KHORCHID v. 7-ELEVEN, INC.

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

BASSEL KHORCHID, HONORABLE RENÉE MARIE BUMB

Plaintiff,

Civil Action No.

v. 18-8525 (RMB/JS)

7-ELEVEN, INC.,

OPINION

Defendant.

APPEARANCES:

Ahmed M. Soliman, Esq.

SOLIMAN & ASSOCIATES, P.C.

923 Haddonfield Road, Suite 300

Cherry Hill, NJ 08002

Attorney for Plaintiff

Dennis R Callahan, Esq.

Amy L. Hansell, Esq.

WARD GREENBERG HELLER & REIDY, LLP

1853 Market Street, Suite 650

Philadelphia, PA 19103

Attorneys for Defendant

SIMANDLE, District Judge:

I. INTRODUCTION

This case arises over alleged violations of a franchise

agreement entered into by Plaintiff Bassel Khorchid (hereinafter,

“Plaintiff”) and 7-Eleven, Inc. (hereinafter, “Defendant”) in

October 2017. (See Amended Complaint, hereinafter, “Am. Compl.”

[Docket Item 12].) Plaintiff alleges that Defendant repeatedly

violated the franchise agreement (id.), and due to the alleged

violations, Plaintiff surrendered his store in August of 2017.

(Id. at ¶ 37.) Plaintiff’s Amended Complaint re-pleads claims that

Defendant (1) breached the franchise agreement, (id. at ¶¶ 39-44);

(2) breached the covenant of good faith and fair dealing under New

Jersey law (id. at ¶¶ 45-55); and (3) violated New Jersey’s

Franchisee Protection Act (hereinafter, “NJFPA”), N.J. Stat. Ann.

§§ 56:10-1, et seq. (2013), by attempting to constructively

terminate Plaintiff’s franchise. (Id. at ¶¶ 56-59.) Plaintiff’s

Amended Complaint also asserts additional claims of (4) unjust

enrichment (id. at ¶¶ 60-62); and (5) unconscionability. (Id. at

¶¶ 63-66.)

Pending before the Court are Defendant’s motion to dismiss

the Amended Complaint, alleging that Plaintiff fails to state a

claim under any count pursuant to Federal Rule of Civil Procedure

12(b)(6), (see Def.’s Mot. to Dismiss [Docket Item 13]), and

Defendant’s motion to stay arbitrable claims, arguing that aspects

of Plaintiff’s Amended Complaint concerning vendor negotiating

practices must be stayed pending mandatory arbitration, as

required by the Franchise Agreement.1 (See Def.’s Mot. to Stay

[Docket Item 14].) Subsequently, Defendant submitted to the Court

1 In the original Complaint, Plaintiff variously referred to a

“Franchise Agreement” and to multiple “Franchise Agreements.”

Following the filing of the Amended Complaint, the Court finds

that the parties are now referring to the Agreement signed October

27, 2016 and included in the Am. Compl. at Docket Item 12-1.

an Opinion from the Eastern District of Pennsylvania regarding a

similar franchise agreement dispute between 7-Eleven and a

franchisee. (See Notice [Docket Item 21]; Takiedine v. 7-Eleven,

Inc., No. 17-4518, 2019 WL 934994 (E.D. Pa. Feb. 25, 2019).) For

the reasons stated herein, the Court will grant in part and deny

in part Defendant’s motion to dismiss and will grant Defendant’s

motion to stay arbitrable claims.

II. BACKGROUND

A. Facts

The Court previously presented the facts of this case in

Khorchid v. 7-Eleven, Inc., No. 18-8525, 2018 WL 5149643 (D.N.J.

Oct. 22, 2018), and they are incorporated herein.

B. Procedural History

On April 28, 2018, Plaintiff filed the initial Complaint in

this case. (See Complaint [Docket Item 1].) Defendant previously

moved to dismiss Plaintiff’s initial Complaint pursuant to Fed. R.

Civ. P. 12(b)(6). (See Def.’s Mot. to Dismiss [Docket Item 4].) On

October 22, 2018, the Court granted Defendant’s prior motion to

dismiss without prejudice and granted Plaintiff leave to file an

amended complaint. Khorchid, 2018 WL 5149643, at *12.2

2 Plaintiff timely filed his Amended Complaint. (See Am. Compl.

[Docket Item 12].) Thereafter, Defendant filed the present motion

to dismiss, (see Def.’s Mot. to Dismiss [Docket Item 13]), and a

motion to stay pending arbitration. (See Mot. to Stay [Docket Item

14].) Plaintiff subsequently filed briefs in opposition to each

motion, (see Pl.’s Opp’n to Stay [Docket Items 15]; Pl.’s Opp’n to

III. STANDARD OF REVIEW

Pursuant to Fed. R. Civ. P. 8(a), a complaint need only

contain “a short and plain statement of the claim showing that the

pleader is entitled to relief.” Specific facts are not required,

and “the statement need only ‘give the defendant fair notice of

what the . . . claim is and the grounds upon which it rests.’”

Erickson v. Pardus, 551 U.S. 89, 93 (2007) (citations omitted).

While a complaint is not required to contain detailed factual

allegations, the plaintiff must provide the “grounds” of his

“entitle[ment] to relief,” which requires more than mere labels

and conclusions. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555

(2007). “Thus, the mere metaphysical possibility that some

plaintiff could prove some set of facts in support of the pleaded

claims is insufficient; the complainant must give the court reason

to believe that this plaintiff has a reasonable likelihood of

mustering factual support for these claims.” Ridge at Red Hawk,

LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis

omitted).

