IN RE: McDonald's Franchise Antitrust Litigation

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BEFORE THE JUDICIAL PANEL JUN	12 1873 SN A -
MULTIDISTRIOT LITIGATION PATRICIAG. swan oe
CLERKOF The Fiji 1a 0
IN RE McDONALD'S FRANCHISE ) DOCKET NO. 385 | $a/%)	ANTITRUST LITIGATION ) AAS
OPINION AND ORDER ce
BEFORE MURRAY I. GURFEIN, CHAIRMAN, AND EDWIN A. ROBSON, N : oo
STANLEY A. WEIGEL, ANDREW A. CAFFREY, ROY W. HARPER, AND
CHARLES R. WEINER, JUDGES OF THE PANEL. Co }
PER CURIAM :
This litigation consists of four actions, one each
pending in the Southern District of Florida, the Eastern
District of Virginia, the Northern District of Illinois i. .
and the District of Arizona. The complaint in each action
challenges certain franchise practices of McDonald's Corporation
(McDonald's).
McDonald's is a franchisor of over 4,000 fast food
restaurants, located both in this country and throughout
Canada. McDonald's System, Inc., a wholly-owned subsidiary
of McDonald's, owns approximately 25 percent of all McDonald's :
franchises, while individual operators own the remainder So Co
of the franchises. In most instances, McDonald's locates
the proposed site for a restaurant, and then arranges for
the planning and construction of the premises. A second a.
wholly-owned subsidiary of McDonald's, Franchise Realty
Interstate Corporation (Franchise Realty), currently either
owns or leases the property upon which over 99 percent of
the McDonald's restaurants are located. After the construction
of a given restaurant, McDonald's either retains ownership
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2 of the restaurant through McDonald's System or offers the Co ne | Bg
3 restaurant to a current or a potential franchisee.’ The SRE
4 license of the franchise and the lease of the underlying
< property generally are for a twenty-year period.
The Florida action was coppenced in 1973 by two McDonald's Co a
© franchisees located in Florida against McDonald's, McDonald's SEER
7 System and Franchise Realty. The complaint in this action oo
8 alleges that numerous aspects of defendants’ franchising
9 program violate the federal antitrust and the federal securities |
10 laws. In particular, plaintiff alleges that defendants, }
11 in violation of Section 1 of the Sherman Act, have conditioned -
12 the grant of a McDonald's franchise upon 1) the lease or |sublease, at an artificially high rental rate, from Franchise
13 Realty of the land and building where a franchisee operates
14 the restaurant (the real estate tying claim); and 2) the
15 loan2/ of money to McDonald's, usually in the amount of
16 $15,000, for a period of from fifteen to twenty years, as
17 evidenced by a promissory note of McDonald's to each franchisee
18 (the promissory note tying claim).
19 The Florida action was commenced as a class action
20 on behalf of all McDonald's present or former franchisees
located in the United States. In late 1977, the Florida
21
22
1/ One of these two plaintiffs has settled all his claims
23 against defendants, and those claims have been dismissed
with prejudice.
24 2/ Defendants characterize this "loan" as a "security deposit.
25
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@ 2 district court denied plaintiff's motion for class
3 certification insofar as the real estate tying claim was
4 concerned. Defendants have filed a motion for summary
5 judgment concerning that claim. On June 22, 1978, the
Florida district court ruled that plaintiff's promissory
° note tying claim would be considered on the "test case"
’ approach set forth in Katz v. Carte Blanche Corp., 496 F.
8 2d 747 (3d Cir.), cert. denied, 419 U.S. 885 (1974). The
9 Florida district court further ordered that a determination
10 of liability on the promissory note tying claim in favor
11 of the plaintiff would result in certification of a class
12 defined to include all persons, including corporations,
who have been McDonald's franchisees at any time since April
@®- 19, 1969. Defendants have also filed a motion for summary
14 judgment on the promissory note tying claim.
15 In addition to substantial pretrial proceedings on
16 the class determination and summary judgment issues, extensive
17 discovery and other pretrial proceedings have occurred in
18 the Florida action.
19 The Virginia action was brought in June, 1978, by the
20 franchisees of two McDonald's restaurants located in Virginia
against the same three defendants involved in the Florida
21 action -- McDonald's, McDonald's System and Franchise Realty.
22 The factual allegations of the complaint in the Virginia
23 action, which was commenced pursuant to the federal and
C } Virginia securities and antitrust laws and the Virginia25 Retail Franchising Act, are very similar to those raised
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2 in the Florida complaint. In particular, the complaint
3 in the Virginia action challenges McDonald's alleged real
a estate and promissory note tying arrangements as violative
of Section 1 of the Sherman Act. On January 16, 1979, the
° Virginia district court granted defendants' motion for summary
© judgment concerning some of the federal securities and state
7 law issues with respect to plaintiffs' promissory note tying
8 claim.
