7-Eleven has filed a franchise lawsuit against franchisee Kapoor Brothers, Inc. and Pursharth Kapoor in the United States District Court, Middle District of Florida, Orlando Division.
Pursharth Kapoor signed an individual franchise agreement effective January 16, 2012 for the right to operate and share in the profits of the 7-Eleven store in Merritt Island, FL.
Kapoor was charged a franchise fee of $141,500.
In connection with the franchise fee and franchise agreement, franchisee Kapoor entered into a promissory note agreeing to pay 7-Eleven $79,950 in monthly payments. According to the complaint, the Note would be “immediately due and payable in full upon a breach of the Corporate Franchise Agreement.”
Less than a year into the relationship, 7-Eleven’s Asset Protection Group began investigating Kapoor’s store. They allege they observed Kapoor’s brother (and store manager) “improperly and fraudulently utilizing… voiding keys on the POS register system.”
7-Eleven alleges that an audit of the store revealed “inventory being delivered for which 7-Eleven never received invoices,” indicating that Kapoor’s store was selling merchandise off the books for which it would receive full profit (rather than the 48% it was due).
Additionally, the suit alleges “at least one regularly employed person was working either without the franchisee having properly verified employment eligibility.
On June 20, 2013, just 17 months into the agreement, 7-Eleven declared that Kapoor was guilty of a non-curable breach and terminated the franchise agreement.
7-Eleven demanded immediate payment in full of the $70,000 due on the Promissory Note.
7-Eleven demanded that the franchisee immediately turn over the Leased Premises and all Equipment, that he relinquish the final inventory, that he cease using anything trademarked 7-Eleven, and that he immediately cease doing business at the Merritt Island 7-Eleven.
The lawsuit contains no mention of any kind of a hearing or appeal for which Kapoor could argue on his behalf, and it seems that the termination, the demands for payment, and the filing for the failure to meet the demands were all filed on June 20, 2013.
The 32-page complaint, filed by 7-Eleven law firm Quarles & Brady LLP, includes 11 pages of explanation on how the 7-Eleven franchise business arrangement works (which we’ll explain in a separate post).
It also raises some troubling questions, such as:
7-Eleven certainly has the right to protect itself from franchisees who enter an agreement then violate it in order to cheat them.
However, there’s something about the icy precision and the speed of this process, as well as the lack of an appeal or opportunity to cure, that makes this lawsuit seem vaguely unsettling.
What do you think?
Read the entire 32-page complaint here: 7-Eleven, Inc. v. Kapoor Brothers Inc. et al
ARE YOU A 7-ELEVEN FRANCHISE OWNER, MANAGER OR EMPLOYEE? WHAT DO YOU THINK? SHARE A COMMENT BELOW.
Tags: 7-Eleven, 7-Eleven lawsuit, 7-Eleven litigation,7-Eleven franchise, Pursharth Kapoor, Kapoor Brothers Inc., 7-Eleven complaints, 7-Eleven, SEI,7-Eleven franchise complaints, 7-11 franchise, 7-11 franchise complaints, Seven & I Holdings Co, Merritt Island 7-Eleven,
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Hi Sean,
I would have thrown these dudes out, too.
In this case, if they are guilty, the franchisor did the right thing.
Fraud is fraud.
Dishonest franchisees aren't needed.
And, I don't care who the franchisor is.
The Franchise King®
There's something weird here, Joel.
On its surface, I agree. But there's something unsettling about a $145,000 franchise fee, a $78,000 note, an investigation in less than a year, then a termination and lawsuit without any opportunity to appeal or have a hearing.
7-Eleven seems just set up to take over and profitably resell stores without skipping a beat.
I'm not saying that 7-Eleven Inc. is necessarily wrong here, or that its Japanese owners have anything other than the integrity of its franchise system at heart, just that this is a situation that COULD be abusive and there are a lot of questions remaining.