A motion to dismiss under Fed. R. Civ. P. 12(b)(6) may be

granted only if, accepting all well-pleaded allegations in the

Dismiss [Docket Item 16]), and Defendant filed a reply brief with

respect to each motion. (See Def.’s Reply to Dismiss [Docket Item

17]; Def’s. Reply to Stay [Docket Item 18].) Defendant’s motions

have been fully briefed and will be decided without oral argument

pursuant to Fed. R. Civ. P. 78(b).

complaint as true and viewing them in the light most favorable to

the plaintiff, while disregarding unsupported conclusory

statements, a court concludes that plaintiff has failed to set

forth fair notice of what the claim is and the grounds upon which

it rests. Id. A complaint will survive a motion to dismiss if it

contains sufficient factual matter to “state a claim to relief

that is plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662,

663 (2009). Although a court must accept as true all factual

allegations in a complaint, that tenet is “inapplicable to legal

conclusions,” and “[a] pleading that offers labels and conclusions

or a formulaic recitation of the elements of a cause of action

will not do.” Id. at 678.

In the Third Circuit, to determine arbitrability of an issue,

courts apply a two-tier standard of review. See Guidotti v. Legal

Helpers Debt Resolution, LLC, 716 F.3d 764 (3d Cir. 2013). Where

it is apparent on the face of the complaint, or in documents relied

upon in the complaint, that the claims at issue in the case are

subject to arbitration, the case is considered under a motion to

dismiss standard, Fed R. Civ. P. 12(b)(6). Id. at 774-76. However,

where the complaint does not establish on its face that the parties

have agreed to arbitrate, or where the party opposing arbitration

has come forward with reliable evidence that it did not intend to

be bound by an arbitration agreement, then the parties are entitled

to limited discovery on the question of arbitrability before a

renewed motion to compel and/or stay arbitration is decided on a

summary judgment standard. Fed. R. Civ. P. 56. Id.

IV. DISCUSSION

A. Count I: Breach of Contract Claim3

In Count I of the Amended Complaint, Plaintiff re-pleads his

breach of contract claim. (Am. Compl. [Docket Item 12], ¶¶ 39-44.)

A plaintiff bringing a cause of action for breach of contract must

establish: (1) the existence of a valid contract with plaintiff

and defendant; (2) a breach of the contract by defendant; (3)

performance by the plaintiff of his or her obligations under the

contract; and (4) resulting damages. Oswell v. Morgan Stanley Dean

Witter & Co., No. 06-5814, 2007 WL 1756027, at *5 (D.N.J. June 18,

2007). A plaintiff cannot meet the burden of establishing these

elements by merely making conclusory allegations. See In re Nice

Sys., Ltd. Sec. Litig., 135 F.Supp.2d 551, 565 (D.N.J. 2001).

Although Plaintiff argues that “unequal bargaining power

between Plaintiff and Defendant allowed Defendant to dictate the

terms and conditions,” (Am. Compl. [Docket Item 12], ¶ 16), and he

had to “sign the Franchise Agreements as written, or forgo

continuing as a franchisee of [Defendant],” Plaintiff does not

3 The Court finds that Count I’s breach of contract claims,

particularly with respect to vendor selection practices, are very

similar to the issues covered in Paragraphs 15(j) and 15(k) of the

Franchise Agreement and may be appropriately addressed in

arbitration.

allege that no valid contract existed. (Id. at ¶ 10.) Thus, as

Plaintiff does not allege that he did not enter into a valid

contract, the Court will assume that Plaintiff agrees that the

first element is met for purposes of this motion.

Defendant argues that Plaintiff fails to state a claim for

breach of contract because he does not identify which franchise

agreement, and which provisions of that franchise agreement,

Defendant allegedly breached. (Def.’s Br. to Dismiss [Docket Item

13-2], ¶ 3-4.) Additionally, Defendant contends that Plaintiff

failed to allege damages caused by any purported breach. (Id. at

8.)

However, as Plaintiff indicated in his opposition brief,

Exhibit A of the Amended Complaint contains only the second

franchise agreement signed in October 2016. (See Am. Compl. [Docket

Item 12]; Pl.’s Opp’n to Dismiss [Docket Item 16].) Although

Plaintiff does not cite to specific section numbers of the

Franchise Agreement, he does provide summaries of specific

sections that are sufficient for Defendant and the Court to

determine the contractual provisions that are supposedly at issue.

(Am. Compl. [Docket Item 12], ¶¶ 41a-d.) Count I of Plaintiff’s

Amended Complaint, its breach of contract claim, includes two

separate claims of breach. Additionally, the “background” section

of the Amended Complaint contains breach of contract claims that

the Court will discuss in this section.

1. Failure to Provide Necessary Maintenance

Plaintiff alleges that “Plaintiff’s store sustained

substantial damage as a result of Hurricane Sandy, however

Defendant failed and/or refused to repair the store as requested,

and as required by the Franchise Agreements, which expressly states

[sic] that Defendant will make necessary repairs.” (Am. Compl.

[Docket Item 12], ¶ 43.) Defendant argues that Plaintiff’s

allegation contradicts the actual terms of the franchise agreement

which states that “[e]xcept to the extent [Defendant] may expressly

assume any of the following responsibilities in writing,

[Plaintiff] agree[s] to be responsible for all maintenance,

repairs, replacements, janitorial services and expenses relating

to the Store.” (Franchise Agreement [Docket Item 12-1], ¶ 20(a).)

