Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: 7-Eleven sanctioned for violating discovery orders, (Dec 14, 2015)

By Greg Hammond, J.D.

7-Eleven, Inc. has been admonished and ordered to pay costs and expenses related to franchisees’ attempts to obtain discovery in a termination dispute. Although 7-Eleven did not act willfully or intentionally to withhold relevant evidence, the federal district court in Camden, New Jersey, determined that the company’s conduct—including providing incomplete answers to interrogatories, failing to perform an objectively reasonable investigation to respond to the interrogatories, and violating a discovery order—caused substantial case management and discovery problems (Younes v. 7-Eleven, Inc., December 11, 2015, Schneider, J.).

Various 7-Eleven franchisees filed suit against 7-Eleven, alleging that they were “targeted” for franchise termination under a project called “Project P” or “Project Philly.” They contend that 7-Eleven wanted to “churn” its franchisees to collect windfall franchise fees from new franchisees, and that 7-Eleven targeted franchises that were vocal in their criticism of the convenience store franchisor. The franchisees additionally claimed that 7-Eleven targeted franchisees because of their national origin. The case was before the district court on the franchisees’ motion for sanctions claiming that 7-Eleven obstructed discovery.

The district court concluded that sanctions were appropriate under Federal Rules of Civil Procedure 26(g)(3) and 37(b)(2). First, it concluded that 7-Eleven failed to perform an objectively reasonable investigation to answer certain interrogatories, which resulted in incomplete and incorrect answers. In addition, 7-Eleven’s conduct was not substantially justified because: (1) it signed interrogatory answers containing meritless and frivolous objections; (2) it knew or should have known when it signed its answers that Project P was responsive and should have been identified; (3) it did not timely supplement its responses to the interrogatories; (4) the information at issue was always readily available; (5) the substantive information 7-Eleven disclosed was misleading; and (6) it took 7-Eleven months to finally identify Project P information.

Noting that 7-Eleven’s transgressions created havoc concerning case management and caused the franchisees to incur substantial unnecessary costs, the court admonished 7-Eleven. In addition, 7-Eleven was ordered to reimburse the franchisees for the fees and costs they incurred to obtain the discovery they were entitled to.

The case is No. 13-3500 (RMB/JS), No. 13-3715 (MAS/JS), and No. 13-4578 (RMB/JS).

Attorneys: Amy Robin Brandt (Weir & Partners LLP) for Sam Younes. Adrienne Noel Gittens (Duane Morris LLP) for 7-Eleven, Inc.

Companies: 7-Eleven, Inc.

Cases: FranchisingDistribution NewJerseyNews