Del Taco franchisee Newport Ventures closed all 18 of its locations in Colorado on Thursday, according to court documents, leaving only one Del Taco open in the state.
Newport Ventures filed for bankruptcy in October after Del Taco terminated its franchisee agreement. The brand found the operator in default of several parts of the franchisee agreement, including failure to pay a $125,000 development fee for 10 future restaurants in October, Shahvand Aryana, managing member of Newport Ventures, wrote in a court filing.
The operator’s lender informed the company that it would no longer fund Newport Ventures, and without this financial support, closure was the only option, said Chief Restructuring Officer Allen Soong. Soong was appointed by the court in early February.
Newport Ventures originally purchased these 18 locations in October 2023 for over $14 million. The franchisee took out $11.8 million in loans at the time, most of which was used to fund the acquisition, while $3 million was set aside for remodels, purchasing new equipment and developing or acquiring new restaurants. Newport Ventures also agreed to develop 10 additional units over a 10-year period.
Del Taco began refranchising the company-owned portion of its 600-unit system in 2023 after Jack in the Box purchased the chain for $575 million in 2021. As of the end of fiscal 2024, the brand was 80% franchised.
However, the chain is facing sales slumps, with comparable sales down 1.9% during fiscal Q1 2025 and negative same-store sales are expected in its fiscal Q2. Del Taco closed six restaurants and refranchised 13 units during the quarter, but expects to open 15 to 20 during the current fiscal year, Jack in the Box interim CEO Lance Tucker said during an earnings call.
The company is undergoing menu optimization, a process that began in the middle of the first quarter and led to higher attachment rates and strong average checks, Turner said. The chain has also been updating technology, rolling out kiosks for ordering and focusing on value.
But Del Taco’s strategies did not align with Newport Venture’s business plan, according to the court filings.
“As a result of the poor condition of the assets that it acquired, Debtor was forced to expend cash which it had expected to use for operating reserves and franchise development on numerous and expensive equipment repairs, maintenance, and replacements and staffing,” Aryana said in a court document.
These issues led the franchisee to fall behind on taxes and payments to various vendors. The franchisee said it was filing for bankruptcy protection as a result of Del Taco’s “hyper-aggressive and inappropriate actions.”
In a Feb. 27 court filing, Del Taco said the franchisee’s accusations are false and that the operator previously agreed to all terms of the franchisee agreement, which included updates to equipment and point-of-sales systems, proper staffing levels and payment of the development fee.
In October, Del Taco issued a default notice over the unpaid development fee. Aryana claimed that Newport Ventures generated over $25 million in annual gross income and $2.8 million in annual net income. It owed its creditors $12.9 million, but Del Taco is seeking “to effect a forfeiture of not only the significant investment of the Debtor’s principals but also the rights of all other creditors” due to the failure to pay the $125,000, Aryana alleged.
“The patent unfairness of the Franchisor’s attempted forfeiture strategy is exacerbated by the fact the Franchisor owes the Debtor at least $130,000 and also has selectively forced the Debtor to continue to participate in disastrous money losing discount programs leading to losses in excess of $280,000 per month which other franchisees are not being forced to participate in,” Aryana said.
Additionally, Aryana claims that Del Taco’s requirements made it difficult for the company to operate efficiently and profitably. For example, Newport Ventures faced issues with incompatible point-of-sales and payroll systems that led to monthly revenue losses, and the franchisee was required to participate in third-party delivery that led to a $680,000 shortfall in revenue due to “unfulfilled payments and the Franchisor’s intentional misapplication and misappropriation of continuum franchise fees and marketing fees collected.”
