A Bucks County man who had started several 7-Eleven franchise stores in the Northeast
Philadelphia area says the parent company wrongfully terminated his contract and seized merchandise assets without properly reimbursing him, according to a suit filed at the Philadelphia County Court of Common Pleas.
Harshal Patel, of Langhorne, Pa., says that 7-Eleven's corporate actions are part of a strategy to force out longtime franchise holders and sign new deals with new owners, a practice that allows the company to collect new transfer fees and create contracts more beneficial to 7-Eleven.
According to the complaint, Patel opened five stores in 2011 and built up a strong and loyal customer base. The suit says that stores that purchase 85 percent of inventory from vendors included on the parent company's "Recommended and Approved" list share a 50-50 cut of the profits, while franchisees such as Patel who use the list for less than 85 percent of the orders receive 48 percent of the profits.
After more than a year of establishing a viable business, Patel says that 7-Eleven terminated the agreements and seized the store and inventory without properly compensating him for the goods.
Patel says that the contract termination did not follow the process described in the agreement, including a full account of the reasons for the move and an opportunity for the franchise owner to correct any perceived wrongdoing. The plaintiff claims that 7-Eleven accused him of violating provisions of the franchise agreement, but the company would not involve the federal Department of Labor or the IRS as long as he relinquished his stores.
According to the complaint, during the changeover of the stores, 7-Eleven representatives discarded merchandise without properly crediting Patel for their purchase, and in one location removed $20,000 in cash the plaintiff had been holding in the safe for a relative's wedding.
Patel contends that 7-Eleven breached the franchise contract by providing vague reasons for the termination, and the assertions by the company are untrue and pretextual. The company's actions are part of a larger scheme to unjustly enrich the parent budget by either transferring the franchise rights to other operators in exchange for the payment of franchise fees or selling the property directly to a third operator for a price less than the fair market value of the franchise.
The complaint says that 7-Eleven profits not only from the transfer fees, but also from a rewritten contract that prohibits franchisees from purchasing vendors not included on the company list, with prices that are usually marked up to further enrich the company.
"7-Eleven used highly inappropriate and unlawful means to cause Patel to voluntarily relinquish possession of his stores, through coercion and threats that he would be reported to governmental authorities such as the U.S. Department of Labor and the Internal Revenue Service," says the complaint.
Patel is represented by David McComb of Zarwin, Baum DeVito, Kaplan, Schaer & Toddy.
The case ID is 140603848.
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U.S. Department of Labor
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Washington, DC 20210
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