However, as Plaintiff indicated, Section 20 also states that

“[w]hen [Defendant] considers it necessary,” Defendant would

repair the interior and exterior of the store, replace equipment,

replace glass windows and doors, repair flooring, and maintain

structural soundness of the store. (Id. at ¶ 20(d).) Defendant

argues that Plaintiff failed to allege that Defendant considered

the repairs in question “necessary.” (Def.’s Br. to Dismiss [Docket

Item 17], 5.) Defendant also indicates that Hurricane Sandy struck

on October 29, 2012. (Id.) The parties entered into the second

franchise agreement four years later in October 2016, which states

that Plaintiff agrees to take the store “in ‘as-is’ condition.”

(Franchise Agreement [Docket Item 12-1], ¶ 8(c).)

The Court must consider all factual allegations Plaintiff

asserts as true and determine if Plaintiff pled sufficient facts

to set forth a cause of action that put Defendant on fair notice

of the grounds for Plaintiff’s claim. Twombly, 550 U.S. at 555;

Iqbal, 556 U.S. at 679. Although Plaintiff did not specifically

allege that Defendant considered the repairs “necessary,”

Plaintiff did assert that he requested the repairs and Defendant

either failed and/or refused to make them. (Am. Compl. [Docket

Item 12], ¶ 43.) The plaintiff in Takiedine v. 7-Eleven, Inc.,

made a similar claim and the Eastern District of Pennsylvania

ruled:

7-Eleven was certainly on notice of the nature

of the claim, and whether 7-Eleven considered

these repairs necessary and whether its

failure to provide the maintenance requested

breached the contract can be determined at a

later stage in the proceeding with the benefit

of a factual record.

Takiedine, 2019 WL 934994, at *5. Drawing all reasonable inferences

from the pleaded factual allegations in favor of the nonmoving

party, here Plaintiff, the Court agrees with the Eastern District

of Pennsylvania and will deny Defendant’s motion to dismiss,

insofar as it seeks to dismiss this breach of contract claim

pending the opportunity to develop the issue through discovery.

2. Failure to Treat as Independent Contractor

Plaintiff’s Amended Complaint references Section 2 of the

Franchise Agreement, (Am. Compl. [Docket Item 12], ¶ 41(b)), which

states that Plaintiff agrees: “(a) to hold [itself] out to the

public as an independent contractor; (b) to control the manner and

means of the operation of the Store; and (c) to exercise complete

control over and responsibility for all labor relations and the

conduct of [its] agents and employees, including the day-to-day

operations of the Store and all agents or Store employees.”

(Franchise Agreement [Docket Item 12-1], ¶ 2.) Plaintiff alleges

that Defendant breached its franchise agreement and failed to treat

Plaintiff as an independent contractor by ordering merchandise

that Plaintiff did not authorize and forcing Plaintiff to write

off the unsold merchandise at a loss. (Am. Compl. [Docket Item

12], ¶¶ 22 & 44.) Additionally, Plaintiff argues that if he did

not buy products from Defendant’s specified vendors, Defendant

would increase its split of profits even though “Plaintiff was

supposed to be an independent contractor who was responsible for

running the store.” (Id. at ¶ 20.)

Defendant argues that Section 2 only bestows obligations upon

Plaintiff and does not require Defendant to treat Plaintiff as an

independent contractor. (Def.’s Br. to Dismiss [Docket Item 13-

2], 7.) Therefore, Defendant contends, Plaintiff may not state a

claim for breach of contract based on a provision that only

specifies Plaintiff’s obligations. (Id.)

Additionally, Defendant argues that Plaintiff’s breach of

contract claim fails because Section 15(b) of the Franchise

Agreement states that Plaintiff must “at all times . . . carry at

the Store all Categories of Inventory that [Defendant]

specif[ies]” and must “comply with all of [Defendant’s] standards

and specifications for all Inventory.” (Id.; Franchise Agreement

[Docket Item 12-1], ¶ 15(b).) However, as Plaintiff asserts,

Section 15(b) also states that Plaintiff may delete any products

from being offered at its store, upon written permission from the

Defendant, “which will not be unreasonably withheld.” (Franchise

Agreement [Docket Item 12-1], ¶ 15(b) (emphasis added).)

With evidence, Defendant may prove that Section 2 does not

bestow any contractual obligations upon Defendant. However,

Plaintiff may also prove that Defendant unreasonably withheld

permission to delete certain products in violation of Section

15(b). At this stage in the proceeding, without the benefit of a

factual record, the Court is not prepared to interpret these

provisions or dismiss this claim. Therefore, Defendant’s motion to

dismiss, insofar as it seeks to dismiss this breach of contract

claim, will also be denied without prejudice.

B. Count II: Breach of Covenant of Good Faith and Fair Dealing4

“A covenant of good faith and fair dealing is implied in

every contract in New Jersey,” including franchise

agreements. Sons of Thunder, Inc. v. Borden, Inc., 148 N.J. 396,

421 (1997) (citations omitted). To support a claim of the breach

of the covenant of good faith and fair dealing, the plaintiff “must

provide evidence sufficient to support a conclusion that the party

alleged to have acted in bad faith has engaged in some conduct

that denied the benefit of the bargain originally intended by the

parties.” Brunswick Hills Racquet Club, Inc. v. Route 18 Shopping

Ctr. Assocs., 182 N.J. 210, 225 (2005) (quoting 23 Williston on

Contracts § 63:22, at 513-14 (Lord ed. 2002)). In addition,

“[p]roof of ‘bad motive or intention’ is vital to an action for

breach of the covenant.” Id. (quoting Wilson v. Amerada Hess Corp.,

168 N.J. 236, 249 (2001)).

Plaintiff argues that Defendant breached the covenant of good

faith and fair dealing by constructively terminating Plaintiff.

