McDonald's written submissions in reply — part 2

Fax received from : 81.45.27 67_13 11/03/28_93:58 ..Pg: 2 MCDONALDS FRANCE / SEAOL-B8O- LES PINE - COLLORAFI OBITIORISF RG 97 062486 and 98010823 SUBMISSIONS IN REPLY FOR: The public limited company MCDONALD'S FRANCE Having as lawyers: and as hearing representative the SCP VINCENT MOLAS LEGER CUSIN pSV 69239) AGAINST: 1) The public limited company SEBOL 2) The SARL B & 0 3) The EURL LES PINS 4) Mr Bernard COLLORAFI Having as lawyer: Patre Jean Paul CLEMENT, lawyer of the Bar of and as hearing representative: the SCP SEVELLEC ESEELBODIO ES: IT 866T/E0/0T 145.27 63_13 11/03/98_97:58 ..Py: MAY IT PLEASE THE COURT ON THE JOINDER OF THE PROCEEDINGS R.G. 97.062466 and 98.010823 This joinder, requested by McDONALD'S France in its writ of summons of 30 January 1998 against the company LES PINS and Mr COLLORAFI, is accepted by Mr COLLORAFI and his three companies SEBOL, B & O, LES PINS, in their submissions of 9 February. It will therefore be appropriate to order it. Consequently, the present submissions are common to the two proceedings, as were the opposing submissions of 9 February filed at the hearing at which the reporting judge was appointed. ON THE OPPOSING SUBMISSIONS OF 9 FEBRUARY 2. As a preliminary point and so as not to have to return to it, the company McDONALD's respectfully takes the liberty of drawing the Court's attention to the inappropriate nature of certain expressions used by Mr Collorafi in his pleadings of 9 February. It is not proper to use with regard to the company McDONALD's: with which Mr Collorafi collaborated for 10 years and 5 months, of which more than 9 years without a cloud, renowned for the perfect upkeep of its establishments as well as for the number of jobs it has created in France for twenty years the terms "scorched earth" or "Vietnamisation" (P. 14, last paragraph) Manifestly Mr Collorati does not know what words mean. Ce davoiemene de 18% ASTOrnAad Alterlévoiement de la demande totalement infondoe pregentée par Mi Coliorafi et ses sucietes "Tout de surest" "Anything excessive is insignificant" as the saying goes. In fact, the claim of Mr Collorafi to 36. see considerable sums awarded to him is devoid of any significance. дан, ESEELODTTO EG: IT 866I/E0/01 11/83/98 _ 97:58 P#: 4 That is what will be seen on reading the submissions of Mr Colorati, and of his companies, of 9 February. Paragraph 2.1.. pages 4 and 5: It can be read there that MCDONALD's passes over in silence the essential elements of the contractual relations. That said, Mr Coliorafi relies on page 5 on a "statement of losses and profits", dated 13 April 1987 and constituting a projection and in no way a commitment on future achievements. This document (opposing document 25) is handwritten without it being possible to identify the writers: the last line is manifestly not in the same handwriting (slanting) as that (upright) of the figures entered on the document. This document is unsigned, devoid of any value. It is incoherent on the part of Mr Collorafi to insist on this unsigned document, whereas: Mr Collorafi invokes no defect of consent and in no way claims the nullity of the lease-management agreements (*location-gérance*) concluded with MCDONALD's (a nullity which, moreover, is time-barred after five years — art. 1304 Civil Code — whereas the document dates from 1987), • Mr Collorafi signed, in full knowledge of the facts, after 9 months of free training at MCDONALD'S, the licence agreement necessarily accompanying the lease-management agreement (*location-gérance*) and in particular, on page 18, clause 28.c. "The grantor has made no representation, promise or guarantee as to the future profitability of the restaurant" 4. The essential elements of the contractual relationship are therefore not to be sought elsewhere than: in the signed agreements, the content of which Mr Collorati forgets to point out to the Court, in the results obtained, which appear in the tables of our document 18, reproduced attached, showing the evolution, over the whole contractual period, of the sales of each of the restaurants taken on lease-management (*location-gérance*) by Mr Collorafi and the table of the evolution of consolidated sales. стинАан ES: IT 8651/E0/07 Evolution of Consolidated turnover Year Anlibes 1 SEBOL SA Äntibes nord BetO SARL AnUDES OU LESPISS- 3 38B 837 dion des ventes consoliddes Evoil. Fax resu de so 81 95 2Z 67,13 i= Total 3 restaurants [OLES PINS SARLI ABelO SAiL EISEBOL SA FGF.I ES:TI a661/60/0T Fax 1 1g 1,N 'яли 11/83/9993:58 r.