Pizza Hut 2005 Annual Report Download - page 75

and฀ former฀ KFC฀ Assistant฀ Unit฀ Managers฀ (“AUM’s”)฀ were฀
improperly฀ classified฀ as฀ exempt฀ employees฀ under฀ FLSA.฀
Plaintiff฀seeks฀overtime฀wages฀and฀liquidated฀damages.฀On฀
January฀17,฀2006,฀the฀District฀Court฀dismissed฀the฀claims฀
against฀the฀Company฀with฀prejudice,฀leaving฀KFC฀Corporation฀
as฀the฀sole฀defendant.฀Notice฀will฀be฀mailed฀to฀current฀and฀
former฀KFC฀AUM’s฀advising฀them฀of฀the฀litigation฀and฀providing฀
an฀opportunity฀to฀join฀the฀case฀if฀they฀choose฀to฀do฀so.
We฀believe฀that฀KFC฀has฀properly฀classified฀its฀AUM’s฀as฀
exempt฀under฀the฀FLSA฀and฀accordingly฀intend฀to฀vigorously฀
defend฀against฀all฀claims฀in฀this฀lawsuit.฀However,฀in฀view฀of฀
the฀inherent฀uncertainties฀of฀litigation,฀the฀outcome฀of฀this฀
case฀cannot฀be฀predicted฀at฀this฀time.฀Likewise,฀the฀amount฀
of฀any฀potential฀loss฀cannot฀be฀reasonably฀estimated.
On฀December฀17,฀2002,฀Taco฀Bell฀was฀named฀as฀ the฀
defendant฀in฀a฀class฀action฀lawsuit฀filed฀in฀the฀United฀States฀
District฀Court฀for฀the฀Northern฀District฀of฀California฀entitled฀
Moeller,฀et฀al.฀v.฀Taco฀Bell฀ Corp.฀On฀August฀4,฀2003,฀plain-
tiffs฀filed฀an฀amended฀complaint฀that฀alleges,฀among฀other฀
things,฀that฀Taco฀Bell฀has฀discriminated฀against฀ the฀ class฀
of฀people฀who฀use฀wheelchairs฀or฀scooters฀for฀mobility฀by฀
failing฀to฀make฀its฀approximately฀220฀company-owned฀restau-
rants฀in฀California฀(the฀“California฀Restaurants”)฀accessible฀
to฀the฀class.฀Plaintiffs฀contend฀that฀queue฀rails฀and฀other฀
architectural฀and฀structural฀elements฀of฀the฀Taco฀Bell฀restau-
rants฀relating฀to฀the฀path฀of฀travel฀and฀use฀of฀the฀facilities฀
by฀persons฀with฀mobility-related฀disabilities฀(including฀parking฀
spaces,฀ramps,฀counters,฀restroom฀facilities฀and฀seating)฀do฀
not฀comply฀with฀the฀U.S.฀Americans฀with฀Disabilities฀Act฀(the฀
“ADA”),฀the฀Unruh฀Civil฀Rights฀Act฀(the฀“Unruh฀Act”),฀and฀the฀
California฀Disabled฀Persons฀Act฀(the฀“CDPA”).฀Plaintiffs฀have฀
requested:฀(a)฀an฀injunction฀from฀the฀District฀Court฀ordering฀
Taco฀Bell฀to฀comply฀with฀the฀ADA฀and฀its฀implementing฀regula-
tions;฀(b)฀that฀the฀District฀Court฀declare฀Taco฀Bell฀in฀violation฀
of฀the฀ADA,฀the฀Unruh฀Act,฀and฀the฀CDPA;฀and฀(c)฀monetary฀
relief฀under฀the฀Unruh฀Act฀or฀CDPA.฀Plaintiffs,฀on฀behalf฀of฀
the฀class,฀are฀seeking฀the฀minimum฀statutory฀damages฀per฀
offense฀of฀either฀$4,000฀under฀the฀Unruh฀Act฀or฀$1,000฀under฀
the฀CDPA฀for฀each฀aggrieved฀member฀of฀the฀class.฀Plaintiffs฀
contend฀that฀there฀may฀be฀in฀excess฀of฀100,000฀individuals฀
in฀the฀class.฀For฀themselves,฀the฀four฀named฀plaintiffs฀have฀
claimed฀aggregate฀minimum฀statutory฀damages฀of฀no฀less฀
than฀$16,000,฀but฀are฀expected฀to฀claim฀greater฀amounts฀
based฀on฀the฀number฀of฀Taco฀Bell฀outlets฀they฀visited฀at฀which฀
they฀claim฀to฀have฀suffered฀discrimination.