(Am. Compl. [Docket Item 12], ¶ 55.) Plaintiff argues Defendant

created an “Operation Philadelphia” scheme to drive out

franchisees in Philadelphia and South Jersey and take back their

4 The Court finds that Count II’s claims, particularly with the

respect to the “Operation Philadelphia” scheme insofar as it

concerns disputes about proprietary 7-Eleven products, are very

similar to the issues covered in Paragraphs 15(j) and 15(k) of the

Franchise Agreement and may be appropriately addressed in

arbitration.

stores. (Id. at ¶¶ 26 & 54). Plaintiff asserts Defendant carried

out this scheme by launching the “7-Select” proprietary product

line that forced Plaintiff to write off products at a loss and

diminished Plaintiff’s profits. (Id. at ¶ 46.) To illustrate the

effects of the alleged scheme, Plaintiff indicates that in 2011

Plaintiff’s store generated total sales of $1,239,030 and

Plaintiff’s net income was $36,050, which represented 2.91% of

total sales. (Id. at ¶ 47.) However, in 2016 the same store

generated $1,265,306 in total sales but Plaintiff only received

$2,790 in net income, which represents only 0.02% of total sales.

(Id.) Lastly, Plaintiff asserts Defendant “failed to change its

stores, products, and marketing despite the ever-changing market.”

(Id. at ¶ 47.)

Defendant argues that Plaintiff’s claim rests on conclusory

assertions rather than factual allegations. (Def.’s Br. to Dismiss

[Docket Item 13-2], 9.) Additionally, Defendant asserts that the

implied covenant of good faith and fair dealing cannot override a

contract’s express terms and the franchise agreement here

specifies that Defendant may change the amount of proprietary

products Plaintiff had to offer. (Id.)

Accepting Plaintiff’s well-pleaded allegations as true,

Plaintiff successfully satisfied the improper motive element by

alleging Defendant created a “scheme” to drive out and

constructively terminate franchisees. This “scheme” could have

deprived Plaintiff from the benefit of the bargain originally

intended by the parties. At this stage of the proceeding, without

the benefit of a factual record, the Court will deny Defendant’s

motion to dismiss, insofar as it seeks to dismiss Plaintiff’s

breach of covenant of good faith and fair dealing claims.

C. Count III: Violation of New Jersey’s Franchisee Protection

Act – N.J. Stat. Ann. §§ 56:10-1, et seq.

Plaintiff claims, and Defendant does not dispute, that the

NJFPA applies to its franchisee-franchisor relationship with

Defendant. (See Am. Compl. [Docket Item 12], ¶ 15; Def.’s Br. to

Dismiss [Docket Item 13-2].) The N.J. Stat. Ann. §§ 56:10-4 states

that to state a claim under the NJFPA, Plaintiff must allege (1)

a place of business within New Jersey, (2) gross sales stemming

from the Agency Agreement that exceeded $35,000 in the 12 months

preceding initiation of the lawsuit, and (3) that more than 20% of

Plaintiff’s gross sales came from the franchise relationship.

Failure to satisfy any of these requirements necessitates

dismissal of an NJFPA claim. Instructional Sys., Inc. v. Comput.

Curriculum Corp., 614 A.2d 124, 133 (N.J. 1992). Plaintiff

qualifies under the statute because when Plaintiff initiated the

lawsuit, gross sales between Plaintiff and Defendant exceeded

$35,000, and over 20% of said sales derived from Plaintiff’s

franchise. (Am. Compl. [Docket Item 12], ¶ 11.)

However, despite the opportunity to amend its complaint,

Plaintiff failed to correct the deficiencies this Court addressed

in Khorchid, 2018 WL 5149643, at *11. “Each count of a properly

pled complaint must contain: (a) its own cause of action against

a clearly identified defendant(s), and (b) those particular

factual allegations that would allow the court to draw a reasonable

inference that the defendant is liable for that cause of action.”

Lee-Peckham v. Runa, LLC, No. 14-6635, 2015 WL 150120, at *3

(D.N.J. Jan 12, 2015); see Iqbal, 556 U.S. at 678.

Plaintiff again failed to identify any section of the NJFPA

that Defendant purportedly violated in its Amended Complaint.5

Plaintiff’s vague claim that Defendant violated the entire statute

fails to satisfy the pleading requirements of Fed. R. Civ. P. 8

and fails to give Defendant fair notice of what the claim is and

the grounds upon which it rests. See Erickson, 551 U.S. at 93.

Although Plaintiff’s brief in opposition to Defendant’s

motion to dismiss refers to specific provisions of the NJFPA, the

Amended Complaint failed to do so. (Compare Pl.’s Opp’n to Dismiss

[Docket Item 16] with Am. Compl. [Docket Item 12].) The Amended

Complaint only sets forth conclusory allegations rather than

factual allegations that would “allow the Court to draw a

reasonable inference that the defendant is liable.” Twombly, 550

5 The Amended Complaint solely cites to “N.J.S.A. 56:10-1, et seq.”

(Am. Compl. [Docket Item 12], ¶¶ 56-59.)

