This case summary is a cautionary tale to practitioners appearing before the federal bench on franchise matters. Let me begin by saying that I empathize with plaintiff’s counsel here, because I have been on the losing end of motions — where there is no joy! This is why I have briefed this case – to give some best (I trust) practice points to attorneys so that you may avoid similar pitfalls.

First, New Jersey attorneys should understand that the federal court does not accept “notice pleading” as we understand it and were instructed. This is the reality, despite Federal Rule Civil Procedure 8(a) which states the complaint is to contain “a short and plain statement of the claim showing that the pleader is entitled to relief…,” and that “…the statement need only ‘give the defendant fair notice of what the claim is and the grounds upon which it rests.’” [Citation from opinion omitted.] Therefore, it would appear on face that the federal court accepts notice pleading. Do not be fooled. Given the result of this motion, and from personal experience, that is not always the case. (I suspect that the New York practice – not a notice pleading State – may have influenced the Court’s disposition on what is and is not “fair notice.” Also, consider that the PA Code, 3.3, requires more specific allegations than general notice pleading.)

Second, expect the defendant to file a motion to dismiss. This practice has become common over the past 20 or so years. To some extent, this motion practice has also gained favor in the practice before the New Jersey Superior Court, but with less success given this State’s notice pleading tradition (see NJ Rules of Court 4:5-2, “Claim of Relief”). Therefore, prepare your complaint thoroughly and give careful thought about how the pleading will be attacked on motion, and how you will defend the motion.

So, with this lengthy preamble, let’s look at the specific criticisms of the trial court concerning this complaint:

The plaintiff laid-out in a factual background section an extensive list of the alleged breaches involving two franchise agreements, which included an allegation that the Franchisee was targeted in what has been identified in at least one other 7- Eleven case as “Operation Philadelphia”(see, https://www.kilcommonslaw.com/franchise/case-study-7-eleven-sanctioned-for-discovery-violations/ ); wherein, the Franchisor was accused of attempting to drive out specific Franchisees from the Philadelphia and South Jersey markets.

Plaintiff then alleged breach of the covenant of good faith and fair dealing (Count I), breach of contract(s), and violations of the NJFPA. Practice Tip – do not lead-off with this covenant allegation, especially when you have written contracts at issue. Leading with this is a red flag to the Court, as it signals a weak pleading.

*The Court’s first criticism: the background section did “not correlate to a specific count of the complaint.” Therefore, it did not pass muster under Rule 8. Do not assume that by starting your Count with the well-worn formula, “…plaintiff repeats and re-alleges…” will suffice for repeating the factual basis for the ensuing allegations in the count. It will not.

*Next, the allegations supporting Count I appeared to also back the contract breach allegations. The same facts for both counts. The Court criticized this as duplicative. (What happened to alternative pleading, which should be acceptable?)

*Specific to the Count II breach claims, the plaintiff failed to establish each of the four elements for breach of contract. Practice Tip – be specific about each element of the legal claims and tie them to the specific allegations. Do not expect the Court to flip back and forth from the factual background to the counts to determine whether there is a factual basis. Repeat the factual basis in each count.  Example: the first legal element of a breach is that there was a valid contract. In what form was this contract (oral or written)? Who executed the contract? When was it executed? Break it down and repeat this step for each of the other three elements: breach, performance of the obligations and lastly, damages.

*The Court found that the complaint was vague as to the damages caused by the breach(es). This is not an issue in notice pleading states, so long as you allege that the plaintiff was damaged.

Further, the defendant cited a New Jersey federal district court decision, which stated the following about alleging breach: “…under New Jersey law, a complaint alleging breach of contract must, at a minimum, identify the contracts and provisions breached.” [Cite omitted.] The defendant very effectively recounted the provisions of the franchise agreements which directly undermined the plaintiff’s allegations; thereby hurting plaintiff Franchisee’s credibility and adding to the Court’s negative view of the pleading.

*Finally, regarding the NJFPA, the Court found these allegations vague, and observed that there had been no attempt in the pleading to note the specific statutory provisions alleged to have been violated. It is not, therefore, “fair notice” to identify the violated statute. You must be specific about which portions of the law were violated.

The Court will, generally, grant the losing plaintiff one opportunity to amend the complaint, so long as there is a reasonable expectation of being able to correct the pleading’s deficiencies. However, if you find yourself in this situation, be aware that the defendant will likely file another motion to dismiss, so take great care with the revisions and leave nothing to chance. Expect that the Court’s patience will be thin on motion number two, and may even harbor a negative expectation of your corrective efforts. Finally (as if you needed any more incentive), consider the worst case scenario – that defendant moves for Rule 11 sanctions in the event of a failed second attempt.

Best wishes for successful pleading!

Citation: Khorchid v. 7-Eleven, Inc., 2018 U.S. Dist. LEXIS 180609; 2018 WL 5149643.

BE ADVISED that these comments are not intended as legal opinions and are not to be relied upon as legal advice. If you need legal advice, or a referral to a business consultant, please contact us to discuss the specifics of your franchise business.

 

© KilcommonsLaw, P.C. 2018

 

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