7-Eleven, Inc. v. Khan

977 F.Supp.2d 214

7–ELEVEN, INC., Plaintiff,

v.Tariq A. KHAN, Senita Khan, Farouq Khan, Rajesh M. Ajmeri, Imran M. Khan, Mohammed Tariq Wattoo, Asaid Sohail, Ansarul H. Rana, Mohammed Tanveer, Faith E. Comacho, Shahid F. Khan, and Does 1 through 50, inclusive, Defendants.

No. 13–CV–3538 (ADS)(ARL).

United States District Court, E.D. New York.

Oct. 10, 2013.

Duane Morris LLP, by: Joseph J. Aronica, Esq., James M. Parks, Esq., Susan V. Metcalfe, Stephen Sussman, Esq., of Counsel, New York, NY, for the Plaintiff.

Einbinder & Dunn, LLP, by: Michael Einbinder, Esq., of Counsel, New York, NY, for the Defendants Tariq A. Khan, Senita Kahn, Farouq Khan, and Iram M. Khan.

Forchelli, Curto, Deegan, Schwartz, Mineo & Terrana, LLP, by: Andrew E. Curto, Esq., of Counsel, Uniondale, NY, for the Defendants Tariq A. Khan, Senita Kahn, Farouq Khan, and Iram M. Khan.

Rajesh M. Ajmeri, Mohammed Tariq Wattoo, Asaid Sohail, Ansarul H. Rana, Mohammed Tanveer, Faith E. Comacho, Does 1 through 50, inclusive, No Appearances.

MEMORANDUM AND ORDER

SPATT, District Judge:

Pending before the Court are the objections of the Defendants Tariq A. Khan, Senita Khan, Farouq Khan a/k/a/ Shahid F. Khan, and Imran M. Khan s/h/a Iram M. Khan (collectively “the Khans”) to the August 19, 2013 Report and Recommendation of United States Magistrate Judge Arlene R. Lindsay. The Report recommended that this Court grant the Plaintiff 7–Eleven, Inc.'s motion for a preliminary injunction and deny the Khans' motion for injunctive relief. Familiarity with that Report is presumed. For the reasons set forth below, the Court adopts the recommendation in its entirety.

I. BACKGROUND

A. Procedural Background

On June 21, 2013, 7–Eleven filed this complaint against the Defendants, franchisee-owners and employees of five 7–Eleven convenience stores on Long Island, alleging, among other contentions, that the Defendants diverted profits over the course of at least four years, from 2009 to 2013, in violation of the parties' franchise agreements.

Thereafter, 7–Eleven moved for a temporary restraining order (TRO) enjoining Tariq and Senita Khan from (1) failing to cause all sales of inventory to be properly recorded at the time of the sale at the retail price reported to 7–Eleven; (2) failing to use the electronic equipment provided by 7–Eleven to scan all products capable of being scanned; (3) failing to turn over to 7–Eleven all receipts for the preceding 24–hour collection period, except for cash expended by the Khans during such 24–hour collection period for bona fide purchases or operating expenses paid during such collection period; (4) failing to furnish to 7–Eleven copies of invoices for all purchases; (5) failing to timely furnish to 7–Eleven copies of invoices for all purchases; (6) removing any inventory from the Stores other than in the ordinary course of business; (7) removing or destroying any Store-related records; (8) failing to preserve, protect, and maintain all documents in their possession or under their control concerning the subject matter of this action.

The Khans then moved for a TRO enjoining 7–Eleven from (1) terminating their franchise rights in the stores and/or enforcing the termination notice directed toward them; (2) altering the status quo of its franchise relationship with the Owner Khans; (3) interfering with the Owner Khans' conduct of business with the McLane Company and/or the Central Distribution Center in any way; (4) ceasing payroll services, sales tax processing and payments for workers compensation, disability insurance, and unemployment insurance; (5) interfering with the Owner Khans' lottery sales, including removal of equipment; (6) removing any additional equipment or inventory from the stores until the return date on the order to show cause; and (7) requiring 7–Eleven to return any and all equipment and inventory removed from the Stores immediately.

In an oral ruling on the record on July 2, 2013, the Court (1) granted 7–Eleven's request for a TRO; (2) denied the Khans' request for a TRO with leave to renew except to the extent that it directed 7–Eleven to return the lottery machines; (3) directed that all evidence be preserved; and (4) denied the Khans' initial application for discovery, without prejudice to renewal.

