7-Eleven Faces More Franchisee Issues

RIVERSIDE, Calif. -- More dissension within the ranks of franchisees has once again forced 7-Eleven Inc. to be on the defensive.

According to a report by the Los Angeles Times, at least a dozen franchisees have sued the company within the past two years, alleging that America's largest convenience store operator stripped them of their stores on false pretenses. Some of these plaintiffs argue that 7-Eleven then flipped their stores to a new franchisee willing to pay the company higher fees.

Among these disgruntled franchisees are Dilip and Saroj Patel, a husband-and-wife team who in court documents filed in March allege that 7-Eleven used "storm trooper interrogation and isolation tactics" to pressure them to give up their store, which they ran since 1995, with no compensation.

The Patels said they were forced to pay 7-Eleven a $100,000 settlement and had they refused, would have been sued for $250,000 in damages, reported to the Internal Revenue Service, blocked from payroll processing services and crucial supply shipments, and stripped of proprietary products and signage. The Patels added that 7-Eleven did not offer them 24 hours to consult an attorney, but did negotiate the $100,000 penalty when the couple agreed to surrender the store, the report added.

Meanwhile, 7-Eleven has filed its own court documents to argue that franchisees were stealing from the company and depriving it of its full share of the store profits and, in some cases, falsifying sales records.

In a statement shared with CSNews Online, 7-Eleven responded to the allegations.

“Good, hardworking, independent franchisees are the backbone of the 7-Eleven brand," the company stated. "As to those few franchisees who violate the law or the franchise agreement, we are determined to protect our guests, employees and other franchisees by ending the relationship, where appropriate.  We are confident in the thorough and lawful system that we have in place to accomplish this."

In court documents, 7-Eleven acknowledged that its asset protection agents actively investigate suspicious franchisee behavior, including viewing hours of footage from in-store surveillance cameras. Other indicators of fraud may be derived from covert photos and suspicious sales records.

In Convenience Store News'  February cover story, "7-Eleven's Journey to Change,"  a franchisee who spoke on the condition of anonymity expressed his concerns about the in-store surveillance.

“Instead of working through problems, they want to find problems,” he said, suggesting the company is looking to sever ties with certain operators. “It’s a 24-hour business. Mistakes happen. As an independent business owner, we should sit down and discuss. A lot of [franchisees] don’t have enough money to fight with 7-Eleven and pay legal bills. Most of the time we settle and move on.”

Despite the mounting criticism, 7-Eleven says it will vigorously defend any actions that former franchisees file against the company.

"During the course of litigation, certain information about franchisee conduct may become a matter of public record, just as it has in other situations where 7-Eleven Inc. has filed suit to terminate a franchisee relationship based on its thorough investigation and conclusion that the franchisee has violated the law or the provisions of the franchise agreement,” the company concluded.