Written submissions in summary proceedings

HEARING IN SUMMARY PROCEEDINGS Thursday January 1998, at 11 o'clock before the President of the Commercial Court of PARIS SUBMISSIONS FOR the company SEBOL Public limited company with capital of 250,000 francs, registered with the Trade and Companies Register of ANTIBES under number RCS B 340 945 062 188 B 656) whose registered office is CENTRE COMMERCIAL, CARREFOUR Chemin de Saint Claude, 06600 - ANTIBES represented by the Chairman of the Board of Directors, Mr Bernard COLORAFI, domiciled at the registered office The company B et limited liability company with capital of 50,000 francs, registered with the Trade and Companies Register of ANTIBES under number RC B 408 592 236 196 whose registered office is rond-point Weiseller route de Grasse, 06600 - ANTIBES represented by its manager, Mr Bernard COLORANI domiciled at the registered office the company EURL LES PINS whose registered office is Quartier des Combes 1190, route de Grasse, 06600 - ANTIBES represented by its manager, Mr Bernard COLLORAFI domiciled at the registered office Having as counsel Me Jear-Paul CLEMENT of the PARIS Bar 78, avenue Mozart, 75016 - PARIS - FAX: 0: 45 27 67 13 PALAIS B and Me Michel SEVELLEC SCP of lawyers 72, avenue Marceau, 75008 - PARIS T° 01 47 20 92 10 - FAX 01 47 20 12 40 PALAIS w 09 AGAINST: The company MC DONALD'S FRANCE public limited company with capital of 180,000,000 francs registered with the Trade and Companies Register Ide VERSAILLES under number B 722 003 936 whose registered office is 1, rue Gustave biffel 78045 - GUYANCOURI CEDEX FRANCE represented by the Chairman of the Board of Directors having as counsel Me Jean Marie LELOUP, Michèle bALOUP and Philippe MISSEREY Associate lawyers of the law firm LELOUP 6i, rue Renaudot, 86000 - POITIERS and the SCP VINCENT MOLAS LEGER CUSIN Lawyers of the PARIS Bar 87, boulevard Saint Michel, 75005 - PARIS PALAIS P 159 MAY IT PLEASE THE COURT The President of the Commercial Court of PARIS has before him three served on the submitting parties on 9 January 1998 for the hearing of 15 January seeking to request the President of the Commercial Court - to order the companies SEBOL, B & O and EURL LES PINS: * to cease all acts of operation of the fast-food business belonging to the company MC DONALD's FRANCH and to order the expulsion of the said companies from the premises » located at the various addresses specified above - to enjoin the said companies to hand over to the owner of the business . the keys of the restaurant . the list of staff the employment contracts as well as the files relating to each of the employees, in order to allow the normal continuation of the employment contracts the accounts of the operation until the day of the abandonment of this operation by the said companies - to state that the three companies and Mr Bernard COLLORAFI, manager of these companies, shall carry out all of the provisions above, on pain of a penalty payment - to appoint Me ZONINO to carry out the inventory - to take note for the company MC DONALD's that it reserves the right to assert all rights against the said companies - to order the said companies to each pay the sum of 10,000 francs under Article 700 of the NCPC ON THE PROCEDURE it should be stressed from the outset the particularly bold and unfounded nature of the claims of the company MC DONALD'S, whereas in a reasoned writ of summons dated 26 June 1991, the companies SEBOL and B & O, as well as Mr Bernard COLLORAFI, manager of these two companies, summoned the company MC DONALD's before the Commercial Court of PARIS to have it «- state and rule that the company MC DONAlD's did not perform its obligations in good faith order it to compensate the claimants for the harm suffered, by paying: consequently . to the company SEBOL the sum of 30 million francs, subject to adjustment • to the company B & O the sum of 5 million francs, subject to adjustment • to Mr Bernard COLLORAFI the sum of 10,350,000 francs, subject to adjustment • as well as 50,000 francs to each under Article 700 of the NCPC » The case was called on three occasions before the Commercial Court (8 September, 6 October and 3 November 1997) and the company MC DONALD's did not see fit to file reasoned submissions in response to the writ of summons, and at the hearing of 3 November 1997 had this case removed from the list. It is the companies SEBOI, and B&O as well as Mr Bernard COLLORAFI who, through their lawyer acting as hearing representative, Me SEVELLEC, had this case brought back before the Commercial Court, at the hearing of 9 February 1998. Whereas the writ of summons in summary proceedings is deliberately succinct and passes over the case, curiously submissions on the merits before the Commercial Court were communicated by fax on 10 January 1998, whereas they were not properly served at the procedural hearings ... curious methods! ON THE FACTS In its « unofficial » submissions, the company MC DONALD's passes over in silence the essential elements of the contractual relations existing between the company MC DONALD'S FRANCE and Mr Bernard COLLORAFI, acting both in his personal name and in his capacity as Chairman of the Board of Directors