News Briefs

PETA Steps Up Pressure on KFC; KFC Franchisees Face Negative Publicity

PETA, the People for the Ethical Treatment of Animals, raised the stakes in its battle against fast-food chicken restaurant franchisor KFC by filing a lawsuit in the Superior Court of California, Los Angeles County, that alleges false advertising and unfair competition in KFC's response to PETA's protests. Yum! Brands, Inc., the parent of KFC Corporation, also is a defendant in the lawsuit, which was filed on July 7.

Since April 2001, PETA has conducted an international campaign to protest the treatment of chickens that are raised and slaughtered by independent suppliers to KFC. In addition to changing some of its policies and programs, KFC has responded by presenting its side of the story through print advertising, a toll-free consumer hotline, and Web site information. PETA's lawsuit alleges that many of those public relations statements by KFC are false.

“We've had serious disputes with companies about how their suppliers treat animals, but we've never had to go down this path before of suing to correct false information,” said Matthew Penzer, one of the two PETA attorneys who filed the lawsuit. “Consumers can't make informed choices if they are being lied to.”

PETA chose California as the venue for its lawsuit because it has a large number of KFC restaurants and strong consumer-protection laws. “We hope that KFC looks at the results of the lawsuit [if PETA is successful] and fixes the situation around the country,” Penzer said. “But we are prepared to file in other states if necessary.”

Franchisees of KFC, although not the subject of the lawsuit, are caught in the middle of an ugly public fight. PETA has organized protests at individual KFCs across the United States and in other countries. “We are not suing franchisees because they have no control over KFC's chicken-handling policies. But I would think that franchisees, as well as KFC shareholders, would be concerned that the company is disseminating false information,” said Penzer.

KFC is expected to respond to the allegations with a filing in court by the end of August.

Representatives of KFC and several of its regional franchisee groups did not return multiple phone calls to discuss their response to the lawsuit.

South Dakota Supreme Court Hears Appeal in Blimpie's Dispute

An area developer of Blimpie's franchises in South Dakota has appealed a jury award of $1.66 million to six former franchisees who say they were defrauded by false promises that induced them to open Blimpie's franchises. The South Dakota Supreme Court heard Appeal No. 22307 by Krause Gentle Corp. on May 29.

In the original lawsuit, 10 plaintiffs complained about fraud and lack of support from Krause Gentle for franchises they operated in 1994-1997. Six of those plaintiffs won their lawsuits.

According to the plaintiffs' attorney, Rick Johnson, partner with Johnson, Eklund, Nicholson, Peterson & Fox, Krause Gentle made promises such as the launch of a national ad campaign by Blimpie International and sales levels that turned out to be inflated by thousands of dollars per month. “The representations were pretty substantial,” Johnson said. “The promised national ad campaign … have you ever seen it? That was a phony promise.”

Blimpie's restaurants in small towns in Iowa and South Dakota could not possibly earn the $800 to $1,000 per day that they needed to pay their expenses, franchise fees, and turn a profit, said Johnson. He said that many stores struggled to pull in $300 per day on a regular basis. “Krause Gentle knew this because it had its own Blimpie's, and those were on interstates in their convenience stores,” said Johnson. “These franchisees were in small towns with 2,000 population.”

Krause Gentle, based in West Des Moines, Iowa, owns more than 340 convenience stores in the Midwest and Plains states that operate under the brand Kum & Go, as well as other businesses. It began a business relationship with Blimpie's when it opened Blimpie's restaurants in some of its Kum & Go stores. In time, Krause Gentle evolved into “facilitating and handling some of the inception of new Blimpie's franchisees in South Dakota,” said Krause Gentle's attorney, Stephen Sanford.

When some of the independent franchises went sour, the unsuccessful franchisees sued Krause Gentle, despite the fact that the firm “has no contractual arrangement with the franchisees, and all of the contracts they signed are with Blimpie's,” Sanford said. “This is different than a situation in which a company is a 'territorial operator' for a franchisor.”

Krause Gentle argued on appeal that the circuit court judge erroneously told the jury that it could rule that the plaintiffs could receive both actual and punitive damages even if the elements of fraud were not proved. Krause Gentle also argued that franchisees had no legal standing to sue as individuals, but instead should be required to sue as corporations. By suing as individuals, the franchisees “can play up a David-and-Goliath situation” said Sanford, and perhaps gained more sympathy from the jury than was warranted.

However, Johnson successfully argued in the circuit court that because the plaintiffs lost their own money, they could sue as individuals. “The UFOCs were signed by individuals, not by corporations,” said Johnson. “Later, many franchisees created corporations, sometimes at the advice of Krause Gentle.”

Blimpie International has not been sued by the plaintiffs, which Sanford attributes to Blimpie's mandatory arbitration agreement. “The plaintiffs don't have a formal arrangement with my client, so they didn't sign anything … and that means they can sue them,” he said, but not Blimpie International.

