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Khorchid v. 7-Eleven, Inc.

United States District Court, D. New Jersey

October 22, 2018

BASSEL KHORCHID, Plaintiff,
v.
7-ELEVEN, INC., Defendant.

          Ahmed M. Soliman, Esq. SOLIMAN & ASSOCIATES, P.C. Attorney for Plaintiff

          Dennis R. Callahan, Esq. WARD GREENBERG HELLER & REIDY LLP Attorney for Defendant

          OPINION

          HONORABLE JEROME B. SIMANDLE, JUDGE.

         I. Introduction

         This case arises over alleged violations of two franchise agreements entered into between Plaintiff Bassel Khorchid (hereinafter, “Plaintiff”) and 7-Eleven, Inc. (hereinafter, “Defendant”). Plaintiff alleges that Defendant violated the franchise agreements entered into in May 2009 and October 2016 (Plaintiff's Complaint (hereinafter “Compl.”) [Docket Item 1], ¶¶ 7-8.) Plaintiff surrendered his store in August of 2017. (Id. at ¶ 31.) Plaintiff alleges Defendant (1) breached the covenant of good faith and fair dealing under New Jersey law; (2) breached the franchise agreements; and (3) violated the New Jersey's Franchisee Protection Act (hereinafter, “NJFPA”), N.J.S.A. §§ 56:10-1 et seq. (2013), by attempting to constructively terminate Plaintiff's franchise. (Id. at ¶¶ 33-37.)

         Pending before the Court is Defendant's motion to dismiss the Complaint, alleging Plaintiff fails to state a claim under any count of his Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Motion to Dismiss (hereinafter, “Def.'s Mot.”) [Docket Item 4].)

         The principal issues before the Court are whether the Plaintiff plausibly alleges the counts of breach of covenant of good faith and fair dealing, breach of contract, and violation of New Jersey's Franchisee Protection Act (N.J.S.A. §§ 56:10-1, et seq.) based on the following allegations:

By failing to repair Plaintiff's store as agreed following damage from Hurricane Sandy, imposing unreasonable charges that entirely diminished Plaintiff's profits, failing to properly advertise for Plaintiff as agreed and paid for, failing to let Plaintiff obtain the lowest cost merchandise as stated in the Franchise Agreements, and targeting Plaintiff's store for “take back, ” Defendant took actions, in violation of New Jersey law, to attempt to constructively terminate Plaintiff's franchise under a concerted and deliberate effort to drive out franchisee's from 7-Eleven, Inc. in the greater South Jersey market.

(Compl. [Docket Item at 1], ¶ 33.)

         Plaintiff has pled that he qualifies as a franchisee under the NJFPA (N.J.S.A. §§ 56:10-1, et seq.), and that there existed “Franchise Agreements” between Plaintiff and Defendant. (Id. at ¶¶ 5, 7, 8.) The Court accepts well-pleaded statements in the Complaint as facts. However, for the reasons set forth below, the Court finds that Plaintiff has not sufficiently alleged plausible grounds for a legal claim as to any of the three counts listed in the Complaint, as would survive a Fed.R.Civ.P. 12(b)(6) motion. It is not clear, however, that a future curative amendment would be futile. Accordingly, the motion to dismiss will be granted without prejudice and Plaintiff shall be granted an opportunity to file a curative amended complaint consistent with this opinion addressing these deficiencies.

         II. Background[1]

         Plaintiff Bassel Khorchid, a New Jersey resident, entered into an initial franchise agreement (“First Franchise Agreement”) in May of 2009 with 7-Eleven, Inc., a Texas corporation with a principal place of business in Texas. (Compl. [Docket Item 1], ¶¶ 1, 2, 7.) The First Franchise Agreement required Plaintiff to establish and maintain a 7-Eleven convenience store located in Atlantic City, New Jersey, store numbered 2411-23776D. (Id. at ¶¶ 5, 8.)

         In October 2016, Plaintiff and Defendant executed a revised version of the First Franchise Agreement for Plaintiff's store referred to as “Franchise Agreement (hereinafter, “Second Franchise Agreement”). (Id. at ¶ 8.) Prior to the execution of the Second Franchise Agreement, Plaintiff was informed by Defendant that he could either sign the Second Franchise Agreement as written, or forgo continuing as a franchisee of Defendant. (Id. at ¶ 10.)

         Plaintiff avers that he at all times substantially complied with the material terms of the Franchise Agreements. (Id. at ¶ 12.) Plaintiff contends that Defendant failed to perform in accordance with the “Franchise Agreements.” (Id. at ¶ 14.) It is unclear which agreement pertains to any alleged violation within the Complaint, as the entire Complaint alludes to “Franchise Agreements” without distinguishing which agreement pertains to which legal claim. Specifically, Plaintiff makes the following allegations, inter alia, regarding Defendant's noncompliance:

