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Operators follow suits against colleges, contractors over meal plans

Reed Compton is a Firehouse Subs franchisee with five locations around Auburn, Ala., and Columbus, Ga. One of the units is directly across Magnolia Avenue from the Lowder Business School at Auburn University.

In 2008, Auburn, a state school with some 20,000 students, began a mandatory dining program called Dining Dollars that requires students to eat at campus-sanctioned venues. The idea is to generate revenue that could be used to upgrade campus foodservice. 

But such programs can siphon revenues from independent operators located near campuses. Compton said sales at his store near campus fell 40 percent.

“It’s even worse this fall,” Compton said. “Sales at that unit were down $1,000 the first week of school, and it’s only going to get worse.”

Now Compton is watching to see what happens as three lawsuits filed by students last month against Alabama universities and their foodservice contractors work through the courts.

At Auburn, three students — among them Compton’s daughter, Chloe — have sued the university and its contractors Compass USA and Thompson Hospitality Corp., alleging the Dining Dollars program violates state law. The students want their money back, the program stopped and the lawsuit to become a class action representing all students who have paid the fee since the program started.

Nearly identical lawsuits were filed in Jefferson County Circuit Court in August against the University of Alabama and its contractor, Aramark, and against the University of Alabama at Birmingham and its contractor, Sodexo.

None of the contract companies would comment on the lawsuits, nor would representatives from the University of Alabama.

The suits allege that the agreements between the state schools and the on-site feeders constitute an illegal contract and violate a constitutional requirement prohibiting the state from being interested in any private or corporate enterprise. The suits also claim that the contracts are unlawful trusts.

“These fees are not tuition and not related to classroom instruction,” said Daniel Evans, an attorney with Evans Law Firm in Birmingham who is representing the plaintiffs in all three cases. “Instead, these food fees are mandated because these state schools have contracted to give certain food vendors control over these student dining dollars in exchange for millions of dollars being paid back to the school.”

The outcomes of the pending suits could have far-reaching implications for contractors, students and operators near college campuses, as mandatory meal plans are common nationwide.

Should the Alabama students prevail, students in other states might try their luck with similar lawsuits, forcing contractors to rethink their economic models, said Tom Mac Dermott of Kingston, N.H.-based Clarion Group, a foodservice consulting firm.

“If Dining Dollars are a violation of Alabama law, a major prop will be knocked out from under the economics of college foodservice there,” he said. “No good could come out of a lawsuit prevailing there if this becomes a more serious national movement.”

A rise in student complaints about Dining Dollars programs could compel colleges and universities to abandon them, eventually causing contractors to pull out of the market as it becomes less profitable, he said. 

“It’s very hard pulling a profit out of most campus retail operations,” he said. “It pretty much takes a mandatory plan to support everything dining services are required to carry.”

Auburn officials defend Dining Dollars, which requires students living on campus to pay $995 a semester and those living off campus to pay $300. It can be used only at on-campus eateries operated by Compass USA’s school subsidiary, Chartwells, and Thompson Hospitality.

“The on-campus plan works out to $6 to $9 a day, and we found the average student actually spent $24 a day on foodservice,” said Deedie Dowdle, an Auburn spokeswoman. She noted that out of 30 regional educational peers, 25 have similar plans, and Auburn’s is among the least costly.

Colleges and universities view foodservice as both a necessity for students living on campus and a competitive advantage in attracting future students, Dowdle said. The only way to fund foodservice upgrades is through mandatory-dining programs, she said, noting that Auburn has spent about 
$20 million improving its foodservice in the past decade.

Campus dining is self-supported, with no state fees going to underwrite the services, she said. Auburn’s agreement with its contractors provides that they pay an 18-percent commission on all food sales to Auburn. In addition, Compass/Thompson pays a 1.5-percent transaction fee on each Tiger Card transaction. The Tiger Card is the only way to access Dining Dollars.

In their case against Auburn and Compass/Thompson, the students claim they did not need the program, the food was overpriced, and vendor hours were inconvenient. They say they often invited others to use their Dining Dollars so the dollars would not be wasted.

The University of Alabama in Tuscaloosa started its program in 1996. All students taking more than nine credit hours pay $300 per semester and $100 for the summer term to buy Dining Dollars. Freshmen purchase an additional mandatory meal plan. Three meal plans are available, ranging from a little over $1,200 to $1,757 for an unlimited plan, according to the UA website.

The students who brought the suit against UA estimate that more than 23,000 undergraduate students paid more than $14 million in Dining Dollars to Aramark during the last academic year, according to The Tuscaloosa News.

The paper reported that Aramark pays UA 15 percent of sales after the first $8 million in the year, which helped cover nearly $6 million UA paid to renovate campus eateries.

When UA first introduced its plan, local restaurateurs were up in arms. A limited few were able to become part of the Dining Dollars program, but the cost of participation can be steep. Among them is the Crimson Café, where owner Rhett Madden views his position as between a rock and a hard place.

“Of course, I’m interested in this case, and every off-campus operator across the U.S. should be interested — not just the mom-and-pops, but the franchisees, too,” Madden said. “If I had known about Dining Dollars when I opened my business in 1993, I would never have opened.”

When all is said and done, Compton said, Compass USA is guaranteed that more than $13 million in foodservice dollars will be spent on the Auburn campus this year. Before the mandatory Dining Dollars program, fewer than a thousand students bought meal plans, he said. 

“It’s strictly a profit-making scheme,” he said. “Compete with me straight up, and I don’t have a problem with it. But taking those potential sales out of our local economy is just wrong — and we think it’s illegal.”

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