Haitayan v. 7-Eleven, Inc.
| Decision Date | 08 September 2021 |
| Docket Number | CV 17-7454 DSF (ASx),CV 18-5465 DSF (ASx) |
| Court | U.S. District Court — Central District of California |
| Parties | SERGE HAITAYAN, et al., Plaintiffs, v. 7-ELEVEN, INC, Defendant. |
FINDINGS OF FACT AND CONCLUSIONS OF LAW AFTER COURT TRIAL
This matter was tried to the Court on March 23 and March 24, 2021. Having heard and reviewed the evidence and having considered the parties' post-trial submissions, the Court makes the following findings of fact and conclusions of law.
7-Eleven is the world's largest franchisor of retail convenience stores. Dkt.[1] 323 (Douglas Rosencrans Declaration in Lieu of Live Direct Testimony [Rosencrans Decl.]) ¶ 2. At the end of 2019, it had 8, 084 7-Eleven stores operating in the United States, approximately 1, 735 of which were franchises in California. Id.
7-Eleven runs a Store Support Center with hundreds of employees who work in human resources, merchandising, legal, marketing, operations, accounting, finance, franchising, logistics, innovation, development, real estate, fuel operations, information technology, and more. Trial Exhibit (Ex.) 1023 at 34-35. The Store Support Center is located in Dallas, Texas. Dkt. 324 (Arron Yount Declaration in Lieu of Live Direct Testimony [Yount Decl.]) ¶ 7.
Approximately 10% of 7-Eleven stores are non-franchised “corporate stores.” Ex. 252 at 59-64. In California, corporate-owned stores typically make up between 1% and 2.5% of the total No. of 7-Eleven locations. Yount Decl. ¶ 19. Corporate stores are run by store managers who are employees of 7-Eleven. Id. ¶ 24; Trial Transcript (Trial Tr.) (Yount) at 447:24-448:5. The store managers receive the same training as franchisees, place orders for products through the same purchasing system used by franchisees, and receive emails from 7-Eleven about store operations and promotions as franchisees do. Trial Tr. (Yount) at 451:12-21 452:3-22, 454:14-455:9.
Plaintiffs are four 7-Eleven franchisees. Each was or has been a franchisee for at least two decades.
Serge Haitayan first entered into a franchise agreement with 7-Eleven in 1990. Dkt. 333 (Serge Haitayan Declaration in Lieu of Live Direct Testimony [Haitayan Decl.]) ¶ 3. He was a franchisee through 2020 at a store in Fresno, California. Id. As of 2020, Haitayan is no longer a franchisee. Id. ¶ 59. He operates a convenience store in the same location as his former franchise. Id.; Trial Tr. (Haitayan) at 224:9-19.
Robert Elkins bought his first 7-Eleven franchise in 1988 and his second in 1996. Dkt. 300-1 (Final Pretrial Conference Order) ¶ 6(f). In September 2020, Elkins sold his Lakeside, California store, the first franchise he acquired, to another franchisee for $350, 000. Dkt. 331 (Robert Elkins Declaration in Lieu of Live Direct Testimony [Elkins Decl.]) ¶ 4; Trial Tr. (Elkins) at 321:19-322:11. He currently runs one store in El Cajon, California. Elkins Decl. ¶ 6.
Jaspreet Dhillon bought his first 7-Eleven franchise in 1988 and his second in 2001. Final Pretrial Conference Order ¶ 6(g). In 2004, he transferred the first franchise he purchased to his brother. Id. He currently owns one store in Reseda, California. Dkt. 332 (Jaspreet Dhillon Declaration in Lieu of Live Direct Testimony [Dhillon Decl.]) ¶ 7.
Paul Lobana has been a franchisee since 1998. Dkt. 334 (Maninder “Paul” Lobana Declaration in Lieu of Live Direct Testimony [Lobana Decl.]) ¶ 3. He owns two franchises individually, in Simi Valley, California, and Oxnard, California, and one with his brother. Id. He is not seeking damages for the store he owns with his brother. Trial Tr. (Lobana) at 293:17-294:9. He would like to own a fourth franchise. Id. at 268:23-269:1.
In order to become franchisees, Plaintiffs were required to sign franchise agreements for each of their stores. Rosencrans Decl. ¶ 5; Dhillon Decl. ¶¶ 7-8; Haitayan Decl. ¶ 3; Lobana Decl. ¶ 4; Elkins Decl. ¶ 6. Under the agreements, 7-Eleven usually leases property and equipment to a franchisee, although some franchisees, like Haitayan, own the property on which their store is located. Rosencrans Decl. ¶ 7. Most franchise agreements are for a fifteen-year term with the option to renew at the end of the term. Rosencrans Decl. ¶ 5; Ex. 1387 at 204-205. 7-Eleven can choose not to renew a franchise agreement if it determines that store operations are not “meeting the requirements of the 7-Eleven System and otherwise operating in a manner consistent with the 7-Eleven Image and standards.” Ex. 1387 at 205. Plaintiffs can choose not to renew for any reason. Id. at 204.
