Sandy's Early History

Sandy's Early History

In 1956, four business men from Kewanee, Illinois, Gus "Brick" Lundberg, Robert C. Wenger, Paul White and W.K. Davidson set out to start one of the first McDonalds franchises outside of the state of California.

Sandy's board of directors at the specatular Sandy's Kewanee National Headquarters. Special thanks to Carl Wenger. Left to Right, Sherry Welch (Sandy's Lawyer), Paul White (Founder), Robert Wenger (Founder and Treasurer), Gus Lundberg (Founder), Jack Laughery (Vice President), Bob Humphrey (Sandy's Banker in Evanston, Illinois), Doc Boley (Real Estate)

What followed was one of the most incredible storys from the dawn of history of fast food. The story includes one of the longest lawsuits in the history of the State of Illinois and has more twists than a great mystery novel. All of this from an American classic fast food drive-in during the 1950's in Urbana, Illinois, the heartland of America.

Carl Wenger is the son of one of the Sandy's founders, Mr. Robert C. Wenger. He has graciously revealed for this website rare historic documents from the Appellate Court of Illinois. The story revolves around the birth of Sandy's and the seven year lawsuit brought against them by McDonalds Corporation.

There is much much more to this story in addition to what is presented here so if you are an author, you may want to contact Mr. Wenger for more details of one of the incredible chapters in American history.

One of Sandy's founders, Mr. Robert Wenger, Sandy's National Headquarters, December 1971.

To help explain the early history of fast food as well as the historic lawsuit, the following is recorded straight from the Appellate Court of Illinois documents; McDonald's System vs. Sandy's, Inc.

The individual defendants are residents of Kewanee, Illinois. Defendants C. Paul White, Jr. and Robert C. Wenger were (and still are) the principal officers and owners of a corporation engaged in the manufacture of restaurant equipment. Defendant Gust E. Lundberg, Jr. was (and still is) engaged in the business of operating the Culligan Soft Water services in several midwestern cities. Defendant W. Kenneth Davidson was (and still is) the owner and operator of a restaurant in Kewanee.

The story of this case begins in 1954, when defendant White had a chance encounter with an acquaintance, one W.H. Jamison in California. Jamison told White about brothers named McDonald in California. He spoke of the franchising of McDonald's stores and said that when franchising was ready to expand, he would like to see White get into the business.

Sometime between Jamison's conversation with White in 1954 and the spring of 1955, the McDonald brothers made an arrangement with Ray A. Kroc, whereby the corporation he organized for that purpose, McDonald's System, Inc., the plaintiff in this action, would grant McDonald's franchises outside California. Kroc, whose business up to that time had been selling mixers and a malted milk preparation to the restaurant trade, owned 100% of the stock of that company at the time of its organization, although he has since given small amounts to certain employees.

The first McDonald's store with which plaintiff (Kroc's company), had any connection, and the first McDonald's store in Illinois, was opened April 15, 1955 in Des Plaines, Illinois. The previous year, in August, 1954, Henry's, whose restaurants are substantially the same as McDonald's in equipment, equipment layout and other features, had opened a self-service drive-in restaurant in Illinois.

DEFENDANTS' AGREEMENT WITH PLAINTIFF FOR FRANCHISES IN CENTRAL ILLINOIS

In May, 1955, shortly after the opening of the first store franchised by plaintiff anywhere, which was in Des Plaines, Illinois, White, Wenger and Davidson attended the Restaurant Show in Chicago. There, Jamison saw White, told him they were ready to go on the McDonald franchising, and introduced all three to Kroc. Both Jamison and Kroc sought to interest them in entering the self-service drive-in restaurant business as McDonald's franchisees. At Kroc's suggestion Jamison took White and Wenger to visit the McDonald's store in Des Plaines, Illinois. Kroc and Jamison were "elated" because they had prospects for franchises. As Jamison put it, "we would have done anything legal and honest to get additional locations."

During the conversations which occurred at this time, Jamison discussed with White and Wenger the location by the latter of franchised McDonald's stores in the Illinois cities of Danville, Champaign-Urbana, Decatur, Springfield, Bloomington and Peoria. Jamison stated that if White and his associates would open a McDonald's store in one of those cities within a reasonable time, the other cities would be reserved for them, and they would have a right of first refusal for them and they would have a right of first refusal on those other cities.

