By Spencer S. Hsu
Legal and industry experts say the Meineke case could serve as a barometer of the balance of power in the $1 trillion-a-year franchising sector, which has long been tilted toward large parent companies.
The judgment, awarded in March 1997 by U.S. District Judge Robert Potter in Charlotte, followed a jury finding that starting in 1986 Meineke and British parent company GKN PLC took $31 million from 2,500 plaintiffs that was supposed to go to advertising.
The award was increased to $197 million in compensatory damages, tripled under a state unfair-trade statute, adjusted for interest and reduced when some plaintiffs settled out of court.
Today's two-hour hearing before the 4th U.S. Circuit Court of Appeals focused on what Chief Judge J. Harvie Wilkinson III called "massive, complex" issues involving Meineke's contractual relationship with its franchisees, the size of the class of plaintiffs and GKN's liability.
"This case brought before the court is the largest judgment in franchising history, the largest monetary judgment in the history of North Carolina, and is also the largest judgment ever entered against a British company in a United States Court," Starr told a three-judge panel.
Starr argued that the court should reverse the judgment because, he said, it would have a destabilizing impact on an industry that employs 7 million U.S. workers. He also said a majority of Meineke franchisees oppose the judgment because it could sink the company's business. "This case is rife with conflicts of interest," he said. "Don't destroy Meineke in a colossal money-damages case in the process."
Plaintiffs' lawyer Charles J. Cooper replied that the judgment was only fair compensation under North Carolina and federal laws, and that franchisees have seen their profits reduced for seven years.
"The whole purpose of advertising is to generate more sales. . . . They lost sales," said Cooper. "This wasn't a minor misstep [of a contract]. . . . This was a scheme to cheat franchisees by the company."
Beyond its importance to the business community, today's arguments drew added attention because of Starr. His private practice at Kirkland & Ellis, where he has earned more than $1 million annually and worked throughout his four-year tenure as a special prosecutor, was retained by Meineke on appeal.
Critics complained that Starr should devote himself entirely to the investigation of President Clinton. Starr's supporters argued that private work is allowed under the independent counsel statute.
Today's courtroom arguments glided past such contentions. Instead, Chief Judge Wilkinson and Judge M. Blane Michael bored deeply into areas of commercial and contract law. Judge Sam J. Ervin III did not speak.
While the two judges challenged Meineke's argument that it and GKN should not be fully liable, they posed many questions about the size of the franchisees' award.
Wilkinson invited Starr to refute the "populist flavor" of the suit between "little guy" franchisees against "big guy" franchisor.
"These are business people that know what they're doing," Starr said. "Many have lawyers. Many are corporations with multiple shops."
"This case is about the rule of law," Cooper replied. "GKN was up to its keister in this skimming operation and the evidence is overwhelming."
© Copyright 1998 The Washington Post Company