Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: 7-Eleven charged with unlawful termination, requiring execution of less favorable franchise agreements, (Jan 29, 2016)

By Greg Hammond, J.D.

7-Eleven, Inc. is unlawfully terminating certain franchise agreements and requiring franchisees to execute a new and less favorable form of franchise agreement, according to a complaint filed yesterday in the federal district court in New York. The new agreements would increase 7-Eleven’s entitlement to stores’ gross profits from 50 percent to somewhere between 51 and 55 percent, the complaint alleges (Ahmad v. 7-Eleven, Inc., January 28, 2016).

The five franchisee plaintiffs were originally members of a class action suit against Southland Corp, which is now 7-Eleven. Under the settlement, the franchisee plaintiffs executed a new form of franchise agreement with a term of 15 years. 7-Eleven, however, has allegedly advised the franchisee plaintiffs that their franchise agreements would expire and terminate when 7-Eleven’s mater lease of the premises for those stores expired, prior to the end of the 15-year term. The franchisees argued that 7-Eleven is improperly using the expiration of the master lease as cause for termination and that the new agreement increases 7-Eleven’s charge from 50 percent to somewhere between 51 and 55 percent of the franchisee stores’ gross profits.

The two-count complaint sets forth claims for declaratory judgment and permanent injunction. In particular, the franchisees seek a declaration that: (1) 7-Eleven may not properly terminate the franchise agreements if the master lease for a particular store premises expires before the end of the 15 year term where leasehold rights have not been lost; (2) 7-Eleven’s attempted termination of the franchise agreements prior to the end of their 15 year terms was invalid, improper, and ineffective; and (3) the franchisees are entitled to continue in possession of their store locations, together with the equipment and merchandise inventory therein under their current franchise agreements, until the end of their 15 year terms.

In addition, the plaintiffs request a permanent injunction that bars 7-Eleven from improperly terminating the franchise agreements if the master lease for a particular store premises expires before the end of the 15 year term where leasehold rights have not been lost, and from requiring the franchisees to enter into its new form of franchise agreement with the increased 7-Eleven charge in order to keep operating their respective stores. The franchisees also seek costs and attorney fees.

The Case is No. 2:16-cv-463.

Attorneys: Michael Einbinder (Einbinder Dunn and Goniea LLP) for Plaintiffs.

Companies: 7-Eleven, Inc.; Hyn, Inc.

News: FranchisingDistribution