9 Discovery has been completed in the Virginia action,
10 and that action has been scheduled for trial commencing
11 on July 17, 1979. Defendants represent in their pleadings
12 before us that plaintiffs in the Virginia actions’ "have
sought and obtained understandings with McDonald's counsel
13 for the use of transcripts of certain depositions originally
14 taken in the [Florida action] and have taken coordinated
15 depositions applicable to both cases. Additional coordination
16 of this type has been discussed."
17 The Illinois action was commenced in early 1977 against
18 McDonald's System and Franchise Realty by the franchisees
19 of two McDonald's restaurants located in Wisconsin. The
complaint in the Illinois action alleges that McDonald's
20 practice of tying the licensing of its restaurants to 1)
21 the lease of the property underlying the restaurant from
22 Franchise Realty, and 2) the purchase of Coca Cola, constitute
23 illegal tying arrangements and violate Section 1 of the |24 Sherman Act.
25 3/	Plaintiff	inthe Florida action and plaintiffs in the .Virginia action are represented by the same counsel.
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9. Plaintiffs in the Illinois action sought to represent
3 a class composed of all current McDonald's franchisees.
4 On January 5, 1979, the Illinois district court certified
. two classes in this action. The first, relating to the
real estate tying claim, consists of all franchisees who
° acquired a McDonald's franchise after McDonald's established
7 the policy of requiring franchisees to lease from Franchise
8 Realty the property upon which the restaurant was located.
9 The second class, relating to the Coca Cola claim, is composed
10 of all franchisees. Martino v. McDonald's System, Inc.,
11 81 F.R.D. 81 (N.D.I1l. 1979). Defendants in the Illinois
12 action have moved for reconsideration of the decision to
certify these two classes.
LZ The parties in the Illinois action have advised the
14 Panel that most discovery in that action has to date been
15 limited to class action issues.
16 The Arizona action was filed in July, 1977, against
17 McDonald's, McDonald's System, Franchise Realty, McDonald's
18 Business Facilities Corporation (a subsidiary of McDonald's),
19 and numerous individuals and entities that operate McDonald's
franchises in the State of Arizona. Plaintiffs in this
20 action are five individuals who, in various combinations,
21 operate five franchised McDonald's restaurants in or near
22 Phoenix, Arizona.2’ Plaintiffs allege that defendants, in
23
4/ The Arizonaplaintiffs	lease or sublease from certain
defendants four of the five premises at which plaintiffs’
C franchised businesses are conducted. The fifth restaurant25 operated by these plaintiffs is one of the few instances
where the franchisee owns the premises or leases from someone
other than McDonald's. See Martino v. McDonald's System,
Inc., supra, 81 F.R.D. at 88 n.4 and accompanying text.

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2 violation of Section 1 of the Sherman Act and the Arizona
3 antitrust laws, have conspired to restrain interstate trade
4 and commerce unreasonably and "have restrained such trade
5 and commerce by unreasonably restricting free and open compe-
tition between restaurant operators, firms leasing land,
® firms constructing buildings, firms franchising restaurant
7 operations and buyers and sellers of restaurant franchises,
8 firms selling insurance, and firms supplying advertising
9 services ...." In addition, the complaint alleges that,
10 in violation of Section 2 of the Sherman Act and the Arizona
11 antitrust laws, certain defendants have attempted to monopolize,
12 conspired to monopolize and have in fact monopolized "the
retail sale of sandwiches, french fries, beverages and other
t products sold in conjunction with the McDonald's trademarks
14 and service marks in the United States and in the Phoenix,
15 Arizona area ...." In furtherance of these allegedly illegal
16 activities, plaintiffs claim, defendants have tied the grant
17 of a McDonald's franchise to, inter alia, 1) the lease or
18 sublease from Franchise Realty of the real estate upon which
19 a restaurant is to be located,>’ and 2) the purchase by
20 a prospective franchisee of a promissory note from McDonald's.
Additional counts in the Arizona complaint allege various
21 breaches of contract, seek cancellation of numerous McDonald's
22 service marks, and seek adjudications that some of McDonald's
23 form franchise clauses are unenforceable.
24 TT
5/ Plaintiffs in the Arizona action deny that the real estate
os tying allegations of their complaint constitute a "claim."€ of our disposition of the motion before us, we need
not reach this issue. For purposes of convenience, however,
we have referred to the real estate tying allegations in
the Arizona complaint as a "claim" throughout this opinionand order.

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C 2 Substantial discovery and other pretrial proceedings
3 have already occurred in the Arizona action. For example,
4 defendants, in their papers before the Panel, assert that
5 several thousand pages of deposition testimony have been
taken and that over 100,000 documents have been produced.
6
Plaintiff in the Florida action and plaintiffs in the
7
Virginia action have moved the Panel ,%’/ pursuant to 28 U.S.C.
8 §1407, to centralize the real estate tying claims involved
9 in all actions.l/ These plaintiffs favor the Northern District
10 of Illinois as the transferee forum. McDonald's, McDonald's
11 System, Franchise Realty and plaintiffs in the Arizona action
12 oppose Section 1407 transfer of the real estate tying, or
any other, claims involved in this litigation. Plaintiffs
3
o in the Illinois action state that they take no position14
on the Section 1407 motion. No response has been received
15
from any other party.
