7-Eleven, Inc. v. CJ-Grand, LLC
| Decision Date | 08 February 2021 |
| Docket Number | Case Number 19-12624 |
| Citation | 517 F.Supp.3d 688 |
| Court | U.S. District Court — Eastern District of Michigan |
| Parties | 7-ELEVEN, INC., Plaintiff, v. CJ-GRAND, LLC and Robert Taylor, Defendants. |
John A. Hughes, Quarles & Brady LLP, Chicago, IL, Paul R. Fransway, Butzel Long, Ann Arbor, MI, Adam D. Grant, Dickinson Wright, Detroit, MI, for Plaintiff.
David J. Cross, Reginald G. Dozier, Lewis & Munday, P.C., Detroit, MI, for Defendants.
Plaintiff 7-Eleven, Inc., the franchisor of the nationally familiar "7-Eleven" branded convenience stores, filed this action under the Declaratory Judgment Act alleging that one of its franchisees breached the franchise agreement and asking for a determination that the agreement is valid and the defendants’ conduct constitutes grounds for its immediate termination. Now that discovery has closed, 7-Eleven moves for summary judgment. The defendants have not identified any facts in the record that call into question the validity of the franchise agreement, nor have they pointed to anything in the record that casts doubt on the plaintiff's evidence that their conduct amounted to a material breach of the agreement justifying termination. Because there is no material fact dispute, and the termination provisions of the franchise agreement are not unconscionable, 7-Eleven is entitled to a judgment as a matter of law, and its motion will be granted.
On December 2, 2013, defendant Robert Taylor, as principal of his entity CJ Grand, LLC, executed a franchise agreement and several associated agreements and addendums to obtain a franchise to operate the 7-Eleven store on East Jefferson Avenue in Detroit. The agreements included a personal guaranty of performance that was executed by Taylor. The store property was leased by the plaintiff and sub-leased to the defendants. The sub-lease term naturally would expire in 2023. The plaintiff also supplied $100,000 worth of fixtures and equipment to furnish the store, such as coolers, shelves, a safe, and a cash register, all of which also were leased to the defendants.
Under the franchise agreement, the defendants assumed a variety of obligations and promised, among other things, that they would: (1) operate the store according to the requirements of the "7-Eleven System," and in a manner that would "enhance the 7-Eleven image," (2) carry, use, and offer for sale only products that are consistent with the type, quantity, quality, and variety allowed under the franchise agreement, (3) comply with all of 7-Eleven's standards and specifications for maintaining inventory, including proprietary products, (4) maintain the store premises and equipment in a clean, attractive, orderly, safe, and sanitary condition and in good repair and operating condition, (5) meet with 7-Eleven representatives once a week at the store during reasonable business hours, and (6) operate the store, including the food service facility, at all times in compliance with 7-Eleven's food service standards and in compliance with all applicable laws and regulations.
The defendants further agreed that the plaintiff's representatives had the right to inspect the store to determine if it was compliant with franchise requirements, and that the defendants reasonably would assist inspectors for that purpose. They also agreed to provide the plaintiff's representatives access to the store, equipment, inventory, supplies, receipts, cash logs and other financial records during any time when the store is in normal operation. They also agreed that none of the equipment would be disabled without prior written permission from the plaintiff. And they agreed to submit cash reports daily or at other times as specified by the plaintiff. Finally, in Section 26(b) of the agreement the defendants agreed that the franchise could be terminated, immediately and without any opportunity to cure, if after the defendants received three separate notices of breaches of the agreement, a fourth notice of breach was delivered within two years after delivery of the first breach notice, regardless whether any of the breaches were cured.
