McDonald's Attempt To Close Baltimore Restaurants Rebuffed By Federal Judge
By Gregory C. Baumann, Opinions Editor
The New Daily Record, Maryland's Business & Legal News, Tuesday, January 28, 1997
A federal judge yesterday, thwarted temporarily McDonald's Corp., attempt to oust the company's first African-American store owner in Baltimore from the three downtown restaurants he operates.
The company had gone to court alleging that Osborne A. Payne forfeited his right to run the restaurants by falling behind in rent and service fees and letting sanitary conditions in his establishments slip.
But in a case that explores the balance of power between the huge corporation and its small, entrepreneurial franchisees, U.S. Senior District Judge Alexander Harvey II refused to issue McDonald's a temporary restraining order that would have kept Payne from using the company's trademark.
McDonald's lawyer Stephen H. Sachs, of Washington's Willmer, Cutler & Pickering, claimed in court that his client would suffer irreparable harm if Payne continued to run the stores he has operated for up to 22 years.
He explained that the company feared cleanliness concerns would affect consumers' perception of the fast food chain. "Your mark is the face you show the world," Sachs said. "When it's abused, that mark is tarnished."
Sachs also said it would be unfair to permit Payne to operate under the McDonald's name while allegedly in breach of his contract when other franchisees meet their financial obligations to the corporation.
But the case is intimately related to an earlier lawsuit Payne filed claiming McDonald's breached its franchising contract by letting too many McDonald's into the Baltimore market, eroding profit margins at existing restaurants.
There are roughly 18 McDonald's restaurants in Baltimore City.
Payne's Miami lawyer, Robert Zarco, told Harvey that his client is but one of many franchisees nationwide being squeezed out of business by corporate parents who maximize gross sales in a market by opening multiple locations.
As Zarco alleges it, McDonald's benefits by selling many franchises at a premium in a single market.
The company wins again, he says, when the corporation can come in and resell those same locations after ejecting the original franchisees---who were forced into default by too much competition.
Payne and another city fast food franchisee also pointed to the unrelated factor that has hurt their operations: urban malaise.
Harlow Fullwood, Jr., operator of two Kentucky Fried Chicken locations in Baltimore, said phenomena like rising crime and a declining city population make it tough for franchisees to turn a profit.
Payne said those conditions in concert with McDonald's franchising practices pushed him to the brink.
At the hearing yesterday, Zarco sought to undercut the corporation's assertion that Payne was a good franchisee whose sloppy business practices eventually brought him down.
He pointed to large capital outlays McDonald's allegedly forced Payne to make on his cornerstone restaurant at 2025 Broadway and questioned the validity of the company's claim of sanitary violations.
Zarco said the company sent a "hit squad" of accountants and inspectors to scrutinize Payne's operation only after he filed suit in October over the corporation's alleged practice of encroachment on existing franchisees with new restaurants.
Sachs disputed that characterization, saying the inspections were routine.
But Judge Harvey deferred consideration of those issues until a hearing on Feb. 3, when McDonald's will contend that Payne's suit against his corporate parent should be dismissed.
The corporation had sought to keep Harvey from considering the issues behind Payne's suit in ruling on its request for the temporary restraining order.
But the judge's decision to permit Payne to continue operating his stores indicated an unwillingness to consider McDonald's allegations in a vacuum.
"At this stage of the case, the balance of the hardships weighs favorably for [Payne]," Harvey said.