üg It follows that: until 1993, the ANTIBES 1 restaurant = experienced a significant progression in turnover (27,422,009 F.F. in 1993), in 1994 (26,965,840 F.F.) a slight decline (6 days of turnover). in 1995, a drop to 24,638,840 F.F. due to external events modification of traffic flows for access to the restaurant following a modification of the car parks and of the entrances to the Carrefour store opening in July of a Quick), in 1996 (18,305,795 F.F.) there was added the fall in consumption following the so-called mad cow psychosis. in 1997, McDONALD's reaction enables Mr Collorafi to obtain consolidated turnover of 31,556,286 F.F. for the 3 restaurants Antibes 1, Antibes Nord, Antibes Ouest, knowing that at the end of 1997: Antibes Nord, which has only 14 months of existence and Antibes Ouest, only 8 months, are still in the launch phase at the end of 1997. It is essential to recall here what has already been indicated in our previous pleadings: Mr Collorafi, who presents himself in his pleadings as a victim, received from August 1987 to the end of 1996, within his company SEBOL, 5,039,500 F.F. of gross remuneration (benefits in kind declared included) for 9 years and 5 months and during the same period of 10 financial years 4,150,000 F.F. of profits, that is an average annual income of 951,117 F.F Paragraphs 2.2. and 2.3. p. 5 to Z: Mr Collorati expressly acknowledges there that the situation was beginning to become difficult. We have just seen that this is due to external circumstances. But he invokes a notion of primary catchment area (p. 5 penultimate paragraph) which is totally foreign to the agreements binding the parties and to the strategy of McDONALD's, perfectly known to Mr Collorafi. This was moreover recalled to him, without contradiction on his part, in the registered letter of 27 March 1997 (opposing document 11). EG: 11 8661/E0/0T : 01.15.27 6]_13 11/03/98_87:58 ..E9: ? V It is necessary to note the bad faith of Mr Collorafi in his account of the conditions of opening of the Antibes Nord and Antibes Ouest restaurants. Mr Collorafi claims that he signed the lease-management agreements (*location-gérance*) "against his will" (P. 5, last paragraph and page 6, 2nd paragraph of 2.3.). But he contradicts himself by writing in the antepenultimate paragraph of page 6 "After having met with a first refusal, he returned to the charge". The Court will see with what determination Mr Collorafi expresses himself in his letters: - on 16.12.96 (opposing document 4), regarding Antibes Ouest: "I have a team ready to ensure development in a town and I need other restaurants to offset the turnover impacts and absorb the fixed costs. Thus I shall have the means to ensure the QSP that is expected of my units and to increase sales". - on 10.01.97 (opposing document 6) concerning Antibes Ouest and Vallauris: ... for which I am a candidate for the lease-management (*location-gérance*)... If the decision not to allocate these two restaurants to me were confirmed, I would consider that this is a genuine casus belli". - on 31.01.97 (opposing document 7) concerning Antibes Ouest: "I take note of this allocation and thank you warmly for the trust that you show me". Regarding Vallauris, allocated to Mr Gilarsky: "I persist in asking that Vallauris also be allocated to me" These letters show the incoherence of the claim of Mr Collorati who, in his writ of summons (page 8, 2nd paragraph) criticises MCDONALD's for having committed a contractual fault by entrusting the lease-management (*location-gérance*) of the Vallauris restaurant to Mr Gilarsky while claiming considerable and unfounded sums under each of the lease-management agreements (*location-gérance*) signed with him. 10. The incoherence of Mr Collorati is again shown by comparing the 3rd paragraph of page 6 of his submissions where he acknowledges that the company B & O benefited, on 10 June 1997, from a favourable adjustment of its fee, falling from 245,000 Frs per month to 180,000 Frs (that is a reduction of 26.3%), whereas on the following page, he dares to write that McDONALD's would have refused any concession and any financial aid. 11. But there is more: the Antibes Ouest restaurant had been planned under a 20-year "straight license" agreement, Mr Collorafi having refused to finance (from own funds, not