of the company SEBOL and manager of the company B & 0 and of EUR. LES FINS, and it communicates « forgetting » the detailed letters sent by Mr COLLORAFI. It should be recalled that Mr Bernard COLLORAMI signed a lease-management agreement (*location-gérance*) to open a MC DONALD's restaurant in the CARREFOUR shopping gallery in ANTIBES, on 3 August 198%, after having resigned from his duties as branch manager in a bank in MOUGIN and completed an unpaid internship, at his own expense, in MC DONALD's restaurants for nine months, thus making an investment, in time and in money, that was considerable. He was thus the 18th franchisee of the MC DONALD's network (and the 45th MC DONALD's restaurant in FRANCE) and placed his trust in the MC DONALD's network at a time when the network, although very well known in the United States and in certain countries of the world, was still very largely unknown in FRANCE. The agreement provided for a management fee of 12% with a minimum of 150,000 francs excl. VAT, a services fee of 5% and a contribution to national advertising of 4.5%. It was on the strength of a very laudatory document, which extolled the merits of franchising, and of a personalised document entitled « STATEMENT OF PROFITS AND LOSSES » that he signed the agreement. This document provided for net sales of 12,500,000 francs in the first year and 19,000,000 francs in the third year, with a negative net income for the first year of 433,750 francs, but a profit of 1,233,810 francs for the third year. considerable efforts of Mr COLLORAFI, turnover of 19,000,000 francs was practically reached in the third year (18,329,000 francs in 1989) and increased steadily until 1993 (27,973 C00 francs). At the same time, while the first two financial years were loss-making, 1- 2,400,000 profits began to appear in 1989 (311,000 francs) of : 453 C00 francs in 1993. The year 1994 saw stagnation of turnover (21,312,000 francs) and of net income (1 330,000 francs), whereas the year 1995 was the anorco and 1 0:0 000 francs of net results, due essentially to the opening of a QUICK restaurant a few hundred metres from the restaurant operated by the company SEBOL. It was in this situation, which was beginning to become difficult, that Mr COLLORAFI learned that MC DONALD's intended, to counter its competitor QUICK, to set up a second restaurant hundreds shopping centre CARRHFOUR where the first restaurant managed by the company SEBO1 was located and in its primary catchment area. To prevent another franchisee from setting up there and thereby taking back a part of his clientele, Mr Bernard COLLORAFI had no other solution of investment and work than to open, in October 1996, against his will, a second restaurant located in his primary catchment area, the management of which he entrusted to a SARL B so of which he became the manager, making a personal contribution to that company of his positive current account in the company SEBOL. He thus signed on his own behalf a second lease-management agreement (*location-gérance*) entrusted to a company B à o for an opening on 9 October 1996, while immediately expressing his fears about the impact of this opening on his first restaurant. The financial terms were even harsher (17% management fees + 5% services fees and 4.5% advertising contribution), with a minimum fee of 180,000 francs excl. VAT, that is 217,080 francs incl. VAT. His fears proved justified since the turnover of the company SEBOL for 1996 fell by 33% (18,300,000 francs) and for 1997 by more than 50% (barely 11,500,000 francs). While the net result after tax fell in 1996 by 300% (350,000 francs), this result will be negative for 1997 by more than 1,000,000 francs for the company SEBOL alone. At the end of 1996, Mr Bernard COLLORAFI learned that the company MC DONALD's was pursuing its policy of siting restaurants contrary to the interests of its franchisees, by planning the forthcoming opening of two restaurants in ANTIBES OUEST and in VALLAURIS, the building permits requested by the company MC DONALD's having been obtained and the construction works under way. Rather than see other franchisees set up in his catchment area, he requested, again against his will, from the company MC DONALD's that these two restaurants be allocated to him, which would make it possible to achieve cost savings.. After having met with a first refusal, he returned to the charge, and finally obtained permission to open a third restaurant in ANTIBES OUEST, while another franchisee, Mr GILARSKI, opened at the same time a restaurant in VALLAURIS, located in the catchment area of Mr COLLORAFI and much closer to his restaurant than to the one opened in CANNES by Mr GILARSKI. This agreement was made on harsher terms than the first: the proportional fee was 15% with a minimum of 100,000 francs excl. VAT, that is 120,600 francs incl. VAT, and a services fee of 5% and an advertising contribution of 4.5%. throughout the year 1997, Mr COLLORAFI never ceased to warn the company MC DONALD's of the considerable impact caused by these openings in all directions, asking for compensation. The comparison of the 1996 and 1997 turnover figures for the company SEBOL overall impact of 50% that is to