Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. N.Y.: Former 7-Eleven franchisee could not exclude disclaimer provision at trial, (Jun 18, 2015)

By Linda O’Brien, J.D., LL.M.

A former 7-Eleven franchisee could not exclude the disclaimer provision he signed as part of the franchise agreement since the provision should be considered by a jury as evidence disproving his counterclaim of reliance on the franchisor’s alleged pre-contractual representations, the federal district court in Central Islip, New York has ruled. Additionally, the franchisee could not present at trial a draft termination agreement to show a breach of duty of good faith and fair dealing (7-Eleven, Inc. v. Minhas, June 17, 2015, Seybert, J.).

In December 2009, Suneil Minhas met with a representative from 7-Eleven, Inc. to discuss entering into a franchise for a 7-Eleven store. Minhas was provided with a franchise disclosure document (FDD) and informed that he needed to prepare a business plan before he could be considered for a franchise. Minhas created and submitted a business plan but was advised that his earnings estimates were too high. Although his business plan was not included in the FDD, Minhas and 7-Eleven entered into a franchise agreement for a store in Bethpage, New York in August 2010.

The executed franchise agreement included a disclaimer for business plan provision and a requirement that Minhas obtain a liquor license for the store. Minhas was allowed to use the corporate license when he began operations. Although he began the application process, Minhas never obtained his own liquor license. In October 2011, Minhas was contacted by 7-Eleven’s representative and advised that he failed to comply with the license requirement. He was then presented with a buyout and franchise termination agreement, under which his franchise fee would be returned in exchange for vacating the store. When Minhas refused to sign the agreement, 7-Eleven filed suit for possession of the store. Minhas responded with counterclaims for violations of the New York Franchise Act.

Before the court was Minhas’ motion to exclude the contractual disclaimer provision at trial and 7-Eleven’s motion to exclude the draft termination agreement at trial.

Disclaimer provision. The court found that, since reliance was an element of the defendant’s fraud counterclaim, the jury should consider the disclaimer provision as evidence disproving his reliance on the plaintiff’s pre-contractual representations. Minhas contended that he was defrauded when he relied on false or misleading sales projections by 7-Eleven when he entered into the franchise agreement. According to the court, Minhas’ fraud counterclaim was specifically brought under the anti-fraud provisions of the Franchise Act and therefore was not barred by the disclaimer provisions that he signed. The question of reasonable reliance is fact-intensive. Thus, the disclaimer provision was relevant to determining whether Minhas relied upon 7-Eleven’s alleged fraudulent representations and should not be excluded at trial.

Termination agreement. However, the termination agreement was an offer of settlement and could not be used as evidence at trial. Federal Rule of Evidence 408 states that “conduct or a statement made during compromise negotiations about the claim is not admissible to prove or disprove the validity or amount of the dispute claim.” Minhas contended that the statements in the termination agreement could show that 7-Eleven breached its duty of good faith and fair dealing.

The court noted that Minhas knew or should have known there was an issue with his liquor license before he was presented with the termination agreement. The agreement also contains a confidentiality provision that refers to the agreement as a “settlement agreement.” Thus, Minhas was on notice that the agreement was an offer to settle the dispute through which he could obtain a refund of his franchise fee in return for vacating the store. Although he may have viewed the terms as unfair, it did not change the fact that the agreement was an offer to settle.

The case is No. 11-CV-5455.

Attorneys: Stephen Sussman (Duane Morris LLP) for 7-Eleven, Inc. Michael Einbinder (Einbinder & Dunn, LLP) for Suneil Minhas.

Companies: 7-Eleven, Inc.

Cases: FranchisingDistribution NewYorkNews