Little Caesars settles lawsuit with franchisees

March 28, 2002

DETROIT -- According to a report published in the Detroit News, a class-action lawsuit filed against Little Caesar Enterprises Inc., by 250 of its franchisees was settled this week in a San Antonio court. The agreement put to rest an 18-month dispute between the country's fourth-largest pizza chain and the franchise owners.

The settlement was approved Monday by federal district judge Janet Littlejohn. It provides franchisees potentially greater muscle in choosing products outside of those supplied by Little Caesars' Blue Line supply company, and gives them a greater voice in the chain's national advertising campaigns.

At issue were franchisee complaints that Little Caesars forced them to use ingredients and products, whose quality they claimed had decreased though prices increased.

The franchise owners' lead attorney, Michael Caddell of Houston, told the Detroit News that the settlement is "nothing less than a complete restructuring of the relationship between Little Caesar and its franchisees."

In the report, published Nov. 7, Caddell pegged the value of the settlement at $350 million over 10 years. Little Caesars officials, however, called the figure a gross exaggeration, but declined to give further details.

According to the report, Little Caesars' senior vice-president of global operations, Mike Scruggs, believes the agreement ultimately will serve to spruce up aging franchise store designs and help franchisees become more invested in their operations.

"With more confidence and input into the brand (by franchisees), there's more opportunity for growth," said Scruggs.

Regarding mandatory advertising contributions, franchisees now will have a say in whether they want to continue paying 4 percent of revenues to Little Caesars' national campaigns. Doing so would require the majority vote of a committee whose membership would be half franchisees and half Little Ceasars representatives.

The pact also outlined product and quality specifications for food and supplies received from Blue Line. It requires those products be sold at prices competitive with similar products on the open market. If either price or quality proves unacceptable, the franchise owners could file grievances that, if not resolved, would allow them to turn to a supplier outside of Blue Line.

The report also said additional concessions made by Little Caesars include sharing 50 percent of Blue Line's profits, forgiving a $14 million in debt owed by franchisees, and granting $5 million in investment credits payable to franchisees for use in building new stores.

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