The opinion
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8 UNITED STATES DISTRICT COURT
9 SOUTHERN DISTRICT OF CALIFORNIA
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11 JASJEET DHILLON, KAMAL Case No.: 3:23-cv-02335-JES-JLB
CREATIONS, INC., JASJEET
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DHILLION, INC., J AND K ORDER:
13 CONVENIENCE STORE, INC., JASSI
AND MIRNA, INC., and K & A (1) DISMISSING THE FIRST
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CONVENIENCE STORES, INC., AMENDED COMPLAINT FOR
15 LACK OF SUBJECT MATTER
Plaintiffs,
JURISDICTION; AND
16 v.
17 (2) GRANTING IN PART AND
7-ELEVEN, INC., KIA DENYING IN PART
18 HASHEMINEJAD, TIMOTHY HALL, DEFENDANTS’ MOTION TO
19 BOBBIE KING, DOES 1-10, SEJ ASSET DISMISS
MANAGEMENT & INVESTMENT
20 COMPANY, INC., SEVEN-ELEVEN
JAPAN CO., LTD, and SEVEN & I [ECF No. 27]
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HOLDINGS, CO., LTD,
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Defendants.
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Plaintiffs Jasjeet Dhillon (“Dhillon”) and Kamal Creations, Inc., Jasjeet Dhillon,
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Inc., J and K Convenience Store, Inc., Jassi and Mirna, Inc., and K & A Convenience
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Stroes, Inc. (collectively, the “Entity Franchisees”) (collectively, “Plaintiffs”) bring the
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instant action against Defendants 7-Eleven, Inc., Kia Hasheminejad (“Hasheminejad”),
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Timothy Hall (“Hall”), Bobbie King (“King”), SEJ Asset Management & Investment
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1 Company, Inc., Seven-Eleven Japan Co., LTD, Seven & I Holdings, Co., Ltd.
2 (collectively, “7-Eleven” or “Defendants”). Defendants move to dismiss Plaintiffs’ First
3 Amended Complaint (“FAC”), ECF No. 23. For the reasons stated herein, the FAC is
4 DISMISSED for lack of subject matter jurisdiction and Defendants’ motion is
5 GRANTED in part and DENIED in part.
6 I. BACKGROUND
7 A. Factual Background
8 Dhillon is the owner or co-owner of the Entity Franchisees. FAC ¶ 21. The Entity
9 Franchisees each entered into one or more franchise agreements with 7-Eleven (the
10 “Franchise Agreements”), granting them conditional licenses to operate a total of nine 7-
11 Eleven® brand convenience stores (the “Stores”). Id. ¶¶ 16-20. Eight of the nine
12 Franchise Agreements include a Texas choice of law provision. ECF No. 27-3 at 42, ¶
13 30(a). The other franchise agreement is governed by California law. ECF No. 27-4 at 37,
14 ¶ 30(a). Dhillon signed the Franchise Agreements as the Entity Franchisees’ President
15 and Secretary, and personally guaranteed their performance under those Agreements. See
16 ECF No. 27-3 at 46, 212-214; ECF No. 27-4 at 41, 51-52.
17 The Franchise Agreements allow for termination “immediately upon notice” if
18 they committed four or more material breaches within a two-year period. See ECF No.
19 27-3 at 34-35, ¶ 26(a)(10); ECF No. 27-4 at 32-33, ¶ 26(b). The eight Franchise
20 Agreements governed by Texas law also allow for immediate termination, without
21 opportunity to cure, if:
22 (1) Plaintiffs “fail to comply with any federal, state, or local wage and hour
law, or fail to comply with any federal, state, or local law related to any
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employment or immigration matter”; or
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(2) 7-Eleven has “evidence that [Plaintiffs] have engaged in any dishonest,
25 unethical, immoral, or similar conduct as a result of which [their] association
26 with the store could, in [7-Eleven’s] sole opinion, have a material adverse
effect on the goodwill associated with the 7-Eleven System or the 7-Eleven
27 Marks.”
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1 ECF No. 27-3 at 34-35, ¶¶ 26(a)(3), 26(a)(7).
