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Khorchid v. 7-Eleven, Inc.

United States District Court, D. New Jersey

August 14, 2019

7-ELEVEN, INC., Defendant.






         This case arises over alleged violations of a franchise agreement entered into by Plaintiff Bassel Khorchid (hereinafter, “Plaintiff”) and 7-Eleven, Inc. (hereinafter, “Defendant”) in October 2017. (See Amended Complaint, hereinafter, “Am. Compl.” [Docket Item 12].) Plaintiff alleges that Defendant repeatedly violated the franchise agreement (id.), and due to the alleged violations, Plaintiff surrendered his store in August of 2017. (Id. at ¶ 37.) Plaintiff's Amended Complaint re-pleads claims that Defendant (1) breached the franchise agreement, (id. at ¶¶ 39-44); (2) breached the covenant of good faith and fair dealing under New Jersey law (id. at ¶¶ 45-55); and (3) violated New Jersey's Franchisee Protection Act (hereinafter, “NJFPA”), N.J. Stat. Ann. §§ 56:10-1, et seq. (2013), by attempting to constructively terminate Plaintiff's franchise. (Id. at ¶¶ 56-59.) Plaintiff's Amended Complaint also asserts additional claims of (4) unjust enrichment (id. at ¶¶ 60-62); and (5) unconscionability. (Id. at ¶¶ 63-66.)

         Pending before the Court are Defendant's motion to dismiss the Amended Complaint, alleging that Plaintiff fails to state a claim under any count pursuant to Federal Rule of Civil Procedure 12(b)(6), (see Def.'s Mot. to Dismiss [Docket Item 13]), and Defendant's motion to stay arbitrable claims, arguing that aspects of Plaintiff's Amended Complaint concerning vendor negotiating practices must be stayed pending mandatory arbitration, as required by the Franchise Agreement.[1] (See Def.'s Mot. to Stay [Docket Item 14].) Subsequently, Defendant submitted to the Court an Opinion from the Eastern District of Pennsylvania regarding a similar franchise agreement dispute between 7-Eleven and a franchisee. (See Notice [Docket Item 21]; Takiedine v. 7-Eleven, Inc., No. 17-4518, 2019 WL 934994 (E.D. Pa. Feb. 25, 2019).) For the reasons stated herein, the Court will grant in part and deny in part Defendant's motion to dismiss and will grant Defendant's motion to stay arbitrable claims.


         A. Facts

         The Court previously presented the facts of this case in Khorchid v. 7-Eleven, Inc., No. 18-8525, 2018 WL 5149643 (D.N.J. Oct. 22, 2018), and they are incorporated herein.

         B. Procedural History

         On April 28, 2018, Plaintiff filed the initial Complaint in this case. (See Complaint [Docket Item 1].) Defendant previously moved to dismiss Plaintiff's initial Complaint pursuant to Fed.R.Civ.P. 12(b)(6). (See Def.'s Mot. to Dismiss [Docket Item 4].) On October 22, 2018, the Court granted Defendant's prior motion to dismiss without prejudice and granted Plaintiff leave to file an amended complaint. Khorchid, 2018 WL 5149643, at *12.[2]


         Pursuant to Fed.R.Civ.P. 8(a), a complaint need only contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Specific facts are not required, and “the statement need only ‘give the defendant fair notice of what the . . . claim is and the grounds upon which it rests.'” Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citations omitted). While a complaint is not required to contain detailed factual allegations, the plaintiff must provide the “grounds” of his “entitle[ment] to relief, ” which requires more than mere labels and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). “Thus, the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complainant must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis omitted).

         A motion to dismiss under Fed.R.Civ.P. 12(b)(6) may be granted only if, accepting all well-pleaded allegations in the complaint as true and viewing them in the light most favorable to the plaintiff, while disregarding unsupported conclusory statements, a court concludes that plaintiff has failed to set forth fair notice of what the claim is and the grounds upon which it rests. Id. A complaint will survive a motion to dismiss if it contains sufficient factual matter to “state a claim to relief that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 663 (2009). Although a court must accept as true all factual allegations in a complaint, that tenet is “inapplicable to legal conclusions, ” and “[a] pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do.” Id. at 678.

         In the Third Circuit, to determine arbitrability of an issue, courts apply a two-tier standard of review. See Guidotti v. Legal Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013). Where it is apparent on the face of the complaint, or in documents relied upon in the complaint, that the claims at issue in the case are subject to arbitration, the case is considered under a motion to dismiss standard, Fed R. Civ. P. 12(b)(6). Id. at 774-76. However, where the complaint does not establish on its face that the parties have agreed to arbitrate, or where the party opposing arbitration has come forward with reliable evidence that it did not intend to be bound by an arbitration agreement, then the parties are entitled to limited discovery on the question of arbitrability before a renewed motion to compel and/or stay arbitration is decided on a summary judgment standard. Fed.R.Civ.P. 56. Id.


         A. Count I: Breach of Contract Claim [3]

         In Count I of the Amended Complaint, Plaintiff re-pleads his breach of contract claim. (Am. Compl. [Docket Item 12], ¶¶ 39-44.) A plaintiff bringing a cause of action for breach of contract must establish: (1) the existence of a valid contract with plaintiff and defendant; (2) a breach of the contract by defendant; (3) performance by the plaintiff of his or her obligations under the contract; and (4) resulting damages. Oswell v. Morgan Stanley Dean Witter & Co., No. 06-5814, 2007 WL 1756027, at *5 (D.N.J. June 18, 2007). A plaintiff cannot meet the burden of establishing these elements by merely making conclusory allegations. See In re Nice Sys., Ltd. Sec. Litig., 135 F.Supp.2d 551, 565 (D.N.J. 2001).