As a result of a report of these conversations to Kroc and because of plaintiff's desire to increase the number of McDonald's stores in the Midwest (there being only the one in Des Plaines at that time), Jamison wrote on June 6, 1955 confirming his conversations. This letter, written on plaintiff's letterhead and signed on plaintiff's behalf, stated in pertinent part: "I would suggest that you purchase the franchise for the city you feel will be the first in which you will locate. You may be certain that the other cities you have mentioned will be reserved for you for a reasonable time before they will be sold to other interest."

Kroc was fully informed as to these conversations, the agreement that had been made with the White group, and this letter, as he was of all negotiations and agreements made on behalf of McDonald's by Jamison. Jamison testified he knew Kroc would be "fully aware" of the "agreement" if he would "jog his memory a bit."

Shortly after the restaurant show, Kroc came to Kewanee to see White, Wenger and Davidson. Kroc told them Jamison had reported his conversations with them and reiterated that if the White group would open a McDonald's store in one of the cities named, plaintiff would reserve the other cities for the White group and would give them the right of first refusal.

During the summer of 1955, White, Wenger and Davidson, accompanied on one trip by Kroc himself, searched for a site for a McDonald's drive-in in Peoria. They were unable to find one at that time.

In the fall of 1955 defendant Lundberg joined the White group and was assigned an undivided interest in their agreement with McDonald's. Kroc approved. During this period Kroc also encouraged the White group to find franchise sites.

LOCATION OF THE URBANA SITE AND EXECUTION OF THE FRANCHISE AGREEMENT.

In December 1955, a site was located in Urbana, one of the cities Kroc had promised to reserve. After the commencement of negotiations for a lease, which were delayed because the owner of the corporation which held title to the site was in Greece, Kroc and the White group executed the franchise agreement for the Urbana store.

The designation of "McDonald's of Champaign-Urbana" (the corporation the individual defendants were to organize) as the "Second Party" in the body of the franchise agreement and the signing by the four individual defendants of their individual names as the "Second Party" at the end of the agreement, resulted in an ambiguity on the face of the agreement as to who was intended to be the Second Party. The Master resolved this ambiguity by finding that both the corporation subsequently organized, defendant McDonald's of Champaign-Urbana, Inc., and the four individual defendants were the Second Party. However, at the time the agreement was signed, there is no question that Kroc and the four defendants understood that the Second party was to be the corporation and not the individuals and that this was approved by Kroc.

The lease for the Urbana store was subsequently executed, with the four individual defendants as parties. It was expressly made assignable by them to a corporation in which they owned at least an 80% interest. Shortly thereafter, in March, 1956 , the four individual defendants organized McDonald's of Champaign-Urbana, Inc. The defendants then subleased the premises to their corporation and received a rental in addition to the amount of rental payable to the original lessor.

Mr. Robert C. Wenger's historic stock certificate, McDonald's of Champaign-Urbana, Illinois.

The Urbana store was opened in June, 1956 by defendant McDonald's of Champaign-Urbana, Inc., and it has since been continuously owned and operated by that corporation. It was and is a successful and well-managed McDonald's store and is still paying royalties to the plaintiff.

FURTHER CONVERSATIONS AND NEGOTIATIONS CONCERNING MCDONALD'S FRANCHISES IN OTHER CITIES

Shortly after the execution of the franchise agreement for Champaign-Urbana and several times thereafter, Kroc and on one occasion, Jamison, reiterated plaintiff's promise to reserve for the White group the other cities covered by the underlying agreement between the parties in view of the opening of the McDonald's store in Urbana, one of the cities covered by the agreement and encouraged the White group to proceed to find locations for additional stores in these cities.

The White group conducted negotiations for a site in Decatur, reported this to plaintiff and thereafter proceeded with these negotiations. In the fall of 1956, however, Kroc told them he was negotiating with a third party for the location of a McDonald's store in Decatur. Lundberg and White reminded him that he had agreed to give the Decatur franchise to the White group and said that he was violating the agreement. Kroc said he was going ahead with his negotiations with the third party notwithstanding.

