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Note 11 - Contingent Liabilities and Liquidity
3 Months Ended
Dec. 26, 2023
Notes to Financial Statements  
Commitments and Contingencies Disclosure [Text Block]

Note 11.         Contingent Liabilities and Liquidity

 

There may be various claims in process, matters in litigation, and other contingencies brought against the company by employees, vendors, customers, franchisees, or other parties. Evaluating these contingencies is a complex process that may involve substantial judgment on the potential outcome of such matters, and the ultimate outcome of such contingencies may differ from our current analysis. We regularly review the adequacy of accruals and disclosures related to such contingent liabilities in consultation with legal counsel. While it is not possible to predict the outcome of these claims with certainty, it is management’s opinion that any reasonably possible losses associated with such contingencies would be immaterial to our financial statements.

 

The Company is the defendant in a lawsuit styled as White Winston Select Asset Funds, LLC and GT Acquisition Group, Inc. v. Good Times Restaurants, Inc., arising from the failed negotiations between plaintiffs and the Company for the sale of the Good Times Drive Thru subsidiary to plaintiffs. The lawsuit was initially filed on September 24, 2019 in Delaware Chancery Court, and the Company removed the case to federal court in the US District Court for the District of Delaware on November 5, 2019. On July 30, 2021, the plaintiffs moved the Court for leave to amend their complaint and add new causes of action and a claim for $18 million in damages. On April 11, 2022, the Court heard the parties’ respective motions for summary judgment on the plaintiffs’ claims. The Court verbally ruled that it was dismissing all of the plaintiffs’ claims except for their claim for breach of an express and implied obligation to negotiate in good faith under the parties’ letter of intent. The Court also indicated its intent to dismiss Good Times’s counterclaim against the plaintiffs for breach of a covenant not to sue over the failed negotiations.  On May 5, 2022, the Court issued a written order confirming this ruling. On May 25, 2022, the Court issued an order that the plaintiffs are only entitled to reliance damages should they prevail on their claim for breaches of the express and implied obligations to negotiate in good faith. The parties conducted a bench trial on the plaintiffs’ claims. The parties concluded post-trial briefing on October 24, 2022.  On January 25, 2023, the Court rendered judgment dismissing the plaintiffs’ claims in their entirety and denying all of the requested relief. 

 

The plaintiffs filed a notice of appeal of the Court’s January 25, 2023 decisions.  Good Times, in turn, filed a notice of appeal of the Court’s previous dismissal of its counterclaim against the plaintiffs.  On May 18, 2023, the plaintiffs filed their opening brief.  On June 23, 2023, Good Times filed its brief in response to the plaintiffs’ opening brief and Good Times own opening brief regarding its appeal of the dismissal of its counterclaims against the plaintiffs. On August 7, 2023, the plaintiffs filed their reply brief in support of their appeal and a response to Good Times appeal.  Good Times filed a reply brief in support of its appeal on August 28, 2023 and briefing is now closed.  The court of appeals had previously indicated it may hold oral argument the week of January 29, 2024 but has subsequently indicated it would no longer hold oral argument in its review and decision in the matter. The court of appeals may render a decision at any time.

 

The Company previously recorded an accrual for contingent litigation expense in the fiscal quarter ended March 28, 2022 in the amount of $332,000. This amount represented the Company’s best estimate of the likely amount of plaintiffs’ damage recovery. While the Company was successful at trial, in light of plaintiff’s appeal, the Company has determined to maintain the accrual and will continue to evaluate this matter based on new information as it becomes available. The ultimate resolution of the case could result in losses less than or in excess of amounts accrued. Any additional liability in excess of the accrual could have a` material impact on the Company’s results of operations, liquidity or financial condition for the annual or interim period during which any such additional liability is accrued. The Company will continue to vigorously pursue a full defense of this matter on the merits.