U.S. at 556. “When legal conclusions are not supported by factual

allegations, a court may properly dismiss the complaint pursuant

to Rule 12(b)(6).” Averhart v. CWA Local 1033, No. 10-6163, 2015

WL 9581753, at *3 (D.N.J. Dec. 30, 2015) (citing Iqbal, 556 U.S.

at 679). Therefore, Defendant’s motion to dismiss Plaintiff’s

NJFPA claim shall be granted.

D. Count IV: Unjust Enrichment

Plaintiff alleges that, although he regularly paid increasing

maintenance charges to Defendant, he has not received the benefits

of these payments because Defendant failed and/or refused to

address Plaintiff’s maintenance requests. (Am. Compl. [Docket Item

12], ¶¶ 61-62.) Defendant argues that the Court should dismiss

this claim because (1) the Court did not authorize Plaintiff to

assert new claims in its Amended Complaint, and (2) the subject

matter of Plaintiff’s claim is governed by the Franchise Agreement.

The Court dismissed Plaintiff’s original Complaint and

granted Plaintiff leave to re-plead “an Amended Complaint curing

the deficiencies noted in the Opinion.” (Order [Docket Item 11].)

The Court did not prohibit Plaintiff from asserting new claims

that would aid in curing the specified deficiencies. Therefore,

the Court will address Plaintiff’s additional claims.

To state a claim for unjust enrichment, a plaintiff must

allege “(1) that the defendant has received a benefit from the

plaintiff, and (2) that the retention of the benefit by the

defendant is inequitable.” Wanaque Borough Sewerage Auth. v. Twp.

of West Milford, 144 N.J. 564, 575 (1996) (citation omitted).

Plaintiff’s allegation that he has paid maintenance charges

to Defendant and failed to receive a benefit does not constitute

a claim of unjust enrichment. (See Am. Compl. [Docket Item 12], ¶¶

61-62.) His argument is too conclusory and is insufficient under

Iqbal’s heightened pleading standard. Conclusory, generalized

allegations will not suffice, and the Court will therefore grant

Defendant’s motion to dismiss Plaintiff’s unjust enrichment claim.

E. Count V: Unconscionability

Count V of Plaintiff’s Amended Complaint asserts a claim for

unconscionability. Plaintiff alleges that “portions of the

franchise agreement [are] procedurally unconscionable because

Plaintiff lacked a meaningful choice in accepting the provisions”

and many portions “unreasonably favored Defendant by maximizing

Defendant’s profits while causing Plaintiff’s net profits to

dwindle.” (Am. Compl. [Docket Item 12], ¶ 65.) Defendant argues

that New Jersey law does not recognize a cause of action for

unconscionability. (Def.’s Br. to Dismiss [Docket Item 13-2], 14.)

As discussed above in Section D, the Court will address the

additional claims Plaintiff included in its Amended Complaint. As

a matter of law, the doctrine of unconscionability generally “acts

as a shield against enforcement of an unreasonable contract and

not a sword on a claim for affirmative relief.” Hunter v. Sterling

Bank, Inc., No. 09-0172, 2011 WL 5921388, at *8 (D.N.J. Nov. 28,

2011) (quoting Sitogum Holdings, Inc. v. Ropes, 352 N.J. Super.

555, 566 n. 14 (Super. Ct. Ch. Div. 2002). Therefore,

unconscionability cannot be brought as an affirmative claim or

cause of action. Id. (citing Lind v. New Hope Prop., LLC, No. 09-

3757, 2010 WL 1493003, at *7 (D.N.J. Apr. 13, 2010); see also

Alboyacian v. BP Prods. N. Am., No. 09-5143, 2011 WL 5873039, at

*5 (D.N.J. Nov. 22, 2011) (unconscionability is not a cause of

action that a plaintiff may bring in the affirmative). Therefore,

the Court will grant Defendant’s motion to dismiss, insofar as it

seeks dismissal of Plaintiff’s unconscionability claim.

F. Stay Pending Arbitration

In Count I of his Amended Complaint, Plaintiff claims that

Defendant has failed to “make every commercially reasonable effort

to obtain the lowest cost for products and services available from

Defendant’s Bona Fide Suppliers, and maximize profit.” (Am. Compl.

[Docket Item 12], ¶ 41(a) (emphasis in original).) He further

alleges that Defendant required him to purchase goods for sale

from Defendant’s proprietary “7-Select” product line, which,

unlike products from other vendors, cannot be returned if they do

not sell, which in turn forces Plaintiff to take the loss on the

unsold products in the form of a “write-off.” (Am. Compl. [Docket

Item 12], ¶ 17.)

In response, Defendant argues that Plaintiff’s claims

regarding the proprietary merchandise “write-offs” are vendor

negotiating practices issues and therefore fall under Paragraphs

15(j) and 15(k) of the Franchise Agreement, which require that

such disputes be submitted to arbitration. (Def.’s Reply to Stay

[Docket Item 18].) Defendant has therefore moved to stay these

claims pending arbitration. Plaintiff argues that Defendant has

waived its right to arbitrate these claims and, moreover, that

even if Defendant has not waived that right, the “write-off” claims

are not covered in the scope of the arbitration agreement. (Pl.’s

Opp’n to Stay [Docket Item 15].)

Defendant seeks to stay these arbitrable claims under the

Federal Arbitration Act (hereinafter “FAA”), which states in

relevant part:

If any suit or proceeding be brought in any of

the courts of the United States upon any issue

referable to arbitration under an agreement in

writing for such arbitration, the court in

which such suit is pending, upon being

satisfied that the issue involved in such suit

or proceeding is referable to arbitration

under such an agreement, shall on application

of one of the parties stay the trial of the

action until such arbitration has been had in

accordance with the terms of the agreement,

providing the applicant for the stay is not in

default in proceeding with such arbitration.