borrowed) the share then falling to the lessee- manager (25% of the pre-opening costs, equipment, furniture and signage), it was necessary to move to a BFL agreement, of 3 years, in which these costs are borne by McDONALD's. 698E20D ES: II 8651/€0/01 McDONALD's would have been perfectly entitled to refuse this modification of the planned agreement. By accepting this modification, McDONALD's took on itself the share of the investment which would have fallen to the lessee-manager in a "straight license" agreement. The result is that for Antibes Ouest, the financing is split as follows: - McDONALD's : • Mr Collorafi : 96.9% 3.1% Total: 100% il de sa dawath 12. Paragraph 2.4., pages 7 to 9: On the economics of the agreement. It should first be observed that the legal formula of lease-management (*location-gérance*) has the effect of relieving the lessee-manager of the investment in the business. In this paragraph, Mr Gallorafi develops generalities, spiced with the theme that McDONALD's would have been in bad faith, without providing the slightest proof of it. On the other hand, the Court will note: - that since 1980, only 3 restaurants out of 634 in the MCDONALD's network in France have been closed, that is 0.47%, which destroys any suspicion as to the economic validity of the franchise, - that the investment effort is split on average for the three restaurants given on lease-management (*location-gérance*) to Mr Collorafi as follows: - MCDONALD's : 78% 22% - Mr Collorafi : - that it is fanciful to say that it would be preferable to achieve the turnover; if the remark has the appearance of self-evidence, one would have to be able to reach the same turnover! Now, in the situation of Antibes 1, henceforth outside the main flows of Carrefour customer traffic (see report goo Quacen that in order to try to bolster his claims, Mr Collorafi asked the expert Gandur for a report whose scope is much reduced after the study made 8661/E0/0I .45.27 63_13 11/83/98.—_º2i58 elle enlue that if the strategy of MCDONALD's was bad and pernicious, McDONALD's would not today hold 70% of the French hamburger market, with 560 restaurants on lease-management (*location-gérance*) out of the 630 existing (that is 88.9% as against 11.1% managed directly by MDONALD's) Iano int Paragraph 2.5., pages 9 and 19: Here again Mr Collorafi is caught red-handed in an untruth: he writes on page 10, 2nd line that "MCDONALD's is always the owner of the buildings". He has therefore forgotten that the Antibes 1 restaurant, which he has managed since 1987, is in the shopping centre of the Carrefour store, which owns the walls Since Mr Collorafi likes to speak of good faith, it is appropriate to remind him of what he learned perfectly well during the 9 months of free training that was given to him before the signing of the first agreement and what he signed in each of the three agreements: no territorial exclusivity is ever practised in the network: SEBOL agreement - Lease-management (*location-gérance*), clause 7 - Non-exclusivity: 17.1. The lessee-manager expressly acknowledges that this agreement grants him only the right to operate the Restaurant on the premises defined above for the agreed period and confers on him no grant of territory, exclusivity or territorial protection. This agreement does not allow him to prevent or hinder the siting or extension at any time of McDONALD's restaurants. 7.2. The lessee-manager also acknowledges that the companies of the McDONALD's group may site other MCDONALD's restaurants without his being able to plead the harm caused to the business that is the subject of these presents". Licence agreement, clause 28: "The licensee acknowledges that: c) The grantor has made no representation, promise or guarantee as to the future profitability of the restaurant. d) Before the conclusion of this agreement, the licensee worked in a MCDONAD's restaurant and had the possibility of entering into contact with other licensees of the grantor and of verifying all the information of the grantor concerning the McDONALD's system. ..Lg: 9 _.,e 690ELOTT18 ES: II 9661/80/0T fax received from "1. 15.27 67 13 11/83/98.