Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Circle K store operator allegedly sold interest without franchisor’s consent, (Sep 24, 2015)

By Linda O’Brien, J.D., LL.M.

A franchisee of convenience store and gasoline station chain Circle K breached the fuel/franchise agreement by selling his interest in the gasoline station to a third party without prior consent of Circle K and failing to maintain the station in accordance with the franchise agreement’s brand standards, according to a complaint filed in the federal district court in Los Angeles (Circle K Stores Inc. v. Hawatmeh, September 23, 2015).

Circle K Stores is an international chain of convenience stores. Some Circle K stores operate gasoline pumps selling Union 76 brand motor fuel, while others sell Mobil, Marathon, Phillips 66, Irving BP, Sunoco, or Shell brand fuel.

The complaint states that in August 2013 Walid Hawatmeh and Circle K entered in several interdependent agreements—fuel/franchise agreement, complete contract of sale, and right of first refusal—under which Hawatmeh bought Exxon brand gasoline from Circle K for resale to the public at a fuel service station located in Palmdale, California. As an inducement to Hawatmeh to become a Circle K franchisee, Circle K loaned Hawatmeh the sum of $260,000, pursuant to the terms of an incentive and amortization agreement. Hawatmeh also executed a promissory note in which he agreed to repay the amount of the loan with interest.

According to the complaint, in July 2015, Hawatmeh informed Circle K of his intent to sell his gasoline station to Mouner Rabadi. Circle K reviewed the submitted documentation regarding the pending sale and advised Hawatmeh that additional documentation was needed before ownership of the premises could be transferred. However, Hawatmeh transferred his interest in the premises without providing the additional documentation and without Circle K’s consent. In August 2015, Rabadi represented to Circle K that he was the owner and in control of the premises.

On or about August 6, 2015, Hawatmeh ceased purchasing Exxon brand fuel from Circle K and paying Circle K for fuel delivered to the premises. Additionally, Exxon marks and trade dress were removed from the premises and replaced with “Shell” identification and branding. Such removal of the Exxon brand elements constituted a failure to properly brand the premises and rendered it noncompliant with various provisions of the fuel/franchise agreement, the complaint states.

The complaint also alleges that Circle K notified Rabadi that Circle K did not approve him as an assignee and he intentionally induced Hawatmeh to breach the complete contract of sale and right of first refusal. Circle K also demanded that Hawatmeh cease and desist selling non-Exxon brand fuel and the full balance of the loan and promissory note became due and payable upon default.

The plaintiff asserts claims for breach of contract, breach of incentive and amortization agreement, breach of secured promissory note, and inducing breach of contract. The action seeks liquidated, compensatory, and actual damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:15-cv-07442.

Attorneys: Jeffrey M. Hamerling and Nicole M. McLaughlin (Archer Norris) for Circle K Stores Inc.

Companies: Circle K Stores Inc.

News: FranchisingDistribution CaliforniaNews