2 On December 5, 2023, 7-Eleven’s Southwest Region Director, Defendant
3 Hasheminejad, asked Dhillon to meet him at a hotel on December 7, 2023 (the
4 “Meeting”) to discuss Dhillon’s alleged breaches of the Franchise Agreements. FAC ¶
5 23. Hasheminejad asked Dhillon if he planned to bring a lawyer with him to the Meeting.
6 Id. On December 6th, Hasheminejad sent a text message to Dhillon, stating: “we will
7 plan to have counsel in the meeting if you are bringing an attorney, but otherwise may
8 have counsel standing by to consult as needed.” See Id. ¶ 24. Dhillon elected not to bring
9 legal counsel. Id. ¶ 26.
10 Upon arrival at the hotel for the Meeting, Dhillon was surprised to learn, that in
11 addition to Hasheminejad, 7-Eleven’s Director of Asset Protection, Defendant Hall,
12 would be joining. Id. ¶ 27. Defendant Hall asked Dhillon if he was carrying a gun, to
13 which Dhillon replied “no.” Id. ¶ 28. Despite his response, Defendant Hall demanded to
14 frisk Dhillon. Id. Dhillon advised that he did not consent to such a search. Id. Defendant
15 Hall frisked Dhillon and allegedly forced Dhillon to pull his pants up to show that he was
16 not carrying any guns. Id.
17 Defendants Hasheminejad and Hall advised Dhillon that he had breached the
18 Franchise Agreements and presented him with written Notices of Material Breach (the
19 “Breach Notices”) with respect to each of the Franchise Agreements and Stores. Id. ¶ 29.
20 Hasheminejad and Hall also informed Dhillon that 7-Eleven was prepared to immediately
21 terminate the Franchise Agreements and presented him with Termination Notices with
22 respect to each agreement. Id. The Breach Notices advised Dhillon that his unlawful
23 conduct and multiple material breaches of the Franchise Agreement constituted good
24 cause and sufficient grounds for the immediate termination of those Agreements. Id.;
25 ECF No. 27-5 at 2-4; ECF No. 27-6 at 2-4.
26 Hasheminejad and Hall further advised Dhillon that he had the option to avoid
27 immediate termination by agreeing to cede management of the Stores to 7-Eleven, while
28 he attempted to sale his interest in those stores. FAC ¶ 29. Dhillon, with respect to seven
1 of the Stores, signed a Termination Agreement with Goodwill Sales Opportunity (the
2 “Termination Agreement”) and a Store Management Agreement (the “Management
3 Agreement”). Id.
4 After speaking with his counsel, Dhillon ultimately declined his option to sign
5 similar agreements regarding the other two Stores. Id. He then left the meeting. Id. Later
6 that evening, Defendant King informed Dhillon’s business partners that, as a result of
7 Dhillon’s material breaches and decision not to accept the option to avoid immediate
8 termination, the Franchise Agreements for those two Stores were terminated. Id. ¶ 30.
9 B. Procedural Background
10 On December 15, 2023, Plaintiffs filed the instant lawsuit against Defendants in
11 the San Diego Superior Court. ECF No. 1-3. Defendants, on December 26, 2023, then
12 removed the case to this Court on diversity grounds. ECF No. 1. In their Notice of
13 Removal, Defendants argue that the initial complaint asserts tort claims against
14 Hasheminejad and King, citizens of California, in an attempt to defeat diversity
15 jurisdiction. Id. at 5. Plaintiffs did not move for remand, and instead filed an Ex Parte
16 Motion for Temporary Restraining Order (“TRO”), which this Court denied. ECF Nos. 5,
17 19. On February 28, 2024, Defendants filed their first motion to dismiss. ECF No. 22. In
18 lieu of opposing that motion, Plaintiffs filed the FAC. The FAC continues to assert claims
19 against Hasheminejad and King. See FAC ¶¶ 137-158.
20 II. LEGAL STANDARD
21 A. Subject Matter Jurisdiction
22 The federal court is one of limited jurisdiction. See Gould v. Mutual Life Ins. Co. v.
23 New York, 790 F.2d 769, 774 (9th Cir. 1986). As such, it cannot reach the merits of any
24 dispute until it confirms its own subject matter jurisdiction. See Steel Co. v. Citizens for a
25 Better Env’t, 523 U.S. 83, 93-94 (1998). Removal jurisdiction is governed by 28 U.S.C. §
26 1441, et seq. A state court action can be removed if it could have originally been brought
27 in federal court. Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). Thus, a party
28 invoking the federal removal statutes must establish jurisdiction by demonstrating the
1 existence of: (1) a statutory basis; (2) a federal question; or (3) diversity of the parties.
