News Briefs

The deadline for providing input is April 22. Responses can be sent to Dale Cantone at [email protected] and Theresa Leets at [email protected] ' “if you are comfortable sharing your ideas with attribution,” Cantone noted. “If you would prefer to share your ideas on a confidential basis without attribution, please send your input to Warren Lewis at [email protected], Ron Gardner at [email protected], or Chuck Modell at [email protected].”

Dairy Queen Claims Franchisee Extortion

A dispute with an Iowa franchisee has taken an unusual turn as American Dairy Queen Corp. (“ADQ”) is suing the franchisee for “implicit ' threat of violence” and “claims and name-calling [that] have had as their ultimate objective the extortion of huge sums of money from ADQ.” ADQ is seeking to immediately terminate its franchise agreements with the franchisee, permanently enjoin alleged acts of extortion and defamation, enforce post-termination covenants, and obtain payments of royalty and promotional funds it says it is owed, and damages. The lawsuit is American Dairy Queen Corporation v. Guy A. Blume, et al., District of Minnesota, No. 0:11-cv-00358.

The franchisee, Guy A. Blume, “has threatened to inflict physical harm on ADQ representatives; has threatened to accuse ADQ of criminal conduct, a public offense; has threatened to expose ADQ to hatred, contempt, and ridicule; and has threatened to harm the business and professional reputation of ADQ and its representatives ' all unless ADQ paid him huge sums of money to buy his silence,” the complaint states.

According to the lawsuit, Blume became an operator of three Dairy Queen franchises in 2008 and 2009 by purchasing assignments from other franchise operators. While a small problem with royalty payments surfaced at one of the franchises in 2009, the lawsuit states that the problems escalated significantly in July 2010, when Blume stopped reporting gross sales figures and making any required royalty or sales promotion payments for any of the three franchise units.

As ADQ sought to enforce its agreements, tensions with Blume increased. For example, Blume allegedly sent a letter to ADQ on Oct. 31, 2010, accusing ADQ of engaging in “personal attacks [that] have hurt me emotionally as well as financially.” Blume allegedly claimed that ADQ was “slandering me to other operators to be destructive to my business.” The lawsuit also claims that Blume demanded $495,000 for the alleged harm done to him by ADQ.

According to the lawsuit, in November, Blume claimed that ADQ did not provide him with franchise disclosure documents prior to his becoming the assignee of the three franchises and later filed complaints with the Federal Trade Commission. While Blume's statement is accurate, ADQ's filing notes that “ADQ had no legal obligation to give Blume an FDD.” ADQ also stated in the lawsuit filing that “the applicable law does not require such a disclosure where, as here, ADQ was not involved in the sale of the franchise opportunity, but the sale was by a third party to the franchisee.”

Then, in a letter dated Dec. 24, Blume claimed that “I am putting you on notice that I will show your organization no mercy if these issues are not resolved in due time,” according to the lawsuit, and a week later he allegedly wrote a lengthy letter indicating that he would utilize electronic media outlets to publicize his complaints. In February 2011, he allegedly dressed in a clown suit and appeared at a meeting of area DQ franchisees and then at the headquarters of Berkshire Hathaway in Omaha, NE (Berkshire Hathaway owns ADQ) to indicate his displeasure with the company. After those alleged incidents, ADQ filed the lawsuit.

In an e-mail interview with FBLA, Dairy Queen issued the following statement: “ADQ's primary objective is to protect the Dairy Queen' brand. ADQ has attempted, and will continue to pursue, a mutually acceptable resolution that meets that objective. Ideally, that solution would minimize impact on the local marketing area.”

Blume could not be reached for comment. He must file an answer to the complaint by April 21.

Taco Bell Aggressively Challenges Food Content Lawsuit

Yum! Brands, owner of the Taco Bell franchise, has asked the U.S. District Court, Central District of California, to dismiss a class action lawsuit that challenges Taco Bell's advertisements and claims that the franchise's “seasoned beef” does not meet the federal definition for beef. The lawsuit is Obney v. Taco Bell Corp., U.S. District Court, Central District of California, No. 11-00101.

“This is a consumer rights class action challenging Taco Bell's practice of representing to consumers that the filling in many of its 'beef' food items is 'seasoned ground beef' or 'seasoned beef,' when in fact a substantial amount of the filling contains substances other than beef,” the lawsuit states. “Rather than beef, these food items are actually made with a substance known as 'taco meat filling.' Taco meat filling consists of 'extenders' and other non-meat substances. Taco meat filling is not beef.”

A hearing on the dismissal will be held on April 25, confirmed Helen Taylor, public relations coordinator for the law firm that is representing plaintiff Amanda Obney, the Montgomery, AL-based Beasley, Allen, Crow, Methvin, Portis & Miles, PC. The lawsuit seeks changes in Taco Bell's advertising claims or content of its ground beef. It does not state the monetary damages that are being sought, and a representative of the law firm would not comment to FBLA beyond supplying a copy of the lawsuit filing.

So far, the impact has been to change Taco Bell's ads ' but not in the way that the plaintiff would have anticipated. Taco Bell came out swinging against the allegations, first with national ads that stated: “Thank you for suing us.” Then, in late-January, Taco Bell President Greg Creed released a statement in which he said that Taco Bell's ground beef is 88% USDA-certified beef and 12% fillers (water, spices, and oats). He added that the spice mixture is proprietary.

Subsequently, the company has aired ads in which employees state that the ingredients are “right there” on the Web site and taco giveaways and discounts. One discount was for premium tacos, typically priced at $2.39-$2.49, for 88 cents, referencing the company's claim of its percentage of USDA-certified meat in its ground beef.

The lawsuit notes that the USDA's definition states that ground beef “shall not contain added water, phosphates, binders, or extenders.” But Taco Bell's mandatory nutrition label lists water as a primary ingredient in its “taco meat filling,” topped only by beef, according to the lawsuit.

NASAA Project Group Seeks Input on Multi-Unit Franchising

The Franchise and Business Opportunities Project Group (“Project Group”) of the North American Securities Administrators Association (“NASAA”) is beginning work on a new Commentary that will address a wide range of issues on multi-unit franchising and provide practical guidance about the disclosure obligations of all involved parties. The Project Group is seeking input on issues, ambiguities, or problems that franchisors, franchisees, and franchise attorneys believe should be addressed in the new Commentary. Input can include proposed resolutions or solutions and any relevant cases, statutory provisions, regulations, papers, or other information that could be relevant.

Some multi-unit franchising issues already have been addressed by the Federal Trade Commission in FAQs 9 and 13, by NASAA in Sections 20.2, 20.3 and 20.4 of NASAA's 2009 Commentary on the 2008 Franchise Registration and Disclosure Guidelines, and by California in its Release 18-F. The Project Group, in consultation with the staff of the FTC and state franchise examiners, intends to give expanded guidance on those and other issues in this new commentary.

The deadline for providing input is April 22. Responses can be sent to Dale Cantone at [email protected] and Theresa Leets at [email protected] ' “if you are comfortable sharing your ideas with attribution,” Cantone noted. “If you would prefer to share your ideas on a confidential basis without attribution, please send your input to Warren Lewis at [email protected], Ron Gardner at [email protected], or Chuck Modell at [email protected].”