1. Hurricane Sandy extensively damaged the exterior of Plaintiff's store, however Defendant refused to repair it, despite the Franchise Agreement term requiring Defendant to make necessary repairs. (Id. at ¶ 15.)
2. Defendant initiated new policies and charges to Plaintiff designed to diminish the profits of Plaintiff. (Id. at ¶ 16.)
3. If Plaintiff did not buy from the vendors that 7-Eleven wants him to, 7-Eleven increased its split of the profits, despite the fact that Plaintiff was supposed to be an independent contractor who was responsible for running the store. (Id. at ¶ 18.)
4. Therefore if Plaintiff found merchandise at a lower cost he nonetheless could not purchase them and he must buy from 7-Eleven vendors, who at times are overly expensive and diminish Plaintiff's profits. (Id. at ¶ 19.)
5. As an example, whereas Plaintiff's store generated $1, 239, 030.25 in total sales in a one-year period in 2011 and net income for Plaintiff of $36, 050.11 representing 2.91% of total sales as profit for Plaintiff, a one-year period ending in April of 2016 for the same store generated $1, 265, 306.67 in total sales but only $2, 790.77 in net income for Plaintiff, representing only .02% of sales as profit for Plaintiff. (Id. at ¶ 17.)
6. Plaintiff believes and therefore avers that the price negotiated by Defendant is much high than the same vendors sell to other retail establishments in the same geographic area. (Id. at ¶ 21.)
7. Despite the terms of the Agreement which state otherwise, 7-Eleven, Inc. was not getting the lowest prices for the Plaintiff. (Id. at ¶ 22.)
8. Defendant failed to market and advertise for Defendant as agreed, despite charging Defendant[2] for said advertising. (Id. at ¶ 24.)
9. Defendant failed to change its stores, products, and marketing despite the ever-changing market and the expectations of consumers. (Id. at ¶ 23.)
10. Due to, inter alia, the lack of response by 7-Eleven to the competition, Plaintiff's gross sales and net profits decreased. (Id. at ¶ 25.)
11. The unequal bargaining power between Plaintiff and Defendant allowed Defendant to dictate the terms and conditions of every agreement and to impose unreasonable charges and demands upon Plaintiff, which diminished any net income for Plaintiff. (Id. at ¶ 26.)
12. Plaintiff believes and therefore avers that Defendant devised a plan to terminate the Franchise Agreements with Plaintiff through the use of two tactics: (1) to make the business conditions so hostile that Plaintiff would want to terminate the Franchise Agreement; and (2) to make false assertions that Plaintiff violated the Franchise Agreement. (Id. at ¶ 27.)
13. It is believed and therefore averred that Defendant's plan to drive out Plaintiff as a franchisee of 7-Eleven, Inc. is part of a wider scheme internally referred to by Defendant as “Operation Philadelphia” to drive out several franchisees from their franchises with 7-Eleven, Inc. and “take back” several 7-Eleven stores in the greater Philadelphia and South Jersey market. (Id. at ¶ 28.)
14. A terminated franchise is a windfall to the Defendant. (Id. at ¶ 29.)
15. When a franchise is terminated, and then sold to a new franchisee, it is believed and therefore averred that the Defendant gets paid the franchise fee again. (Id. at ¶ 30.)
16. As a result of the forgoing frustrating conditions, Plaintiff surrendered his store in August of 2017. (Id. at ¶ 31.)

         Defendant files a motion to dismiss, arguing (1) there was no breach of contract; (2) there is no valid claim under the covenant of good faith and fair dealing as it is overridden by the contract's express terms and the Plaintiff does not allege how he was deprived the fruit of the contract; and (3) because there is no specific provision violated by the NJFPA, Plaintiff fails under Federal Rule Civil Procedure 8(a). (See generally Def.'s Mot. [Docket Item 4].)

         III. Procedural History

         On April 28, 2018, Plaintiff filed the present Complaint in this Court. (Compl. [Docket Item 1].) Plaintiff issued a summons on April 30, 2018 including a waiver of service executed by Plaintiff.

         On May 21, 2018, Defendant moved to dismiss the Complaint pursuant to Federal Rule of Civil Procedure 12(b)(6). (Def.'s Mot. [Docket Item 4].) Defendant argued, inter alia (1) there was no breach of contract; (2) there is no valid claim under the covenant of good faith and fair dealing as it is overridden by the contract's express terms and the Plaintiff does not allege how he was deprived the fruit of the contract; and (3) because there is no specific provision violated by the NJFPA, Plaintiff fails under Federal Rule Civil Procedure 8(a). Id.

         Plaintiff subsequently filed an opposition brief, arguing, inter alia, that Defendant's Motion to Dismiss should be denied because: (1) Plaintiff has indeed alleged specific contract provisions breached; (2) Plaintiff's breach of contract claims are not duplicative of his claim for breach of the covenant of good faith and fair dealing, which rise under different factual allegations of the Complaint; (3) the allegations for breach of good faith do not contradict the franchise agreements, and Plaintiff was deprived of the fruits of said agreement by having his profits diminished and the store terminated; (4) Plaintiff does allege damages; and (5) Plaintiff has plead a proper claim for Breach of the Franchisee protection Act. (Brief in Opposition (hereinafter, “Pl.'s Opp'n”) [Docket Item 8], 2.) Defendant filed a reply brief. (Reply Memorandum (“Def.'s Reply”) [Docket Item 9].)

         The motion to dismiss is fully briefed and will be decided without oral argument pursuant to ...


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