2 See Mir v. Fosburg, 646 F.2d 342, 345 (9th Cir. 1980). District courts must construe the
3 removal statutes strictly against removal and resolve any uncertainty as to removability in
4 favor of remanding the case to state court. Boggs v. Lewis, 863 F.2d 662, 663 (9th Cir.
5 1988). The burden is on the removing party to demonstrate federal subject matter
6 jurisdiction over the case. See Emrich v. Touche Ross & Co., 846 F.2d 1190, 1195 (9th
7 Cir. 1988).
8 Federal diversity jurisdiction requires that the parties be citizens of different states
9 and that the amount in controversy exceed $75,000. 28 U.S.C. § 1332(a). For diversity
10 jurisdiction purposes, a corporation is “deemed to be a citizen of every State and foreign
11 state by which it has been incorporated and of the State or foreign state where it has its
12 principal place of business.” 28 U.S.C. § 1332(c)(1). The presence of any single plaintiff
13 from the same state as any single defendant destroys “complete diversity” and strips the
14 federal courts of original jurisdiction over the matter. Exxon Mobil Corp. v. Allapattah
15 Servs., Inc., 545 U.S. 546, 553 (2005).
16 If the court lacks subject matter jurisdiction, any action it takes is ultra vires and
17 void. See Gonzalez v. Crosby, 545 U.S. 524, 534 (2005); Steel Co. v. Citizens for a Better
18 Env't, 523 U.S. 83, 94, 101-02 (1998). The lack of subject matter jurisdiction may be
19 raised at any time by either the parties or the court. Fed. R. Civ. P. 12(h)(3). If subject
20 matter jurisdiction is found to be lacking, the court must dismiss the action, id., or
21 remand pursuant to 28 U.S.C. § 1447(c). A court may raise the question of subject matter
22 jurisdiction sua sponte. See Snell v. Cleveland, Inc., 316 F.3d 822, 826 (9th Cir. 2002).
23 B. Motion to Dismiss
24 A motion to dismiss for failure to state a claim should be granted when the
25 allegations do not “state a claim to relief that is plausible on its face.” Aschroft v. Iqbal,
26 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570
27 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that
28 allows the court to draw the reasonable inference that the defendant is liable for the
1 misconduct alleged.” Id. at 678 (citing Twombly, 550 U.S. at 556). “The plausibility
2 standard ... asks for more than a sheer possibility that a defendant has acted unlawfully.”
3 Mashiri v. Epsten Grinnell & Howell, 845 F.3d 984, 988 (9th Cir. 2017) (internal
4 quotation marks omitted).
5 When evaluating the sufficiency of a complaint's factual allegations, the court must
6 accept as true all well-pleaded material facts alleged in the complaint and construe them
7 in the light most favorable to the non-moving party. Wilson v. Hewlett-Packard Co., 668
8 F.3d 1136, 1140 (9th Cir. 2012); see Daniels-Hall v. Nat'l Educ. Ass'n, 629 F.3d 992, 998
9 (9th Cir. 2010). Allegations in a complaint “may not simply recite the elements of a cause
10 of action, but must contain sufficient allegations of underlying facts to give fair notice
11 and to enable the opposing party to defend itself effectively.” Starr v. Baca, 652 F.3d
12 1202, 1216 (9th Cir. 2011). While the court must draw all reasonable inferences from the
13 factual allegations in favor of the plaintiff, Newcal Industries, Inc. v. Ikon Office Solution,
14 513 F.3d 1038, 1043 n.2 (9th Cir. 2008), the court need not credit legal conclusions that
15 are couched as factual allegations, Iqbal, 556 U.S. at 678-79.
