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New Jersey Federal Court Denies Injunction to Franchisee Arguing that Franchisor Imposed Terms of Agreement in Defiance of Local Law

A federal court in New Jersey has denied a franchisee’s motion for an emergency temporary restraining order. Sat Agiyar, LLC v. 7-Eleven, Inc., 2021 WL 147110 (Jan. 15, 2021). In September 2015, Agiyar signed a franchise agreement to operate a 7-Eleven store 24-hours per day in Princeton, New Jersey. At that time, Princeton prohibited the operation of retail food establishments from 2 a.m. to 5 a.m. The prohibition was set to expire in 2017 unless the city council extended it. To account for the local ordinance, Agiyar and 7-Eleven agreed to permit Agiyar to operate the location for less than 24 hours without having to pay additional royalties until 2017, when Agiyar would have to pay additional royalties for the number of hours each day that Agiyar did not operate. In 2017, the local ordinance was made permanent, and 7-Eleven increased Agiyar’s royalty to account for the hours Agiyar was not operating the location. In response, Agiyar sued 7-Eleven arguing that 7-Eleven unilaterally amended the franchise agreement to increase the royalty amounts solely on the basis that Agiyar was not operating 24 hours each day, and that 7-Eleven was requiring Agiyar to operate 24 hours per day in defiance of the local law. Agiyar sought a temporary restraining order arguing 7-Eleven breached the covenant of good faith and fair dealing and the New Jersey Fair Practices Act (NJFPA).

The court denied Agiyar’s motion. First, the court determined that Agiyar was not likely to succeed on the merits of its good faith and fair dealing claim because the franchise agreement clearly permitted 7-Eleven to increase the royalties after two years if Agiyar did not operate the location 24 hours a day. Second, the court determined that Agiyar was not likely to succeed on the merits of its NJFPA claim because it was not unfair or unreasonable for 7-Eleven to act in conformance with the terms of the franchise agreement and charge the additional fees, and 7-Eleven had no obligation to extend the amendment of the franchise agreement after the two years expired.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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