PETA Steps Up Pressure on KFC; KFC Franchisees Face Negative Publicity

PETA, the People for the Ethical Treatment of Animals, raised the stakes in its battle against fast-food chicken restaurant franchisor KFC by filing a lawsuit in the Superior Court of California, Los Angeles County, that alleges false advertising and unfair competition in KFC's response to PETA's protests. Yum! Brands, Inc., the parent of KFC Corporation, also is a defendant in the lawsuit, which was filed on July 7.

Since April 2001, PETA has conducted an international campaign to protest the treatment of chickens that are raised and slaughtered by independent suppliers to KFC. In addition to changing some of its policies and programs, KFC has responded by presenting its side of the story through print advertising, a toll-free consumer hotline, and Web site information. PETA's lawsuit alleges that many of those public relations statements by KFC are false.

“We've had serious disputes with companies about how their suppliers treat animals, but we've never had to go down this path before of suing to correct false information,” said Matthew Penzer, one of the two PETA attorneys who filed the lawsuit. “Consumers can't make informed choices if they are being lied to.”

PETA chose California as the venue for its lawsuit because it has a large number of KFC restaurants and strong consumer-protection laws. “We hope that KFC looks at the results of the lawsuit [if PETA is successful] and fixes the situation around the country,” Penzer said. “But we are prepared to file in other states if necessary.”

Franchisees of KFC, although not the subject of the lawsuit, are caught in the middle of an ugly public fight. PETA has organized protests at individual KFCs across the United States and in other countries. “We are not suing franchisees because they have no control over KFC's chicken-handling policies. But I would think that franchisees, as well as KFC shareholders, would be concerned that the company is disseminating false information,” said Penzer.

KFC is expected to respond to the allegations with a filing in court by the end of August.

Representatives of KFC and several of its regional franchisee groups did not return multiple phone calls to discuss their response to the lawsuit.

South Dakota Supreme Court Hears Appeal in Blimpie's Dispute

An area developer of Blimpie's franchises in South Dakota has appealed a jury award of $1.66 million to six former franchisees who say they were defrauded by false promises that induced them to open Blimpie's franchises. The South Dakota Supreme Court heard Appeal No. 22307 by Krause Gentle Corp. on May 29.

In the original lawsuit, 10 plaintiffs complained about fraud and lack of support from Krause Gentle for franchises they operated in 1994-1997. Six of those plaintiffs won their lawsuits.

According to the plaintiffs' attorney, Rick Johnson, partner with Johnson, Eklund, Nicholson, Peterson & Fox, Krause Gentle made promises such as the launch of a national ad campaign by Blimpie International and sales levels that turned out to be inflated by thousands of dollars per month. “The representations were pretty substantial,” Johnson said. “The promised national ad campaign … have you ever seen it? That was a phony promise.”

Blimpie's restaurants in small towns in Iowa and South Dakota could not possibly earn the $800 to $1,000 per day that they needed to pay their expenses, franchise fees, and turn a profit, said Johnson. He said that many stores struggled to pull in $300 per day on a regular basis. “Krause Gentle knew this because it had its own Blimpie's, and those were on interstates in their convenience stores,” said Johnson. “These franchisees were in small towns with 2,000 population.”

Krause Gentle, based in West Des Moines, Iowa, owns more than 340 convenience stores in the Midwest and Plains states that operate under the brand Kum & Go, as well as other businesses. It began a business relationship with Blimpie's when it opened Blimpie's restaurants in some of its Kum & Go stores. In time, Krause Gentle evolved into “facilitating and handling some of the inception of new Blimpie's franchisees in South Dakota,” said Krause Gentle's attorney, Stephen Sanford.

When some of the independent franchises went sour, the unsuccessful franchisees sued Krause Gentle, despite the fact that the firm “has no contractual arrangement with the franchisees, and all of the contracts they signed are with Blimpie's,” Sanford said. “This is different than a situation in which a company is a 'territorial operator' for a franchisor.”

Krause Gentle argued on appeal that the circuit court judge erroneously told the jury that it could rule that the plaintiffs could receive both actual and punitive damages even if the elements of fraud were not proved. Krause Gentle also argued that franchisees had no legal standing to sue as individuals, but instead should be required to sue as corporations. By suing as individuals, the franchisees “can play up a David-and-Goliath situation” said Sanford, and perhaps gained more sympathy from the jury than was warranted.

However, Johnson successfully argued in the circuit court that because the plaintiffs lost their own money, they could sue as individuals. “The UFOCs were signed by individuals, not by corporations,” said Johnson. “Later, many franchisees created corporations, sometimes at the advice of Krause Gentle.”

Blimpie International has not been sued by the plaintiffs, which Sanford attributes to Blimpie's mandatory arbitration agreement. “The plaintiffs don't have a formal arrangement with my client, so they didn't sign anything … and that means they can sue them,” he said, but not Blimpie International.