First Hearing in Starbucks Rent Lawsuit: Court Says "Matter Should Be Resolved by Settlement"

The trial for the lawsuit filed by Starbucks store landlords against the headquarters, demanding payment of unpaid rent and proper settlement, has officially begun.

According to legal sources on December 12, the Civil Settlement Division 29 of the Seoul Central District Court (Presiding Judge Ko Seungil) held the first hearing the previous morning for the lawsuit filed by 37 Starbucks store landlords, including an individual identified as Shin, against Starbucks operator SCK Company, seeking payment of commissions (rent).

A citizen is walking in front of a Starbucks store. Photo by Yonhap News

Previously, at the end of April, the plaintiffs filed a lawsuit with the Seoul Central District Court against SCK Company, each claiming 14 million won, representing a portion of unpaid commissions. (Reported by The Asia Business Daily on May 12: [Exclusive] Starbucks Store Landlords File Lawsuit Against Headquarters: "Losses from Omitted Sales")

The plaintiffs argue that the discounted amounts and free coupons resulting from the prepaid paid subscription service "Buddy Pass," implemented by Starbucks since October 2024, and promotions run in partnership with credit card companies, should be included in the store sales figures that serve as the basis for calculating rent. They claim they have suffered losses because these were excluded.

For example, if a customer subscribed to the Buddy Pass and received a 30% discount, purchasing coffee and food worth 10,000 won for 7,000 won at the store, the sales should be recorded as the pre-discount amount of 10,000 won. The plaintiffs question why the sales are recorded as 7,000 won, omitting 3,000 won from the sales, which ultimately results in less rent being paid.

The Key Issue: Whether Buddy Pass and Partner Card Discounts Should Be Included in Total Sales

At the hearing, the court organized the evidence lists, including the preparatory documents submitted by both parties before the first hearing, summarized the main issues of the case, and listened to the positions of both parties' legal representatives.

First, the court stated, "The plaintiffs are seeking unpaid commissions, and the reason for the difference in commissions is how to calculate net sales-specifically, whether the pre-discount amount from prepaid subscription services and coupons issued under partnership agreements should be included in total sales. The defendant is refuting the plaintiffs' claims, considering the nature of the compensation for the prepaid subscription service."

The court then asked, "If the subscription fee is the compensation for the headquarters' promotions, then is the upper limit of the cost equal to the subscription fee?"

The Starbucks side responded, "In fact, the subscription service fees are not greater than the costs. Since we run standardized promotions nationwide, our internal assessment is that the headquarters bears much higher costs."

Starbucks 'Buddy Pass' Official Program Launch Image. Provided by SCK Company.

Plaintiffs: "Discounts Are Not Subject to Deduction Under the Contract" vs. Defendant: "Issue of Net Sales Definition"

At this, Hyun Minseok, an attorney from YK Law Firm representing the plaintiffs, requested an opportunity to address the court, saying, "We would like to explain that point."

Attorney Hyun stated, "The lease agreement in this case lists the types of discounts that are subject to deduction, but the subscription services and credit card partnership discounts provided by the defendant after the contract was signed are not among the listed discount items, so they are not subject to deduction. Therefore, our position is that commissions should be paid based on the pre-discount regular price or amount."

He added, "Moreover, the defendant not only fails to calculate commissions based on the pre-discount price, but also does not distribute to the plaintiffs their share of the subscription fees received or the partnership commissions received from partner companies."

Attorney Hyun further explained, "The legal relationship between ordinary buyers and the defendant is essentially a sales contract for the purchase of coffee. Therefore, the subscription fee paid by customers to the defendant can be seen as an advance payment of part of the purchase price, and the partnership commission paid by partner companies can be seen as a third party paying part of the purchase price on behalf of its members."

He continued, "Therefore, all these components constitute part of the sales or purchase price. If they are simply considered 'compensation for promotions,' we do not see how this can be explained legally. Thus, under the lease agreement, these amounts should be distributed to the landlords, not exclusively retained by the tenant-the defendant."

The court responded, "Primarily, as the plaintiffs' representative mentioned, the issue seems to be one of contract interpretation. Even as examples, there is the question of whether the items mentioned by the plaintiffs' representative should be included in total sales or should be considered as excluded, like free coupons."

The court asked, "You will continue to debate this, correct?" Attorney Jang Cheolik from Kim & Chang, representing Starbucks, replied, "Yes, our consistent position is that the issue is how to understand the concept of net sales."

The court asked the defendants whether all plaintiffs used the same contract language. Upon receiving a negative answer, the court asked for the reason and checked whether the exemplary language in the contract submitted by the defendant was also included in the contracts with the plaintiffs. Attorney Hyun for the plaintiffs stated, "We do not consider that language to be exemplary."

When the Court Raised the Issue of 'Settlement'... Starbucks: "Actively Considering" vs. Plaintiffs: "Negative"

The positions of both parties regarding a possible settlement were also clarified during the trial.

The court said, "Please continue your arguments in court... but honestly, it seems like this is a matter that should be resolved through a settlement between the parties."

Attorney Jang for Starbucks responded positively, saying, "If the judge suggests it during the proceedings, we will actively consider it."

On the other hand, Attorney Hyun for the plaintiffs stated, "There are many landlords, not just us. Since this could set a precedent..." expressing a preference for a ruling rather than a settlement during the trial.

The court asked, "Then, wouldn't it be possible to properly re-sign the contract and reasonably settle the costs and commissions so far?"

Plaintiffs: "No Access to Sales Data"... Request for Explanation and PPT to the Court

At this point, Park Jaewan, another attorney from YK Law Firm representing the plaintiffs, asked the court for permission to make a statement regarding procedural matters and spoke about the 'request for explanation' submitted just before the hearing date.

Attorney Park said, "The unique aspect of this case is that, as landlords, the plaintiffs have no way to access the defendant's sales data. Since the defendant has full control over the POS system and everything else, we cannot even confirm the total sales. At the very least, regarding the request for explanation we submitted, the defendant, who has all the data, should clarify the details so that we can engage in a substantive argument. Therefore, we request the court to seek clarification."

Attorney Park also requested that, although it is not necessary to schedule a formal presentation, the court allow them to use a PowerPoint presentation (PPT) at the next hearing to explain, even for just 10 minutes, the actual payment process at a Starbucks store.

The court stated that it would decide on the plaintiffs' request for explanation after hearing the defendant's opinion. Regarding the PPT request, the court said it would consider the necessity if preparatory documents or evidence were submitted.

The next hearing is scheduled for March 5 at 11:20 a.m.

*Buddy Pass

Starbucks' first paid subscription service, introduced in October 2024. Initially operated as a pilot with a monthly prepaid subscription fee of 9,900 won, it was officially launched as a regular program with the prepaid subscription fee lowered to 7,900 won from December 2, 2024. The service provides a 30% discount coupon for handcrafted beverages available from 2 p.m. each day, one 30% discount coupon for food, one free Delivers delivery coupon, and two free online store shipping coupons.