16 III. DISCUSSION
17 A. Subject Matter Jurisdiction
18 Dhillon asserts tort claims against Defendants 7-Eleven, Hasheminejad, Hall, and
19 King. FAC ¶¶ 137-158. Hasheminejad and King, however, are citizens of California, and
20 destroy diversity jurisdiction. In their Notice of Removal, 7-Eleven argues that Dhillon
21 asserted baseless claims against Hasheminejad and King to destroy diversity jurisdiction.
22 ECF No. 1 at 3-4. Now, in their Motion to Dismiss, 7-Eleven argues that Dhillon has
23 effectively abandoned those claims through his failure to bring a motion to remand and
24 his affirmative choice to move forward in federal court with his motion for TRO. ECF
25 No. 27-1 at 23. In response, Dhillon argues that no penalty should apply because he
26 “opted to not challenge removal and instead [is] willing to litigate in federal court.” ECF
27 No. 29 at 22.
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1 Neither Dhillon’s willingness nor 7-Eleven’s abandonment argument establish
2 subject matter jurisdiction. The Court must first determine whether it may disregard the
3 non-diverse parties. The Ninth Circuit has held that a federal court may disregard a non-
4 diverse party named in the state court action if the court finds that the plaintiff has not
5 adequately stated a cause of action against a resident defendant and the failure is obvious
6 according to the well-settled authority of the state. Morris v. Princess Cruises, Inc., 236
7 F.3d 1061, 1067 (9th Cir. 2001). There is generally a presumption against fraudulent
8 joinder, and the removing defendant bears a significant burden of demonstrating with
9 clear and convincing evidence that the non-diverse party's joinder was improper.
10 Hamilton Materials, Inc. v. Dow Chem. Corp., 494 F.3d 1203, 1206 (9th Cir. 2007). The
11 standard for establishing fraudulent joinder is not whether the plaintiff will “actually or
12 even probably prevail on the merits,” but whether there is any possibility the plaintiff will
13 be able to establish liability against the defendant in question. Mayfield v. Aerotek, Inc.,
14 No. 3:20-cv-01947-JAH-JLB, 2022 WL 2670629, at *3 (S.D. Cal. July 11, 2022)
15 (quoting Dodson v. Spiliada Mar. Corp., 951 F.2d 40, 42 (5th Cir. 1992)). In doing so,
16 the court resolves all disputed questions of fact and ambiguities in the controlling state
17 law in favor of the non-removing party. Id.
18 Dhillon asserts three tort claims against the non-diverse Defendants: (1) battery;
19 (2) false imprisonment; and (3) intentional infliction of emotional distress (“IIED”). The
20 Court addresses each in turn.
21 1. Battery
22 Under California law, a battery occurs when “(1) [a] defendant intentionally
23 performed an act that resulted in a harmful or offensive contact with the plaintiff’s
24 person; (2) the plaintiff did not consent to the contact; and (3) the harmful or offensive
25 contact caused injury, damage, loss, or harm to the plaintiff.” Brown v. Ransweiler, 171
26 Cal. App. 4th 516, 526 (2009) (citation omitted).
27 Dhillon’s battery claim arises from Defendant Hall’s nonconsensual frisking of
28 him. See FAC ¶¶ 28, 137-145. Defendants, however, argue that the FAC does not show
1 any facts that Hasheminejad, a diversity destroying defendant, touched Dhillon or caused
2 him to be touched, or that any Defendant intended to harm or offend him. ECF No. 27-1
3 at 23. Defendants are misguided. A party who has been injured by a battery “may recover
4 damages not only from the actual assailant, but from any other person who aids, abets,
5 counsels or encourages the assault.” Ayer v. Robinson, 163 Cal. App. 2d 424, 428 (1958).
6 Dhillon’s allegations that Hasheminejad lured him to the Meeting, and was present
7 during the frisk, are sufficient to allege an “aiding and abetting” claim. Further, in view
8 of the FAC’s plausible allegation that the nonconsensual frisking incident could
9 constitute a battery, whether a reasonable person would find Hall’s contact to be harmful
10 or offensive, and whether Hall and Hasheminejad acted with intent, are not suited for
11 resolution on the pleadings. See Bolbol v. Rowell Ranch Rodeo, Inc., No. 23-CV-01652-
12 VC, 2024 WL 3925705, at *3-4 (N.D. Cal. Aug. 22, 2024). Thus, the Court finds that
13 Dhillon has alleged a plausible battery claim, and that its possible for him to establish
14 liability against Hasheminejad.
