$50M Settlement Expected to Chill Dairy Queen Suit

$50M Settlement Expected to Chill Dairy Queen Suit

By Dennis Williams
Fulton County Daily Report
March 20, 2000

After nearly six years of litigation, a Macon, Ga., firm has negotiated a $50 million class-action settlement between International Dairy Queen and one-third of the Dairy Queen franchises nationwide.

In an order signed March 13, U.S. District Court Senior Judge Wilbur D. Owens Jr. said the proposed settlement "appeared reasonable." Hugh Collins v. International Dairy Queen, No.94-95-4-MAC (M.D. Ga. April 14, 1994).

The settlement agreement -- believed the largest of its kind from the Middle District -- requires defendants to pay $30 million in advertising, $250,000 to each of the suit's five original Central Georgia plaintiffs and $11.3 million in legal fees. Defendants also must make concessions on supply and other franchise issues.

Notices of the settlement must be mailed to class members by March 21. Those who wish to object must do so by May 4. A fairness hearing is set for May 31 in Macon.

The complaint, which was amended six times, grew out of an anti-trust case filed by Macon attorneys John E. James and William C. Harris of Harris & James and co-counsel Lee N. Abrams of Chicago's Mayer, Brown & Platt on behalf of the five Central Georgia Dairy Queen franchise owners on April 5, 1994. Plaintiffs sought class-action status on June 28, 1995, which Owens granted on Aug. 30, 1996.

In the amended suit, the franchisees claimed the defendants made it difficult, if not impossible, for stores to obtain supplies not sold by the defendants.

According to the complaint, "in an effort to prevent franchisees from purchasing alternative products, defendants have systematically repeatedly violated their contractual obligation ... to establish a reasonable process by which franchisees may obtain new sources of products that are approved for use in Dairy Queen stores."

AMONG LARGEST SETTLEMENTS
The defendants denied wrongdoing, maintaining they have a duty to ensure that the quality of food and service is consistent throughout the chain.

"Defendants have not implemented an unreasonable product approval process or changed their policies regarding approval of products, and deny that they have a monopoly in any relevant market or have engaged in any anticompetitive conduct," states the defense team's answer to the last amended complaint, filed Jan. 27, 1999.

The agreement reached by the plaintiffs' attorneys and International Dairy Queen's in-house counsel, William L. Killion of Minneapolis, and F. Kennedy Hall and Benjamin M. Garland of Macon's Hall, Bloch, Garland & Meyer is believed to be one of the largest out-of-court settlements in the Middle District of Georgia, says Court Clerk Gregory J. Leonard.

"To the best of my recollection, when you tally up all of the money involved, this case is by far the largest settlement in our history," Leonard says.

Under the terms of the agreement, defendants International Dairy Queen and American Dairy Queen Corp. deny liability and choose to settle the case on terms they consider a "fair compromise of the risks of litigation and to be reasonable, adequate, and in the best interest of all classes."

MONEY FOR PROMOTIONS
The defendants -- owned by Berkshire Hathaway Inc. and billionaire Warren Buffett -- agreed to pay more than $30 million into the Dairy Queen national sales promotion programs at a rate of $6 million a year for five years. Ordinarily, franchise members are required to pay for advertising.

The defendants also agreed to contribute $6 million to Dairy Queen Owners Cooperative, an association of franchise owners united to purchase supplies for Dairy Queen stores. A fund of $2 million will compensate former Dairy Queen owners who owned stores for more than 12 months after 1988.

The defendants will pay about $11.3 million in attorneys and expert witness fees. The defendants also agreed to change the process they use to approve food products, drinks and food packaging that the franchise holders may use.

Under the terms of the agreement, none of the direct parties or their attorneys may comment further.

In a news release attached as an exhibit to the agreement, International Dairy Queen President and Chief Executive Michael P. Sullivan said: "We're pleased to reach a settlement with our franchisees. The terms of the agreement are fair to both parties, and the contributions to the advertising and sales promotion fund should benefit the Dairy Queen name and our franchisees' ability to effectively grow our collective businesses."

Hugh Collins, one of the original plaintiffs who owns a Dairy Queen store in Dublin, Ga., said in the same news release: "It was imperative that we conclude this litigation and resolve our differences. The areas of agreement between the Dairy Queen franchisees and IDQ far outweigh our points of disagreement."

Carl Cheely, who owns a Dairy Queen in Milledgeville,Ga., is pleased with the accord. "This is going to make a big difference in my bottom line. My cost of buying the products should go down a lot now."

Cheely also agrees with the advertising funding, adding, "Right now, we are at the very bottom of major fast-food chains in the amount of money we spend on advertising and promotions. This will help to draw more people into the store."

Harris & James, which has seven lawyers, spent thousands of hours on the case, says Thomas H. Hinson II, a partner with Macon's Westmoreland, Patterson & Moseley, which was not involved in the case.

"They have three complete rooms full of filing cabinets stuffed to the brim with papers on this case," Hinson says. "They are probably responsible for the destruction of several tropical rain forests in Brazil." The lawyers probably added to their waistlines as well.

"I was told that Bill [Harris] frequently brought in ice-cream toppings and syrup for taste comparisons to see if the alternative products were as good as the official Dairy Queen products," says Bibb County Probate Judge William J. Self, a longtime friend.