue. But in 2010 the business made roughly half that amount, according to attorney John Holland, a partner with Dady and Gardner who is representing the Nicklesons in the case.

The city relied on that revenue projection when it decided to grant the Nicklesons a loan, according to City Administrator Joe Lynch. City officials also offered the company up to $20,000 of real estate tax abatement assistance and deferred nearly $10,000 in utilities fees.

When the projected revenue never came, the Nicklesons, who invested roughly $1.8 million into the Inver Grove Heights restaurant, were forced to close that store and several other restaurants they owned, Holland said.

They also defaulted on the $50,000 loan from the city and eventually declared bankruptcy, City Attorney Tim Kuntz noted in a memo. The city sent letters to the Nicklesons requesting payment on the loan, and were informed by the Nicklesons of the impending lawsuit.

While the city is only hoping to recover its $50,000 loan, the Nicklesons are seeking an amount equal to the money they spent to develop the Inver Grove restaurant, Holland said. A total amount hasn't yet been determined in the case, Holland added, though the attorney believes it will be well over $1 million.

Were the Nicklesons to receive the money, they have already agreed to repay the city for the loan, Lynch said. The city doesn't anticipate spending more than $5,000 in legal fees, the city administrator added. The council held a closed meeting to discuss the lawsuit two weeks ago.

A call to Yum! Brands, Inc. went unreturned as of Tuesday afternoon.

“Not only did we lose money, but a former business owner lost money based on what we're contending is false and leading information," Lynch said.