On฀ February฀ 23,฀ 2004,฀ the฀ District฀ Court฀ granted฀
Plaintiffs’฀motion฀for฀class฀certification.฀The฀District฀Court฀
certified฀a฀Rule฀23(b)(2)฀mandatory฀injunctive฀relief฀class฀
of฀all฀individuals฀with฀disabilities฀who฀use฀wheelchairs฀ or฀
electric฀scooters฀for฀mobility฀who,฀at฀any฀time฀on฀or฀after฀
December฀17,฀ 2001,฀ were฀ denied,฀ or฀ are฀ currently฀ being฀
denied,฀on฀the฀basis฀of฀disability,฀the฀full฀and฀equal฀enjoy-
ment฀of฀the฀California฀Restaurants.฀The฀class฀includes฀claims฀
for฀injunctive฀relief฀and฀minimum฀statutory฀damages.
Pursuant฀ to฀ the฀ parties’฀ agreement,฀ on฀ or฀ about฀
August฀31,฀2004,฀the฀District฀Court฀ordered฀that฀the฀trial฀
of฀this฀action฀be฀bifurcated฀so฀that฀stage฀one฀will฀resolve฀
Plaintiffs’฀ claims฀ for฀ equitable฀ relief฀ and฀ stage฀ two฀ will฀
resolve฀ Plaintiffs’฀ claims฀ for฀ damages.฀ The฀ parties฀ are฀
currently฀proceeding฀with฀the฀equitable฀relief฀stage฀of฀this฀
action.฀During฀this฀stage,฀Taco฀Bell฀filed฀a฀motion฀to฀partially฀
decertify฀the฀class฀to฀exclude฀from฀the฀Rule฀23(b)(2)฀class฀
claims฀for฀monetary฀damages.฀The฀District฀Court฀denied฀the฀
motion.฀Plaintiffs฀filed฀their฀own฀motion฀for฀partial฀summary฀
judgment฀as฀to฀liability฀relating฀to฀a฀subset฀of฀the฀California฀
Restaurants.฀The฀District฀Court฀denied฀that฀motion฀as฀well.฀
Discovery฀is฀ongoing฀as฀of฀the฀date฀of฀this฀report.
Taco฀Bell฀has฀denied฀liability฀and฀intends฀to฀vigorously฀
defend฀ against฀ all฀ claims฀ in฀ this฀ lawsuit.฀ Although฀ this฀
lawsuit฀is฀at฀a฀relatively฀early฀stage฀in฀the฀proceedings,฀it฀is฀
likely฀that฀certain฀of฀the฀California฀Restaurants฀will฀be฀deter-
mined฀to฀be฀not฀fully฀compliant฀with฀accessibility฀laws฀and฀
that฀Taco฀Bell฀will฀be฀required฀to฀take฀certain฀steps฀to฀make฀
those฀restaurants฀fully฀compliant.฀However,฀at฀this฀time,฀it฀is฀
not฀possible฀to฀estimate฀with฀reasonable฀certainty฀the฀poten-
tial฀costs฀to฀bring฀any฀non฀compliant฀California฀Restaurants฀
into฀compliance฀with฀applicable฀state฀and฀federal฀disability฀
access฀laws.฀Nor฀is฀it฀possible฀at฀this฀time฀to฀reasonably฀
estimate฀the฀probability฀or฀amount฀of฀liability฀for฀monetary฀
damages฀on฀a฀class฀wide฀basis฀to฀Taco฀Bell.