9 U.S.C. § 3.

Subject to a few exceptions which do not apply here, the FAA

applies to any “written provision in any . . . contract evidencing

a transaction involving commerce to settle by arbitration a

controversy arising out of such contract or transaction.” 9 U.S.C.

§ 2. The Franchise Agreement at issue in this case meets both

requirements, as it is in writing and involves interstate commerce,

so the FAA applies. Plaintiff does not dispute that the arbitration

agreement is covered under the FAA.

1. Defendant Has Not Waived its Right to Arbitrate

Plaintiff claims that Defendant has waived its right to

arbitrate. (Pl.’s Opp’n to Stay [Docket Item 15].) However, waiver

of the right to compel arbitration is “not to be lightly inferred”

because of the strong federal policy in favor of arbitrability.

Great W. Mortg. Corp. v. Peacock, 110 F.3d 222, 232 (3d Cir. 1997).

A showing of prejudice to the party resisting arbitration is the

“touchstone” for determining whether the right to arbitration has

been waived. Hoxworth v. Blinder, Robinson & Co., 980 F.2d 912,

925 (3d Cir. 1992).

In the Third Circuit, to assess prejudice and to determine

whether a party has waived its right to arbitrate arbitrable

claims, the courts consider six nonexclusive factors:

[1] the timeliness or lack thereof of a motion

to arbitrate . . . [; 2] the degree to which

the party seeking to compel arbitration has

contested the merits of its opponent's claims;

[3] whether that party has informed its

adversary of the intention to seek arbitration

even if it has not yet filed a motion to stay

the district court proceedings; [4] the

extent of its non-merits motion practice; [5]

its assent to the court's pretrial orders; and

[6] the extent to which both parties have

engaged in discovery.

Nino v. Jewelry Exch., Inc., 609 F.3d 191, 208-09 (3d Cir. 2010).

Under these factors, waiver will “normally be found only where the

demand for arbitration came long after suit commenced” because

that is when prejudice can be shown by the party that has expended

time, effort, and money prosecuting a case under the federal

discovery rules which are unavailable in the arbitral

forum. PaineWebber Inc. v. Faragalli, 61 F.3d 1063, 1068 (3d Cir.

1995); Hoxworth, 980 F.2d at 925-97. “Merely answering on the

merits, asserting a counterclaim (or cross-claim) or participating

in discovery, without more,” is generally not enough to constitute

waiver. Faragalli, 61 F.3d at 1069 (citing Hoxworth, 980 F.2d at

925). Here, Plaintiff has not shown waiver because he cannot show

that he suffered prejudice or that he has suffered due to a lengthy

course of litigation.

In their briefs, the parties use the terms “default” and

“waiver” interchangeably. (See Def.’s Br. to Stay [Docket Item 14-

1]; Pl.’s Opp’n to Stay [Docket Item 15].) Section 3 of the FAA

refers to “default,” which other courts have held is akin to

“waiver.” Maxum Fdns., Inc. v. Salus Corp., 779 F.2d 974, 981 (4th

Cir. 1985). However, neither statutory default under Section 3 nor

“waiver” may be lightly inferred given the federal policy favoring

arbitration. See Great W. Mortg. Corp, 110 F.3d at 232; In re

Mercury Constr. Corp., 656 F.2d 933, 939 (4th Cir. 1981), aff’d,

Moses H. Cone. Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1

(1983). For purposes of clarity and in line with the Third

Circuit’s preferred analysis, this Court will refer to this as

“waiver.”

i. Defendant’s motion to stay was timely

Plaintiff’s brief in opposition to Defendant’s motion to stay

does not engage in any substantive analysis of the six Hoxworth

factors; rather, he argues that discovery in a separate case in

the Eastern District of Pennsylvania means that Defendant was

sufficiently noticed of Plaintiff’s vendor negotiation practices

claim. (See Pl.’s Opp’n to Stay [Docket Item 15]; see also

Takiedine, 2019 WL 934994 (granting a motion to stay arbitrable

vendor negotiation practices claims in a 7-Eleven franchise

agreement dispute case)). At the time that Plaintiff’s brief in

opposition to Defendant’s motion to stay was filed, the parties in

Takiedine had nearly completed discovery, so Plaintiff asserts

that Defendant’s motion to stay in the present matter was not

timely because Defendant was sufficiently apprised that Plaintiff

would bring a claim on the vendor negotiation practices in this

case. (Pl.’s Opp’n to Stay [Docket Item 15], 2.) Plaintiff is in

error. Despite any similarity between the proceedings, discovery

in Takiedine — a different case with different parties, different

facts, and different procedural history — has no bearing on whether

Defendant waived its right to arbitrate arbitrable claims in this

case. See Chong v. 7-Eleven, Inc., No. 18-1542, 2019 WL 1003135,

at *9 (E.D. Pa. Feb. 28, 2019) (holding that discovery in the

Takiedine case did not prejudice the plaintiffs in Chong).

