Black McDonald's franchise owners have filed a potential multibillion-dollar lawsuit, accusing the fast-food giant of racial discrimination by steering them to purchase underperforming stores.
The proposed class-action lawsuit is being led by brothers James and Darrell Byrd, who own four McDonald's restaurants in the Memphis-area of Tennessee.
McDonald's is accused of placing black franchisees in undesirable inner-city locations with high security and insurance costs and below-average sales, and driving many away by failing to support them as debts rise and profits fall short.
Jim Ferraro, an attorney for the plaintiffs, estimated that McDonald's has 186 Black franchisees in the US, down from a peak of 377 in 1998, who own '700-plus' stores.
The lawsuit, filed on Thursday in federal court in Chicago, where McDonald's is headquartered, seeks damages of $4 million to $5 million per store, potentially totaling more than $3 billion.
The Byrds are being represented by the same law firm that filed a lawsuit on behalf of 52 black former operators alleging similar claims last month.
Brothers James Byrd Jr and Darrell Byrd, who own four McDonald's restaurants, have filed a proposed federal class-action lawsuit against the company. Pictured: James Byrd Jr (left) and Darrell Byrd (right) outside a McDonald's restaurant
They claim that the company placed black franchisees in undesirable inner-city locations with high security and insurance costs and below-average sales. Pictured: James Byrd (second from right) at a Ronald McDonald House event
According to court documents viewed by DailyMail.com, James Byrd Jr has been a franchisee for 31 years and Darrell Byrd has been a franchisee for 22 years.
They operate two restaurants each with James's restaurants in Collierville and Cordova and Darrell's in Arlington and Somerville.
The Byrds call the cost to own and operate a black McDonald's franchise 'a financial suicide mission.'
In the lawsuit, the brothers allege that black franchisees were awarded the oldest restaurants in need of the most reinvestment.
These restaurants were often in 'tough and depressed areas' that white franchisees had rejected.
The brothers allege that as they fell into significant debt, they did not receive permanent rent relief and impact funding like white franchisees do. Pictured: James Byrd (left) and Darrell Byrd (right) at a Ronald McDonald House event
The lawsuit alleges that these restaurants had 'higher operating costs, such as security, insurance, and employee training and turnover, and which are historically underperforming in sales to offset these expenses' leading black franchisees into significant debt.
The suit claims the region in which the Byrds operate has the highest cashflow disparity in the US of approximately $135,000 between black and white McDonald's franchisees.
McDonald's also raised rents on the brothers' locations despite averaging $1 million less than the company's national average sales.
James Byrd Jr says he has lost eight restaurants and Darrell Byrd says he has lost two due to the company's mismanagement.
They also claim they've been denied financial relief while white franchisees have received assistance such as permanent rent relief and impact funding.
'Although the Byrds risk retaliation (and potentially any chance at saving their only remaining restaurants) in bringing forth this action, they cannot allow other Black McDonald's franchisees to be misled and injured by the same pipeline of discrimination that has plagued Black franchisees for decades,' the lawsuit reads.
In a statement, McDonalds USA says it will defend itself against the lawsuit and accused the Byrds of their own mismanagement.
'McDonald's has an obvious interest in franchisees maintaining successful and profitable restaurants, which is why McDonald's supports all franchisees, including those facing economic hardships,' the statement reads.
'With respect to the named plaintiffs in this complaint...McDonald's has invested significantly in each of their respective businesses after they ran into business difficulties caused by mismanagement of their organizations.'
McDonald's denies the allegations and accuses the Byrds of suffering financial difficulties due to their own mismanagement. Pictured: One of the four restaurants owned by the brothers
The company says it attempted to help the Byrds with rent default and delinquent tax bills, and claims if offered to buy the restaurants back multiple times.
McDonald's has taken steps this year to address concerns about its workplace culture, including updating its corporate values for the first time since 2008.
It has denied treating black franchisees differently, while acknowledging it wants its franchisee ranks to become more diverse.
McDonald's has also denied racial discrimination claims in a lawsuit filed in January by two Black executives.
'They've been on a massive PR campaign to clean up their image,' the attorney, Ferraro, told reporters on a conference call on Thursday.
'This is actually a good thing, at some level, but not a good enough thing.'
Other black franchisees will decide if they want to take part of the lawsuit next year if the court approves the lawsuit as a class-action, Ferraro said.
McDonald's sought last week to dismiss the lawsuit by the former franchisee last month, which seeks up to $1 billion in damages, saying it disclosed the risks of owning stores and did not set anyone up for failure.