News Briefs

Atallah claimed that Shell had a change of heart after it was informed that both gas stations at the intersection would need expensive modifications to their fuel storage tanks due to concerns about contamination of underground water supplies. At meetings with environmental regulators from Riverside County, Shell representatives were told that the stations might be forced to close. Atallah was not informed by Shell about the potential problems, even as the negotiations for his potential purchase continued for 10 months (including an escrow period).

“Only after Mr. Atallah closed escrow on his station did he discover the problems that had been brewing and what he was in for. He was never able to reopen the site as a gas station,” wrote Gwire in a statement released to the media.

In 2006, a Los Angeles Superior Court jury found Shell guilty of intentional fraud and concealment, and it awarded $1.65 million to Atallah for compensatory damages. “The jury also found that Shell had acted with 'oppression, malice or fraud,' clearing the way for the jury to award punitive damages,” said Gwire. “At that time, however, the trial judge ruled the evidence being offered to establish Equilon's financial condition was insufficient, and refused to allow the punitive damage issue to go to the jury.”

In 2008, the California Court of Appeals upheld the $1.65 million compensatory damage verdict. Moreover, the court ruled a jury could decide to award punitive damages, too. A new jury decided on the $50 million punitive damages amount.

“I think this case was Shell trying to send a message to all of its dealers who might think of taking them on. Instead, I think the jury sent Shell the message that it needs to treat its dealers with honesty and respect,” Gwire said.

Burger King, Franchisee Association Settle Dispute

Burger King Corporation (“BKC”) and The National Franchisee Association (“NFA”) have “mutually agreed” to dismiss a lawsuit filed last year by the franchisee group when BKC announced it would change its soft drink rebate plan. The class action lawsuit had been filed in U.S. District Court, Southern District of California (see FBLA, January 2010) against BKC and its soft drink suppliers, The Coca-Cola Co. and Dr. Pepper Snapple Group, Inc.

“On behalf of the NFA, I believe this excellent result is testament to the fact that, when we come together as franchisees to protect our mutual business interests, we can and will prevail,” said NFA Chair William Harloe in an e-mail to NFA members that was also released publicly. “We know your personal efforts, as well as NFA actions representing your best interests, led to this positive result. On behalf of your NFA officers and board, we thank you.”

Under the newly agreed-upon plan, BKC has dropped its intent to redirect an estimated $25 million in soft drink rebates that it will pay out to franchisees in 2010. Those rebates will continue to go to franchisees, as has been the franchisor's practice since 1999. However, in return, BKC will not match franchisees' contributions to the brand's local advertising fund, which is about $18 million per year. Franchisees will be responsible for maintaining the prior level of local advertising expenditure.

The new agreement achieves the goal that BKC was seeking, according to BKC chairman and CEO John Chidsey: raising advertising funds in a competitive market. In announcing the agreement, he told analysts at a conference sponsored by Deutsche Bank Securities that “BKC leadership and a diverse, cross section of franchisees recently collaborated on a new approach to bolster the brand's national media fund and provide incremental dollars to promote new products. This new approach does not involve the reallocation of these restaurant operating funds.”

NFA's other class action lawsuit against BKC remains unresolved. This lawsuit involves BKC's imposition of low-price double cheeseburgers in 2009, which franchisees oppose because they say they are selling the burgers at a loss and because they believe they should have a voice in important pricing decisions.

General Motors to Keep 661 Dealerships Open

General Motors Corp. has reduced by more than half the number of dealerships that it will face in arbitration hearings this spring. GM announced that 661 of the more than 1,100 dealers that challenged its closure plans will be offered reinstatement without arbitration. Overall, GM still intends to close about 1,300 dealerships, down from its initial target of nearly 2,100.

In a conference call with dealers and reporters, GM North America President Mark Reuss said, “We are eager to restore relationships with our dealers and get back to doing what we do best ' selling cars and taking care of customers. The arbitration process creates uncertainty in the market. We believe issuing these letters of intent is good for our customers, our dealers, and GM.”

GM has not released a list of dealers that it will reinstate, nor the terms of the agreements that those dealers will be required to sign to receive reinstatement. Arbitrations for the approximately 450 dealers that have challenged their closures but have not been offered reinstatement will begin in April.

IL Subway Franchise Is Sued for Food Contamination

Three individual lawsuits have been filed against a Subway franchise in Lombard, IL, after at least 41 patrons said they became ill from eating food contaminated with Shigella sonnei. The Shigella outbreak occurred in late-February 2010, and at least 10 people are reported to have been hospitalized. The restaurant was closed by local health authorities in early March when it was identified as the likely source of the outbreak, and an investigation about the cause of the contamination was ongoing at press time.