-97:58 ..Py: 10 e) This agreement establishes a restaurant at the location specified in Article 2 (a) paragraph (i) and only at that place, and provides in no way for an "exclusivity" or a "protection" or any right to a given territory in a contiguous area, ..." B & O and LES PINS agreements: Lease-management (*location-gérance*), Art. VII - Non-exclusivity: "VII. 1 The lessee-manager expressly acknowledges that only the "Agreement" grants him the right to operate the restaurant on the premises defined above for the agreed period and confers on him no grant of territory, exclusivity or territorial protection. The "Agreement" does not allow him either to prevent or to hinder the siting or extension at any time of other MCDONALD'S restaurants. VII.2 The lessee-manager also acknowledges that the lessor may site other McDONALD's restaurants without his being able to plead the harm caused to the business that is the subject of these presents". Licence agreement, art. 28 : "The licensee acknowledges that: The grantor has made no representation, promis or guarantee as to the future profitability of the restaurant, 0) rechercher de tes ice es pres so les poit de gestion des restaurants en Franco, ..." ETHaTHA ESEELOPDID EG : II 8E61/20/0T Fax received from ; 01 45.2? 63_13 11/03628.7. 9930 ..19. 11 the He is therefore in bad faith in disputing today a system to which he expressly adhered and which is at the basis of the success of the brand and of the lessee-managers. of franchise. the definitions given by Community Regulation 4087/88 and the AFNOR standard (the only definition emanating from an official French body) make no mention of it. Paragraph 2.6., pages 10 to 12: The profit of Mr Collorafi, as established, from 1987 to the end of 1996, in our previous submissions is acknowledged as correct on page 11, in fine, of the pleadings of Mr Collorafi. If 1997 is not mentioned, it is because Mr Collorafi did not communicate the information relating to 1997, which is not shocking at the time of year we are at. It suffices to observe that Mr Collorati at 31 August 1997 had awarded himself gross remuneration of 450,000 F.F. for 8 months, that is 675,000 Frs on an annual basis, which represents an increase of 100,000 F.F. compared with the previous year. 17. It is moreover curious that in the report of Mr Gandur, the salary of Mr Collorafi is counted: p. 31: p. 32: p. 33: on SEBOL on B & O on LES PINS for for for 360,000 F 432,000 F 312,000 F that is 1,104,000 F which does not correspond to the idea of absorbing fixed costs, put forward by Mr Collorafi, when he insisted on being lessee-manager of the Antibes Nord and Antibes Ouest restaurants (letter of 16.12.96, opposing document 4). These clarifications having been made, the discussion of the points of law to be decided is simple: It will deal successively with the claims of Mr Collorati and of his companies, then with the claims of the submitting party. ESEELOTDTO ES: II B661/EB/8T 45 23 67 13 _- 07:58 .. Pg: 12 THE CLAIMS OF MR COLLORAFI AND OF HIS COMPANIES 18. They are totally riddled with contradictions: - in the writ of summons, the alleged harm is presented as being that resulting for SEBOL from the "obligation to open" (sic) the restaurant managed by B & O, and for SEBOL and B & O from the opening of a restaurant at Vallauris under the McDONALD's sign managed by Mr Gilarsky. The whole valued at 35,000,000 Frs (excluding Article 700), plus 10,350,000 Frs for Mr Collorafi, on the pretext of the "difference between the price he could have obtained at the end of 1996 and the price he could obtain at the date of the judgment er.t - in the submissions, the total claim rises to 47,050,000 F.F. (excluding Article 700, doubled compared with the writ of summons) but whereas in the writ of summons the sums were claimed in order to remain in the network now they are claimed because the companies of Mr Collorat claim that the termination of the agreements, which occurred on 2 January 1996, was wrongful. Nothing is serious. The legal grounds, to the extent that they are perceptible, alleged by Mr Collorafi and his companies will be examined first. On good faith. 19. Mr Collorafi repeats ad nauseam that MCDONALD's was in bad faith. The Court will find on the contrary that since the end of 1996, Mr Collorafi has ceased to act in good faith. The chronology of the facts shows it: - until the end of 1996, Mr Collorati had a more than comfortable situation (see our previous submissions, nos. 9 to 11, and above no. 16). Adding to the figures already given, the salary of his wife, the amount of the household's income over 9 years and 5 months is 10,034,935 Frs (see Husson- Dumoutier report, p. 46). lesiens 18 mois.