Baltimore No Playland For McDonald Franchisee

Corporation Alleges Owner Failed to Pay Back Rent, Meet Safety RegsBy Gregory C. Baumann, Opinions Editor

The New Daily Record, Maryland's Business & Legal News, Friday, January 24, 1997

Fast food Goliath McDonald's Corp., yesterday moved to take over four downtown Baltimore franchises operated by Osborne A. Payne, the city's first African-American McDonald's franchisee and a recognized supporter of local charities.

The corporation asked a federal judge to order Payne to turn over control of the restaurants, saying he had failed to pay $186,016 in rent and service fees, and that company inspectors found food safety violations at all four stores.

A hearing on the request for injunction is scheduled for Monday.  But Payne's Miami, Fla. lawyer, Robert Zarco, said McDonald's set his client up for failure by granting too many franchises in the city, driving down profit margins at existing restaurants.

"Recently McDonald's has been starting to put new stores near his stores---and his sales started plummeting," Zarco said.

And the corporate policies that allegedly led to Payne's financial troubles are not isolated to the Baltimore market, he claims.  Zarco estimates his office currently handles more than 35 similar lawsuits arising across the country.

McDonald's spokeswoman, Julie Cleary, deferred comment on whether the company maintains a policy to protect franchisees from market saturation.

But in October, Payne filed suit in Baltimore's federal court challenging those tactics.

"Until recently, McDonald's did not unduly force franchisee/operators, including [Page], to compete with other McDonald's stores for the same customer base in their same market and trading area," attorney Zarco alleged in court papers.

The 71-year-old Payne opened his first McDonald's in 1974 at age 49.  He had previously worked as an educator.

In the meantime, Payne became involved in community projects, eventually chairing the governing board of the Campaign for Our Children, a Baltimore-based philanthropy known in the city for its "VIRGIN--Teach your kids it's not a dirty word" billboards.

By 1988, he had opened a total of five McDonald's.  His lawsuit alleges that in one case, the company made him choose between purchasing a franchise that would compete against his Broadway location, or watching another franchisee cut into his business. 

He opened the restaurant despite the fact it "cannibalized" revenue from his other locations.  McDonald's later permitted another restaurant to open two miles from the Broadway store, he alleges.

Together with capital outlay he claims McDonald's forced him to make, Payne says competition dropped his per-store income and put him in the hole.

"I was interested in the restaurant business and thought this was a unique way to go," Payne said.  "It worked out well until recently."

When Payne filed the October suit accusing McDonald's of breach of contract, failure to act in good faith and other wrongs, Zarco says his client's relationship with the company took a turn for the worse.

"Their tactics initially were amenable to dispute resolution," he said, "But McDonald's has evolved from a Ronald McDonald attitude to a Hamburglar attitude."

He said he was surprised at the company's decision to file for an injunction instead of simply responding to the October suit in a counterclaim.

McDonald's representative Cleary said the company chose to go to court, but not without regrets.

"We definitely don't want to say anything to put one of our longtime partners in a disparaging position," she said.  "The last place we wanted our partnership to end up was in a courtroom, but it did."

Citing the pending litigation, she declined further comment.

Zarco countered the company's claims that inspectors found evidence of widespread rodent infestation in the four restaurants Payne currently has a stake in.

"They are using food safety issues and concerns as an affirmative tool to deprive franchisees of their contractually vested rights," he said.

Payne operates the franchises at 2025 Broadway, 1812 N. Charles St., 524 W. Franklin St. and 2840 Greenmount Ave.