Dhillon signed the first franchise agreement for his Reseda store in 2001 and renewed it in 2009. Dhillon Decl. ¶¶ 7-8. Haitayan signed his first franchise agreement in 1990 and renewed it in 2004 and 2019. Haitayan Decl. ¶ 3. Lobana signed his first franchise agreement for the Simi Valley store in 1998 and renewed it in 2004 and 2019. Lobana Decl. ¶ 4. He signed his franchise agreement for the Oxnard store in 2002 and renewed it in 2008 and 2010. Id. Elkins signed his franchise agreement for his El Cajon store in 1996 and renewed it in 2004 and 2018. Elkins Decl. ¶ 6. He first signed the franchise agreement for the Lakeside store in 1988 and renewed it in 2004. Id. ¶ 4.
Arron Yount, 7-Eleven's Director of Franchising, could think of only two terms in the franchise agreement that were negotiable: (1) the franchise fee and (2) the requirement to operate the store 24 hours a day. Trial Tr. (Yount) at 449:19-450:16.
In order to acquire a franchise, Plaintiffs were required to pay a franchise fee to 7-Eleven in addition to any purchase price they paid to the former franchisee. See Yount Decl. ¶ 28. Dhillon paid an $80, 000 franchise fee for the Reseda store. Dhillon Decl. ¶ 8. Haitayan paid $40, 000. Haitayan Decl. ¶ 4. Lobana paid around $90, 000 for each of his stores. Lobana Decl. ¶ 4. Elkins paid $75, 000 for the Lakeside store and $27, 000 for the El Cajon store. Elkins Decl. ¶¶ 5, 7.
Franchisees pay 7-Eleven certain fees, including the “7-Eleven Charge, ” which is approximately 50% of the gross profits of the store. Dkt. 326 (Davina Stevens Declaration in Lieu of Live Direct Testimony [Stevens Decl.]) ¶¶ 8, 10. A franchisee must maintain a minimum net worth set forth in the franchise agreement, but is entitled to all of the gross profit of the business over that after paying the 7-Eleven Charge and the store operating expenses. Id. ¶¶ 26-27. The required minimum net worth is generally between $9, 800 and $11, 000. Yount Decl. ¶ 22. Franchisees may take “draws” from their store profits on any schedule they choose. Id.; Stevens Decl. ¶ 27; see also Trial Tr. (Elkins) at 334:11-335:16.
Each Plaintiff agreed, in the franchise agreement he signed, to comply with all applicable laws and regulations and to hold himself out to the public as an independent contractor, to control the operation of the store, and to control labor relations in the Store. Ex. 220 ¶ 2; Rosencrans Decl. ¶ 10.
The franchise agreement permits 7-Eleven to terminate franchisees if they commit a material breach of the agreement, which includes about 30 grounds requiring different notice periods, such as not operating the store for the agreed number of hours, not properly maintaining the store, vacating or abandoning the store, and failing to comply with food standards. Ex. 220 ¶ 26(a). For most of these breaches, the franchisee has a right to cure. Id. Franchisees have an opportunity to cure a fourth material breach unless they have received three previous notices of material breach within the preceding two years. Id. ¶ 26(b). In that situation, 7-Eleven may terminate the agreement. Id. For a more minor violation, the field consultant may issue a “letter of notification”[2] to the franchisee, which gives the franchisee a set amount of time to cure. Dhillon Decl. ¶ 49; Elkins Decl. ¶ 23; Trial Tr. (Rosencrans) at 462:8-463:1; Ex. 272. Franchisees have the right to terminate their relationship with 7-Eleven without cause on 72 hours' notice. Rosencrans Decl. ¶ 5.
Franchisees may assign their interest in their franchises to others. See Ex. 220 ¶ 25(b). Franchisees can sell their stores before the expiration of their franchise agreement if 7-Eleven approves the buyer. Id.; Trial Tr. (Dhillon) at 142:6-25. Dhillon, Haitayan, and Elkins all purchased franchises from other franchisees. Dhillon Decl. ¶ 8; Haitayan Decl. ¶ 4; Rosencrans Decl. ¶ 4; Ex. 229; Trial Tr. (Elkins) at 350:20-22. Elkins negotiated a non-compete agreement with the franchisee who sold Elkins his franchise. Id. at 350:23-351:10.
7-Eleven does not require that potential franchisees have “prior knowledge of working in retail.” Dhillon Decl. ¶ 23; Haitayan Decl. ¶ 5; Lobana Decl. ¶ 14; Elkins Decl. ¶ 20; Trial Tr. (Rosencrans) at 479:24-480:2. But everyone who purchases a 7-Eleven franchise must participate in initial training, which consists of a three-day orientation, and a multi-week in-store training. Yount Decl. ¶ 7.
In their trial declarations, each Plaintiff suggests in verbatim language that he came to believe he was an employee (store manager) of 7-Eleven. Dhillon Decl. ¶¶ 10-11; see also Trial Tr. (Dhillon) at 52:21-23; Haitayan Decl. ¶¶ 7-8; see also Trial Tr (Haitayan) at 233:8-15; Lobana Decl. ¶¶ 5-6; Elkins Decl. ¶¶ 9-10; see also Trial Tr. (Elkins) at 400:7-16. But no Plaintiff states precisely when or why he reached this conclusion. Each describes in his declaration, again nearly verbatim, some of requirements 7-Eleven allegedly imposes and services it provides. They describe these as mandatory or suggest that they are. As discussed...
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