7-Eleven is suing the franchisee of five of its Long Island stores, saying that he sold "hundreds of thousands of dollars" of merchandise without reporting the revenue back to the chain.
The complaint, filed in federal court in Brooklyn, alleges Tariq Khan, his wife, son and others have for years operated a "business within a business" at each of the five stores, diverting cash to buy merchandise inventory from suppliers and never reporting the invoices to 7-Eleven, reported The Associated Press.
"Inasmuch as merchandise does not simply grow by itself on the shelves, the most viable explanation is that the stores brought in merchandise that was not reported to 7-Eleven in violation of the Franchise Agreements," the complaint said, according to the story. "Such anomaly is also indicative of a franchisee's operating a 'business within a business.'"
This is an age-old problem with dealing with independently-controlled stores, so 7-Eleven management opted to get all James Bond-y on these stores, creating an undercover operation, making some 246 clandestine purchases. In some of those purchases, the complaint says, Khan's employees would bypass the register for certain purchases, never reporting the received cash. In others, they would misidentify the product when entering it into the cash register to underreport the sale. In one instance, Skoal Wintergreen chewing tobacco, which retails at $7.09, was recorded as a hot beverage refill at a listed price of $1.36.
The company is seeking $1 million in damages. It also ended its franchise agreement with Khan, though the company says that the defendants "have declined to voluntarily vacate the stores."
It's an interesting case in terms of proof. The undercover buys can certainly prove fraud in those instances, but it will difficult to prove fraud over more than four years. They can show that things don't add up, but that's circumstantial. That's why this case is in a federal civil court—as opposed to criminal. 7-Eleven could have sought criminal charges be brought against the store owner, but they knew that the standard of proof is much less in a civil courtroom. Besides, they don't him imprisoned. They merely want their money back and the biggest financial penalty they can dream up.
- See this Associated Press story
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