Court Watch

In 1997, as part of the settlement of a class action lawsuit between Kentucky Fried Chicken Corporation (“KFCC”) and its franchisee association, a new Certificate of Incorporation dealing with the governance of the KFC National Council and Advertising Cooperative (“NCAC”) was filed. The NCAC is a Delaware non-stock corporation that was founded more than 40 years ago to oversee the spending of the $150-million-plus in advertising funds collected annually from both company-owned and franchised KFC stores. The new Certificate of Incorporation divided various advertising duties and responsibilities between KFCC and the NCAC. The NCAC governing Committee has 13 franchisee members and four KFCC-appointed members. Under the agreement represented by the new Certificate, KFCC has the right to hire and fire the national advertising agency that develops and implements the annual KFC advertising program. KFCC also has the right under the Certificate to “develop national advertising, public relations and media plans and strategy.” However, among the powers of the governing committee of the NCAC is the power “to plan and approve each ensuing year's advertising program.” Over the years, KFC's advertising agency developed each year's advertising plan, the NCAC would approve or disapprove it, and then the agency would implement it. On occasion, prior to the system specified in the new Certificate, the NCAC would modify the plan before approving it.

In 2009, KFCC presented an advertising plan that the NCAC substantially modified to redirect the amount of advertising money to be devoted to the company's newer products back to its traditional fried specialties. KFCC claimed that the NCAC was not empowered by its Certificate of Incorporation to modify KFCC's annual advertising plan, but could only approve or disapprove it. KFCC maintained that if the plan were not approved, and if KFCC could not modify it to satisfy the NCAC governing committee, brand advertising would come to a halt ' to the great detriment of both KFCC and its franchisees. The NCAC maintained that its powers under the Certificate authorized it to plan and approve each year's advertising program, impliedly authorizing it to modify the plan proposed by KFCC. Since neither party would agree to the other's position, a suit for declaratory relief was filed in which the NCAC sought a declaration that it could modify the annual advertising plan proposed by KFCC, and KFCC sought to have the court declare that it alone could modify the plan it proposed.