         Although Plaintiff argues that “unequal bargaining power between Plaintiff and Defendant allowed Defendant to dictate the terms and conditions, ” (Am. Compl. [Docket Item 12], ¶ 16), and he had to “sign the Franchise Agreements as written, or forgo continuing as a franchisee of [Defendant], ” Plaintiff does not allege that no valid contract existed. (Id. at ¶ 10.) Thus, as Plaintiff does not allege that he did not enter into a valid contract, the Court will assume that Plaintiff agrees that the first element is met for purposes of this motion.

         Defendant argues that Plaintiff fails to state a claim for breach of contract because he does not identify which franchise agreement, and which provisions of that franchise agreement, Defendant allegedly breached. (Def.'s Br. to Dismiss [Docket Item 13-2], ¶ 3-4.) Additionally, Defendant contends that Plaintiff failed to allege damages caused by any purported breach. (Id. at 8.)

         However, as Plaintiff indicated in his opposition brief, Exhibit A of the Amended Complaint contains only the second franchise agreement signed in October 2016. (See Am. Compl. [Docket Item 12]; Pl.'s Opp'n to Dismiss [Docket Item 16].) Although Plaintiff does not cite to specific section numbers of the Franchise Agreement, he does provide summaries of specific sections that are sufficient for Defendant and the Court to determine the contractual provisions that are supposedly at issue. (Am. Compl. [Docket Item 12], ¶¶ 41a-d.) Count I of Plaintiff's Amended Complaint, its breach of contract claim, includes two separate claims of breach. Additionally, the “background” section of the Amended Complaint contains breach of contract claims that the Court will discuss in this section.

         1. Failure to Provide Necessary Maintenance

         Plaintiff alleges that “Plaintiff's store sustained substantial damage as a result of Hurricane Sandy, however Defendant failed and/or refused to repair the store as requested, and as required by the Franchise Agreements, which expressly states [sic] that Defendant will make necessary repairs.” (Am. Compl. [Docket Item 12], ¶ 43.) Defendant argues that Plaintiff's allegation contradicts the actual terms of the franchise agreement which states that “[e]xcept to the extent [Defendant] may expressly assume any of the following responsibilities in writing, [Plaintiff] agree[s] to be responsible for all maintenance, repairs, replacements, janitorial services and expenses relating to the Store.” (Franchise Agreement [Docket Item 12-1], ¶ 20(a).)

         However, as Plaintiff indicated, Section 20 also states that “[w]hen [Defendant] considers it necessary, ” Defendant would repair the interior and exterior of the store, replace equipment, replace glass windows and doors, repair flooring, and maintain structural soundness of the store. (Id. at ¶ 20(d).) Defendant argues that Plaintiff failed to allege that Defendant considered the repairs in question “necessary.” (Def.'s Br. to Dismiss [Docket Item 17], 5.) Defendant also indicates that Hurricane Sandy struck on October 29, 2012. (Id.) The parties entered into the second franchise agreement four years later in October 2016, which states that Plaintiff agrees to take the store “in ‘as-is' condition.” (Franchise Agreement [Docket Item 12-1], ¶ 8(c).)

         The Court must consider all factual allegations Plaintiff asserts as true and determine if Plaintiff pled sufficient facts to set forth a cause of action that put Defendant on fair notice of the grounds for Plaintiff's claim. Twombly, 550 U.S. at 555; Iqbal, 556 U.S. at 679. Although Plaintiff did not specifically allege that Defendant considered the repairs “necessary, ” Plaintiff did assert that he requested the repairs and Defendant either failed and/or refused to make them. (Am. Compl. [Docket Item 12], ¶ 43.) The plaintiff in Takiedine v. 7-Eleven, Inc., made a similar claim and the Eastern District of Pennsylvania ruled:

7-Eleven was certainly on notice of the nature of the claim, and whether 7-Eleven considered these repairs necessary and whether its failure to provide the maintenance requested breached the contract can be determined at a later stage in the proceeding with the benefit of a factual record.

Takiedine, 2019 WL 934994, at *5. Drawing all reasonable inferences from the pleaded factual allegations in favor of the nonmoving party, here Plaintiff, the Court agrees with the Eastern District of Pennsylvania and will deny Defendant's motion to dismiss, insofar as it seeks to dismiss this breach of contract claim pending the opportunity to develop the issue through discovery.

         2. Failure to Treat as Independent Contractor

         Plaintiff's Amended Complaint references Section 2 of the Franchise Agreement, (Am. Compl. [Docket Item 12], ¶ 41(b)), which states that Plaintiff agrees: “(a) to hold [itself] out to the public as an independent contractor; (b) to control the manner and means of the operation of the Store; and (c) to exercise complete control over and responsibility for all labor relations and the conduct of [its] agents and employees, including the day-to-day operations of the Store and all agents or Store employees.” (Franchise Agreement [Docket Item 12-1], ¶ 2.) Plaintiff alleges that Defendant breached its franchise agreement and failed to treat Plaintiff as an independent contractor by ordering merchandise that Plaintiff did not authorize and forcing Plaintiff to write off the unsold merchandise at a loss. (Am. Compl. [Docket Item 12], ¶¶ 22 & 44.) Additionally, Plaintiff argues that if he did not buy products from Defendant's specified vendors, Defendant would increase its split of profits even though “Plaintiff was supposed to be an independent contractor who was responsible for running the store.” (Id. at ¶ 20.)

         Defendant argues that Section 2 only bestows obligations upon Plaintiff and does not require Defendant to treat Plaintiff as an independent contractor. (Def.'s Br. to Dismiss [Docket Item 13-2], 7.) Therefore, Defendant contends, Plaintiff may not state a claim for breach of ...

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