Some Dairy Queen franchise owners, including those in West Virginia, have filed suit against International Dairy Queen, Inc. as a result of its alleged effort to force them to make changes to their restaurants and their operations. (I will resist the temptation, as Associated Press reporter Tim Huber did not, to describe Dairy Queen’s as a dilly of a problem.) The Michigan Dairy Queen Operators’ Association, et al. v. International Dairy Queen, Inc., et al., Civil Action No. 1:08-CV-0036.
Dairy Queen International, Inc., which is owned by Berkshire Hathaway Inc., wants its franchisees to increase the size of their restaurants and make other changes, such as adding table service. But the franchisees claim that the changes would cost each owner between $275,000 and $450,000 to remodel its store, and require other expenses, such as the cost of updated equipment to conform to new menu specifications, additional labor and training costs, and the loss of revenue when the conversion to the new restaurant format takes place.
According to the plaintiffs’ amended complaint for declaratory judgment and injunctive relief,
On behalf of their members (hereinafter “Member Franchisees” or individually “Member Franchisee”) whose franchise agreements do not contain arbitration clauses, the Plaintiffs seek declaratory and injunctive relief to prohibit Defendants from forcing their Member Franchisees to make an expensive conversion to a DQ Grill & Chill or a DQ/Orange Julius Treat Center on terms that are commercially unreasonable in view of the expense, on the one hand, and the lack of a reasonable rate of return, on the other hand. Defendants’ attempts at forced conversion constitute a material breach of the existing franchise agreements and the duty of good faith and fair dealing that is implied as a matter of law in every contract. Without the relief being requested in this action, the Member Franchisees are suffering, and will continue to suffer, irreparable damage through the actual or threatened losses of: (i) their coerced investments in the brand conversions; (ii) the business and goodwill that they have developed and nurtured as Dairy Queen franchisees; and (iii) the opportunity to realize the equity in their Dairy Queen franchises by sale.
West Virginia Dairy Queen franchisees are members of North Eastern Store Owners, Inc., which also includes store owners from Virginia, Pennsylvania, Ohio and Kentucky. Here is Jenni Vincent’s story from the Martinsburg Journal, which provides some additional information on the West Virginia owners’ involvement in the lawsuit.
The lawsuit has just gotten started and so it’s too early to predict the outcome, but according to consultant Richard Adams, who is quoted in Huber’s article, "Very seldom do the franchisees win an outright victory," [he] says. "It’s usually something that’s settled out of court."