7-Eleven, Inc.—Fix That Pothole!

 

Check out paragraph 20(d) of any version of the store agreement since 2004, and you will find SEI’s maintenance obligations. Here is what it says (Note: “When we consider it necessary”):

“(d) Maintenance Performed By or Through Us. When we consider it necessary during the Term of this Agreement, we agree to: (1) repaint and repair the interior and exterior of the Store; (2) replace 7-Eleven Equipment, including cash registers and point-of-sale computers; (3) replace plate glass in front windows and front doors; (4) repair the floor covering, exterior walls, roof, foundation, and parking lot; (5) maintain the structural soundness of the Store; and (6) maintain the HVAC Equipment. You hereby consent to the foregoing. We may charge you for any of the repairs or replacements contemplated by this Paragraph 20(d), if, in our reasonable opinion, your abuse or neglect makes them necessary.”

Here is a typical scenario: you have a pothole in the parking lot so big and dangerous to your customers that lawyers are dropping their business cards in it, or 40-year-old floor tiles are coming up inviting a trip and fall by employees or customers, or the roof is leaking for years, damaging merchandise. You call the proper SEI department and, all too often as all of you know, the answer to your requests/demands to make the repairs are met with one or more of the following responses: “It is not in the budget,” or “A remodel is scheduled,” When?), or “We will look into it and let you know,” or the infamous “Create a case.”

Well, while such replies may fly for SEI when it comes to franchisees, it may well be very costly to the company if a customer is injured because of the lack of proper maintenance. Take the recent New York case of Solis, Plaintiff v. McDonald’s Corporation (Franchisor) and Bruce C. LTD Partnership, Defendants (Franchisee).

In this case, the Plaintiff sued to recover damages for personal injuries he suffered when he slipped and fell due to a slippery condition on the staircase inside the entrance to a McDonald’s restaurant. McDonald’s Corp., as landlord, leased the premises to the franchisee as part and parcel of the franchise agreement. (Sound familiar?)

As in practically all cases of personal injury in which the Plaintiff is injured in or about a 7-Eleven store, both SEI and the franchisee are named as Defendants. Invariably, SEI will quickly rush to the courthouse demanding dismissal of the lawsuit against it, asserting that it does not control the day-to-day operations of the franchise and waiving the independent contractor flag.

Sometimes, but less frequently in recent years, SEI is successful and leaves the battle to the franchisee, who will hopefully settle the litigation within the $500,000 indemnification that SEI provides for such incidents. But sometimes that success is elusive. In this case the judge said, in sum and substance, “Not so fast,” and denied McDonald’s motion to be discharged from the case.

The court stated that while the mere existence of a franchise agreement is not enough to impose liability on the franchisor in such situations, a demonstration that it exercises control over day-to-day operations will preclude the granting of its motion to dismiss. In this case, the court found such control by McDonald’s in these areas (any of this sound familiar?):

a) McDonald’s constructed or prepared the premises in accordance with its plans and specification, and the franchisee was prohibited from altering the premises without prior written approval.

b) The franchisee is obligated to adhere to the standards and policies of McDonald’s providing for the uniform operation of all McDonald’s restaurants, including serving only designated food and beverage products.

c) The franchisee must use only prescribed equipment and building and layout designs.

d) The franchisee must strictly adhere to designated food and beverage specifications and to McDonald’s prescribed standards of quality, service and cleanliness.

e) The right of McDonald’s Corp. to advise and consult with the franchisee periodically in connection with the operation of the restaurant and communicate its know-how, and new developments and techniques and improvements with respect to the operation of the restaurant.

f) The right of McDonald’s Corp. to inspect the premises at all times during reasonable business hours to ensure compliance with its standards and policies.

Of course, all of the above is familiar to 7-Eleven franchisees because almost the same language is used in our store agreements. In denying McDonald’s dismissal motion, and based upon all of the above facts, the court held:

“On review of the submissions, the Court concludes that at the very least, triable issues of fact exist as to whether McDonald’s Corp. exercised control over the day-to-day operations of the franchisees. Thus, the request for summary judgment must be denied.”

What does this mean to frustrated franchisees who are held to strict cleanliness standards while the physical plant and equipment is sometimes, literally, falling apart? I think it could mean a lot if SEI and its insurance company get the message from these cases that the days of ignoring safety maintenance for its stores are coming to an end, and it is time to pay attention to franchisee complaints.

As I indicated above, SEI agrees to perform its maintenance obligation only “When we consider it necessary.” SEI should be continually reminded that franchisees pay for the maintenance every month as part of the 7-Eleven charge. Maybe it is time to pay the 7-Eleven charge only when the franchisee “considers it necessary.” We can dream, can’t we?