The lawsuits name Neel Subway, Inc. as the defendant. Neither Subway nor Doctors Associates, Inc., which owns the Subway brand, is named in the lawsuits.

Marler Clark, a Seattle-based law firm with extensive experience in food contamination litigation, has filed the three lawsuits on behalf of individuals in the Circuit Court in DuPage County, IL. Mary Siceloff, a spokesperson for the firm, said that it had been contacted by 38 individuals who claimed to have been harmed by the food at the restaurant, and she said that Marler Clark is “going through the process with each client to determine the strength of the claim.”

Because the clients' illnesses have been of different levels of severity, Siceloff said that Marler Clark has decided to file individual lawsuits, rather than a class action lawsuit. “This is very different than a class action we filed after the hepatitis A outbreak last year at a McDonald's in Milan, OH,” she said. “In that case, everyone had the same experience, and everyone incurred the cost of the hepatitis A shot, so a class action made sense.”

Lawsuit About Distribution of Nude Cell Phone Photos Ends

A lawsuit against McDonald's and a franchisee in Fayetteville, AR, has been dropped by a husband and wife who sued about the online posting of nude photos that the woman sent to her husband's cell phone. When the husband left his cell phone at a McDonald's, store employees allegedly posted the photos online, along with the couple's contact information, and they began receiving harassing e-mails and phone calls. The couple sued the franchisee (Mathews Management Co.) and McDonald's for $3 million, and a jury trial was scheduled for March 2010. The lawsuit was dropped with prejudice in late February, according to news reports. McDonald's had been granted permission by the court to sue one of the managers of the restaurant. None of the parties would discuss whether there has been a financial settlement.

Los Angeles Jury Awards Shell Gasoline Dealer $50 Million

On March 9, a Los Angeles Superior Court jury awarded $50 million in punitive damages to the owner of a Shell gas station in Corona. The franchisee, Elias Atallah, claimed that Equilon Enterprises, a subsidiary of Royal Dutch Shell, had intentionally concealed important facts from him during negotiations and an extended escrow period prior to his purchase of a gas station in October 2003. The trial judge is reviewing the damages, and Shell has announced it will appeal the damage award.

The convoluted case began when Atallah sought to purchase the Shell station that he had operated as a franchisee for several years. Shell would not sell the station to him initially because it owned another branded station at the same intersection. Shell relented after Atallah sued Shell to enforce his rights to buy the station under the Petroleum Marketing Practices Act, said his attorney William Gwire (Gwire Law Offices in San Francisco).

Atallah claimed that Shell had a change of heart after it was informed that both gas stations at the intersection would need expensive modifications to their fuel storage tanks due to concerns about contamination of underground water supplies. At meetings with environmental regulators from Riverside County, Shell representatives were told that the stations might be forced to close. Atallah was not informed by Shell about the potential problems, even as the negotiations for his potential purchase continued for 10 months (including an escrow period).

“Only after Mr. Atallah closed escrow on his station did he discover the problems that had been brewing and what he was in for. He was never able to reopen the site as a gas station,” wrote Gwire in a statement released to the media.

In 2006, a Los Angeles Superior Court jury found Shell guilty of intentional fraud and concealment, and it awarded $1.65 million to Atallah for compensatory damages. “The jury also found that Shell had acted with 'oppression, malice or fraud,' clearing the way for the jury to award punitive damages,” said Gwire. “At that time, however, the trial judge ruled the evidence being offered to establish Equilon's financial condition was insufficient, and refused to allow the punitive damage issue to go to the jury.”

In 2008, the California Court of Appeals upheld the $1.65 million compensatory damage verdict. Moreover, the court ruled a jury could decide to award punitive damages, too. A new jury decided on the $50 million punitive damages amount.

“I think this case was Shell trying to send a message to all of its dealers who might think of taking them on. Instead, I think the jury sent Shell the message that it needs to treat its dealers with honesty and respect,” Gwire said.

Burger King, Franchisee Association Settle Dispute

Burger King Corporation (“BKC”) and The National Franchisee Association (“NFA”) have “mutually agreed” to dismiss a lawsuit filed last year by the franchisee group when BKC announced it would change its soft drink rebate plan. The class action lawsuit had been filed in U.S. District Court, Southern District of California (see FBLA, January 2010) against BKC and its soft drink suppliers, The Coca-Cola Co. and Dr. Pepper Snapple Group, Inc.

