McDonald’s Corp. blames former agency Simon Marketing for an embezzlement scheme that cost the chain $35 million. Simon blames McDonald’s for destroying the $768 million agency in retaliation, in part so McDonald’s could buy out Simon’s operations on the cheap. McDonald’s, Oak Brook, IL, filed suit against Simon in U.S. District Civil Court in Chicago, charging (among other things) fraud, racketeering, and breach of contract, asking for up to $105 million and court costs in class action suits against McDonald’s.
Los Angeles-based Simon’s parent, Simon Worldwide, filed suit against McDonald’s in California Superior Court for the County of Los Angeles; charges include fraud, breach of contract, breach of licensing agreement, and defamation. Simon is asking for $1.9 billion in damages. Both suits were filed Oct. 23. McDonald’s senior vp-U.S. marketing R.J. Milano and senior director-U.S. marketing Kim Poston resigned a week later (Nov. 6 Xtra!).
McDonald’s contends the Master Product License Agreement in place since January 1995 requires Simon to indemnify McDonald’s for any problems. Simon contends that McDonald’s didn’t legally terminate the agreement (which requires 10 days’ notice) when it fired the shop on Aug. 21, the day the FBI arrested its first eight defendants including Simon’s then-director of security, Jerome Jacobson (October PROMO). Last week (Nov. 8). the U.S. Attorney’s office indicted 12 more individuals in the scheme, bringing its total to 33 suspects charged with mail fraud. Jacobson is the only defendant who was affiliated with Simon.
McDonald’s suit says it relinquished control of printing and seeding gamepieces on Simon’s advice, to preserve the integrity of the games. McD claims the debacle cost $20 million in diverted prizes, plus another $15 million for an Aug. 30-Sept. 3 make-up game. The suit also names five individuals not affiliated with Simon who were arrested in the scheme. Simon declined comment.
Simon says that by keeping the agency in the dark during the nearly year-long FBI investigation, McDonald’s ran a “fraudulent campaign to … intentionally destroy Simon for its own public relations and financial benefit.”
Simon alleges that McDonald’s public dismissal and later calls by McDonald’s reps to other Simon clients and premiums factories, urging them to quit doing business with Simon defamed and destroyed the agency. Simon also contends that McDonald’s owes the agency more than $50 million for premiums Simon ordered on McDonald’s behalf. McDonald’s declined comment on the pending litigation.
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