16 We conclude that transfer under Section 1407 would
17 not necessarily serve the convenience of the parties and
18 witnesses or promote the just and efficient conduct of this
19 —
" 6/ The motion was originally made solely by the Florida
20 plaintiff. A reply memorandum in support of the motion,
however, was submitted by the Florida plaintiff and the
21 Virginia plaintiffs.
7/ One additional potentially related action -- Marane,
22 Inc. v. McDonald's Corporation, et al., C.A. No. 79 C 816 ~~
is also pending in the Northern District of Illinois. This
23 action was not included on the Schedule of Actions attached
to the motion for transfer under Section 1407. Because
a of our disposition of that motion, we need not determine
whether any of the claims in Marane are appropriate for
2s Section 1407 transfer as a tag-along action.
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2 litigation. Accordingly, we deny the motion to transfer.
3 Movants argue that the real estate tying claims in
4 the actions before us raise a number of significant common
5 questions of fact and will entail identical or overlapping
discovery and legal issues. Thus, movants contend, Section
© 1407 transfer of these claims is necessary to prevent dupli-
7 cative discovery, eliminate the possibility of conflicting
8 pretrial rulings, and conserve the time and effort of the
9 parties, the witnesses and the judiciary. Transfer is parti-
10 cularly appropriate, movants maintain, because plaintiffs
11 in the Virginia action, some of the plaintiffs in the Arizona
12 action and plaintiff in the Florida action are included
within the real estate tying claim class recently certified
1 in the Illinois action.
14 While we recognize that the real estate tying claims
15 in the four actions before us involve common questions of
16 fact, we are not persuaded, because of the overall status
17 of pretrial proceedings in these actions, that Section 1407
18 transfer is appropriate. All discovery has been concluded
19 in the Virginia action, and trial is imminent in that action.
20 The Florida action has been pending for several years and,
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' 1 on the basis of the record before us, discovery on the real
C 5 estate tying claim in that action is nearly, or perhaps
3 entirely, completed. Therefore, nothing would be acheived
by including those two actions in coordinated or consolidated
* pretrial proceedings. See In re Celotex Corporation "Technifoam"
> Products Liability Litigation, 68 F.R.D. 502, 505 (J.P.M.L.
6 1975). Moreover, we anticipate no possibility of duplicative
7 discovery with regard to the remaining actions in this liti-
8 gation. As we have already noted, movants and McDonald's,
9 McDonald's System and Franchise Realty have already agreed
10 to use certain depositions in more than one action in this
litigation. More importantly, at the Panel hearing counsel
H for these three defendants agreed to a binding stipulation
12 that all discovery in any of the actions before us, to the
CIE extent that discovery is relevant to the other actions,
14 may be used in the other actions as if taken in those actions.’
15 Transcript at 20, 31-32. See In re Women's Clothing Antitrust
16 Litigation, 455 F.Supp. 1388, 1390-91 (J.P.M.L. 1978); In
17 reAmerican Financial Corporation Litigation, 434 F.Supp.
18 1232, 1234-35 (J.P.M.L. 1977). Should this stipulation
fail to eliminate any potential discovery problems, any
19 party could seek orders from the involved district courts
20 directing the parties to harmonize their remaining pretrial
21 efforts. See In reWomen's Clothing Antitrust Litigation,
22 supra, 455 F.Supp. at 1391.
23 8/ Since theIllinois action before us and the potential |
CB tag-along action pending in the Northern District of Tllinoisare both assigned to the same judge, he can easily take |
| any steps he views appropriate to ensure that no duplicative
25 | discovery occurs with regard to the potential tag-along
| action. See In re American Financial Corporation Litigation, |	434 F.Supp. 1232, 1235 (J.P.M.L. 1977).

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2 Finally, we are convinced that consultation and cooperati
3 among the concerned district courts, if viewed appropriate
4 by those courts, coupled with the continued cooperation
5 of the parties, will minimize the possibility of conflicting
pretrial rulings. See id.
© IT IS THEREFORE ORDERED that the motion pursuant to
’ 28 U.S.C. §1407 to transfer the actions listed on the following
8 Schedule A be, and the same hereby is, DENIED. ’
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@® 2 SCHEDULE A3
4 MDL-385 -- IN RE McDONALD'S FRANCHISE ANTITRUST LITIGATION
5
6 DISTRICT OF ARIZONA CIVIL ACTION NO.
Ina Levine, et al. v. CIV-77-601-PHX-WPC
7 McDonald's Corp.
8 SOUTHERN DISTRICT OF FLORIDA
9 Lloyd Kypta v. McDonald's 73-678-Civ-JE
Corp., et al.
10 NORTHERN DISTRICT OF ILLINOIS
11 Michael Martino, et al. v. 77-C-98
McDonald's System, Inc., et al.
12 EASTERN DISTRICT OF VIRGINIA
CB Frank A. Principe, et al. v. 78-060114 McDonald's Corp., et al.
15
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