The Franchise Memorandum

A federal district court in New Jersey granted a franchisor’s motion to dismiss a franchisee’s complaint because it failed to sufficiently plead facts in support of each claim it alleged. Khorchid v. 7-Eleven, Inc., 2018 WL 5149643 (D.N.J. Oct. 22, 2018). The parties entered into a franchise agreement in 2009, and then executed a revised franchise agreement in 2016. Khorchid filed a lawsuit against 7-Eleven that included claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and violations of the New Jersey Franchise Practices Act (NJFPA). The complaint alleged, in part, that 7-Eleven initiated policies to diminish Khorchid’s profits, failed to properly advertise for Khorchid, targeted Khorchid’s store for “take back,” and attempted to constructively terminate the franchise agreements.

The court granted 7-Eleven’s motion to dismiss all counts of the complaint, holding that Khorchid failed to properly delineate the factual conduct that related to each legal claim, such as which version of franchise agreement was at issue, which provision in the relevant franchise agreement was actually breached, and which underlying facts supported each specific claim. Moreover, under New Jersey law, claims for breach of contract and breach of the implied covenant of good faith and fair dealing must be based upon separate facts. The court found that Khorchid’s complaint relied upon the same allegations for both claims and that they therefore were impermissibly duplicative. The court also found that Khorchid failed to identify any specific provisions of the NJFPA that allegedly had been violated and concluded that general references to the statute as a whole did not suffice to state a claim. The court dismissed the case without prejudice, however, because it noted that a potential curative amendment might not be futile.