One-third of McDonald's franchisees in Brazil, its eighth-largest market, are suing the company, accusing it of overcharging for rent and undermining them by opening too many stores.

Once touted by McDonald's as a model operation, Brazil is now a drag on earnings. In July, an internal memo announced that Latin America president Ed Sanchez will resign in December, after leading the region for eight years, to become a partner in a company that supplies McDonald's meat products. Yesterday, McDonald's announced that Brazil's chief, Marcel Fleischmann, will leave his post at the end of 2003 to oversee the northern part of Latin America, which includes Mexico but is less important than Brazil, according to people close to the company. A successor wasn't announced.

The company doesn't break out Brazil in its Latin American results. But for the latest quarter, McDonald's omitted results for Latin America altogether, while including other regions. A McDonald's spokesman says the figures were left out because the region has only 1,600 of the chain's 30,000 restaurants. But a company executive in Sao Paulo says the reason was that Brazil, along with Venezuela and Argentina, was stuck in a rut.

Wall Street Journal Staff Reporters Miriam Jordan in Sao Paulo, Brazil, and Shirley Leung in Chicago contributed to this report.  
 
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