Carl's Jr. Franchisee Files Chapter 11, Covering 65 California Locations

The $20 fast-food minimum wage California enacted in 2024 has claimed one of the state's largest Carl's Jr. operators as a casualty. Friendly Franchisees Corporation, led by founder and CEO Harshad Dharod, filed for Chapter 11 protection on April 2 through six affiliated entities in U.S. Bankruptcy Court for the Central District of California, placing 65 restaurants into a court-supervised restructuring process.

In court documents filed under subsidiary Sun Gir, Dharod said the wage increase "materially increased operating expenses" and compounded what the company described as declining sales over the past two years. Sun Gir alone operates 52 Carl's Jr. locations in Southern California and seven in Northern California. Despite generating $19.9 million in sales during the first three months of 2026, Sun Gir recorded a $2 million loss over the same period, a margin picture that captures the structural difficulty of running quick-service restaurants at scale in a high-cost state.

The affiliated entities span multiple corporate layers: Sun Gir Inc., Harshad and Nasir Inc., Senior Classic Leasing LLC, DFG Restaurants Inc., Second Star Holdings LLC, and Third Star Investments LLC. All six list between $0 and $50,000 in assets and liabilities in their initial filings, a figure that reflects the separate-entity structure commonly used to wall off real-estate holdings from restaurant operations. FFC, which claims to be the largest Carl's Jr. franchisee in California and has operated the portfolio since 2000, also holds multifamily real estate through some of these entities.

CKE Restaurants moved quickly to contain the brand fallout. A Carl's Jr. spokesperson said the situation is "specific to this individual franchisee's financial and business circumstances," and that the filing carries no broader operational impact on the chain. More pointedly, Carl's Jr. has already declared defaults on at least some Sun Gir locations, threatening termination of those franchise agreements, which signals the franchisor is not prepared to wait passively while the restructuring plays out.

The bankruptcy arrives against an already-weakening backdrop for the Carl's Jr. brand: U.S. system sales fell 6% last year to $1.4 billion, with average unit volumes declining 2.7% to $1.4 million. California is the chain's dominant market, home to more than 600 of its roughly 1,000 U.S. locations. That means approximately 62% of the entire Carl's Jr. national footprint operates under the same $20 wage floor that FFC cited in its court filing.

The franchising model distributes risk precisely this way: the franchisor collects royalties while operators absorb local cost pressures. That structure concentrates exposure at the unit-operator level, leaving franchisees running dozens of locations on thin margins with little buffer when labor costs spike and consumer traffic softens. FFC's filing joins a growing list of quick-service Chapter 11 cases in recent years, including a 136-unit Popeyes operator and a 53-unit Applebee's group, each citing overlapping pressures of wages, rent, and retreating consumer spending.

For workers at the 65 locations, the filing means restaurants stay open for now, but the court process will determine whether Dharod's group emerges reorganized, sells stores to new operators, or closes underperforming units by rejecting their leases. Creditors and landlords will file claims in the Central District of California while the broader industry watches whether the state's fast-food economics produce further casualties.