Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION NEWS: Financial decline of 7-Eleven store allegedly breached franchise agreement, (Feb 11, 2016)

By Linda O’Brien, J.D., LL.M.

A former franchisee of 7-Eleven convenience stores has breached the franchise agreement by allowing the store’s net worth fall below the required minimum and refusing to surrender the store premises after the termination of the franchise agreement, according to a complaint filed in the federal district court in Trenton, New Jersey (7-Eleven, Inc. v. Patel, February 10, 2016).

7-Eleven is an operator and franchisor of convenience store retail businesses, with more than 50,000 7-Eleven® stores throughout the world. 7-Eleven has developed methods and procedures, and owns several registered trademarks and service marks used in the operation of its convenience store businesses.

The complaint states that, in August 2004, Kinnari Patel entered into a franchise agreement for the operation of a 7-Eleven store in East Windsor, New Jersey. Under the agreement, Patel was required to maintain a store minimum net worth of $15,000. Prior to entering into the agreement, 7-Eleven selected the store location, entered into a lease with the property owner, made certain physical improvements, and outfitted the store with necessary equipment.

Beginning in March 2015, 7-Eleven issued notices to Patel that the store’s net worth had fallen below the required minimum. Despite these notices, Patel did not cure the breach and the store’s equity position continued to decline. Due to the store’s dire financial condition and Patel’s refusal or inability to improve it, in December 2015, 7-Eleven issued a notice of material breach of the minimum net worth requirement. Under the franchise agreement, 7-Eleven could terminate the agreement immediately and without an opportunity to cure if it has issued at least three prior notices of material breach within two years before a fourth material breach. Patel had received more than three prior notices of material breach within the past two years, the complaint alleges.

According to the complaint, the notice of material breach provided that if Patel did not cure the breach, 7-Eleven could terminate the franchise agreement within 60 days. The financial condition of the store did not improve and the store’s net worth continued to decline. A representative of 7-Eleven met with Patel to discuss the breach notice in January 2016. Patel acknowledged receipt of the notice but refused to disclose whether she would attempt a tardy cure. On February 9, 2016, the franchise agreement terminated per the December 2015 notice. 7-Eleven has demanded that Patel surrender the premises, equipment, and inventory to 7-Eleven; however, Patel has refused to comply with those demands.

The plaintiff asserts claims for trademark infringement, unfair competition, breach of post-termination obligations, breach of franchise agreement, and recovery of inventory. The action seeks injunctive relief, damages, replevin, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 3:16-cv-00718-FLW-LHG.

Attorneys: Edward A. Greenberg (Ward Greenberg Heller & Reidy LLP) for 7-Eleven, Inc.

Companies: 7-Eleven, Inc.

News: FranchisingDistribution NewJerseyNews