Court Ruling a Boon for Big Franchisers

In a victory for large franchise operations, a New York judge has ruled that franchisers can negotiate deals that vary from their offering documents.

The ruling came in a lawsuit filed by Southland Corp., owner of the 7-Eleven convenience store chain, against New York Atty. Gen. Robert Abrams.

Abrams had sought to penalize Southland because the company cut a deal with the Riese Organization to own and operate 7-Eleven stores in Manhattan under terms more favorable than those offered to other franchisees.

Dallas-based Southland said it filed suit after the attorney general’s office threatened to halt the multimillion-dollar agreement on the eve of its closing.

State Supreme Court Justice Elliot Wilk, ruling that Abrams must allow the deal to go through, said the New York Franchise Act--which requires chains to file terms of offering with the state--does not necessarily rule out negotiations.

“A prohibition on negotiations would transform the (act) from a straightforward grant of flexibility into a straitjacket, to the potential detriment of all parties,” said Wilk in his ruling, which was issued Friday and released by Southland Tuesday.

The judge rejected Abrams’ argument that such negotiations could hurt franchisers who had signed deals earlier at less favorable terms.

David Kaufmann, Southland’s lawyer, said the case involved an issue never before decided by any U.S. court. “The decision . . . is welcomed with open arms by the franchise community,” he said in a statement. “Franchising today accounts for nearly 40% of all retail sales transactions. But over-regulation is killing the goose that laid the golden egg.”

The state attorney general’s office could not be reached for comment on the ruling, which came from New York’s trial-level court.

Southland, struggling under a $4.9-billion debt incurred in a 1987 leveraged buyout, has a network of more than 12,000 7-Eleven stores.

The Riese Organization is one of the largest multiple franchisees in New York state, owning and operating Pizza Hut, Dunkin’ Donuts, Nathan’s, Kentucky Fried Chicken and Houlihan’s franchises.