Ruling reveals details of 7-Eleven’s alleged ‘churning’ of franchisees

A federal judge’s ruling in franchisee litigation provides details on 7-Eleven’s “Operation Philadelphia,” a scheme whose existence the company initially denied and which franchisees say involved targeting for termination outspoken franchisees, South Asian franchisees and those with profitable stores.

Magistrate Judge Joel Schneider noted that witnesses who provided details of 7-Eleven’s alleged “churning” scheme “were privy to 7-Eleven’s internal workings while employed at 7-Eleven.” Schneider’s ruling included the following points:

  • Former 7-Eleven officials provided evidence about “Operation Philadelphia,” centered in the Philadelphia/southern New Jersey area and also known as “Operation Take Back,” and “Project P.” The judge cited former Senior Field Consultant and Market Manager Ian Shehaiber, who stated that the company targeted South Asian franchisees and “franchisees that were opinionated, successful and involved in franchise associations.” In addition, former Field Consultant John Spavlik also stated that 7-Eleven engaged in a practice of targeting franchisees for termination and that this practice originated in 7-Eleven headquarters.
  • 7-Eleven first denied that Operation Philadelphia existed and then admitted its existence but claimed that its purpose was to staff stores after findings of alleged franchisee fraud, rather than to use terminations to retaliate and discriminate against franchisees or to pad revenues.
  • 7-Eleven only released documents about the program in “dribs and drabs,” and “even after months of discovery and numerous court conferences addressing discovery disputes, 7-Eleven acknowledges that not all relevant, requested and non-privileged Project P documents have been produced.”

The judge also found that Operation Philadelphia involved “high-level 7-Eleven personnel as well as in-house and outside counsel.” The ruling requires 7-Eleven to provide additional information about the documents it has finally turned over – the author, date, recipients and other information that will tell franchisees more about who at 7-Eleven knew about and participated in the alleged churning operation.

The full decision is here.