October 17, 2025|Franchise Frontlines
October 17, 2025 | U.S. District Court for the Eastern District of Pennsylvania | Unpublished Opinion
Executive Summary
In an unpublished decision, Judge Michael Baylson of the Eastern District of Pennsylvania set aside an entry of default against a former 7-Eleven franchisee, Lakshmi Mini Mart LLC, after its individual owner attempted—but was unable—to secure counsel to appear on behalf of the entity. 7-Eleven had filed suit for breach of the Franchise Agreement, breach of a promissory note, breach of guaranty, and conversion after the franchisee allegedly failed to comply with post-termination obligations, including returning 7-Eleven’s equipment and paying an accelerated note balance. The court determined that the plaintiff would not be prejudiced by reopening the case, that the defendant’s actions were not willful or taken in bad faith, and that the strong judicial preference for resolving cases on the merits favored vacating the default. The ruling reinforces that franchisors may face delays when litigating against defunct or unrepresented franchisees, but that well-documented post-termination obligations and clear contractual remedies remain critical to enforcement.
Relevant Background
According to the allegations accepted as true at this stage, 7-Eleven entered into a Franchise Agreement in 2007 with Lakshmi Mini Mart LLC to operate a store in Feasterville-Trevose, Pennsylvania. The franchisee’s owner, Nirav Desai, personally guaranteed the performance of Lakshmi’s obligations. The parties operated under this structure for nearly seventeen years until early 2024, when Lakshmi informed 7-Eleven of its intent to sell the store to a third party. The parties agreed to terminate the Franchise Agreement effective April 16, 2024, and 7-Eleven reminded the franchisee of its contractual duties upon termination. These included removing all 7-Eleven branding and returning franchisor-owned equipment. The complaint alleges that when company representatives arrived to remove the equipment, Mr. Desai refused access and subsequently sold portions of the equipment to a new operator. 7-Eleven also alleges an outstanding balance of $226,819.38 on a promissory note that became due upon termination.
7-Eleven initiated this action asserting breach of contract, breach of guaranty, breach of promissory note, and conversion. Mr. Desai, who was not an attorney, filed an answer on behalf of both himself and the LLC. The court struck the filing as to the LLC because corporate entities cannot appear pro se in federal court and must be represented by licensed counsel. The court ordered Lakshmi Mini Mart LLC to secure counsel within twenty-one days. Mr. Desai requested additional time but ultimately informed the court that he was financially unable to hire counsel. Upon that notice, 7-Eleven sought an entry of default against the LLC, which the Clerk entered. Later that same day, Mr. Desai moved to set aside the default, stating that he wished to defend the case on the merits.
Decision
The court evaluated the motion under Rule 55(c), which allows an entry of default to be set aside for “good cause.” The standard is liberal, and courts consider several factors, including prejudice to the plaintiff, whether the defaulting party engaged in culpable conduct, and whether that party has articulated a potentially meritorious defense.
On the prejudice inquiry, the court concluded that 7-Eleven would suffer no meaningful harm from reopening the case. There had been no loss of evidence, no increased risk of fraud or collusion, and no reliance on the default to the franchisor’s detriment. Because the litigation was still in its early stages, the court found no basis to deny relief on this factor.
As to culpability, the court explained that willful misconduct—not mere neglect—must be shown to deny relief. The record demonstrated that Mr. Desai communicated repeatedly with the court, requested extensions, and consistently explained his efforts to retain counsel. Although he understood the court’s directive, his inability to hire a lawyer appeared tied to financial constraints rather than defiance or disregard. The court noted that pro se litigants commonly misunderstand federal procedural rules, including the requirement that entities cannot represent themselves. In light of this context, the court found no bad faith or reckless disregard.
The court then examined whether the defendant articulated a “meritorious defense.” Under Third Circuit precedent, the moving party must present factual allegations that, if proven, would constitute a complete defense. Mr. Desai argued that 7-Eleven’s claimed note balance was “inflated,” that certain agreements were “expired or coerced,” and that depreciation and inventory handling issues were not reflected in 7-Eleven’s calculation. The court held that these statements were too conclusory and lacked the specificity necessary to establish a plausible defense. Although this factor weighed against setting aside the default, the court observed that the remaining factors—particularly the preference for resolving cases on the merits—tilted strongly in favor of vacatur.
Finally, the court declined to impose sanctions. It concluded that the entry of default itself was sufficient to underscore the seriousness of the litigation, noting that Mr. Desai responded promptly when the default was entered. The court granted an additional thirty days for Lakshmi Mini Mart LLC to obtain counsel, explicitly cautioning that failure to appear through counsel would result in renewed default.
Looking Forward
This decision highlights several practical considerations for franchisors enforcing post-termination obligations. First, the case demonstrates that even when a franchisee is alleged to have failed to return franchisor-owned equipment or pay accelerated financial obligations, courts may nonetheless set aside procedural defaults to permit a defense on the merits—particularly when the franchisee’s owner claims financial hardship or lacks legal sophistication. Franchisors should be prepared for these delays and ensure that their records are comprehensive enough to support swift motions for judgment once counsel appears or renewed default becomes appropriate.
The ruling also emphasizes the value of clear termination protocols, including documented exit procedures, written equipment inventories, and unambiguous promissory note provisions. These tools serve franchisors well when disputes arise and allegations of improper retention or sale of franchisor property must be proved. Although the court did not reach the merits, the allegations here show how quickly ownership and repayment disputes can escalate when a franchisee decides to transfer or sell assets outside system channels.
For franchisors operating in systems where small operators may face financial constraints, the case underscores the need to coordinate with experienced counsel early, particularly when a franchisee indicates inability to hire an attorney. Strategic planning may reduce delays, preserve evidence, and shape the path toward enforcement or settlement. Finally, the decision serves as a reminder that courts strongly prefer resolving cases on the merits, meaning franchisors must be prepared to litigate substantively even when early procedural rulings temporarily slow progress.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
