‘I’ll be watching you,’ a Sting chorus, sounds too familiar to 7-Eleven ‘zees
Illustration by Jonathan Hankin
Every year, 7-Eleven Inc. holds a giant convention and trade show meant to “recognize and celebrate our franchisees” at what’s called the 7-Eleven Experience. This year, the presidents of all 43 franchisee owners associations voted unanimously to skip the event, planned for February, and want the 6,700-plus members they represent to stay away, too.
Just don’t call it a boycott, as I did when I called Eric Karp, general counsel of the National Coalition of Associations of 7-Eleven Franchisees, to find out what’s up. “This is not a boycott,” Karp said. “It is simply a unanimous expression of the board of the National Coalition that they’re not attending the convention and urging others not to attend.”
So, like a boycott? I asked again, but Karp hung firm. “We don’t want to get into arguments about legal definitions, and I told you exactly what the board voted, and we chose not to use that term.”
Once the legalese was dispensed with, Karp became decidedly poetic about the gripes 7-Eleven franchisees have over what he calls an unprecedented amount of control that 7-Eleven exercises over its franchisees.
“Do you know the song, ‘Every Breath You Take,’ by Sting?” says Karp. “There’s a chorus that says, “Every move you make, every step you take, I’ll be watching you,” and the chorus reminds him of what 7-Eleven franchisees feel in the stores.
“There is no system in the country that comes close to the pervasive controls that SEI exercises over every franchisee in the United States,” and that is what the lawsuit is about, said Karp, a partner at Witmer, Karp, Warner & Ryan.
The lawsuit he refers to is what started this entire dispute. Called Haitayan et al v. 7-Eleven Inc., the complaint was filed in U.S. District Court for the central district of California in October and seeks class-action status. After it was filed, Karp said 7-Eleven Inc. decided “to suspend communication with all of the organizations in the system.”
Nonsense, retorted 7-Eleven Inc. via email, and without saying who was making the statement. “The National Coalition is clearly out of touch with the quality and volume of communications between 7-Eleven and franchisees,” it said, saying 7-Eleven postponed two meetings in October involving fewer than 80 of its 4,600 franchisees. “7-Eleven has a long history of consistent and transparent communications with franchisees. In fact, 7-Eleven has spent nearly $1 million developing a best-in-class app built for franchisees which allows them to easily access communications at their convenience.”
Over the past three years, the 7-Eleven Experience has cost the company $4 million, the email said. “We continue to make this investment because franchisees have told us that this event helps them grow their businesses,” it said, adding, “It is our hope” that all franchisees will choose to attend the experience in Las Vegas on Feb. 14-15, 2018. The statement did not address the lawsuit.
Michael Jorgensen owns three 7-Elevens in St. Petersburg, Florida, and also is treasurer of the National Coalition, and was at the vote in early November. He expects “a significant majority” of franchisees will stay away in February. Come Valentine’s Day then, we’ll be watching you, to see what happens.
To attorneys Michael Dady and Jeff Haff of Dady & Gardner, you can’t just quit franchising—and take away your franchisees’ livelihoods—because you don’t like the business model. That’s what they claim is happening to three of their clients.
Alaska Sales & Service has built a $12-million business as a National-Alamo car rental franchisee since 1967. Corpat has been in the game since 1986 and posts $47 million in annual sales. Midwest Car boasts $90 million a year from a franchise started in 1968.
All three received termination notices originally effective January 14, 2018, from their franchisor, known as NACRS or National-Alamo Car Rental System, which their attorneys say are without cause and so constitute an unlawful breach of contract.
The franchisor, on the other hand, says the agreements with the three are unenforceable “perpetual agreements” and therefore terminable at will.
If the franchisor prevails in South Carolina, where it filed the action against the franchisees in U.S. District Court in May, “they say your right to use the National and Alamo names are forever gone, you’re done,” says Haff. “So then they have the right to take those National and Alamo brands and operate them as corporate locations.”
Dady called the franchisor’s action “a material breach of all the parties’ license agreements,” and said the court has scheduled a trial date for October 1, 2018, with the end date of the relationships extended until after the trial.
Christy Cavallini, VP of global corporate communications for the franchisor, noted via email that Enterprise Holdings bought the National and Alamo systems out of bankruptcy in 2008, “saving the system,” and became the licensor under the agreements.
NACRS and the U.S. licensees renewed the license agreements in 2012. In 2017, the remaining U.S. licensees, including Alaska Sales, Corpat and Midwest Car, “took the position that they were entitled to renew the 2002 license agreements forever. NACRS disagrees with the licensees’ position,” she wrote.
“The only prudent approach was to have a South Carolina court declare the effect of the agreements. At this time, NACRS is prepared to pay the licensees the reasonable value of their locations as a settlement in advance of a final adjudication of the dispute,” she wrote.
Haff believes Enterprise “has always chafed at the National-Alamo system having franchisee-owned locations, and would like to eliminate all of those franchises.” They’ve shrunk the number of franchisees since 2008, “and with Mike Andrew arriving they got impatient.” Mike Andrew joined the company as general counsel in May. “EHI’s goal is to combine Enterprise, National and Alamo all into one joint operation without having to deal with franchisees.” But with at least three franchisees, it appears Enterprise will still need to deal.
Beth Ewen is editor-in-chief of Franchise Times, and writes the Continental Franchise Review® column in each issue. Send interesting legal and public policy cases to email@example.com.