For instance, this store looks pretty old. How many franchise owners have signed up for this very store and either failed or been terminated? Is it possible that this is not an isolated situation, and that owners are turned and churned? I don't know, but would like to hear from 7-Eleven franchisees and insiders.
Remember when Quiznos was sued for collecting millions in non-refundable franchise fees for stores they knew would never open, in markets they knew would not have locations they would approve? It's not unheard of for franchisors to set up a situation where they succeed thru a cycle wherein franchisees fail.
I hope I'm wrong, and hope others will give us some further insights.
Yeah...but.
Didn't the franchisees in this case screw around with the POS system so they wouldn't have to pay corporate?
(Allegedly)
JL
That's what corporate alleges. But the franchisee seemingly has no way to tell his side of the story, or to appeal? What if there's an error with the registers? What if a manager was making an honest mistake? Obviously, there's lots of room for language issues with running a 7-11. What if invoices were submitted to corporate but not entered?
It might appear from what's presented that the franchisee's guilty, but there are trials in this country for a reason, and innocent til proven guilty IS kind of the American way.
Maybe it's a cultural thing coming down from the Japanese overlords at the home office in Tokyo:
https://unhappyfranchisee.mystagingwebsite.com/7-eleven-downplays-japanese-ownership/
It seems a bit severe that in a single day, seemingly without warning (I could be wrong), the franchisee is simultaneously served with a termination, immediate eviction, a demand for $70,000, AND served with a lawsuit for not having vacated the premises or paid the $70K without even having been given the chance.
What's the rush? Why take the guys $145,000+ and not give him the chance to cure?
I am a previous corporate 7-Eleven employee. I'm glad they are finally kicking out franchisees like this one, who set up shop as a front to steal from the company. I've seen many franchisees get caught stealing $30_40K/month is fake voids, only to have the company let them stay on - provided they repay- then go on to perpetrate more crime, in fake voids, cigarette thefts, buying msde "off the books", not paying employees properly, etc.!!!
It looks like 7-Eleven is finally getting serious about the 5-10% of franchisees who get into the business and commit fraud and felony level thefts of cash/msde.
In all likelihood, this franchisee was approached in the past about this behavior, but just kept on stealing. No wonder he won't leave his store... He's making tons of illegal cash. The franchisee is trying to figure out how to steal everything possible until the sheriff comes with a court order to evict him.
Fluffy... And let me share from point of view of an ex-franchisee
Don't tell me that 7-Eleven cares about it's franchisee... Corporate is stealing from franchisee, just that they are smart at doing it... Example:
1. Lately I notice in neighborhoods around my area where Corporates are opening new stores so close to existing store that existing franchisee is losing out badly. And most likely the new franchisee also on the losing. This is the case of 7-Eleven corporate greed. 7-11 gets profit front the existing store... But now when 7-11 open the style new store pretty much literally one block away, the revenue of existing store must of go down due to now two store competing for the same customers in the area. However, 7-11 corporate is a win win situation for them, first 7-11 gets hundred of thousands dollars from the new franchisee. However now both franchisees potential earning dramatically reduced. For 7-11 it is the same or better profit because 7-11 is getting profit from both stores. So this is a case of 7-11 Corporate Greed at the expense of the franchisee. So plainly stealing from franchisees.
2. Second points... 7-11 wants visibly into everything that franchisee does, however corporate is doing lots of things behind closed doors. Example, 7-11 wants stores to use the so call recommended (more like forced) vendors. However all negotiations with these vendors, franchisees are not allowed to be involved. So really, what kickback is 7-11 getting from the vendors that corporate is hiding. In the past, 7-11 got caught getting kickbacks from vendors and not sharing with the franchisee. But that time things spilled out cause of some disgruntled employee spilled the beans on them.... And yet 7-11 still operating behind closed doors where franchisees are not involved when the deals being done. But turn around demand franchisees to order items from 7-11 vendors. And if you don't, 7-11 will find all kind of breach of contract against the franchisees and kick them out of the system and keep the franchisee's hundred thousands dollars of franchise fee.
