Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: 7-Eleven franchisee unable to enjoin related state-court action, (Mar 31, 2015)

By Greg Hammond, J.D.

A 7-Eleven franchisee—accused of violating the Racketeer Influenced and Corrupt Organizations Act (RICO) and other laws—could not enjoin 7-Eleven from prosecuting a Texas state-court action, attempting to enforce a confidentiality agreement with a former employee who the franchisee seeks to employ as an expert witness. The federal district court in Trenton, New Jersey, also denied the franchisee’s attempts to restrain 7-Eleven from obtaining confidential or privileged information, hold 7-Eleven in contempt for violation of a court order, or claim that 7-Eleven’s actions constitute an abuse of process, witness tampering, and an obstruction of justice (7-Eleven, Inc. v. Sodhi, March 30, 2015, Shipp, M.).

Background. 7-Eleven brought claims against a franchisee for RICO violations, trademark infringement, and common law claims, such as breach of the franchise agreement. Specifically, 7-Eleven asserts that the franchisee engaged in a scheme to underreport gross sales, depriving 7-Eleven of its share of those revenues under the parties’ franchise agreement. The franchisee seeks to enjoin 7-Eleven from prosecuting a related Texas state court action; to restrain the franchisor from further action to obtain confidential or privileged information; and to hold 7-Eleven in contempt for violation of a court order and claim that the plaintiff’s actions constitute an abuse of process, witness tampering, and an obstruction of justice.

Texas action. Although the Anti-Injunction Act prohibits an injunction of state court proceedings, unless it is necessary in aid of federal jurisdiction, the franchisee failed to demonstrate that an injunction of the Texas action was necessary to aid the instant court’s jurisdiction. None of the required contexts in which the limited exception has been applied are applicable in this case, the court concluded, and the maintenance of the Texas action does not seriously impair the federal court’s flexibility and authority to decide this case. The request to enjoin the Texas court and the plaintiffs, in their prosecution of the Texas action, were therefore both denied.

Confidential communications. The franchisee’s request that the court enjoin 7-Eleven from taking further action to cause the franchisee’s former employee, who the franchisee hopes to be its expert witness, to turn over or produce any confidential and privileged communications or documents, and requiring 7-Eleven to return and destroy any previously withheld privileged documents was rejected. Any communications produced by the former employee were no longer privileged, the court concluded, reasoning that the combination of the former employee producing the documents and the franchisee’s failure to object, despite knowledge of the production, constituted a waiver of the privilege.

Contempt. The franchisee’s request that the court hold 7-Eleven in contempt for circumventing the court’s discovery confidentiality order by obtaining defendants’ privileged documents from the former employee was also rejected, since any privilege that did attach to the communications at issue was waived by the employee’s production in the Texas action.

Abuse of process. Lastly, the abuse of process, witness tampering, and obstruction of justice arguments were deemed frivolous because they are more appropriately brought as affirmative claims or as criminal offenses, the court concluded.

The case number is 13-3715 (MAS) (JS).

Attorneys: Adrienne Noel Gittens (Duane Morris LLP) for 7-Eleven, Inc. Evan Matthew Goldman (Marks & Klein LLP) for Karamjeet Sodhi.

Companies: 7-Eleven, Inc.

Cases: FranchisingDistribution RICO NewJerseyNews