On฀January฀16,฀1998,฀a฀lawsuit฀against฀Taco฀Bell฀Corp.,฀
entitled฀ Wrench฀ LLC,฀ Joseph฀ Shields฀ and฀ Thomas฀ Rinks฀ v.฀
Taco฀Bell฀ Corp.฀ (“Wrench”)฀was฀filed฀in฀ the฀ United฀ States฀
District฀Court฀for฀the฀Western฀District฀of฀Michigan.฀The฀lawsuit฀
alleged฀that฀Taco฀Bell฀Corp.฀misappropriated฀certain฀ideas฀
and฀concepts฀used฀in฀its฀advertising฀featuring฀a฀Chihuahua.฀
The฀plaintiffs฀sought฀to฀recover฀monetary฀damages฀under฀
several฀theories,฀including฀breach฀of฀implied-in-fact฀contract,฀
idea฀misappropriation,฀conversion฀and฀unfair฀competition.฀
On฀ June฀ 10,฀ 1999,฀ the฀ District฀ Court฀ granted฀ summary฀
judgment฀in฀favor฀of฀Taco฀Bell฀Corp.฀Plaintiffs฀filed฀an฀appeal฀
with฀the฀U.S.฀Court฀of฀Appeals฀for฀the฀Sixth฀Circuit฀and฀oral฀
arguments฀were฀held฀on฀September฀20,฀2000.฀On฀July฀6,฀
2001,฀the฀Sixth฀Circuit฀Court฀of฀Appeals฀reversed฀the฀District฀
Court’s฀judgment฀in฀favor฀of฀Taco฀Bell฀Corp.฀and฀remanded฀
the฀case฀to฀the฀District฀Court.฀Taco฀Bell฀Corp.฀unsuccessfully฀
petitioned฀the฀Sixth฀Circuit฀Court฀of฀Appeals฀for฀rehearing฀en฀
banc,฀and฀its฀petition฀for฀writ฀of฀certiorari฀to฀the฀United฀States฀
Supreme฀Court฀was฀denied฀on฀January฀21,฀2002.฀The฀case฀
was฀returned฀to฀District฀Court฀for฀trial฀which฀began฀on฀May฀14,฀
2003฀and฀on฀June฀4,฀2003฀the฀jury฀awarded฀$30฀million฀to฀the฀
plaintiffs.฀Subsequently,฀the฀plaintiffs฀moved฀to฀amend฀the฀
judgment฀to฀include฀pre-judgment฀interest฀and฀post-judgment฀
interest฀and฀Taco฀Bell฀filed฀its฀post-trial฀motion฀for฀judgment฀
as฀a฀matter฀of฀law฀or฀a฀new฀trial.฀On฀September฀9,฀2003,฀
the฀District฀Court฀denied฀Taco฀Bell’s฀motion฀and฀granted฀the฀
plaintiffs’฀motion฀to฀amend฀the฀judgment.
In฀view฀of฀the฀jury฀verdict฀and฀subsequent฀District฀Court฀
ruling,฀ we฀ recorded฀ a฀ charge฀ of฀ $42฀million฀ in฀ 2003.฀ We฀
appealed฀the฀verdict฀to฀the฀Sixth฀Circuit฀Court฀of฀Appeals฀and฀
interest฀continued฀to฀accrue฀during฀the฀appeal฀process.฀Prior฀
to฀a฀ruling฀from฀the฀Sixth฀Circuit฀Court฀of฀Appeals,฀we฀settled฀
this฀matter฀with฀the฀Wrench฀plaintiffs฀on฀January฀15,฀2005.฀
Concurrent฀with฀the฀settlement฀ with฀the฀plaintiffs,฀we฀also฀
settled฀the฀matter฀with฀certain฀of฀our฀insurance฀carriers.฀As฀a฀
result฀of฀these฀settlements,฀reversals฀of฀previously฀recorded฀
expense฀ of฀ $14฀million฀ were฀ recorded฀ in฀ the฀ year฀ ended฀
December฀25,฀2004.฀We฀paid฀the฀settlement฀amount฀to฀the฀
Yum!฀Brands,฀Inc.฀ ฀ ฀ |฀ ฀ ฀ 79.