A number of Burger King Corp. franchisees in California have filed a complaint for declaratory relief in federal court, claiming that the company has no basis for demanding that they pay the cost of settlement or its attorney’s fees and costs in a recently settled disability discrimination lawsuit. Newport v. Burger King Corp., No. 10-4511 (U.S. Dist. Ct., N.D. Cal., San Francisco Div., filed October 5, 2010). They seek an order declaring that Burger King is not entitled to indemnification as well as attorney’s fees and costs.
According to the complaint, Burger King has demanded indemnification for a settlement it reached over complaints that its restaurants were not accessible to the disabled. “If the Plaintiff franchisees do not pay BKC’s unfounded demand, BKC threatens to ‘terminate’ their franchise agreements, engage in self-help by withholding money owed to the franchisees, and/or otherwise retaliate against franchisees by preventing them from obtaining new restaurant opportunities or limiting to whom they may sell their existing franchises (whether or not in California),” according to the franchisees. They contend that Burger King “exerts extensive control over its franchisees,” and “requires franchisee adherence to its ‘comprehensive restaurant format and operating system, including a standardized design, décor, equipment system, color scheme and style of building and signage.” The disability discrimination lawsuit apparently focused on the restaurant chain’s “design barriers.’”
Burger King settled that lawsuit by agreeing to pay $5 million to the class and did not oppose a request by class counsel for $2.5 million in attorney’s fees. The plaintiffs were not part of the litigation and did not participate in efforts to settle it. Thereafter, Burger King purportedly demanded that its franchisees pay for the settlement and all attendant costs. They argue that under their franchise agreements, which have an indemnification clause, they are not required to indemnify Burger King for losses “resulting from the negligence of BKC” The franchisees allege that Burger King’s negligence “was the essence of the claims” in the disability discrimination lawsuit.