March 04, 2026|Franchise Frontlines
March 4, 2026 | United States Court of Appeals for the Third Circuit | Non-Precedential Opinion
Executive Summary
In a non-precedential decision, the United States Court of Appeals for the Third Circuit affirmed summary judgment in favor of 7-Eleven, Inc. in a dispute arising from the termination of a convenience store franchise in Princeton, New Jersey. The franchisee alleged that 7-Eleven violated the New Jersey Franchise Practices Act (“NJFPA”) by imposing unreasonable operating standards and breaching the implied covenant of good faith and fair dealing. The franchisor counterclaimed for breach of the franchise agreement and breach of a personal guaranty. The district court entered summary judgment for 7-Eleven on all claims, and the Third Circuit affirmed. The court concluded that the franchisee’s admitted failure to comply with a minimum-net-worth requirement constituted a material breach that provided the franchisor with a statutory defense under the NJFPA.
Relevant Background
SAT Agiyar, LLC operated a 7-Eleven store in Princeton pursuant to a franchise agreement executed in 2015. The agreement required the store to operate twenty-four hours per day unless prohibited by law or otherwise waived in writing by the franchisor. At the time the agreement was signed, a Princeton ordinance prohibited businesses from operating between 2 a.m. and 5 a.m. To address this issue, the parties amended the agreement to temporarily waive the twenty-four-hour operating requirement and associated penalty fees for a limited period.
When that temporary waiver expired, 7-Eleven began assessing penalty fees for the hours during which the store remained closed. The franchisee asked 7-Eleven to permanently waive the operating-hours requirement, but 7-Eleven declined and instead offered an additional temporary waiver. The franchisee rejected that offer and continued closing the store during the prohibited hours while incurring the contractual penalty fees.
Separately, the franchise agreement required the franchisee to maintain a minimum net worth of $15,000. In November 2020, 7-Eleven notified the franchisee that its net worth had fallen below that threshold and gave the franchisee an opportunity to cure the deficiency. When the franchisee failed to do so, 7-Eleven terminated the franchise agreement and assumed control of the store. The franchisor later calculated that the franchisee owed more than $94,000 under the agreement.
The franchisee filed suit alleging that 7-Eleven violated the NJFPA and breached the implied covenant of good faith and fair dealing. 7-Eleven counterclaimed for breach of the franchise agreement and breach of a personal guaranty executed by the franchise owner.
Decision
The Third Circuit affirmed summary judgment in favor of the franchisor.
The court first addressed the franchisee’s claim under the NJFPA, which prohibits franchisors from imposing unreasonable standards of performance on franchisees. The statute also provides a defense when a franchisee fails to substantially comply with the franchise agreement.
The franchisee argued that 7-Eleven imposed an unreasonable operating standard by penalizing the store for failing to operate twenty-four hours per day even though local law prohibited operation during certain hours. According to the franchisee, this created a “Hobson’s choice” between violating municipal law and incurring contractual penalties.
The court rejected that argument. It noted that the parties were aware of the local ordinance when they signed the franchise agreement and that 7-Eleven had initially waived the operating requirement for a limited period. When the franchisee requested a permanent waiver, 7-Eleven instead offered a temporary extension of the waiver, which the franchisee declined.
More importantly, the court concluded that the franchisee’s admitted failure to maintain the required minimum net worth constituted a material breach of the franchise agreement. Under the NJFPA, a franchisor may defend against statutory liability when the franchisee fails to substantially comply with the agreement. Because the franchisee conceded that it fell below the required net-worth threshold, the franchisor was entitled to rely on that statutory defense.
The court also rejected the franchisee’s claim for breach of the implied covenant of good faith and fair dealing. Under New Jersey law, such a claim requires evidence of bad faith or improper motive that deprives the other party of the benefit of the bargain. The court found no such evidence. Instead, the franchisor merely enforced the express terms of the franchise agreement after the franchisee rejected the proposed extension and failed to cure its financial default.
Because the franchisee could not establish liability under the NJFPA or the implied covenant, the court affirmed summary judgment for 7-Eleven on those claims and on the franchisor’s counterclaims for breach of contract and breach of guaranty.
Looking Forward
This decision illustrates how franchise relationship statutes often interact with traditional contract principles when disputes arise between franchisors and franchisees.
The New Jersey Franchise Practices Act, like many franchise relationship statutes, places limits on franchisors’ ability to impose unreasonable performance standards. At the same time, the statute provides franchisors with defenses when franchisees fail to substantially comply with their contractual obligations. The case demonstrates how a material franchisee breach can effectively resolve statutory claims that might otherwise proceed.
The ruling also underscores the importance of clear contractual provisions addressing operational standards and financial requirements. When franchise agreements define performance obligations and cure opportunities with specificity, courts are more likely to view enforcement actions as the straightforward application of negotiated contractual terms rather than arbitrary or bad-faith conduct.
For franchisors operating under state franchise relationship laws, the decision serves as a reminder that statutory claims often hinge on the franchisee’s own compliance with the agreement. Demonstrating a material breach by the franchisee may significantly narrow or eliminate exposure under those statutes.
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 LLP 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.
