Franchisee Wins 1st Round Over McDonald's

Owner of 3 stores sues over chain's saturation
By Scott Higham, Sun Staff

The Sun, Legal Affairs, January 28, 1997

The owner of a string of McDonald's restaurants in Baltimore won an early round yesterday in his legal fight against the hamburger giant, setting the stage for a key showdown in federal court next week.

Osborne A. Payne is suing McDonald's Corp., claiming the firm is driving down the worth of his stores by allowing a series of other golden arches to rise just blocks away from Payne's.

McDonald's fought back, asking Senior U.S. district Judge Alexander Harvey II yesterday to issue a temporary restraining order, forcing Payne to close the restaurants he runs in the city because he has fallen behind on his rent payments and service fees.

Harvey declined, ruling that a court hearing should be held first.

"I am not satisfied that this extraordinary relief should be granted," the judge said after hearing an hour of arguments yesterday.

Payne sued McDonald's last year, accusing the company of unfair business practices by opening too many stores in the city, reducing the value of his restaurants.

Payne, now 71, opened his first restaurant in Baltimore in 1974 - the first African-American to do so in the city.  Over the years, he opened other stores.  He now operates three -  one on North Avenue, one on Broadway, and another on Greenmount Avenue.  A store he owned on Franklin Street was closed.

Payne also built a reputation for charitable work in the city by running the Baltimore-based Campaign for Our Children, which created the advertising slogan: "VIRGIN - Teach Your Kids It's Not a Dirty Word."

Payne's attorney told Harvey yesterday that McDonald's and other fast-food chains are using the saturation strategy around the country.

"It’s profit-driven greed, that's all it is," said attorney Robert Zarco, who told the judge he is handling 35 similar cases around the country.  "They  [McDonald's] keep putting in more and more stores."

Zarco said Payne tried to sell the stores back to McDonald's, but the corporation offered to buy them at far below his asking price.  "There has been a constant bleeding of his operation," the lawyer said.

With his lawsuit pending, Payne has refused to pay a portion of his rent and service fees to McDonald's.  Lawyers for the fast food chain told Harvey yesterday that Payne owes $186,000 and should be restrained from continuing to operate as a McDonald's restaurant.

"We think we are entitled to throw him out," said McDonald's attorney, Stephen H. Sachs.