15 2. False Imprisonment
16 “A person is falsely imprisoned if he or she is wrongfully deprived of his or her
17 freedom to leave a particular place by the conduct of another.” Martensen v. Koch, 942 F.
18 Supp. 2d 983, 1001 (N.D. Cal. 2013) (quoting Snyder v. Evangelical Orthodox Church,
19 216 Cal. App. 3d 297 (1989)). “In California, ... the elements of false imprisonment are:
20 ‘1) the nonconsensual, intentional confinement of a person, 2) without lawful privilege,
21 and 3) for an appreciable period of time, however brief.’” Blaxland v. Commonwealth
22 Dir. of Pub. Prosecutions, 323 F.3d 1198, 1204 (9th Cir. 2003) (quoting Easton v. Sutter
23 Coast Hosp., 80 Cal. App. 4th 485, 496 (2000)).
24 No facts raised in the FAC suggests that Dhillon was not free to leave during the
25 Meeting. There are no allegations that, once Dhillon entered the hotel, Defendants took
26 any measure to prevent him from leaving, or that Dhillon was unable to escape
27 Defendants’ vicinity (or was unaware of the means of escape). Instead, the FAC alleges
28 that Dhillon “opted to go to the meeting on his own” and “exited the meeting” on his
1 own, after refusing to sign termination agreements. FAC ¶¶ 26, 29. Moreover, the FAC
2 alleges that Dhillon went outside during the Meeting and had an opportunity to speak
3 with an attorney, presumably outside of the presence of Defendants. Id. ¶ 29. These
4 allegations do not support a plausible claim that Dhillon was “confined” during the
5 Meeting. Therefore, the Court finds that Dhillon cannot maintain a plausible claim for
6 false imprisonment.
7 3. Intentional Infliction of Emotional Distress
8 To state a claim for IIED, a plaintiff must allege: “(1) extreme and outrageous
9 conduct by the defendant with the intention of causing, or reckless disregard of the
10 probability of causing, emotional distress; (2) the plaintiff’s suffering severe or extreme
11 emotional distress; and (3) actual and proximate causation of the emotional distress by
12 the defendant’s outrageous conduct.” Hughes v. Pair, 46 Cal. 4th 1035, 1050-51 (2009)
13 (internal quotations and citations omitted). Conduct is “outrageous” if it is “so extreme as
14 to exceed all bounds of that usually tolerated in a civilized community.” Id. “California
15 courts have set a high bar for emotional distress claims, requiring ‘emotional distress of
16 such substantial quality or enduring quality that no reasonable [person] in civilized
17 society should be expected to endure it.’” Lust v. State Farm Mut. Auto. Ins. Co., No.
18 2:11-CV-02051-MCE, 2012 WL 592060, at *3 (E.D. Cal. Feb. 22, 2012) (quoting Kelley
19 v. Conco Cos., 196 Cal. App. 4th 191, 215-16 (2011)).
20 Dhillon fails to meet the high bar set for emotional distress claims. Dhillon’s IIED
21 claim appears to center on allegations that Defendants lured him to Meeting without an
22 attorney, sprung unproven claims upon him after an unwanted frisking, and demanded he
23 sign termination agreements. ECF No. 29 at 23. However, these allegations are directly
24 contradicted by other allegations present in the FAC. Notably, Dhillon was given the
25 option to bring an attorney, see FAC ¶ 24, 26, Dhillon spoke with his own counsel during
26 the Meeting, id. ¶ 29, and Dhillon refused to sign some of the termination agreements, id.
27 Nothing in the FAC raises to an extreme or outrageous level such that an IIED claim is
28 warranted. Thus, the Court finds that Dhillon cannot maintain a plausible claim for IIED.
1 Because its plausible that Dhillon can allege a battery claim against a nondiverse
2 defendant, the Court finds it lacks diversity jurisdiction over this matter. For this reason
3 alone, it DISMISSES the FAC in its entirety.
4 B. Motion to Dismiss
5 In the interests of justice and to preserve judicial resources, the Court will
6 nonetheless address Defendants’ Motion to Dismiss.
