McDonald’s is trying to force one of its most prominent and successful franchisees to sell his restaurants by refusing to approve his adult daughter as a franchisee, according to a federal lawsuit filed in New York last week.
George Michell, who operates 37 restaurants and several other concepts in airports under a special agreement with the brand, claims the company wants him out of the system and is “scheming” to force him to sell those restaurants at “fire sale prices.”
To do this, the company is using new franchise standards that it implemented last year to effectively force Michell out of his locations one-by-one. The lawsuit claims that McDonald’s said it won’t renew the franchise agreements for five stores over the next three years and may not renew his other locations.
In addition, the lawsuit says McDonald’s won’t approve his daughter, Larisa Michell, as a “Next Gen” franchisee until Michell agrees to sell his restaurants, according to the lawsuit.
“McDonald’s is wrongfully scheming to drive Michell out of the McDonald’s franchise system, and to usurp the substantial equity value of these restaurants from Michell and his family,” the lawsuit says. The lawsuit also claims McDonald’s is discriminating against Michell because he is Hispanic.
McDonald’s called the claims in the lawsuit “meritless.”
“We have a long history of supporting our franchisees with resources and tools to succeed in running great restaurants,” McDonald’s USA said in a statement sent to Restaurant Business. “Their success is our success, and we’re deeply committed to that. But we won’t compromise on ensuring that our organization’s values and high standards are consistently met.”
“The assertions made in this case are meritless and do not reflect McDonald’s commitment to empowering diversity of talent and ownership in our franchisee community,” the statement said.
The issue highlights one of the major points of tension inside the McDonald’s system: The company’s new franchising standards and its treatment of children and spouses of operators.
McDonald’s announced in 2022 that it was toughening its ownership standards, requiring franchisees to meet a higher standard of operations to get their franchise agreements renewed.
The company also toughened standards to enable children or spouses of franchisees to be approved as operators.
To McDonald’s, the new standards were necessary to promote stronger operations and ensure only the best franchisees remain in the system. A new franchisee term is “earned, not given,” and the company believed the changes would provide greater clarity and consistency into its franchising process. But the company also believed this effort would help diversify its franchisee base.
But owners have been complaining for months that McDonald’s is using the new standards in part to push certain operators out of the system.
Michell is one of the more prominent of such operators. He’s been an owner in the system since 1990. He operates 37 locations in New York, Connecticut, Massachusetts and New Jersey.
Michell’s McDonald’s locations last year generated more than $158 million in revenue, the lawsuit says. His company has also spent more than $20 million to remodel the restaurants in recent years.
He also operates eight non-McDonald’s restaurants at the Bradley Airport in Hartford, Connecticut, under a special arrangement with McDonald’s, which leases the locations and subleases them to Michell.
Those restaurants include Papa Gino’s Pizza, D’Angelos Grilled Sandwiches and Phillips Seafood, among others. The lawsuit says McDonald’s asked Michell to operate those other restaurants, but now wants out of that deal. Yet those restaurants generated $12 million in revenue last year.
As of April 2022, the lawsuit says, Michell was eligible for growth and to have his franchise agreements renewed. But the company changed its rules two months later.
“The revised national franchising standards expose owner/operators to a materially increased risk of arbitrary, capricious, subjective, inconsistent, abusive and discriminatory decision-making by McDonald’s, or by its field officers who exercise proverbial life and death power over owner/operators,” the lawsuit says.
By November of 2022, McDonald’s apparently wanted Michell out of the system. At a meeting with Joseph Chiczewski, a field VP out of Stamford, Connecticut, and John Cronan, an operations officer with McDonald’s, according to the lawsuit.
During the meeting, Chiczewski said that he wants Michell out of the system, and that he needs to sell his restaurants. Chiczewski also told Larisa Michell she would have to apply to be an owner through the same avenues as the general public.
Chiczewski then provided Michell with an offer to buy his restaurants “at far less than fair market value.” Chiczewski rejected efforts at a partial sale of the restaurants, and then told Michell that he would lose all his restaurants as their terms expire, if he didn’t agree to sell, according to the lawsuit.
Michell then claims that the company multiple times demanded that he sell if Larissa Michell were to be allowed to become a franchisee.
Chiczewski, Cronan and Jeff Roth, another operations officer with McDonald’s, are named in the lawsuit with McDonald’s.
The lawsuit then details several situations in which McDonald’s claims fell short of standards, such as a 2022 case in which Michell apparently didn’t inform the company he settled a municipal labor case in New York City, and the temporary closure of a location in Brooklyn after a cooler broke down.
Michell says the company changed his status in the system in early 2023, based on a “repeated inability” to communicate and be collaborative with the field office.
McDonald’s also threatened to block Michell’s efforts to obtain the master lease to operate restaurants in the Bradley Airport, which McDonald’s apparently planned to abandon, according to the lawsuit.
One of the company’s criticisms of Michell was over pricing at his restaurants on the Connecticut Turnpike. According to the lawsuit, the company said that he didn’t use industry-standard advisors to help set prices, which Michell says is not true.
Roth also apparently criticized Michell for “making too much money” at those restaurants, but “ignored Michell’s costs and competitive circumstances,” according to the lawsuit. It was at one such restaurant last year where a social media user found an $18 Big Mac meal that went viral. It is not certain if that was one of Michell’s locations.
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