“On behalf of the NFA, I believe this excellent result is testament to the fact that, when we come together as franchisees to protect our mutual business interests, we can and will prevail,” said NFA Chair William Harloe in an e-mail to NFA members that was also released publicly. “We know your personal efforts, as well as NFA actions representing your best interests, led to this positive result. On behalf of your NFA officers and board, we thank you.”

Under the newly agreed-upon plan, BKC has dropped its intent to redirect an estimated $25 million in soft drink rebates that it will pay out to franchisees in 2010. Those rebates will continue to go to franchisees, as has been the franchisor's practice since 1999. However, in return, BKC will not match franchisees' contributions to the brand's local advertising fund, which is about $18 million per year. Franchisees will be responsible for maintaining the prior level of local advertising expenditure.

The new agreement achieves the goal that BKC was seeking, according to BKC chairman and CEO John Chidsey: raising advertising funds in a competitive market. In announcing the agreement, he told analysts at a conference sponsored by Deutsche Bank Securities that “BKC leadership and a diverse, cross section of franchisees recently collaborated on a new approach to bolster the brand's national media fund and provide incremental dollars to promote new products. This new approach does not involve the reallocation of these restaurant operating funds.”

NFA's other class action lawsuit against BKC remains unresolved. This lawsuit involves BKC's imposition of low-price double cheeseburgers in 2009, which franchisees oppose because they say they are selling the burgers at a loss and because they believe they should have a voice in important pricing decisions.

General Motors to Keep 661 Dealerships Open

General Motors Corp. has reduced by more than half the number of dealerships that it will face in arbitration hearings this spring. GM announced that 661 of the more than 1,100 dealers that challenged its closure plans will be offered reinstatement without arbitration. Overall, GM still intends to close about 1,300 dealerships, down from its initial target of nearly 2,100.

In a conference call with dealers and reporters, GM North America President Mark Reuss said, “We are eager to restore relationships with our dealers and get back to doing what we do best ' selling cars and taking care of customers. The arbitration process creates uncertainty in the market. We believe issuing these letters of intent is good for our customers, our dealers, and GM.”

GM has not released a list of dealers that it will reinstate, nor the terms of the agreements that those dealers will be required to sign to receive reinstatement. Arbitrations for the approximately 450 dealers that have challenged their closures but have not been offered reinstatement will begin in April.

IL Subway Franchise Is Sued for Food Contamination

Three individual lawsuits have been filed against a Subway franchise in Lombard, IL, after at least 41 patrons said they became ill from eating food contaminated with Shigella sonnei. The Shigella outbreak occurred in late-February 2010, and at least 10 people are reported to have been hospitalized. The restaurant was closed by local health authorities in early March when it was identified as the likely source of the outbreak, and an investigation about the cause of the contamination was ongoing at press time.

The lawsuits name Neel Subway, Inc. as the defendant. Neither Subway nor Doctors Associates, Inc., which owns the Subway brand, is named in the lawsuits.

Marler Clark, a Seattle-based law firm with extensive experience in food contamination litigation, has filed the three lawsuits on behalf of individuals in the Circuit Court in DuPage County, IL. Mary Siceloff, a spokesperson for the firm, said that it had been contacted by 38 individuals who claimed to have been harmed by the food at the restaurant, and she said that Marler Clark is “going through the process with each client to determine the strength of the claim.”

Because the clients' illnesses have been of different levels of severity, Siceloff said that Marler Clark has decided to file individual lawsuits, rather than a class action lawsuit. “This is very different than a class action we filed after the hepatitis A outbreak last year at a McDonald's in Milan, OH,” she said. “In that case, everyone had the same experience, and everyone incurred the cost of the hepatitis A shot, so a class action made sense.”

Lawsuit About Distribution of Nude Cell Phone Photos Ends

A lawsuit against McDonald's and a franchisee in Fayetteville, AR, has been dropped by a husband and wife who sued about the online posting of nude photos that the woman sent to her husband's cell phone. When the husband left his cell phone at a McDonald's, store employees allegedly posted the photos online, along with the couple's contact information, and they began receiving harassing e-mails and phone calls. The couple sued the franchisee (Mathews Management Co.) and McDonald's for $3 million, and a jury trial was scheduled for March 2010. The lawsuit was dropped with prejudice in late February, according to news reports. McDonald's had been granted permission by the court to sue one of the managers of the restaurant. None of the parties would discuss whether there has been a financial settlement.