Plaintiff also claims that Defendant “sat on its rights” and

should have pursued arbitration in response to the original

Complaint. (Pl.’s Opp’n to Stay [Docket Item 15], 10). However,

this Court dismissed the original Complaint due to the vagueness

of its underlying facts and, on the breach of contract claim, for

failure to allege breach of specific provisions of an unidentified

agreement. Khorchid, 2018 WL 5149643, at *9. Although Plaintiff’s

original Complaint stated that Defendant failed to “make every

commercially reasonable effort to obtain the lowest cost for

products and services available,” his references to two different

Franchise Agreements — neither of which were made available to the

Court nor to the Defendant at the time the original Complaint was

filed, as discussed above— were unclear, and no reference was made

to the “write-offs” issue. (Compl. [Docket Item 1].) Because the

Court was unable to discern the underlying contractual basis of

Plaintiff’s claims in the original Complaint, it also follows that

Defendant was not given sufficient notice of any vendor negotiating

practices claims at that time.

Defendant filed its motion to stay fourteen days after

Plaintiff filed his Amended Complaint, which was the first time

the “write-offs” issue was raised with reference to an identified

contract. (Def.’s Br. to Stay [Docket Item 14-1]; Pl.’s Opp’n to

Stay [Docket Item 15].) In Takiedine, the defendant filed its

motion to stay one month after the plaintiff filed an amended

complaint containing a breach of contract allegation, and the

Eastern District of Pennsylvania held that this was not an undue

delay. Takiedine, 2019 WL 934994, at *7; see also Nationwide Mut.

Fire Ins. Co. v. Geo. V. Hamilton, Inc., No. 08-0646, 2010 WL

1445554, at *13-14 (W.D. Pa. Apr. 9, 2010), aff’d, 410 F. App’x

537 (holding that delay of two months does not constitute a waiver

of the right to arbitrate); Chong, 2019 WL 1003135 (holding that

three weeks’ delay after filing of an amended complaint does not

constitute waiver). Therefore, Defendant’s motion, filed fourteen

days after the Amended Complaint, was not untimely.

ii. 7-Eleven has not meaningfully contested the merits of the

vendor negotiating practices claims

The vendor negotiating practices claims were not raised until

Plaintiff filed his Amended Complaint. (Compare Compl. [Docket

Item 1] with Am. Compl. [Docket Item 12].) Subsequently,

Defendant’s only response with respect to these claims has been

their motion to stay pending arbitration. (Def.’s Br. to Stay

[Docket Item 14-1].)

iii. Defendant reserved its right to arbitrate

In its motion to dismiss Plaintiff’s original Complaint,

Defendant explicitly addressed the possibility that Plaintiff may

raise arbitrable claims:

To the extent [Plaintiff] contends a breach of

the Franchise Agreement occurred based on

[Defendant’s] vendor practices and discounts,

those claims are subject to mandatory

arbitration pursuant to Exhibit J of the

Franchise Agreement. [Defendant] does not

waive and specifically reserves its right to

arbitrate any such dispute. However, no fair

reading of the Complaint as currently

presented indicates that [Plaintiff] is

proceeding on such a theory.

(Def.’s Br. to Dismiss [Docket Item 4-1], 4 n.2.) These claims

were not raised until the Amended Complaint. (Compare Compl.

[Docket Item 1] with Am. Compl. [Docket Item 12].)

iv. Defendant has not engaged in any non-merits motion practice

Defendant has not filed any non-merits motions concerning the

vendor negotiating practices claims. These claims are not included

in the Motion to Dismiss the Amended Complaint. (Def.’s Mot. to

Dismiss [Docket Item 13].)

v. Assent to pretrial orders

Defendant has assented to all pretrial orders. However, given

that prejudice is the “touchstone” of determining waiver in the

Third Circuit, pretrial orders entered prior to the Amended

Complaint would have little if any impact because the vendor

negotiating practices claims at issue were not raised until the

Amended Complaint. Hoxworth, 980 F.2d at 925. No pretrial orders

were issued between the date of the Amended Complaint and

Defendant’s motion to stay. While long-term assent to pretrial

orders, particularly in the context of extensive discovery, may

weigh in favor of waiver, Defendant had only assented to orders

before these issues were raised. See Nino, 609 F.3d at 212 (finding

waiver where a party had assented to ten pretrial conferences and

engaged in extensive discovery). No prejudice, therefore, has

resulted to the Plaintiff with respect to the vendor negotiating

practices claims.

vi. No discovery has taken place

No discovery has taken place in this case, and discovery in

Takiedine has absolutely no bearing on whether Plaintiff has been

prejudiced in this case. Chong, 2019 WL 1003135, at *9.

On the balance of the Hoxworth factors, the Court finds that

Defendant has not waived its right to seek arbitration of

arbitrable claims under the terms of the Franchise Agreement.

2. Scope of Arbitration Clause

Neither party disputes their entry into a valid and

enforceable arbitration agreement. (Def.’s Br. to Stay [Docket

Item 14-1]; Pl.’s Opp’n to Stay [Docket Item 15].) However,

Plaintiff asserts that its claims that Defendant forced him to

take disadvantageous “write-offs” on required merchandise do not

fall within the scope of the arbitration agreement. (Pl.’s Opp’n

to Stay [Docket Item 15].)

This Court applies a two-step test in determining whether an

arbitration clause is applicable: (1) whether a valid arbitration

clause exists; and (2) whether the particular dispute falls within

the scope of the arbitration agreement. Trippe Mfg. Co. v. Niles

Audio Corp., 401 F.3d 529, 532 (3d Cir. 2005). In Trippe, the Third

Circuit stated that “when determining both the existence and the

scope of an arbitration agreement, there is a presumption in favor

of arbitrability.” Id. (citing AT&T Techs., Inc. v. Commc’ns

Workers of America, 475 U.S. 643, 650, (1986)). “A court cannot

force a litigant to submit to arbitration any dispute which he has

not agreed so to submit.” AT&T Techs., 475 U.S. at 648.

