Washington v. McDonald’s USA, LLC, No. 4:21-cv-00367 (N.D. Ohio Feb. 16, 2021) — Herbert Washington, once one of McDonald’s largest Black franchisee owners, filed suit in the District Court for the Northern District of Ohio against the international, fast-food giant based on its alleged pattern of racial discrimination and retaliation against him and other Black franchisees.

Mr. Washington now joins two-hundred thirty-eight (238) other current and former Black franchisees who recently brought class action lawsuits against McDonald’s USA and McDonald’s Corporation, for what they also described as franchisor’s “pattern and practice of covert and systemic discrimination against Black franchisees.” See Crawford v. McDonald’s USA, LLC, No. 1:20-cv-05132 (N.D. Ill. Aug. 31, 2020); Byrd v. McDonald’s USA, LLC, No. 1:20-cv-6447 (N.D. Ill. Oct. 29, 2020).

Specifically, and similar to the class plaintiffs in Crawford and Byrd, Mr. Washington alleges that McDonald’s instituted a policy and engaged in a decades-long practice of “redlining” or steering Black franchisees into low-volume stores located in impoverished, predominantly Black neighborhoods, which stores had disproportionately high operating costs due to higher insurance rates, security costs, required investment time, and employee turnover. He further alleges that McDonald’s was able to induce Black franchisees into investing in these high-cost, low-volume store locations through a combination of high-pressure sales tactics, the parties’ unequal bargaining power, and its promises of future growth and renewal opportunities.

Mr. Washington contends that the promised growth and renewal opportunities were actually rarely available to Black franchisees, limited to purchasing underperforming stores in the same distressed neighborhoods, and offered without the same financial assistance/support and restructuring plans offered to White franchisees. The detrimental impact(s) of the foregoing actions he says were compounded by McDonald’s regular practices of denying Black franchisees rent and impact relief, targeting them for harsh and unreasonable site inspections and performance reviews, and using franchisor’s renewal power to force Black franchisees into undertaking expensive renovation projects in short timeframes and/or selling their stores to White franchisees at below market value or otherwise at a loss. And this alleged pattern and practice had the intended result of driving him and other Black franchisees out of the System.

Mr. Washington relies on his 40 years of knowledge and experience as a McDonald’s franchisee, and McDonald’s past acknowledgement of its disparate treatment of Black and White franchisees. Additionally, he highlights recent data collected by the National Black McDonald’s Operators Association (NBMOA) that shows, between 2010 and 2019:

• the cash flow gap between McDonald’s Black and White franchisees more than tripled;
• the average annual sales per store of Black franchisees was more than $700,000 less than those owned by White franchisees; and,
• over the past 22 years, the number of Black franchisees has been cut by more than half (to less than 200), notwithstanding that, in that same time, the total number of stores has more than doubled from 15,086 to 38,999.

Mr. Washington maintains, as a direct and proximate result of McDonald’s pattern of disparate treatment, he was forced to divest of 9 (of his 23) store locations and lost numerous opportunities for growth and renewal; and thus, seeks relief in the form of an unspecified amount of compensatory damages, as well as special, consequential, and punitive damages.

Special and consequential damages in cases like Washington are always difficult to quantify, because lost opportunity costs are inherently speculative. But, assuming the compensatory damages alleged in Crawford and Byrd are representative — i.e., between $4,000,000 and $5,000,000 per store, then Mr. Washington’s claim likely exceeds $36,000,000 (and the class plaintiffs’ damages exceed $950,000,000).

Washington (and Crawford and Byrd) could have potentially significant implications with respect to the McDonald’s System, particularly given the recent spotlight on the legacy of systemic racism in America and the role of “Devalued Assets” in the racial wealth gap. These cases may also have significant implications with respect to the franchisor-franchisee relationship more generally (including a franchisor’s right to treat its franchisees differently, and control the transfer or resale of units/stores by franchisees).

Federal courts continue to demonstrate lacking patience for nationwide product labeling class actions premised on purported label misstatements regarding the sourcing of vanilla flavoring.

Recently, food retailer Topco Associates successfully moved to dismiss a class action lawsuit in the Southern District of New York alleging that the labeling on its Vanilla Almondmilk misled customers to believe that the vanilla flavor is sourced from natural vanilla bean extract, rather than artificial and synthetically produced flavors such as vanillin.  The plaintiffs argued that this deception induced them, and the putative class they sought to represent, to pay a premium for a product they thought contained natural vanilla flavors.

Continue Reading Vanilla Product Labeling Suits Continue to Flounder in Federal Court

As we anticipated back in May, there has been a significant increase in litigation relating to business interruption insurance coverage for losses attributable to COVID-19 restrictions. Restaurant policyholders, in particular, have been at the forefront of raising these disputes.

