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7-Eleven, Inc v. Violet Spear and Vianna

May 11, 2012

7-ELEVEN, INC., PLAINTIFF,
v.
VIOLET SPEAR AND VIANNA, INC.,
DEFENDANTS/COUNTER-PLAINTIFFS,
v.
7-ELEVEN, INC., COUNTER-DEFENDANT.



The opinion of the court was delivered by: Judge Robert M. Dow, Jr.

MEMORANDUM OPINION AND ORDER

Plaintiff 7-Eleven, Inc. filed suit against Defendants Violet Spear and Vianna, Inc. (collectively "Defendants") seeking legal and equitable relief from Defendants concerning the termination of a franchise agreement between the parties. 7-Eleven terminated the agreement effective September 27, 2010, and demanded possession of the store, equipment, and inventory as provided in the franchise agreement and related agreements. Vianna and Spear, Vianna's owner and the guarantor of Vianna's obligations under the franchise agreement, continued to operate the store and hold the store out to the public as an authorized 7-Eleven store. The Court granted 7-Eleven's motion for preliminary injunction on March 3, 2011, ordering Defendants, among other things, to immediately surrender possession and control of the store to 7-Eleven and cease using 7-Eleven's trademarks. Defendants refused to comply with the preliminary injunction order and only surrendered possession of the store on March 9, 2011, after the Court held that they were in contempt of the preliminary injunction order.

Plaintiff has moved for summary judgment [102], filing the required notice to pro se litigants opposing a summary judgment motion [105]. Despite receiving an initial six-week period to file their response, as well as an additional one-month extension of time, Defendants have failed to respond to Plaintiffs' motion for summary judgment. For the reasons set forth below, the Court grants Plaintiffs' motion for summary judgment [102].

I. Background

A. Factual History*fn1

7-Eleven is the owner of certain federally registered trademarks and service marks, including 7-Eleven® (the "7-Eleven Marks"), which are used in connection with the operation of authorized 7-Eleven Stores. 7-Eleven grants franchises to qualified persons to own and operate 7-Eleven Stores. Vianna is a former 7-Eleven franchisee that operated a 7-Eleven Store in Evanston, Illinois. Spear is the owner and sole-shareholder of Vianna.

Pursuant to written franchise agreements, 7-Eleven licenses franchisees to operate under the 7-Eleven Marks, and it leases the store premises to them, together with the fixtures, equipment, and signs needed to operate the store. 7-Eleven also provides financing to its franchisees, including financing for the store's inventory. Store inventory and other assets are subject to a perfected security interest in 7-Eleven's favor, which secures all the indebtedness of the franchisees to 7-Eleven. In exchange for the license and lease, and for various other services (e.g., advertising, merchandising assistance, bookkeeping, certain maintenance, payment of utility expenses, indemnification for specified losses), 7-Eleven is entitled under the franchise agreement to receive a specified percentage of the gross profits of the ongoing operation of the store. This percentage of gross profits is the primary benefit to 7-Eleven under the franchise agreement.

On March 14, 2008, 7-Eleven and Spear entered into a written franchise agreement (the "Franchise Agreement"), pursuant to which 7-Eleven granted Spear for an initial fifteen (15) year term, a franchise to operate a 7-Eleven store at 817 Davis Street in Evanston, Illinois (the "Store") and licensed Spear to use the 7-Eleven Marks in operating the franchise (the "Franchise Agreement"). Spear assigned the Franchise Agreement to Vianna, a corporation of which she was sole shareholder, but remained liable for all Vianna's obligations under the Franchise Agreement pursuant to a written guaranty (the "Guaranty"). Spear also entered into a security agreement with 7-Eleven (the "Security Agreement"), under which she granted 7-Eleven a security interest in the equipment, fixtures, goods, inventory and proceeds of the Store.

In addition to the obligations outlined above, Vianna agreed to operate its 7-Eleven Store in compliance with all laws, and in conformance with 7-Eleven's standards and specifications. Vianna agreed to maintain a minimum net worth of $15,000 in the Store at all times, and that failure to maintain the required net worth was a material breach of the Franchise Agreement. Vianna further agreed that, in the event 7-Eleven terminated the Franchise Agreement for cause, it would, among other things, (i) immediately surrender the Store premises and all 7-Eleven equipment, (ii) transfer final inventory of the Store, (iii) deliver to 7-Eleven its operations guides and all trade secrets and confidential information, and (iv) comply with the franchise agreement's post-termination obligations. Vianna also agreed that, upon termination, it would immediately cease using the 7-Eleven Marks.

Although Vianna agreed in the Franchise Agreement to maintain a minimum net worth of $15,000 at all times, at the end of March, 2010, Vianna's net worth in the Store was about $6,500, a shortfall of nearly $8,500 in the required net worth. Because the parties agreed that failure to maintain the required net worth was a material breach of the Franchise Agreement, by letter dated April 28, 2010, 7-Eleven notified Vianna that it had three business days to increase the net worth to the required level, as well as to cure another monetary default under the Franchise Agreement. Vianna cured the material breaches which were the subject of the April 28, 2010 notice of material breach, but soon thereafter again failed to meet the minimum net worth requirement under the Franchise Agreement. Vianna's May 2010 financial statements indicated the Store's net worth was only $6,775.34 rather the required $15,000. Vianna's financial situation deteriorated from there. The shortfall from the minimum net worth requirement was $27,000 in June and more than $40,000 in July.

As a result of Vianna's failure to maintain the required minimum net worth, 7-Eleven sent a notice of material breach dated August 27, 2010 to Vianna advising Vianna that it had three business days to increase its net worth to the required level or 7-Eleven would terminate the Franchise Agreement. Defendants did not cure the minimum net worth material breach. Rather, the Store had a negative net worth of $43,962.09, nearly $59,000 under the minimum net worth required under the Franchise Agreement, at the end of August 2010. 7-Eleven did not terminate the Franchise Agreement immediately; instead, 7-Eleven extended the termination date in order to allow Vianna more time to cure the net worth deficiency and preserve its franchise rights.

However, as of the end of September 2010, Vianna was still nearly $40,000 under the required minimum net worth, and 7-Eleven terminated the Franchise Agreement effective September 27, 2010.

B.Procedural History

After 7-Eleven terminated the Franchise Agreement, Defendants did not surrender possession of the Store, equipment and inventory, and continued to use the 7-Eleven Marks in connection with the operation of the Store. As a result, 7-Eleven filed its complaint in this action on October 18, 2010 and its motion for preliminary injunction on October 19, 2010. On March 3, 2011, the Court granted 7-Eleven's motion for preliminary injunction and ordered Defendants to, among other things, (i) immediately surrender possession and control of the premises and facilities at 817 Davis Street in Evanston, and (2) cease using 7-Eleven's trademarks and service marks. [50 at p. 15-16] Defendants did not immediately comply with ...


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