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Inc. v. Grewal

United States District Court, D. Massachusetts

November 20, 2014

7-ELEVEN, INC., Plaintiff,

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For 7-Eleven, Inc., Plaintiff, Counter Defendant: Steven M. Cowley, LEAD ATTORNEY, Duane Morris LLP, Boston, MA; Carolyn A. Alenci, Rachel E. Morse, Duane Morris LLP, Boston, MA; Christian C. Burden, PRO HAC VICE, Quarles & Brady LLP, Tampa, Fl.

For Mohinder Grewal, Grewal Corporation, Defendants, Counter Claimants: John E. Pearson, Law Office of John E. Pearson, Springfield, MA.

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(Dkt. Nos. 9 and 22)

MARK G. MASTROIANNI, United States District Judge.

I. Introduction

The 7-Eleven Corporation (" 7-Eleven" ) entered into a franchise agreement with the " Grewal Corporation," owned by Mohinder Grewal (" Mrs. Grewal" ), in 2005. Through an internal investigation, 7-Eleven determined that Mrs. Grewal and her husband, Mann Grewal (" Mr. Grewal" ), president and director of the Grewal Corpration (collectively " Defendants" ), engaged in a scheme to deprive 7-Eleven of significant profits. Specifically, 7-Eleven estimates that 18% of all transactions were conducted fraudulently between approximately January and June of 2014. As a result, 7-Eleven delivered a non-curable notice of Material Breach and Termination of the Franchise to Defendants in June of 2014.

When Defendants refused to vacate the premises and continued to operate a convenience store using 7-Eleven's marks, 7-Eleven filed a complaint in this court requesting injunctive relief and monetary damages. 7-Eleven then moved for a preliminary injunction to prevent Defendants from continuing to use its marks and to enforce the Franchise Agreement's post-termination non-compete clause. Defendants subsequently filed a motion for preliminary injunction, requesting the court to order 7-Eleven to reinstate their privileges under the Franchise Agreement. An evidentiary hearing for both motions took place on September 23, September 29, and October 30, 2014.

For the reasons set forth below, the court grants 7-Eleven's request for injunctive relief with respect to trademark infringement, and denies 7-Eleven's request with respect to enforcement of the non-compete clause. The court denies Defendants' motion for preliminary injunction in its entirety.

II. Factual Findings

(1) Franchise Agreement

7-Eleven is an operator and franchisor of convenience stores, operating 50,000 stores worldwide. 7-Eleven also owns a

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number of widely-advertised federally-registered trademarks and service marks. By written franchise agreements, 7-Eleven licenses the use of its marks and its system to others, requiring these franchisees to operate uniformly and in accordance with 7-Eleven's specifications.

Mrs. Grewal is the owner of the Grewal Corporation, of which her husband, Mr. Grewal, is the president and director. On December 2, 2005, 7-Eleven entered into a Franchise Agreement with Mrs. Grewal.[1] Through this agreement, 7-Eleven agreed to sublease the " Store 22398" premises, located at 539 Pleasant Street in Holyoke, Massachusetts, to Defendants. Pursuant to its obligations under the agreement, 7-Eleven installed the standard equipment necessary for the operation of a 7-Eleven convenience store franchise (grills, soda fountains, etc.).

Defendants have paid over one-hundred thousand dollars in costs associated with starting their 7-Eleven franchise business. For at least several years, Defendants legitimately operated a store that performed well, as it regularly registered average sales numbers which, as 7-Eleven's witnesses acknowledged, is an impressive feat given its location.[2] Throughout this period, per their agreement, Defendants paid 7-Eleven approximately half of their sales profits.[3] These profits are measured and calculated by the use of 7-Eleven's " Point of Sale" (" POS" ) system, which records inputs from cash register transactions.

(2) 7-Eleven's Investigation

In early 2014, 7-Eleven's asset protection team noticed that the " price lookup" function of Store 22398's registers were being utilized considerably more than the usual amount, across 7-Eleven's other stores.[4] As a result, 7-Eleven's asset protection team, led by Corporate Investigator Michael Aldridge (" Aldridge" ), initiated an investigation. As Aldridge explained, the team analyzed many hours of security footage and concluded that approximately 18% of transactions viewed were conducted fraudulently. After carefully considering the evidence presented at the three-day preliminary injunction hearing, the court credits 7-Eleven's assessment of Defendants' impermissible activity between February and June of 2014.

7-Eleven's investigation revealed that these " price lookup" inquiries increased during overnight hours, thereby correlating with the times during which Mr. and Mrs. Grewal would work at the store. Additionally, the footage showed Mr. and Mrs. Grewal extensively using the " grocery non-tax" and " beer non-tax" keys on the register.[5] As Mr. Aldridge explained at the hearing, the " grocery non-tax" key serves to charge a customer for a non-taxable item that contains no uniform product code and cannot be scanned, such as a piece of fruit. Despite their knowledge of the key's intended purpose, however,

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the store's surveillance footage revealed that Mr. and Mrs. Grewal would regularly use this register function to erroneously ring up items that were, in fact, scannable. . When an item is not scannable, the clerk must enter its price into the POS system manually. Therefore, due to the relatively excessive use of this key at Store 22398, it is likely that Defendants have been using this key to enter incorrect prices for items, and have been keeping for themselves the difference between the price entered and the payment received.

Further, the normal purpose of the " beer non-tax" key is to ring up a purchase of an alcoholic beverage, for which 7-Eleven does not share in the profits. For that reason, when this key is used to ring up a non-alcoholic item, 7-Eleven is deprived of its deserved profits from that item. The surveillance footage presented to the court by 7-Eleven also displayed many instances in which Mr. and Mrs. Grewal rang up non-alcoholic items using the " beer non-tax" key; thereby constituting further evidence of impermissible activity under the Franchise Agreement, which requires the Grewals to prepare and furnish accurate sales data to 7-Eleven, among other obligations.[6]

Defendants' fraudulent behavior frequently correlated with a nightly shutdown in the security camera directly above the register, taking place at times during which Mr. or Mrs. Grewal would work at the store. Analysis of the footage from a camera that continued to function, which displayed a view of the front of the register, revealed that before his shift each night, Mr. Grewal would routinely walk into the back office which contains the camera controls. Moments later, the camera above the register would go offline.[7] This occurred many times between February and June of 2014. In late June, however, the frequent camera shut-downs ceased. This cessation directly coincided with Defendants' receipt of 7-Eleven's " Non-Curable Notice of Material Breach and Termination," dated June 26, 2014.

This termination notice identified several breaches, the most significant of which was Defendants' alleged " engage[ment] in a pervasive, fraudulent scheme of incorrectly ringing and failing to ring customer transactions." It discussed instances of specific conduct, upon which the decision to terminate the agreement was based, and it cited Defendants' willful abuse of the franchisor-franchisee relationship.[8] Through this notice, 7-Eleven declared the Defendants' sublease and equipment lease to be terminated. It further demanded that Defendants comply with their post-termination ...

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