News
NFA files class action suit against BKC over maximum pricing
November 11, 2009
Burger King's National Franchisee Association (NFA) has filed its second class-action lawsuit against the quick-service burger chain. The first regards the franchisor's attempt to divert funds from a fountain beverage rebate program to Burger King's marketing fund. The second, filed Tuesday on behalf of owners of Burger King restaurants in the United States, concerns Burger King Corporation's "maximum pricing" policy.
The lawsuit alleges that BKC is violating the terms of the parties' franchise agreements by purporting to mandate maximum prices for certain products, even though the franchise agreements do not grant BKC the right to set prices. At issue is the company's decision to price its Double Cheeseburger for $1, a price point franchisees voting against on several occasions this summer.
The lawsuit was filed in the U.S. District Court for the Southern District of Florida against BKC and seeks a declaratory judgment from the court. Specifically, the NFA is asking the court to declare that "BKC does not have the authority under the Franchise Agreements to dictate maximum prices," according to a news release.
Burger King believes, however, that it has the right to make such changes. The company provided the following statement:
"BKC believes the lawsuit is without merit. The U.S. Court of Appeals for the Eleventh Circuit decided earlier this year that BKC has the contractual right to require franchisee participation in its BK Value Menu program."
NFA disputes policy
The NFA consists of 19 regional franchisee associations, represents more than 80 percent of U.S. franchised Burger King restaurants and serves as the official voice of the BKC franchisee community.
The NFA said it filed the lawsuit after unsuccessful attempts to encourage BKC to respect the historic rights of its independent franchisees. The lawsuit states:
The dispute between the parties is triggered by the position recently taken by BKC, contrary to decades of practice, that the general language of [the Franchise Agreement] gives it the power to set prices for its independently owned franchises.
The NFA is asking the court to declare that the franchise agreements do not grant BKC the right to set prices, as shown by, among other things, the parties' consistent practice and understanding that as independent business owners the franchisees retain the right to set their own menu board prices.
"Our franchisee community is united in protecting our entrepreneurial rights as independent business owners, but we are also disappointed that we need to take legal action against our franchisor," said William Harloe Jr., NFA chairman and a Maryland-based franchisee. "The mission statement of the NFA is to preserve the economic well being of all members. After attempts to compromise on maximum pricing were unsuccessful, we have been forced to pursue a judicial resolution of this issue."
This is the second class action lawsuit that NFA franchisees have initiated against their franchisor this year. In May 2009, the NFA filed lawsuits against Burger King, Coca-Cola, and Dr. Pepper on behalf of all franchisees. That action seeks a declaratory judgment from the court that the franchisees are the intended third-party beneficiaries under certain soft drink agreements and are entitled to receive their franchisee restaurant operating rebates, in full, as they have since 1990.
Harloe said that the NFA and its member franchisees prefer to resolve the franchisee restaurant operating funds and maximum pricing lawsuits amicably but that circumstances have left no alternative except to pursue legal remedies to questions concerning franchise agreements.
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