3. The contract written is so one side where 7-11 has all the control and the franchisee just signed their souls away... It leaves a lot of interpretation and bend it anyway 7-11 choose. I guess this is one of their tool to easy to imposed a breach of agreement against a franchisee that they picked to be their next victim.
Oh by the way ... I always wondered:::: Franchisee cost for the inventory , ordered from 7-11 recommended vendor, were more than if someone walked into a local market....
Anyway ...I am glad I exit the 7-11 system of indenture services...
I would like to say that the contract is in black and white they have read it and agreed to it .. I know plenty of franchise good and bad I've been around the 711 business for more than 15 years . I've been through plenty of change overs from corp to franchise.. And I agree great if they are standing ground to protect their name. But I also know that this is not done over night ... Thievery is thievery now matter in what form and they do give them plenty of chances to fix their "mistakes"....
Wow! How is this a franchise? The agreement seems to make the franchisee an employee. It's a huge amount of money to give the company and risk they will just keep it if the company disagrees with you. There seems to be no room for a disagreement because the contract gives 7 eleven ownership of everything and total control of the stores monies. What is the profit protential for the franchisee? And the pressure must be almost unbearable.
X-franchise-
I am not claiming 7-Eleven Corp is perfect, but at least they are ridding the system of the blatant, rampant criminal franchisees. This is positive, as they are hurting the brand image and other honest FZ's
1) The new store development plan may be canabalizing existing store sales in some cities. In some instances, 7-Eleven may end up with unprofitable stores. It's in no one's best interest for this to happen. I'd say it's not greed, but ignorance - especially in the real estate dept. The company just doesn't have use good metrics or data to figure out how close to put stores.
2) All franchisees agree to purchase a minimum amount of product from authorized vendors, who provide rebates, bill backs, and advertsing dollars that benefit all stores. This is in the FZ agreement- did you not understand that?
They also give the FZ the ability to purchase products they want to carry. About 2% of their total inventory.
3) I never executed a breach against a franchisee that wasn't legitimate. Prior to a breach ( which can be cured in most cases- ) the FZ would be given a courtesy or "letters of notice" to correct any deficits. There is a well defined list of violations that will land a breach with NO previous warnings- and these are very serious- usually fraud, theft, abuse, etc.
The basis to draw these documents up are well defined in the franchise agreement, and must also be approved by 1-2 additional levels in the organization before being sent to a FZ .
Sorry you had a bad experience. It amazed me that at least 20% of my franchisees never really did enough due diligence, or bothered to really understand the agreeement they signed.
"The new store development plan may be canabalizing existing store sales in some cities. In some instances, 7-Eleven may end up with unprofitable stores. It’s in no one’s best interest for this to happen. I’d say it’s not greed, but ignorance – especially in the real estate dept. The company just doesn’t have use good metrics or data to figure out how close to put stores."
fluffy:
Do you really expect us to believe that franchisees are losing their life savings because of a goodhearted but bumbling real estate department? I just read how 7-11 hides the fact that it is a huge, public Japanese company that has crammed 14,000 stores in 7-Eleven's home country of Japan.
https://unhappyfranchisee.mystagingwebsite.com/7-eleven-downplays-japanese-ownership/
The U.S. so far has 1/2 as many 7-Elevens as Japan but 3x the population. They've already said their goal is to open thousands more.
Give your Japanese employers more credit than that. It's pretty brilliant. If they cram 100 stores in an area that can only comfortably support 30, they drive out the competition, kill the bodegas and independents, and squeeze the maximum sales out of the area, and continually collect franchise fees from hundreds of franchisees who pay $150K and finance inventory, then are replaced by new franchisees who do the same.
Your Japanese overlords are pretty smart cookies. No wonder you bow down to them, do their bidding, and try to hide that corporate greed drives this franchise scheme.