say a cut in turnover of 50 .. as regards the second restaurant operated by the company B the impact of the opening of the two new restaurants MC DONALD' s immediate from the month of minus 19% forecasts of MC DONALD's) and continued throughout the year (- 30% on the forecasts). Ultimately, the turnover of the three restaurants slightly exceeded the turnover achieved by in 1994 (27,000,000 francs) since it is 31,000,000 francs, but it represents only 50 of the forecasts made by the company MC_DONALD's. (52 Mr).. despite the pressing requests of Mr COLLORAFI, MC DONALD's refused any concession and any financial aid and it is in these circumstances that Mr Bernard COLLORAFI and the companies SEBOL and B&O found themselves obliged to summon, from the month of June 1997, the franchisor before the Commercial Court of PARIS to have assessed the harm suffered as a result of the senseless policy of the company MC DONALD's. ON THE ECONOMICS OF THE AGREEMENT It is appropriate to stress the perverse consequences of the lease-management agreement (*location-gérance*), when it is performed in bad faith by the franchisor, which the franchisee cannot suspect when he signs the agreement.. the franchisee is in reality a false franchisee, since he is a lessee- manager for a period of twenty years and at the end of the agreement, he has capitalised nothing since he is not the owner of the business. The system therefore rests on the making of profits which, added to the normal remuneration of the franchisee, enable him to draw a profitability which must be equivalent to that which a franchisee who owned his business would obtain. This assumes that the agreement is performed in good faith, which was obviously not the case. It should also be noted that although the spirit of partnership is extolled in all the documents emanating from MC DONAL's, in the present case it is a one-way partnership. If the franchisee's turnover increases, the franchisor benefits from it through the fee of 12% for the company SEBOD, 17% for the 15% for the company LES PINS (added to the services fee of 5%) with a flat-rate minimum. If the franchisee's turnover falls, his profitability decreases and may even become negative (which is the case here) whereas this situation has no impact on MC DONALD's since the franchisor has provided for a flat-rate minimum fee - of 150 - of 100 000 francs excl. VAT, that is 180,900 francs incl. VAT for the company SEBOL - of 180,000 francs excl. VAT, that is 217,080 francs incl. VAT for the company B & O francs excl. VAT, that is :20 600 francs incl. VAT for the company LES PINS, that is a total monthly fee of 430,000 francs excl. VAT (518,580 francs incl. VAT), that is 5,160,000 francs annually excl. VAT (6,226,960 francs incl. VAT) Thus, all the risks are borne by the franchisee who, if he is below the threshold, always pays the same fee for a turnover which may be declining, which was the case in the present case. That is to say that on reaching a certain threshold, the franchisee can no longer pay the fee, and that is what happened in the present case. To maintain, as the company MC DONALD's does in its « unofficial » submissions before the Commercial Court, that Mr COLORAFI consolidated turnover of 31 million is aberrant since, if he had only one restaurant, he would have paid a fee 31,000,000 x 12 = 3,720,000 francs whereas with his three restaurants, he has to pay 430,000 francs excl. VAT per month for the same turnover, that is an annual difference of 1,440,000 francs excl. VAT. m. sose dian quade crainte MC DONALDE A intérêt AuriE- 1e maximum de. n to collect the maximum of fees paiie biais de la restaurants linimum, which moreover allows it to eliminate redevance r external competition, this KING). s are therefore for the franchisees and the profit always for the : which never ceases to increase them : where is the partnership: as louvelle opening, even one affecting the area of the first restaurant, › of the company MC DONALD's are as follows : the flat-rate fee which is added to the first proportional fees which will be paid subsequently in the exceeding of the minimum. the franchisee is condemned to open new restaurants, where he will lose turnover and profitability, going from a substantial profit to a loss. That is the reason why OLLORAEI offered Mr DAUFES, MC DONALD's franchisee, to was a seller, to buy his restaurant from him, • the company MC DONALD's to which the copy of the letter was sent. to enable him to bear all of the overheads » The risks franchiseu extolled ? In the event of i the profit. - the nouve - the rede case of a de On the other hand for lack of ql of a profit Mr C CANNES who the agreement of what happened for Bernard COLLORAFI who, as the DONALD's points out, went from a net result of 1,400,000 francs net result of 352,000 francs in 1996 and to a loss which will be francs for all three companies in 1996 and 1997. let another franchisee open in his place the restaurant of the * O and that of the company LES PINS, Mr has not recovered the turnover of his restaurants and would have seen total turnover for his restaurant fall from to 11,500,000 francs, which would have led to the filing of ON THE DEVELOPMENT