7 1. Choice of Law
8 As a threshold matter, the parties dispute whether Texas or California law governs
9 Plaintiffs’ contract claims. “In determining the enforceability of a choice of law provision
10 in a diversity action, a federal court applies the choice of law rules of the forum state, in
11 this case California.” Hatfield v. Halifax PLC, 564 F.3d 1177, 1182 (9th Cir. 2009). “If
12 the parties state their intentions in an express choice-of-law clause, California courts
13 ordinarily will enforce the parties’ stated intention.” Id. (quoting Frontier Oil Corp. v.
14 RLI Ins. Co., 153 Cal. App. 4th 1436, 1450 n. 7 (2007)). In California, a voluntarily
15 agreed-upon choice of law provision in a contract is enforceable “if the chosen state has a
16 substantial relationship to the parties or the transaction or any other reasonable basis
17 exists for the parties’ choice of law.” Trust One Mortg. Corp. v. Invest Am. Mortg. Corp.,
18 134 Cal. App. 4th 1302, 1308 (2005).
19 Here, the Franchise Agreements provide “all controversies, disputes or claims
20 arising from or relating to this agreement or its validity, will be governed…under the
21 laws of the State of Texas…” ECF No. 27-3 at 42 ⁋ 30(a). The parties, therefore, have
22 agreed that the laws of the State of Texas apply to claims arising out of the Franchise
23 Agreements, and no evidence has been given to the contrary. Having determined the
24 parties’ intentions to apply Texas law, the Court next analyzes “whether (1) the chosen
25 jurisdiction has a substantial relationship to the parties or their transaction; or (2) any
26 other reasonable basis for the choice of law provision exists.” Hatfield, 564 F.3d at 1182.
27 The fact that 7-Eleven is a Texas company is sufficient to establish a substantial
28 relationship between Texas and the parties, such that there is a reasonable basis for
1 applying the Texas choice of law provision. See id. at 1183. The question remaining
2 before the Court is whether applying Texas law here is contrary to California public
3 policy. In particular, the Court must decide whether application of Texas law violates the
4 California Franchise Relations Act (“CFRA”), Bus. & Prof. Code § 20000 et seq.
5 The CFRA provides protections for franchisees in the event of termination or non-
6 renewal. Generally, under the California Franchise Investment Law (“CFIL”), a
7 franchisor is required to provide a franchisee at least sixty days to remedy violations of a
8 franchise agreement before the agreement can be terminated. Cal. Bus. & Prof. Code §
9 20020. However, under certain circumstances, a franchise agreement can be terminated
10 immediately. See Cal. Bus. & Prof. Code § 20021. A contract that incorporates
11 California’s franchise policy may otherwise be governed by the choice of another state’s
12 laws. See Century 21 Real Estate LLC v. All Prof. Realty, Inc., 600 F. 502, 504 (9th Cir.
13 2015).
14 The parties dispute whether the CFRA and the Franchise Agreements have parallel
15 provisions permitting 7-Eleven to terminate without notice or opportunity to cure. Section
16 20021(d) of the CFRA and Paragraph 26(a)(7) of the Franchise Agreements both allow
17 for immediate termination where the franchisee engages in conduct which reflects
18 materially and unfavorably upon the franchise. The Franchise Agreements, however,
19 include language that 7-Eleven could terminate a franchisee when its conduct, “in [7-
20 Eleven’s] sole opinion,” has a material adverse effect on the reputation of 7-Eleven.
21 Dhillon argues that this language allows 7-Eleven to terminate a franchise agreement
22 based on conduct “it subjectively believes to be in violation of its own morals or ethics
23 code.” ECF No. 29 at 9. While this provision of the Franchise Agreements includes
24 subjective language, reading the provision as a whole, it conforms with the CFRA. Under
25 both provisions, the franchisor has authority to determine whether the conduct reflects
26 unfavorably but both provisions also require that such unfavorable or adverse reflection
27 be material. Thus, the Court finds the choice of law provisions present in the Franchise
28 Agreements valid and enforceable.
1 Because the Court finds that Texas law governs Plaintiffs’ contract claims, it
2 dismisses all contract claims brought pursuant to California law, including Plaintiffs’
3 recission claims1, wrongful termination claims brought under the CFRA2, and breach of
4 contract claims3 brought under the CFRA. See FAC ¶¶ 38-101.