Furthermore, if the claims asserted fall outside the arbitration

agreement, they are not subject to arbitration. PaineWebber, Inc.

v. Hofmann, 984 F.2d 1372, 1377 (3d Cir. 1993).

Here, there is no dispute as to the existence of an

arbitration agreement set forth in Exhibit J of the Franchise

Agreement, as evidenced by both parties being signatories to it

and neither party raising any disputes over the existence of the

agreement. (Franchise Agreement [Docket Item 12-1]; see generally

Pl.’s Opp’n to Dismiss [Docket Item 16]). The most pressing

question in consideration of Defendant’s present motion to dismiss

is the second Trippe factor, whether the particular disputes — the

so-called “write-offs” or vendor negotiating practices claim —

fall within the scope of the arbitration agreement.

The arbitration clause contained within the Franchise

Agreement states: “ANY AND ALL CLAIMS ARISING OUT OF OR RELATING

TO OUR OBLIGATIONS UNDER PARAGRAPHS 15(j) AND (k) OR THE REVIEW

CONDUCTED UNDER THIS EXHIBIT J WILL BE BARRED UNLESS AN ACTION IS

COMMENCED UNDER THESE DISPUTE RESOLUTION PROCEDURES....”

(Franchise Agreement [Docket Item 12-1, Exhibit J], § D(1)

(emphasis in original).) Paragraph 15(j) of the Franchise

Agreement concerns vendor negotiating practices and treatments of

discounts and allowances and Paragraph 15(k) sets out procedures

for review and dispute resolution. (Id. at ¶¶ 15(j) & 15(k).)

When interpreting such language, the Third Circuit has

repeatedly given broad construction to phrases such as “arising

under” and “arising out of.” Battaglia v. McKendry, 233 F.3d 720,

727 (3d Cir. 2000). This broad construction applies because “the

federal policy in favor of arbitration is ‘particularly

applicable’ where the arbitration clause at issue is

broad.” Id. at 725. Considering the strong federal policy favoring

arbitration, provisions such as the present one must be “generously

construed” in favor of coverage. Mitsubishi Motors Corp. v. Soler

Chrysler-Plymouth, Inc., 473 U.S. 614, 625 (1985); AT&T Techs.,

475 U.S. at 650 (“Doubts should be resolved in favor of coverage”).

The main component of Plaintiff’s claim is that Defendant’s

required products cannot be returned for credit if they are unsold,

unlike other products he would purchase from other vendors, and he

is therefore forced to write off the merchandise at a loss. He

claims that this is not a vendor negotiation practices issue within

the scope of the Franchise Agreement because Defendant is the

vendor of these 7-Select products and cannot negotiate with itself.

(Pl.’s Opp’n to Stay [Docket Item 15], 13-14.) However,

manufacturers are explicitly included in Paragraph 15(j)(1) in the

definition of “Vendor.” (Franchise Agreement [Docket Item 12-1],

¶ 15(j)(1).) While it is unclear from the record who exactly

manufactures these products, Defendant’s requirement to make a

“commercially reasonable effort to obtain the lowest cost for goods

and services available from such Vendor” covers the return rights

issue when a broad construction is given to the language of the

agreement. Battaglia, 233 F.3d at 727.

Throughout his opposition brief, Plaintiff also attempts to

distinguish Defendant’s vendor negotiation practices and the

resulting write-off. (Pl.’s Opp’n to Stay [Docket Item 15].)

However, this distinction is purely semantic. He would prefer

buying from vendors who allow returns of their unsold goods, while

the manufacturers of Defendant’s “7-Select” proprietary product

line do not allow such returns of unsold goods, so he is forced to

take a less advantageous “write-off.” (Id. at 5.) This is a vendor

negotiating practices issue under Paragraph 15(j) of the Franchise

Agreement, no matter what Plaintiff calls it. He is technically

correct that these parts of the Franchise Agreement make no

explicit reference to “write-offs,” but even if this term

introduces some doubt as to the scope of the arbitration agreement,

the Supreme Court is clear that any doubts must be resolved in

favor of arbitration. Moses H. Cone, 460 U.S. at 24-25; AT&T

Techs., 475 U.S. at 648.

Given the strong federal policy towards arbitration and the

explicit inclusion of vendor and manufacturer negotiation issues

in the Franchise Agreement, the vendor negotiating practices

claims should be stayed pending arbitration.

V. ADMINISTRATIVE TERMINATION OF THE CASE

Having determined that some of Plaintiff’s claims are subject

to arbitration and some are not, the Court will exercise its

discretion and administratively terminate this action pending the

completion of arbitration. In this Court’s assessment, the

arbitration proceeding will likely encompass issues that overlap

with the remainder of the case and, as such, may facilitate the

progression of the case (or perhaps settlement) in the long run.

To ensure, however, that the case does not languish, Plaintiff

shall provide status updates to the Court every sixty days and

notify the Court when the arbitration proceeding has completed.

(The Court reserves the right to reopen this matter upon receipt

of an update.)

VI. CONCLUSION

For the foregoing reasons, Defendant’s motion to dismiss will

be granted in part and denied in part, and Defendant’s motion to

stay arbitrable claims will be granted. The remaining non-

arbitrable claims will be administratively terminated without

prejudice pending the outcome of arbitration. The accompanying

Order shall be entered.

Date: August 14, 2019

s/Renée Marie Bumb

RENÉE MARIE BUMB

U.S. District Judge