POLICY OF THE COMPANY MC (piè it is what a company MC 1994 to a Had he company B would not have therefore his C balance sheet assu • to point out that the company MC DONAN's controls and is the sole decision-maker as to the choice of all of the siting generally owner of the land always owner of the buildings always owner of the business. the franchisees are warned only a few weeks before • and the company MC DONALD's chooses sovereignly « the lucky ra be authorised to open. an abuse of language that the company MC DONALD' s may unofficial submissions that write in It is appropriate the operation of the site. It is g It is t It is t In practice the opening elected » who . It is par its submissions « Mr COLLORAFI wished to take this restaurant on a lease-management basis (*location-gérance*). He was given satisfaction by MC DONALD's FRANCE ... Mr COLLORAFI then wished to continue to take part in the densification of the network of MC DONALD's restaurants by asking to become lessee-manager of a business planned in ANTIBES OUEST ». These assertions are odious inasmuch as the policy decided unilaterally by the company MC DONALD's forced Mr COLLORAFI to open these restaurants, on pain of disappearing. The counterpart, had the company MC DONALD's respected the rules of partnership and good faith that it advocates, should have been a significant reduction in the fees which it had promised in its letter of 12 February 1997. Despite Mr COLLORAFI's repeated requests nothing came of it s'ii est true that the agreement does not provide for territorial exclusivity, the fact remains that the company MC DONALD's is bound to leave each restaurant a catchment area enabling it to achieve the forecast turnover provided for. The opening of a new restaurant in this catchment area, a fortiori in the primary catchment area, is a serious breach of the agreement (see case law September 1993, confirmed by PARIS judgment of the Commercial Court of PARIS, 5th Chamber C, 3 February 1994). ON MR COLLORAFI'S PROFIT tables commented on in the company MC DONALD's are eloquent. unofficial submissions on the merits of the They show that over eleven years of activity, only the years 1991 to 1995, generated a significant result and corresponding to the promises contained in the documents supplied before the signing of the agreement by MC DONALD's. The results of the first two years were very largely negative (minus ? 500 C00 francs), the two following years very slightly positive as was the year 1996; as for the year 1997 which does not appear, and for good reason, in the tables supplied by the company MC DONALD's, it is very largely negative, as the year 1998 will be. Company SE3Ol. 1997 Company ฿ 8 0 1996 Company 3 & 0 : 997 Company LES FINS - 1,000,000 Francs - 1,200,000 TOTAL - 3,200,000 francs That is to say that it is not the management of Mr Bernard COLLORAFI that can be called into question, which - since for ten years he has never had an unfavourable remark on his management, the accounting documents being examined each month by the company - that he MC DONALD's has always been congratulated by the managers of the company - that all the inspections carried out gave him the maximum scores for Quality, Service, Cleanliness (marks A or B), that is to say exceptional or excellent, and again recently, restaurant opened in April 1997. Note that the inspections for the two restaurants were carried out in November and December 1997 and that orally the marks of A and B were obtained. That is to say that the fall in turnover and profitability does not stem from management faults or from a failure to apply the methods of MC DONALD' 5, but stems solely from the disastrous decisions taken by MC DONALD's, in disregard of the ethics of franchising, to open restaurants in all directions, in contempt of the most elementary interests of As for the table of remuneration (document communicated by the company before agc DONALD 3), in kind declared included », it is in line with the remuneration of all the MC DONAM's managers having restaurants with similar turnover. Mr COLLORAFI's remuneration is even lower than that provided for by MC DONALD's in its document of April 1987, from the third year: 665,383 francs per year. Now, if one strikes the balance of the net results over ten years, one would take account of the losses of 1996 and 1997 (which the company MC DONALD's omits to do) one arrives at a positive net result over ten years of : 500 francs, that is 12,000 francs per month net of tax. where is the personal enrichment of Mr COMORAFI to the detriment of his companies? To maintain that, if Mr COLORAFI had reduced his remuneration (for example by 100,000 francs or 200,000 francs) that would have enabled him to pay the fees up to S 000,000 francs per laughable! DISCUSSION It should be recalled that after having vainly tried for more than six months to convince the company MC DONALD's of the need to Liouver an amicable solution to make good the harm suffered through the various restaurant openings, Mr Rernard COLLORAF: found himself obliged to summon his franchisor in order to have the Court fix the amount of this harm. No attempt at reconciliation took place during the