[Exclusive] "Pay 1 Million Won Each First"... 323 Mega Coffee Franchise Owners File Differential Franchise Fee Lawsuit Against Industry's Largest Brand

"No Mention of Difference Franchise Fee in Franchise Agreement"
Claiming 1 Million Won Per Person... Plans to Expand Claims
Lawsuits Against The Venti and Paik's Coffee Headquarters Expected Soon

A total of 323 franchise owners have filed a lawsuit against the headquarters of Mega MGC Coffee, which operates the largest number of domestic franchise outlets in the coffee industry with over 4,200 locations, seeking the return of excess franchise fees.

This marks the second-largest lawsuit in the franchise sector in history, following the Baskin Robbins case involving around 400 franchisees, with 323 franchise owners participating as plaintiffs in a single excess franchise fee suit. The law firm representing the plaintiffs is also reportedly preparing to file lawsuits on behalf of franchise owners from several other coffee franchise brands, including The Venti and Paik’s Coffee, against their respective headquarters. This trend suggests that lawsuits over excess franchise fees are likely to spread rapidly throughout the coffee franchise industry.

A Mega MGC Coffee store in Seoul. Photo by Yonhap News

On April 2, Doa Law Firm (Managing Partners Park Jongmyeong and Lee Haesung) announced that, representing 323 Mega Coffee franchise owners, it had filed a lawsuit on March 31 with the Seoul Central District Court against MGC Global Co., Ltd., the Mega Coffee franchise headquarters, seeking the return of 1 million won per plaintiff in excess franchise fees. The case has been assigned to the 932nd Civil Division of the Seoul Central District Court.

In their complaint, the plaintiffs cited the Supreme Court precedent from the Pizza Hut excess franchise fee case handed down earlier this year, stating, "For the headquarters to receive excess franchise fees, a concrete agreement on such receipt between the headquarters and the franchise business operator is required."

The plaintiffs argued, "Although the franchise agreement in this case stipulates that franchisees must comply with the standard menu and operational guidelines, and are required to purchase raw materials and ingredients from designated suppliers under the headquarters’ system, there is no explicit provision regarding excess franchise fees or the method for calculating them." They continued, "In other words, while the plaintiffs are required to purchase ingredients and materials designated by the defendant, there is no mention in the agreement of the inclusion of excess franchise fees in the cost of goods or any agreed-upon criteria for calculating such fees."

They further emphasized, "Since there has never been an agreement between the plaintiffs and the defendant regarding excess franchise fees, the excess franchise fees received by the defendant from the plaintiffs constitute unjust enrichment, and the defendant is obligated to return these amounts to the plaintiffs."

The plaintiffs also cited the headquarters' 2024 disclosure document, which showed that the average excess franchise fee paid per store in 2022 was 35,194,000 won, and the ratio of excess franchise fees to average sales per store was 9.71%. They stated that it is clear that the amount to be returned to each plaintiff exceeds 1 million won, and thus they are initially claiming 1 million won each as a specified partial claim.

The plaintiffs plan to expand the scope of their claims to specify the amount of excess franchise fees by year and by store as soon as all annual disclosure documents are secured.

From the left, Park Jongmyeong, Managing Partner at Doa Law Firm, and Lee Haesung, Managing Partner.

Park Jongmyeong, Managing Partner at Doa Law Firm, stated, "As Mega Coffee is the largest coffee franchise brand in Korea, the outcome of this lawsuit is expected to significantly impact the transaction structure across the industry." He added, "Since the filing of the first complaint, many more franchisees have expressed their desire to join the suit, and the number of plaintiffs is expected to increase further."

Managing Partner Lee Haesung commented, "Starting with the Mega Coffee lawsuit, Doa Law Firm has been approached for additional lawsuits by franchise owners from multiple brands, including The Venti and Paik’s Coffee, and we plan to file these complaints sequentially. We will continue to pursue legal action to address the headquarters’ non-transparent practice of taking distribution margins."

Doa Law Firm is currently recruiting additional plaintiffs among franchise owners of Mega Coffee, The Venti, and Paik’s Coffee, and plans to proceed with second and third rounds of lawsuits as more franchisees join.

Doa Law Firm is comprised of experts with backgrounds from Seoul National University and major law firms, providing specialized legal services in all aspects of fair trade, including representing clients in complaints to the Fair Trade Commission, responding to investigations, and handling litigation.

The firm is recognized for its extensive on-site experience in the franchise business sector, especially within the coffee franchise industry, enabling it to offer hands-on advisory services to franchise owners.

Doa Law Firm has signed a Memorandum of Understanding (MOU) with the Mega Coffee and The Venti Franchise Owners’ Associations, and in addition to representing lawsuits over excess franchise fees, it also provides support for responding to the headquarters’ unfair business practices and legal advisory services.

Meanwhile, a representative from the headquarters stated, "Since we have not yet received the complaint, it is difficult to provide a specific position." The representative added, "However, compared to chicken or pizza restaurants, coffee shop franchisees are required to purchase far fewer mandatory items from headquarters-designated suppliers."

*Excess Franchise Fee

This refers to the distribution margin, or the difference between the price received by the headquarters from supplying various goods to franchisees and the appropriate wholesale price.

This content was produced with the assistance of AI translation services.