Antitrust Law Daily Wrap Up, FRACHISING & DISTRIBUTION—EDCal: Franchisee Enjoined from Continuing to Operate After Termination , (Nov 27, 2012)

By Jody Coultas, J.D.

The federal district court in Sacramento granted 7-Eleven, Inc. an injunction against a former franchisee who continued to operate a 7-Eleven franchise after termination of the franchise agreement (7-Eleven, Inc. v. Dhaliwal, November 20, 2012, Mueller, K.).

Brinderjit Dhaliwal entered into a franchise agreement with 7-Eleven, but the agreement was terminated prematurely when the lease between 7-Eleven and the owner of the store property ended. A provision of the franchise agreement allowed Dhaliwal to elect, within 180 days of the termination, to receive a refund of part of his franchise fee or to transfer to any 7-Eleven store available for franchise without paying a new franchise fee. Although Dhaliwal informed 7-Eleven that he was interested in transferring to any reasonable location in the greater Northern California area, 7-Eleven stated that there were no corporate 7-Eleven stores available to franchise in Northern California.

Dhaliwal entered into another franchise agreement with 7-Eleven for another store and paid the franchise fee. When the store failed to maintain the net worth required by the franchise agreement, 7-Eleven terminated the agreement. However, Dhaliwal continued to operate the store and 7-Eleven sought a preliminary injunction to eject Dhaliwal from the store, enjoin him from using the 7-Eleven marks or holding himself out as a 7-Eleven franchise, and to require Dhaliwal to deliver items with 7-Eleven’s marks to 7-Eleven.

The party seeking injunctive relief must show that he is likely to succeed on the merits, that he is likely to suffer irreparable harm in the absence of preliminary relief, that the balance of equities tips in his favor, and that an injunction is in the public interest.

7-Eleven was entitled to the requested injunctive relief, according to the court. It was likely that 7-Eleven would succeed on the merits of its Lanham Act and breach of contract claims. Dhaliwal’s continued occupation of the property interfered with 7-Eleven’s property rights. A former franchisee’s continued occupation of the franchise after the franchise agreement has terminated can cause irreparable harm because the franchisor may no longer make productive use of his property. 7-Eleven’s lack of control over its trademarks due to Dhaliwal’s unauthorized use was enough to show irreparable harm. The public interest at stake was the right of the public not to be deceived or confused, and an injunction preventing Dhaliwal’s unlicensed use of 7-Eleven’s marks is in the public interest. Finally, the balance of equities weighed in favor of an injunction.

Dhaliwal was required to surrender possession of the store to 7-Eleven, was enjoined and restrained from using the 7-Eleven marks or any trade name confusingly similar to the 7-Eleven marks, and was required deliver everything bearing the 7-Eleven marks.

The case is No. 12-CV-02276-KJM-GGH.

Charles Godfrey Miller (Bartko Zankel Tarrant and Miller) for 7-Eleven, Inc. Craig P. Kennedy (McNeil, Tropp, Braun & Kennedy, LLP) for Brinderjit Dhaliwal.

Cases: FranchisingDistribution CaliforniaNews