Between April 2018 and April 2019, the plaintiff conveyed to the defendants six notices that they had breached various provisions of the franchise agreement. On April 3, 2018, the defendants were notified that they had failed to submit timely cash reports for March 1, 2018 through March 28, 2018. On the same date, they also were notified that the video recording system in the store had been offline for nearly five months (since December 17, 2017), denying 7-Eleven reasonable access to observe the premises during operational hours. A technician who came to service the equipment discovered that the video system, which apparently worked well on the premises, had been unplugged from the network. On August 9, 2018, the defendants were notified that they had denied the plaintiff remote access to the store premises because the video recorder had been offline again for over two months. And again, a technician discovered that the system was unplugged from the network. On the same date, the defendants were notified that they had failed to maintain the store by allowing unclean and out-of-stock conditions that were observed during a May 22, 2018 inspection. On January 28, 2019, and again on April 17, 2019, the defendants were notified that they had failed to maintain a minimum net worth of at least $15,000 in their franchise account.
Defendant Taylor met with 7-Eleven senior managers in July 2019 and promised to fix the problems that had been brought to his attention. However, the problems persisted, and on September 4, 2019, the defendants were notified of four more breaches based on further failures to submit timely cash reports, allowing the video recorder to go offline again, denying the plaintiff's representative access to the back room of the store, and failing to meet with the plaintiff's representative at the store to discuss the ongoing problems.
The complaint pleads a single count for declaratory relief, requesting a determination that (1) section 26(b) of the franchise agreement is valid and enforceable, where it permits termination after notice of four incidents of material breach, as defined by the agreement, whether or not any of the breaches were cured, and (2) the 10 incidents of material breaches that are described in the complaint comprise "good cause" for termination of the franchise agreement under section 27 of Michigan's Franchise Investment Law, Mich. Comp. Laws § 445.1527.
The plaintiff filed its complaint for declaratory relief on September 6, 2019. The defendants initially failed to respond after being served with process, and their defaults were entered. However, the Court later granted the defendants’ motion to set aside the defaults and issued a scheduling order. Discovery has closed, and the plaintiff timely filed its motion for summary judgment.
The Federal Declaratory Judgment Act, 28 U.S.C. § 2201, authorizes courts to adjudicate controversies between parties before a conflict blossoms into a larger and more costly claim. This statute permits suit when a controversy, although real and immediate, has not ripened to the point where one of the parties could invoke a coercive remedy, that is, a suit for damages or an injunction. See 12 James Wm. Moore et al., Moore's Federal Practice § 57.03[2] (3d ed.1999) ().
The Act also confers "unique and substantial discretion" for the Court not to exercise jurisdiction. Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). A court may decline to hear a declaratory judgment action even where jurisdiction exists. See Brillhart v. Excess Ins. Co. of Am., 316 U.S. 491, 494, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942). The general inquiry is whether "the judgment will serve a useful purpose in clarifying and settling the legal relationships in issue and whether it will terminate and afford relief from the uncertainty, insecurity, and controversy giving rise to the proceeding." Aetna Cas. & Sur. Co. v. Sunshine Corp., 74 F.3d 685, 687 (6th Cir. 1996) (internal quotes omitted).
This case is an appropriate one for declaratory relief. A decision here would settle the controversy between a franchisor and its franchisee over the rights and duties under the franchise agreement and state law, and it would serve a useful purpose by clarifying the legal relationship between the parties.
The plaintiff contends it is entitled to summary judgment on its complaint. Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). When reviewing the motion record, "[t]he court must view the evidence and draw all reasonable inferences in favor of the non-moving party, and determine ‘whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.’ " Alexander v. CareSource , 576 F.3d 551, 557-58 (6th Cir. 2009) (quoting Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ).
When the moving party also bears the ultimate burden of persuasion, the movant's affidavits and other evidence not only must show the absence of a material fact issue, they also must carry that burden. Vance v. Latimer , 648 F. Supp. 2d 914, 919 (E.D. Mich. 2009) ; see also Resolution Trust Corp. v. Gill , 960 F.2d 336, 340 (3d Cir. 1992) ; Stat–Tech Liquidating Trust v. Fenster , 981 F. Supp. 1325, 1335 (D. Colo. 1997) (...
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