These cases have mainly centered on the applicability of two common provisions in insurance policies: (i) Business Income Coverage provisions and (ii) Virus or Micro-organism Coverage exclusions. Most business income coverage provisions provide that coverage is available for loss of income sustained during necessary suspensions of operations caused by “direct physical loss of or damage to property.” [1] However, most policies also contain coverage exclusions “for loss or damage caused by or resulting from any virus, bacterium, or other micro-organism.”[2]

Continue Reading Policyholders Gain Momentum in COVID-19 Insurance Coverage Cases

On Monday, October, 19, 2020, Northern District of Illinois Judge Virginia M. Kendall denied three motions to dismiss a putative class action alleging that the nation’s leading turkey suppliers—including Butterball, Cargill, House of Raeford, Tyson, and Perdue—engaged in a conspiracy to fix the prices of turkey sold in the United States over a seven year period.  [1]

Continue Reading Federal Court Denies Motions to Dismiss Turkey Price-Fixing Case

As the Bilzin Sumberg team previously reported in June 2020, the Department of Justice (DOJ) indicted four executives from Pilgrim’s Pride and Claxton Poultry for their participation in a conspiracy to fix prices and rig bids of broiler chicken products.

That indictment alleged that from at least 2012 through at least 2017, Pilgrim’s, Claxton, and at least five other unnamed chicken suppliers participated in a conspiracy to exchange confidential pricing information and rig bids to some of their largest customers, including quick-service restaurants and grocery chains.

On October 6, 2020, the DOJ issued a superseding indictment, which expanded both the number of companies involved and the scope of conduct.

Continue Reading Chicken Criminal Price-Fixing Case Heats Up

Earlier this month, the Attorney General’s Office of the State of New York filed a lawsuit  in New York Supreme Court against Hillandale Farms alleging that the company gouged egg prices during the COVID-19 pandemic.

The State’s Petition, based on alleged violations of New York’s General Business and Executive Laws, contends that Hillandale, one of the nation’s largest producers and wholesale suppliers of eggs, “increased its prices for eggs to levels double, triple, and even quadruple the prices it charged for the same products in January 2020.” [1] For example, according to the Petition, purchaser Western Beef saw Hillandale’s wholesale price for a dozen large eggs jump from $0.59 in January to $2.93 by the end of March.[2]

Continue Reading Egg Supplier Scrambling As Pandemic Price-Gouging Enforcement Heats Up

On June 8, 2020, Judge Katherine Polk Failla in the Southern District of New York dismissed a putative class action against TGI Friday’s (“Friday’s”) for alleged deceptive advertising.

The Plaintiff claimed the labeling of Friday’s “Sour Cream & Onion Potato Skins” chips is misleading because it led her to believe the snack contained real potato skins and was thus a healthier option than most chips. According to the Plaintiff, she—and the members of the putative class she sought to represent—would not have purchased the purportedly falsely labeled chips if she had known they did not contain real potato skins.

Continue Reading Putative Class Action Against TGI Friday’s Dismissed

On June 3, 2020, the Department of Justice (DOJ) indicted executives from Pilgrim’s Pride Corporation and Claxton Poultry Farms—two of the country’s largest chicken producers.  The criminal action was filed in the District of Colorado, where Pilgrim’s Pride is headquartered.  The individuals criminally charged are Pilgrim’s President and CEO, Jayson Penn and former Vice President, Roger Austin, as well as Claxton’s President, Mikell Fries, and Vice President, Scott Brady.

Continue Reading Chicken Industry Executives Indicted for Criminal Price-Fixing and Bid Rigging

On May 20, 2020, the Eleventh Circuit affirmed the dismissal of a proposed class action against General Mills for its alleged failure to disclose the presence of a harmful chemical in its Cheerios cereal. The Eleventh Circuit agreed with District Judge Robert N. Scola Jr.’s finding that the Plaintiff failed to allege an actual injury sufficient to confer Article III standing.[1]

The Plaintiff alleged General Mills failed to disclose that its Cheerios and Honey Nut Cheerios contain trace amounts of glyphosate, the herbicide that was the subject of the well-publicized class actions involving Monsanto Roundup. [2] The putative class representative sought to establish both a nationwide class and a Florida class of purchasers of Cheerios or Honey Nut Cheerios during the applicable class period.[3] In addition to claims of breach of warranty, unjust enrichment, violations of Florida’s deceptive practices act (FDUPTA), and restitution for revenues General Mills earned by purportedly misleading consumers, the Complaint also sought an injunction requiring General Mills to change the company’s allegedly deceptive practices.[4]

Continue Reading Big Win For General Mills as Eleventh Circuit Affirms Dismissal of Contaminated Cheerios Class Action

In the latest of a series of antitrust lawsuits involving the food industry, a Virginia federal court last week denied a motion to dismiss a class action lawsuit alleging a price-fixing conspiracy in the peanut market.

The class is comprised of peanut farmers and harvesters that sell the raw peanuts to the Defendants, who then process, shell, and sell the final product to food companies or other manufacturers.[1]

Continue Reading Peanut Farmers Successfully Allege Price-Fixing Conspiracy Against Industry Giants