Twin Peaks operator accuses business partners of fraud

DMD operates some of Twin Peaks’ highest-grossing restaurants, though two filed for bankruptcy recently. | Photo: Shutterstock

The former COO of a Florida-based Twin Peaks franchisee is suing two of his business partners, claiming they fudged the company’s finances, used corporate funds to pay for lavish lifestyles, and fired him when he started asking questions.

Austin Hester initiated the lawsuit against Double Mountain Development Ventures (DMD) and its co-founders, Jack Flechner and Fred Burgess, in December in Broward County Circuit Court. The two men have vehemently denied the allegations and have filed a motion to dismiss the lawsuit. They have also accused Hester of stealing hundreds of thousands of dollars from the company’s marketing fund. 

All three remain partners in the Davie, Florida-based company, which owns eight Twin Peaks restaurants in the state. They include the four highest-grossing locations in the system and six of the top 10.

Hester’s lawsuit comes amid a tangle of other legal and financial issues for DMD over the past year.

Last May, the company was sued by a lender over an unpaid $12 million loan granted in 2013. In January, DMD filed for Chapter 11 bankruptcy for two of its Twin Peaks locations in part to allow it to repay that loan. 

Though the bankruptcies occurred after Hester filed his lawsuit, he says they’re evidence of financial wrongdoing by DMD. The restaurants in question were “insanely profitable,” he said in an interview with Restaurant Business. 

“It was surprising that at the end of this there was gonna be an action taken to declare bankruptcy rather than repay the debt,” he said.

In a statement to Restaurant Business, Burgess said that DMD has been unable to repay or refinance the loan because of rising costs at its restaurants since the pandemic. Filing for bankruptcy “would allow us the breathing room to get on track,” he said. 

A dispute among partners

Flechner and Burgess, who are both attorneys, founded DMD in 2012. The company operates a number of franchise businesses, including Papa Johns and Craveworthy Brands restaurants, Candlewood Suites hotels and a private jet service as well as Twin Peaks. 

Hester, who had previously spent more than five years with Twin Peaks corporate, joined DMD in 2014 to help the company operate Twin Peaks restaurants. He holds a 10% stake in the company. 

According to his lawsuit, Hester began to suspect last year that Flechner and Burgess were underreporting DMD’s cash flow and fabricating losses in order to justify a “fire sale” of the company’s assets, even as they used company money to buy a private jet and luxury gifts.

Hester in an interview said that he became suspicious because what Flechner and Burgess were telling him about the state of the company did not match his experience running its high-grossing Twin Peaks restaurants. 

“All indicators led to how profitable we should be, and I’m being told there’s no money,” Hester said. “But I see the lifestyles they live. … There’s no other conclusion that I could come to.”

On Dec. 2, Hester confronted Flechner and Burgess via email, demanding access to DMD’s financial records on his work computer. Burgess responded that Hester already had access to the records in the office, and that allowing him to view them at home would require an unnecessary software update.

Two weeks later, Hester filed a lawsuit seeking to force his partners to provide the access he had requested.

On Dec. 29, DMD fired Hester, alleging in an email that he had stolen from the company’s marketing fund and accepted unauthorized perks from vendors. Hester’s lawsuit called those accusations “baseless.”

In an amended lawsuit filed in January, Hester alleged that Burgess and Flechner had misused company funds and that when he asked to see DMD’s financial records, they retaliated by firing him.

In a Jan. 21 motion to dismiss the lawsuit, the defendants called Hester’s complaint a “barely intelligible, kitchen-sink pleading” and argued that it failed to support its accusations with facts, such as the amount of money in question or evidence of the alleged fire sale.

“If there was ever a complaint that is the definition of ‘let’s throw everything at the wall and see what sticks,’ this is the complaint,” the motion reads.

Burgess in his statement called Hester’s claims against him and Flechner “categorically false.” 

“We have never used company funds for personal luxuries such as chartering private jets or extravagant gifts,” he said. He said at one time the partners, including Hester, owned a share of a private plane that they mainly used to travel to restaurants they were developing around the Southeast. “These claims are nothing more than fabrications intended to distract from Austin’s own financial misconduct,” he said.

Burgess claimed that the company discovered in October that Hester had spent hundreds of thousands of dollars from a marketing account on personal expenses, such as dating apps and Taylor Swift tickets, over a period of more than four years. That, he said, was the real reason for Hester’s firing in December.

In an interview, Hester said that he and other partners regularly used the marketing fund to pay for designated meals and travel, and that his alleged misuse of the account had never been brought up to him before he was fired.

“It came as a shock that they made this my reason for removal,” he said.

The dispute at a high-profile franchisee comes at a momentous time for Twin Peaks. The Dallas-based sports bar chain went public on Jan. 30 in a spinoff from parent company Fat Brands and is planning to open up to 16 new locations this year. Known for its lodge-like atmospheres and scantily-clad waitresses, Twin Peaks currently has 115 locations, most of which are operated by franchisees.

The company declined to comment for this story, referring to the situation as an employment matter between DMD and an employee.

A lawsuit and 2 bankruptcies

Burgess emphasized that Hester’s firing had nothing to do with DMD’s bankruptcy filings last month.

The filings stemmed from a $12 million loan made to DMD in 2013 by Florida Restaurant Franchise Group (FRFG), a real estate developer. The loan was funded through the federal EB-5 Investor Program, which allows foreign investors to get green cards in exchange for investing in U.S. businesses. All principal and interest on the loan came due in October 2023. 

In May of last year, FRFG sued DMD for failing to repay the loan principal. It also accused DMD of attempting to defraud the 24 immigrant investors who financed the loan.

According to the lawsuit, DMD and an affiliate, PP Omni, used the loan to buy real estate in Pembroke Pines and West Palm Beach for developing Twin Peaks locations. It later sold the restaurant in West Palm Beach for $5.1 million, and then a shopping center on the Pembroke Pines property for $23 million, netting an estimated profit of $4.5 million. But it never used the proceeds to repay any of the principal on the FRFG loan. 

“DMD and PP Omni knew that they were required to repay [the lender] but have refused to do so,” the lawsuit said.

Burgess said DMD tried and failed to refinance the loan over the past year and a half, an effort that was compounded by the rising cost of operating its restaurants since COVID. Filing for bankruptcy, he said, would allow DMD to keep the restaurants while it hammered out a deal with FRFG.

Burgess added that all of the EB-5 investors involved with those restaurants received permanent green cards “along with interest payments that we have paid them until we came to an impasse on repayment terms.” 

The bankruptcy process remains ongoing, and Burgess said that DMD has made significant progress toward an agreement with FRFG.

“We are optimistic that the matter will be resolved in the coming months, allowing us to continue delivering an outstanding Twin Peaks experience to our valued guests for many years to come,” he said.

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