summer and at the three hearings, the company MC DONALD's did not deign to file its submissions and even had the case removed from the list. As soon as Mr Bernard COLLORAFI received the three letters of formal notice at the end of November 1997, he immediately had steps taken through his hearing representative, Me Michel SEVELLEC, to have the case come back as quickly as possible, and he has just learned that the case would be called by the Court at the hearing of 9 February next. That is to say that the case will be called before a reporting judge, three weeks later. There is therefore no urgency to rule in summary proceedings, since the case will be heard on the merits in the coming weeks. Moreover, the President of the Court holds from Article 487 of the NCPC the possibility to refer the case, in summary-proceedings state, to the collegiate formation of the court ». There is not even any need for a writ of summons since the parties have filed submissions. ... even if it is in an unofficial manner for the company MC DONALD's. Besides the absence of urgency, the President of the Commercial Court of PARIS faces a serious dispute raised by the submitting companies. If the said companies have paid the fees due incompletely, it is the consequence of the bad-faith performance of the agreement by the company MC DONALD's. It is that company which is at the origin of the difficulties of the three companies, making complete payment of the fees impossible. NEMO AUDITUR PROPRIO TURFITUDINEM ALLNGANS ! It should be stressed: the company LES PINS, recently created, has paid its fees for the months of April, May, June, July, August, September 1997 and January 1998 and remains owing only the fees for October, November and December 1997 - that the company B & O paid the fees for January, February, May, July, August, September, and December 1997 and remains owing only those for the months of March, April, June, October, November 1997 and January 199₽ - that the company SEBOI, the most seriously affected by the policy of MC DONA:»'s, has paid only the months of August, September 1997 and January 1998, remaining owing ten monthly instalments. in his capacity as manager of these companies, acted with the utmost good faith, since he accepted the times when he had the cash to pay the rejecting the direct debits only when he was in the incapacity to pay. elsewhere, the sum of 3,500,000 francs of fees due is lower than the harm already suffered by the companies SEBOL and B & O and by Mr COLLORAFI and incommensurably lower than that which continues to be generated each day. It is therefore for the trial judge to - rule on the faults committed by the company MC DONALD's, making it impossible for the submitting companies to perform their obligations. - rule on the plea of *non adimpleti contractu* raised by the submitting companies - assess the amount of the harm already suffered. There is here a serious dispute which prevents the judge in summary proceedings, judge of the self-evident, from ruling, and all the more so as the Commercial Court has been seised for seven months and is about to rule shortly. Finally, the judge in summary proceedings has no jurisdiction to order the cessation of the operation of a business and the expulsion of a lessee-manager, a measure of the gravest importance which cannot be assimilated to « protective measures or measures to restore the previous state ... to prevent imminent damage or put an end to a manifestly unlawful disturbance » under the very terms of Article 873 of the NEW CODE OF CIVIL PROCEDURE. The measure which is requested is a measure which touches the substance of the right, which falls within the exclusive jurisdiction of the Commercial Court. On the contrary, if the President ordered such a measure, there would be for Mr COLLORAFI and his companies additional and irreversible damage. Only remaining on the premises can enable the situation to be restored, with ... or without the help of the company MC DONALD'S. Safeguard measures have already been taken by Mr COLLORAFT who for a year had sensed the situation that was about to arise, even if he did not yet know its extent. The President of the Commercial Court of PARIS can only declare himself without jurisdiction and say that there is no ground for summary proceedings. It would be inequitable to leave to the submitting companies the irrecoverable costs which the present proceedings cause them. There is therefore cause to order the company MC DONALD'S to pay each of them the sum of 0 coo francs under the provisions of Article 700 of the NCPC. ..i... FOR THESE REASONS Refer the parties to seek redress on the main issue declare himself without jurisdiction and say that there is no ground for summary proceedings dismiss the company MC DONALD's of all its claims, purposes and submissions state and rule that there is no urgency order the measure requested state and rule that there is a serious dispute state and rule that the measures requested are neither protective measures nor measures to restore the previous state are not measures order the company MC DONALD's to pay to each of the submitting companies the sum of 10,000 francs under Article 700 of the NOPO