Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Conn.: Mutual release barred former franchisee’s counterclaims against 7-Eleven, (Jan 20, 2016)

By Michael Menzhuber, J.D., LL.M.

A former franchisee’s motion to file counterclaims to 7-Eleven, Inc.’s (7-Eleven’s) complaint, which alleged, among other things, conversion, was denied by the federal district court in Bridgeport, Connecticut. The court determined that the franchisee’s counterclaims were barred by the mutual release contained in the parties’ termination and settlement agreement (7-Eleven, Inc. v. Khan, January 19, 2016, Meyer, J.).

After informing the franchisee that it was terminating its franchise agreement, 7-Eleven and the defendants entered into a termination and settlement agreement. The settlement included, among other things, a mutual release of legal claims by the parties.

Following the termination of the franchise agreement, a dispute arose over who had the right of ownership of the gasoline dispensers that were located on the site of the former convenience store franchise. 7-Eleven subsequently filed a complaint against the franchisee and the lessor of the property where the convenience store was located.

The defendants filed an answer to 7-Eleven’s complaint and request for a preliminary injunction. After the injunction was denied, the defendants filed a motion to amend their answer to file counterclaims that alleged: (1) fraudulent misrepresentation; (2) negligent misrepresentation; (3) breach of the covenant of good faith and fair dealing; (4) violation of the Connecticut Unfair Trade Practices Act (CUTPA); and (5) violation of the Connecticut Franchise Act (CFA).

7-Eleven contended that the counterclaims were barred by the release signed by the parties. The court agreed. It determined that there was no question that all of the counterclaims were within the scope of the release because all of the counterclaims derived from a relationship arising or occurring under the franchise agreement.

The defendants argued that, if the release barred their counterclaims, 7-Eleven’s claims should also be barred and its complaint should be dismissed. The court disagreed. It determined that whether 7-Eleven’s claims should be barred by the release was irrelevant because the defendants did not file a motion to dismiss 7-Eleven’s complaint but, rather, filed a motion to add their counterclaims.

The defendants also argued that they had evidence that the release was procured fraudulently. The court, however, determined that this argument was contrary to their prior reliance on the release as: (1) an affirmative defense in their filed answer; and (2) a defense to 7-Eleven’s motion for a preliminary injunction.

The case is No. 3:15-cv-01011 (JAM).

Attorneys: Dawn Mertineit (Seyfarth Shaw LLP) for 7-Eleven, Inc. William P. Mastrogiovanni, Jr. (Mastrolaw, LLC) for Natasha Khan.

Companies: 7-Eleven, Inc.

Cases: FranchisingDistribution ConnecticutNews