California Judge Dismisses 7-Eleven Franchisees’ Lawsuit, Orders Parties to Reach Joint Agreement

After the National Coalition of Associations of 7-Eleven Franchisees (NCASEF), representing over 7,000 franchisees, filed a proposed class action lawsuit last October against parent company 7-Eleven, Inc. for exerting excessive control over its independent store owners, California federal court "dismissed with prejudice" the lawsuit, ordering both sides to reach a joint agreement on all claims.

"It is hereby ordered . . . that judgment is entered in favor of 7-Eleven and against plaintiffs' First Amended Complaint. Plaintiffs shall take nothing by way of their First Amended Complain, and this action is dismissed with prejudice."

The core factor of the litigation surrounds allegations that 7-Eleven, Inc., based in Irving, Texas, has been chipping away at franchisees' profits, while increasing store owners' costs, and exercising more control over what is supposed to be an independent operation. Instead of treating store owners as independent contractors, the coalition contends they are being treated more like employees. The purported complaint was filed by coalition members Serge Haitayan, Jaspreet Dhillon, Robert Elkins, and Maninder "Paul" Lobana, on behalf of other 7-Eleven franchisees.

The court's final judgment stated that the plaintiff's first amended complaint was dismissed, and 7-Eleven's third-party complaint, "which seeks declaratory relief in the event plaintiffs are deemed employees, is dismissed as moot."

The Final Judgment, issued on March 20, 2018, followed California U.S. District Judge John F. Walter's 21-page standing order dated March 8, setting strict rules to be followed. He asserted: READ THIS ORDER CAREFULLY. IT CONTROLS THE CASE AND DIFFERS IN SOME RESPECTS FROM THE LOCAL RULES. He ordered the franchisee coalition plaintiffs to serve the required complaint to defendant 7-Eleven, Inc., warning that failure to do so will result in the dismissal of the case. The judge explained that in order "to secure the just, speedy, and inexpensive determination of every action," all counsel are ordered to familiarize themselves with the federal rules of the court. Judge Walter states that only ONE attorney for a party may be designated as lead trial counsel. He also ordered all documents to be filed electronically.

CSP Daily News, a convenience store online news journal, said all claims made by the 7-Eleven franchisees were based on allegations that they were misclassified as independent contractors instead of employees, and subsequently, 7-Eleven requested a summary judgment on grounds that 7-Eleven is not the plaintiffs' employer. A court document filed March 13 stated, "The existence of a franchise agreement, alone, does not create an agency or employment relationship."

In a caveat, the judge also warned, that if counsel fail to cooperate in the preparation of the required Joint Rule 26 Report, "fail to file such report, or fail to appear at conferences, and such failure is not satisfactorily explained to the court, the cause shall stand dismissed for failure to prosecute, if such failure occurs on the part of the plaintiff." And default judgment shall be entered if such failure occurs on the part of the defendant or, the court may take such action as it deems appropriate.

Dallas News reported that prior to the 7-Eleven February convention this year, 7-Eleven CEO Joe DePinto disputed the claims in the franchisees' lawsuit in an interview with the Dallas Morning News. DePinto said that in 2017 the franchisees "collectively earned the most money ever in a single year." He said sales growth had slowed in the first half of last year, but 7-Eleven was spending $360 million to modernize IT systems.

The news report also stated that contract negotiations are beginning for a large group of franchisees, adding, "Between 2019 and 2024, 80 percent of existing 10-year and 15-year franchise agreements will expire."  

National Coalition Associations of 7-Eleven Franchisees, founded in 1973 and now based in Irving, Texas, is an independent trade association for 7-Eleven franchisees nationwide. It consists of 44 Franchise Owner's Associations (FOAs), located in 30 states. Each regional FOA represents between 15 and 400 dues-paying members.

7-Eleven touts that it is the premier name and largest chain in the convenience-retailing industry. It operates, franchises and/or licenses bore than 65,000 stores in 18 countries, including 11,600 in North America.

In the ongoing litigation, NCASEF is represented by Cooper and Scully of Dallas, Texas and Mandeep S. Rupal in Chino Hills, California. 7-Eleven, Inc., a Texas corporation, is represented by Hogan Lovells of Houston and Arnold and Porter Kaye Scholer of Los Angeles.

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Janet Sparks


7-Eleven 'zee questions

So, the franchisee association is ordered to file a Joint Rule 26 Report that gives a list of its members with their damages? Using that list, could 7-Eleven retaliate?

Why was there more than one lead counsel for the coalition?