Denny's Franchisee EYM Diner Files Chapter 11 With $18 Million Debt

EYM Diner, a franchisee operating roughly 30 Denny's restaurants across Texas and Florida, filed for Chapter 11 protection on Wednesday in the Northern District of Texas. The filing puts dozens of locations in limbo and caps a two-year struggle by the parent brand to offload the restaurants.

The bankruptcy follows a lawsuit filed last month by one of EYM's lenders, InterBank, which claims it is owed more than $18 million. InterBank has been pushing to have the restaurants sold to what it calls a more capable operator.

What does the lender allege?

Citing Denny's own inspections, InterBank's lawsuit documents an extended period of alleged operational decline. It claims conditions at EYM's restaurants are "poor and getting worse," including "food safety conditions at several locations that would likely not pass muster with the health department."

"Denny's cannot permit the operation of a substandard restaurant without damage to its brand," the lawsuit states. A lawyer for InterBank did not respond to a request for comment.

Denny's tells Fast Company it has been working behind the scenes to keep the remaining restaurants open. That promise comes with a caveat: the chain has been trying to sell these restaurants for two years and has not closed a deal.

Who owns EYM Diner?

The franchisee belongs to Eduardo Diaz, a former president of McDonald's Mexico. According to Restaurant Business, companies tied to Diaz have filed for multiple bankruptcies in recent years. He previously operated Pizza Hut, KFC, and Panera Bread locations, several of which reopened this year under new ownership, as Fast Company previously reported.

Diaz did not respond to requests for comment.

Mark Burgess, Denny's chief development officer, said the chain has spent two years working with Diaz to sell the restaurants. "There are viable restaurants in this group, and franchise partners within our system are willing to step in to help secure their future," Burgess said in a statement. The effort remains ongoing.

Which Denny's restaurants have closed?

A Denny's franchise disclosure document issued in April shows Diaz operated 39 locations as of the end of last year. A Fast Company review of the addresses found at least eight affiliated locations marked as closed on review platforms or delivery services — roughly one in five of his portfolio.

Texas closures:

• 2655 Grapevine Mills Cir E, Grapevine, TX 76051
• 510 W Lyndon B Johnson Fwy, Irving, TX 75063
• 6480 N Fwy, Fort Worth, TX 76137

Florida closures:

• 3701 Bee Ridge Rd, Sarasota, FL 34233
• 5603 E Hillsborough Ave, Tampa, FL 33610
• 1245 N Atlantic Ave, Cocoa Beach, FL 32931
• 255 E Altamonte Dr, Altamonte Springs, FL 32701
• 4390 US-27, Sebring, FL 33870

The closures appear recent. Reviews for some stores appeared as recently as this week. As of Friday, the locations had either been removed from Denny's store locator, marked as not accepting orders, or had disconnected phone numbers.

EYM's bankruptcy petition did not name specific closures. A typical next step would see the company ask the court for permission to exit its lease obligations. The list above may not be complete.

Why does this sound familiar?

This is the second Denny's franchisee failure in recent months. In September, franchise owner M15 Inc. closed several Denny's restaurants in Minnesota and Wisconsin ahead of a Chapter 7 filing.

The parent company has its own scars. Denny's Corporation was taken private and delisted from the Nasdaq earlier this year after years of struggles. It now sits with private equity backers. As of the end of last year, the chain ran 1,274 locations, most of them franchise-owned — meaning franchisee distress now reaches more of the system than the corporate ledger alone suggests.