5 2. Conversion4
6 7-Eleven asserts that the economic loss doctrine bars Plaintiffs’ claims for
7 conversion. ECF No. 27-1 at 21-22. The economic loss rule prevents “recovery in tort for
8 negligently inflicted ‘purely economic losses,’ meaning financial harm unaccompanied
9 by physical or property damage.” Sheen v. Wells Fargo Bank, N.A., 12 Cal. 5th 905, 922
10 (2022) (citations omitted). “Not all tort claims for monetary losses between contractual
11 parties are barred by the economic loss rule. But such claims are barred when they arise
12 from – or are not independent of – the parties’ underlying contracts.” Id. at 923.
13 California courts reason that “the economic loss rule prevents the law of contract and the
14 law of tort from dissolving into one another” and “requires a [plaintiff] to recover in
15
16
17 1 On a separate note, equitable recission is “not a separate cause of action; it is an equitable remedy that
extinguishes legally valid contracts that must be set aside because of fraud, mistake, or other reasons in
18 order to avoid unjust enrichment.” Matter of Marriage of I.C. & Q.C., 551 S.W.3d 119, 215 (Tex. 2018).
19 2 Its unclear whether Plaintiffs may bring wrongful termination claims. 7-Eleven agreed to not exercise
its option to immediately terminate the agreement without opportunity to cure if Dhillon signed the
20
Termination Agreement. FAC ¶ 29. For seven of the stores, Dhillon agreed to the Termination
21 Agreement. Id.
22 3 Plaintiffs assert five materially identical claims alleging that 7-Eleven “breached the franchise
agreement when it improperly terminated the written franchise agreement without any opportunity to
23 cure.” FAC ¶¶ 75, 81, 87, 93, 99. On a separate basis, Plaintiffs’ breach of contract claims fail because
Plaintiffs do not identify specific provisions of the Franchise Agreements that were allegedly breached
24
by 7-Eleven. See Innova Hosp. San Antonio, L.P. v. Blue Cross & Blue Shield of Georgia, Inc., 995 F.
25 Supp. 2d. 587, 602 (N.D. Tex. 2014) (“[A] plaintiff must identify a specific provision of the contract
that was allegedly breached.”) (citations omitted).
26
4 The Court analyzes Plaintiffs’ conversion claims under California law. See Sutter Home Winery, Inc. v.
27 Vintage Selections, Ltd., 971 F.2d 401, 407 (9th Cir. 1992) (“Claims arising in tort are not ordinarily
controlled by a contractual choice of law provision. Rather, they are decided according to the law of the
28
1 ||contract for purely economic loss due to disappointed expectations, unless he can
2 demonstrate harm above and beyond a broken contractual promise.” Robinson Helicopter
3 || Co. v. Dana Corp., 34 Cal. 4th 979, 988 (2004).
4 Here, Plaintiffs’ conversion claims center around 7-Eleven’s wrongful termination
5 their rights under the Franchise Agreements. FAC {4 103-07. Indeed, Plaintiffs allege
6 ||that 7-Eleven committed conversion by “illegally terminating the franchise[s] and
7 ||denying [Plaintiffs’] [their] franchise[s], including the right to possess and operate the
8 || franchise[s].” /d. J] 102-136. Such claims clearly sound in contract and are barred by the
9 || economic loss rule.
10 IV. CONCLUSION
11 For the reasons set forth above, the Court finds that subject matter jurisdiction does
12 ||not exist because complete diversity cannot be established. Accordingly, the Court
13 ||DISMISSES the first amended complaint in its entirety for lack of subject matter
14 ||jurisdiction. The Court also GRANTS in part and DENIES in part Defendants’ Motion
15 Dismiss, ECF No. 27. Plaintiffs will have one final opportunity to amend their
16 ||complaint without claims asserted against diversity-destroying defendants, and in
17 || accordance with this Order. In the event that Plaintiffs elect to file an amended complaint,
18 |/they must do so within fourteen (14) days of this Order.
19 IT IS SO ORDERED.
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51 Dated: March 4, 2025 “4 wa Se 4)
22 Honorable James E. Sunmons Jr.
3 United States District Judge
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