The Franchise Memorandum

A federal court in Pennsylvania granted a former franchisee’s motion for reconsideration of its order staying proceedings holding the franchisor’s arbitration agreement invalid. Takiedine v. 7-Eleven, Inc., 2021 WL 3223070 (E.D. Pa. July 29, 2021). In 2017, Azmi Takiedine, a 7-Eleven franchisee for over 40 years, brought suit in district court alleging that 7-Eleven failed its duties regarding vendor negotiating practices as required by the parties’ franchise agreement. The contract included an arbitration agreement requiring disputes arising under the arbitration agreement to be handled by the “Franchise Selection Committee” through a “Third Party Reviewer.” Finding Takiedine’s claims subject to the arbitration agreement, the court imposed a stay to allow the parties to resolve the dispute through arbitration. However, over two years later, Takiedine filed a motion to lift the stay arguing, in part, that the arbitration agreement did not give him an effective way to pursue his claims. In response, 7-Eleven argued that arbitration was the exclusive procedure under the franchise agreement for resolving vendor negotiating practices disputes, Takiedine could, but failed to, pursue his claims through arbitration, and Takiedine’s motion was untimely. Finding the unique nature of the arbitration agreement left Takiedine in perpetual legal limbo, the district court concluded that the arbitration agreement was invalid, granting Takiedine’s motion for reconsideration and lifting the stay.

The core issue in this dispute was whether the arbitration agreement was enforceable. Takiedine argued it was unenforceable because he lacked a meaningful choice in signing the agreement, and it was unconscionable as it left him with no effective way to vindicate his cause of action. The court found that Takiedine had no meaningful choice when entering into the arbitration agreement as he faced extreme financial pressure. Further, the court found that 7-Eleven’s unique arbitration agreement was unenforceable as it left franchisees in perpetual limbo without a means to pursue their cause of action. In particular, the arbitration agreement mandated that the Committee handle disputes. However, franchisees were left with no means of influencing the self-elected and insulated Committee members. In fact, a former member testified that the Committee never used the arbitration dispute resolution procedures in the decade he was on the Committee. In effect, the procedures left Takiedine with no means of arbitrating. The court concluded that its previous order staying proceedings was in clear error because it was based on the assumption that Takiedine would be able to arbitrate. The court therefore held the arbitration agreement was unenforceable and its previous order was manifestly unjust.