Settlement Terms Of DVR Lawsuit Finalized


In May 2014 National Chairman Joe Galea, Executive Vice Chairman Jivtesh Gill and the other members of the NCASEF Executive Team filed a lawsuit in the United States District Court for the Eastern District of California against SEI for breach of contract, conversion, and declaratory judgment involving the new video monitoring equipment installed in franchisees’ stores. The system is commonly referred to as the DVR System. The lawsuit was filed by Dady and Gardner, of Minneapolis.

Over the course of 2014, settlement discussions were ongoing and an agreement in principle reflected in a Term Sheet was reviewed and approved by a vote of the National Coalition Board held in Dallas in December 2014. John Holland of Dady and Gardner was present to explain the agreement in principle in great detail. Following that meeting, the attorneys began the process of creating settlement documents, during which there were extensive negotiations over the specific language of the documents. Working with outside counsel, my goals were to make sure that the agreements were as protective of franchisees as possible, to provide as much limitation on the use of the DVR System as could be obtained, and to prevent SEI from unilaterally changing those terms and conditions.

During my July 31 Legal Talk at the 2015 National Convention, I provided attendees with a PowerPoint presentation that included the essential elements of the settlement. In this article, I will provide more detail.

The settlement documents are twofold. First, there is a Final Settlement Agreement and Release, which is a contract between the named plaintiffs in the lawsuit and SEI. This agreement contains a mutual release of claims, a provision requiring each party to pay their own legal fees, the form of new Security System and Monitoring Agreement to be signed by all franchisees, and a provision stating that the settlement is not effective until 90 percent of the franchise stores have executed the new Security System and Monitoring Agreement.

SEI and the National Coalition have agreed that the process of securing signatures by franchisees on the new Security System and Monitoring Agreement will be kicked off by a joint letter signed by Joe DePinto and Joe Galea, explaining the agreement and urging franchisees to join in the settlement by executing the new document.

Second, there is the New Security System and Monitoring Agreement. The agreement defines “Remote Recording” as historical images sourced from the DVR System and does not include images viewed in real time. The agreement also refers to “Live Remote Access Viewing,” which is defined as all images sourced from the DVR System in real-time. The use of both Remote Recording and Live Remote Access Viewing are substantially limited under the terms of this agreement.

Remote Recordings can only be used for the following:

  • For training purposes, but only if SEI obtains your prior written approval.
  • To investigate potential criminal or fraudulent activities in your store, such as robberies, burglaries, theft and misappropriation.
  • To investigate personal injuries or other safety-related incidents in the store.

Live Remote Access Viewing can only be used for the following:

  • For training purposes, but only if SEI obtains your prior written approval.
  • To assist law enforcement in responding to criminal activities, such as a homicide that occurs in or near your store.
  • For the unavoidable 30 seconds during which a live view is available when an SEI employee logs into the system to request historical recordings.

The Security System and Monitoring Amendment also requires that, if SEI determines that the franchisee was not involved in any potential fraud, theft or other criminal activity at the store, SEI must so notify you within 14 days. In that event, and if SEI used the DVR Equipment in the course of that investigation, then SEI will not seek reimbursement from you for any losses that arose (a) after the investigation was commenced, or (b) more than nine months before the investigation was commenced.

Importantly, SEI has agreed to be solely responsible for compliance with all federal, state and local laws and regulations relating to the installation and operation of the DVR System. This protects franchisees from any claims by customers or privacy advocates that the DVR System somehow invades their privacy. In addition, SEI may take any action against a franchisee based on video obtained from the DVR System, but only if that video was obtained in compliance with the limitation, standards and conditions of the agreement. This is a kind of exclusionary rule, similar to the one that protects those accused of a crime from the use of evidence that police obtain in a violation of constitutional protections. This protects franchisees from the misuse of the video generated by the DVR System and was the last concession made by SEI, and for which we held out the longest.

The settlement terms and conditions reflected in the agreements will last for the duration of your franchise agreement, even if SEI changes security system providers.

The National Coalition, through this settlement, has secured important—indeed historic—limitations on the use of the DVR System. As your General Counsel, having monitored the litigation and independently assessed the likelihood of success had the litigation proceeded to trial, I unqualifiedly recommend this settlement as a reasonable compromise on the part of both SEI and franchisees. We are happy to have begun the process of putting this issue behind us so we can turn our attention to issues of even more pressing importance, such as the 2019 franchise agreement, minimum wage increases, gasoline commissions, store level profitability, supply chain challenges, independent contractor status, and many other related and unrelated issues.