The number of 7-Eleven franchise store seizures by 7-Eleven, Inc. continues to grow.
(UnhappyFranchisee.Com) One of the latest targets is the 7-Eleven franchise of Danny Wong, (7- Eleven Store No. 19909D) which is located at 1931 North Lombard, Portland, Oregon.
According to Wong’s franchise agreement, he paid a franchise fee of $126,600 and a down payment of $22,000 on corporate financed inventory and other fees and expenses. He entered into an agreement to split profits with 7-Eleven, Inc. approximately 50/50, depending on volume.
January 27, 2014, attorneys for 7-Eleven, Inc. filed a complaint against Danny Wong in the United States District Court of Oregon, Portland Division.
In 7-Eleven, Inc. v. Danny Wong, 7-Eleven, Inc. is requesting a declaratory judgement forcing Danny Wong to surrender his store on February 10, 2014, and pay 7-Eleven, Inc. attorney fees, costs and expenses and interest.
Interestingly, a 2012 story in the Oregonian (As 7-Eleven expands across Portland, even a North Portland franchise joins neighborhood opposition) stated that 7-Eleven franchisees were joining with community groups in opposing 7-Eleven’s Portland expansion.
The story quotes the brother of a franchise owner who was opposed to the opening of another store on Lombard Street, ten blocks away from their store.
Notable is the brother’s contention that 7-Eleven, Inc. is indifferent to its franchisees’ welfare:
Saleh said the company claimed it wouldn’t build another store within a half-mile of theirs. Now he and his brother fear they could lose up to 50 percent of their customers.
“(Corporate officials) don’t care,” said Saleh, who said franchises split profits 50-50 with the parent company. “They will make money either way.”
Read the entire complaint here: 7-Eleven, Inc. v. Danny Wong (PDF)
Here’s an excerpt (with first section and paragraph numbers deleted):
UNITED STATES DISTRICT COURT DISTRICT OF OREGON
7-ELEVEN, INC., a Texas corporation, Plaintiff, v. DANNY WONG, an individual, Defendant.
COMPLAINT (Declaratory Judgment – 28 U.S.C. § 2201(a))
…On March 9, 2007, Franchisee and 7-Eleven entered a franchise agreement, ancillary agreements and addenda (collectively the “Franchise Agreement”) for 7- Eleven Store No. 19909D, located at 1931 North Lombard, Portland, Oregon, 97217-5641 (“Store 19909D”). A copy of the Franchise Agreement is attached as Exhibit 1.
Generally, the Franchise Agreement licenses Franchisee’s use of 7- Eleven’s system and marks and also leases to the Franchisee the store property and equipment, which are owned by 7-Eleven. In exchange for these benefits, Franchisee agrees to pay to 7- Eleven a percentage of its gross income.
The Franchise Agreement regulates the relationship between Franchisor and Franchisee and provides for, among other things, certain minimum merchandising obligations, store appearance and image standards and financial net worth requirements.
If Franchisee fails to comply with the Franchise Agreement, under paragraph 26, 7-Eleven may notify Franchisee of its violation and, as the case may be, permit Franchisee a period of time to cure that violation.
Between September 15, 2011, and January 16, 2013, 7-Eleven notified Franchisee of at least five separate instances of material breach of the franchise agreement.
Subsequently, Franchisee continued to violate the Franchise Agreement by not maintaining the store premises to minimum standards, failing to timely deposit cash receipts and failing to carry a reasonable and representative quantity of required merchandise categories.
Under Paragraph 26(b) of the Franchise Agreement, if Franchisee has received more than three notices of material breach in the preceding two years, 7-Eleven may terminate the franchise agreement immediately.
In recognition of 7-Eleven’s right to immediately terminate the Franchise Agreement and to secure its forbearance of that right, on June 7, 2013, Franchisee and 7-Eleven entered into the Compromise and Settlement Agreement (the “Settlement Agreement”) attached as Exhibit 2. This Settlement Agreement was the result of an arms-length negotiation between 7- Eleven and Franchisee, both of whom received the advice of counsel.
Generally, the Settlement Agreement permits Franchisee’s continued operation of Store 19909D for a period of 180 days during which time Franchisee has the opportunity to sell its interest in Store 19909. Provided there were no further breaches of the Franchise Agreement and Store 19909D was unsold at the end of six months, 7-Eleven could, in its discretion, extend the sales period by 60 days.
Upon the expiration of six months from entry into the Settlement Agreement, in or around December of 2013, 7-Eleven agreed to extend the sales period to February 10, 2014.
Under the Settlement Agreement, Franchisee promised to surrender Store 19909D to 7-Eleven upon the earlier of (1) a default under the Settlement Agreement; (2) the end of the sale period, with no pending sale; or (3) the effective date of either an agreement between 7-Eleven and the Prospective Franchisee or a disqualification of the Prospective Franchisee by 7- Eleven.
On or around January 16, 2014, Franchisee stated to 7-Eleven that (1) he would violate the Settlement Agreement by refusing to surrender it upon expiration of the sales period; (2) his attorneys would assist him to this end.
All conditions precedent to this action have occurred, have been performed or have been otherwise met.
COUNT I – DECLARATORY JUDGMENT
7-Eleven re-alleges paragraphs 1 through 21.
This is a claim for declaratory relief under 28 U.S.C. § 2201(a) and Rule 57, Federal Rules of Civil Procedure.
This action presents an actual and substantial controversy within this Court’s jurisdiction under 28 U.S.C. § 1332 as the parties are of diverse citizenship and Store 19909D’s real property, equipment and going concern value is far more than $75,000.00 in amount.
An actual, justiciable controversy exists concerning Franchisee’s obligation to surrender Store 19909D under the Settlement Agreement.
Both an actual injury and a substantial likelihood of future injury to 7- Eleven exist because Franchisee has repudiated the Settlement Agreement by stating that he would not honor its terms upon expiration.
WHEREFORE, 7-Eleven requests that this Court enter judgment against Franchisee as follows:
a. A judgment declaring Franchisee in breach of the Settlement Agreement and declaring that Franchisee must surrender Store 19909D upon the expiration of the sales period;
b. Injunctive relief enforcing the declaratory judgment and directing Franchisee to surrender Store 19909D and to comply with his other obligations under the Settlement Agreement;
c. Its reasonable attorney fees, costs and expenses incurred in this action;
d. An award of post-judgment interest; and
e. Such further relief as this Court deems just and reasonable. DATED this 27th day of January, 2014.
TONKON TORP LLP
By: s/Steven D. Olson Steven D. Olson, OSB No. 003410
Paul W. Conable, OSB No. 975368 Attorneys for Plaintiff 7-Eleven, Inc.
Some 7-Eleven franchise owners claim that 7-Eleven, Inc. is on a campaign to “clean house” and is targeting East Asian and Indian franchisees for expulsion from the system.
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