Subsequently, first orally and then in writing on December 21, 1956, Kroc advised the White group that plaintiff was no longer franchising stores. He inquired whether plaintiff could purchase the Urbana store. White and Lundberg said that Urbana store was not for sale and reminded Kroc of his promise with respect to Decatur and other locations in the central belt of Illinois. Kroc responded that there had been a change in policy and that franchises would not be available to the White group.

In February, 1957, however, his negotiations with the third party having apparently fallen through, Kroc told White and Wenger that plaintiff had reversed its policy and would again franchise stores in the central belt of Illinois and that the White group would have first refusal on Decatur.

In April 1957, plaintiff offered the White group a franchise in Kankakee, Illinois, which was not one of the cities covered by their agreement with plaintiff, at the same time confirming that Decatur was being reserved. Defendants considered this proposal, but finally rejected it because they did not believe plaintiff's site had a good potential.

THE PEORIA SITE

Early in the fall of 1957 the White group found a site on North Sheridan Road in Peoria for the location of a drive-in restaurant. They negotiated with Leon Sutherland, who was acting for the owner, for a lease, advising him that they wanted to put a McDonald's store on that site. In December, 1957, after they had determined that they could obtain the lease, they telephoned Kroc and asked him for a McDonald's franchise in Peoria. He told them that Peoria had already been promised to someone else. (Although he denied this at his pre-trial deposition, he admitted it under adverse examination at the trial).

THE ORGANIZATION OF SANDY'S

Only after submitting the Peoria site to plaintiff as a location for a McDonald's store and asking that plaintiff honor its agreement to give them the McDonald's franchise for Peoria, and only after plaintiff had persisted in the breach of that agreement by refusing them the Peoria franchise, did White, Wenger and Lundberg undertake to organize another corporation to operate a self-service drive-in store on the Peoria site. Under date of January 8, 1958, they entered into a lease for the site. In February they organized Sandy's, Inc., to operate a drive-in restaurant on the site.

White, Wenger and Lundberg never attempted to conceal their participation in Sandy's, Inc. They were the organizers of the corporation. They executed the lease. Their names, as organizers and the corporate purpose ("operating a drive-in food establishment on North Sheridan Rd. in Peoria") were announced in a Peoria newspaper story on February 14, 1958. Kroc read this story and wrote a letter on February 17 referring to it and stating he thought if the Peoria store was to be similar to McDonald's the Urbana store should be sold through plaintiff and moreover, plaintiff would have the right to open a second store in Champaign. White replied on February 22, stating that his group did not intend to violate "the franchise agreement given to McDonald's of Champaign-Urbana, Inc." and also stating that they would be willing to discuss selling the Urbana business.

Following the receipt of White's letter, in late February 1958, Kroc and Donald L Conley, one of plaintiff's vice presidents, came to Kewanee and met with White, Wenger and Lundberg. Kroc said he had read the article in the Peoria paper and that in view of the circumstances he felt that they should sell their interest in McDonald's Champaign-Urbana, Inc. The parties then discussed the price at which the Urbana business would be sold. Kroc left the meeting with the statement that he would attempt to find a buyer.

In its truncated version of this meeting, plaintiff states that White also represented that the Sandy's store "would be entirely different" from the Urbana restaurant. The Master, however, in his finding as to what occurred at this meeting, did not so find, and defendants did not object or except to any portion of this finding. Their statement is based upon the testimony of Kroc and Conley at the trial, which was flatly denied by the defendants' testimony. The Master obviously believed defendants and did not believe Kroc and Conley. The Master did find that White stated the defendants would do nothing to jeopardize the franchise agreement. It is clear, however, that no one construed that as an implication that Sandy's would be "entirely different," because the parties proceeded to discuss the sale of the Urbana business, which was requested by plaintiff solely because of the plan to open Sandy's.

Moreover, the Master expressly found, on the basis of Kroc's own admission on deposition that "at the time of the meeting, Kroc knew that the contemplated business on North Sheridan Road in Peoria would be a retail food stand, a drive-in restaurant." The Master also found that one of plaintiff's employees visited the site of the Sandy' store shortly after the February meeting and reported to Kroc that the dimensions of the building were very close to those of the McDonald's building; and that "At that time Kroc believed that the Sandy's store would be substantially the same in design and dimensions as the McDonald's prototype store and knew that the Sandy's store would be similar to the McDonald's store." From time to time, as the building was developing, plaintiff's men visited the site, inspected the work and then reported their observations to Kroc. Nevertheless, Kroc said nothing to the defendants.