In the interim, 7–Eleven moved by Order to Show Cause (“OSC”) for a preliminary injunction pursuant to Federal Rules of Civil Procedure (“Fed. R. Civ.P.”) 65. Through the OSC, 7–Eleven sought an order directing the Khans (1) to surrender the subject stores to 7–Eleven and to eject them from the premises; (2) to preserve all security surveillance images located at the stores; (3) to allow 7–Eleven to copy all such images recorded within the stores, at any and all times, including all images stored and/or recorded on any type of analog or digital media such as digital video recorders (“DVRs”); and (4) to make the DVRs available to 7–Eleven for purposes of conducting a forensic review to attempt to recover any erased surveillance images. The Khans opposed the motion and cross moved, seeking to enjoin 7–Eleven from (1) effectuating the termination of the franchise agreements for the subject convenience stores until there is a determination as to whether or not the Non–Curable Notice of Material Breach Termination delivered by 7–Eleven to the Khans Tariq A. Khan and Senita Khan was sufficient and proper under the franchise agreements; (2) interfering with the operation of the subject stores and customer relationships during the pendency of this matter; (3) interfering with the franchisees relationships with McLane Company and the Central Distribution Center; (4) altering the status quo of its franchise relationship with the Khans until this matter is resolved on the merits; and (5) from removing any additional equipment or inventory from any of the stores.

The Court referred the pending motions for injunctive relief to Judge Lindsay. Following a six-day evidentiary hearing beginning on July 22, 2013, Judge Lindsay issued a comprehensive Report and Recommendation that 7–Eleven's motion for injunctive relief be granted and the Khans' motion for injunctive relief be denied. On September 6, 2013, the Khans filed their objections to the Report and Recommendation. On September 20, 2013, 7–Eleven filed a reply to the Khans' objections.

B. Legal Standards1. Standard of Review of Magistrate Judge Lindsay's Report and Recommendation

A court is required to make a de novo determination as to those portions of the Report and Recommendation to which objections were made. 28 U.S.C. § 636(b)(1)(C); Grassia v. Scully, 892 F.2d 16, 19 (2d Cir.1989). The phrase “de novo determination” in Section 636(b)(1)—as opposed to “de novo hearing”—was selected by Congress “to permit whatever reliance a district judge, in the exercise of sound judicial discretion, chose to place on a magistrate's proposed findings and recommendations.” United States v. Raddatz, 447 U.S. 667, 676, 100 S.Ct. 2406, 65 L.Ed.2d 424 (1980). Section 636 does not require a court “to rehear the contested testimony in order to carry out the statutory command to make the required ‘determination.’ ” Id. at 674, 447 U.S. 667, 100 S.Ct. 2406, 65 L.Ed.2d 424. Rather, in making such a determination, a court may in its discretion review the record and hear oral argument on the matter. See Pan Am. World Airways, Inc. v. Int'l Bhd. of Teamsters, 894 F.2d 36, 40 n. 3 (2d Cir.1990). Furthermore, a court may in its sound discretion afford a degree of deference to the magistrate's Report and Recommendation. See Raddatz, 447 U.S. at 676, 100 S.Ct. 2406, 65 L.Ed.2d 424.

In a case where a party “makes only conclusory or general objections, or simply reiterates his original arguments, the Court reviews the Report and Recommendation only for clear error.” Pall Corp. v. Entegris, Inc., 249 F.R.D. 48, 51 (E.D.N.Y.2008) (quoting Barratt v. Joie, No. 96 Civ. 324, 2002 WL 335014, at *1 (S.D.N.Y. Mar. 4, 2002)). “Furthermore, even in a de novo review of a party's specific objections, the Court ordinarily will not consider ‘arguments, case law and/or evidentiary material which could have been, but were not, presented to the magistrate judge in the first instance.’ ” Fairfield Financial Mortg. Group, Inc. v. Luca, No. 06 Civ. 5962, 2011 WL 3625589, at *2 (E.D.N.Y. Aug. 16, 2011).

2. Standard for Issuance of a Preliminary Injunction

The general standard for issuing a preliminary injunction requires that the movant show “(1) irreparable harm and (2) either (a) likelihood of success on the merits or (b) sufficiently serious questions going to the merits and a balance of hardships tipping decidedly toward the party seeking the injunctive relief.” Johnson v. Burge, 506 Fed.Appx. 10, 11 (2d Cir.2012)(quoting Covino v. Patrissi, 967 F.2d 73, 77 (2d Cir.1992)). A preliminary injunction is considered an “extraordinary” remedy that should not be granted as a routine matter. Id., see also JSG Trading Corp. v. Tray–Wrap, Inc., 917 F.2d 75, 80 (2d Cir.1990). In addition, where, as here, a preliminary injunction is sought to change the status quo, rather than to preserve the status quo, the movant is held to a higher standard of proof. See, e.g., Bronx Household of Faith v. Board of Educ. of City of New York, 331 F.3d 342, 349 (2d Cir.2003). Ultimately, the decision to grant or deny this “drastic” remedy rests in the district court's sound discretion. See American Exp. Financial Advisors Inc. v. Thorley, 147 F.3d 229, 231 (2d Cir.1998). This opinion sets forth the Court's findings of fact and conclusions of law in accordance with Rule 52(a) of the Federal Rules of Civil Procedure.

II. THE FINDINGS OF FACT

For purposes of this motion, the Court makes the following findings of fact.

A. Parties

7–Eleven is a Texas corporation that operates about 9,000 7–Eleven stores throughout North America. (Tr. at 32.) In order to identify its stores, products, and services, 7–Eleven allows its franchises to utilize...