There were public zoning hearings in March and April 1958 on the question of whether the zoning for the Peoria property should be changed to preclude the use of the site for a drive-in restaurant. Still plaintiff said nothing to defendants.

Plaintiff said nothing even after its attorneys wrote the Secretary of the State on July 1, 1958 asking for information about the incorporation of Sandy's, Inc., and were told the incorporators were White, Wenger and Lunberg and that the purpose for which the corporation was organized was substantially the same as the purpose in the charter of the McDonald's of Champaign-Urbana, Inc.

The Sandy's store opened August 8, 1958. This suit was filed on October 2, 1958. Until then, none of the defendants had heard from plaintiff since the February 1958 meeting.

DEFENDANTS' RELIANCE UPON PLAINTIFF'S SILENCE

The contract for the construction for the Sandy's store was not executed by the owner of the premises (who, under the lease, was to erect the building) until May 27, 1958, although the excavation and the foundation walls had been put in prior to that date. Defendants offered to prove that Leon Sutherland, who acted on behalf of the lessor of the Peoria site and thus had charge of the of constructing the building on behalf of the lessor, would, if permitted, have testified that he would not have proceeded to construct the building, if he had known that McDonald's would assert its present position, and that even if he had been advised of this as late as the time the foundation of the building was in and the walls were starting up (which was long after plaintiff was found to have had knowledge of the kind of operation Sandy' would be), he would have halted construction until the controversy had been resolved.

Over $30,000 was spent by Sandy's, Inc., in outfitting the store prior to the filing of the complaint in October 1958. White, Wenger and Lundberg all testified that in determining on behalf of Sandy's, Inc. whether to make these expenditures, they had in mind the February 17, 1958 letter from Kroc and the conversation with him in Kewanee that month.

In addition, defendants made offers of proof that White, Wenger and Lundberg would testify, if permitted that if they had been advised that plaintiff intended to contend that they had no right to be connected with the Sandy's store, they would have caused Sandy's, Inc. to make no further expenditures in connection with that store until the plaintiff's cotentions had been compromised or legally determined. The Master refused these offers of proof.

Because it was unnecessary to do so in view of the grounds on which the case was decided, neither the Master nor the Court determined the issue of laches.

THE ALLEGED "DUPLICATION" OF THE MCDONALD'S "SYSTEM".

Plaintiff repeatedly asserts that the individual defendants "duplicated" its "system." (As we demonstrate below, this has no legal significance, even it were true, in absence of trade secrets.)

The Master found, however, not only that all of these matters were already known to the restaurant trade and available through numerous trade publication, form restaurant equipment manufacturers and open to any member of the public who chooses to inspect one of the McDonald's, Henry's Carroll's, or other like stores, but also that before the opening of the Sandy's store the individual defendants made an extensive study of the various trade journals, where they found the same information as that obtained from McDonald's and also new ideas in design and operation not used by McDonald's.

Plaintiff challenges this finding but in order to do so, it is forced to misstate the record and ignore the evidence which supports the finding. The evidence is of regular reading since 1947 about the self-service, drive-in restaurant business from a multitude of trade publications. Examples published before 1958 include Defendant's Exhibits. Individual defendants also had past experiences in food and food equipment fields before they made their investment in McDonald's of Champaign-Urbana, Inc. In planning the Peoria store, they utilized their own architect and their own equipment designer. They used sources of supply and brands and models of equipment different from those used by McDonald's. They made improvements in food preparation and serving methods which were not used by the plaintiff. The Master's finding that the individual defendants did not rely upon information revealed by the plaintiff is amply supported by the evidence.

Plaintiff has never contended and of course, the Master did not find that the Sandy's store was confusingly similar in appearance to any McDonald's store, so as to mislead the public into believing that the Sandy's store was another McDonald's store. There is clearly no confusing similarity in appearance. There is therefore no issue of confusing similarity in the case.

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