Court Watch

The Bogdanova case reasoned that the waiver of objection to venue was in the plural and thereby covered both the state and federal courts. 'Since the language here is in the plural, I read it to mean that the parties waive their rights to litigate outside of the 'courts' designated in the agreement. It does not mean that they have waived their right to remove from one court to another.'

The more persuasive ground relied on by the court is that the waiver language only dealt with personal jurisdiction and venue. The court reasoned that actions can only be removed on the basis of federal subject matter jurisdiction (i.e., diversity jurisdiction or federal question jurisdiction). Unquestionably, the waiver clause did not deal with subject matter jurisdiction, only with personal jurisdiction. Thus, by waiving an objection to personal jurisdiction, the franchisee did not waive any objection to subject matter jurisdiction, which is the predicate to removal. As to venue, the franchisees were not objecting to venue, as they removed to the federal court in the same city and state.

From a drafting perspective, there might not have been conflicting opinions had the clause included a specific waiver of the right to remove. Such waivers are enforceable if they are clear and unequivocal. Milk 'N' More, Inc. v. Beavert, 963 F.2d 1242, 1246 (10th Cir. 1992). An additional provision waiving any objection to subject matter jurisdiction might prove a problem since normally the parties cannot confer subject matter jurisdiction by consent. The preferable course is to specifically waive removal rights. The advantage of the clause as drafted in the Quizno's agreement is that it allows either party to make the initial choice of whether to be in federal or state court, assuming either diversity or subject matter jurisdiction exists if the case is filed in federal court.

In Liu v. CICI Enterprises, Inc., CCH Business Franchise Guide 13,523 (Texas Court of Appeals, Jan. 9, 2007), the parties agreed to 'irrevocably submit themselves to the jurisdiction of the State Courts of Dallas County, Texas ' [and] agree that venue for any proceeding relating to or arising out of this agreement shall be Dallas County, Texas.' The franchisee sued the franchisor in a county other than Dallas County, and the franchisor moved to dismiss on the basis of what it thought was a 'forum' selection clause. The trial court dismissed the case, but the appellate court reversed, holding that the clause was not a forum selection clause, but a venue selection clause. As such, the objecting party had to comply with procedures governing challenges to venue, which had not been done on a short timetable and were not so done. The appellate court defined a 'forum selection clause' as one pertaining to the 'jurisdiction, generally of a nation or State, where suit may be brought.' Venue, on the other hand, 'concerns the geographical location within the forum where the case may be tried.' So, while the franchisor may have thought it had a forum selection clause, it did not. The court also stated that because venue 'is fixed by law, any agreement or contract whereby the parties try to extend or restrict venue is void or against public policy.' This is a corollary of the principle that the parties cannot consent to subject matter jurisdiction where none exists, since venue is considered an aspect of subject matter jurisdiction.

What does all of this mean in the context of modern franchising? Many clauses styled as 'forum' selection clauses may be 'venue' clauses under this holding. Many franchise agreements require that lawsuits be filed in a particular county and/or district within the state. Under the CICI case, those agreements would be treated pertaining to venue; and careful attention would have to be paid to the venue objection procedures of the particular jurisdiction.

It is also possible that not all states follow the Texas definition of 'forum' and 'venue,' so practitioners should check to determine whether there is any law in the respective states. If the clause is a 'venue' clause, then even if the procedures are followed, it still might not be enforced if it is viewed as extending or restricting venue, such as if the parties selected a 'venue' that was not proper under state law. However, this is not likely to occur often because most venue statutes allow certain types of cases, like breach of contract cases, to be brought in more than one locale, such as where the contract was entered into or where the breach occurred. Most franchise venue clauses select the home county of the franchisor, which is the likely place that the contract was made and breached. Nonetheless, in light of these decisions, franchise companies may want to revisit their 'forum' selection clauses.

Charles Miller is a member of Bartko, Zankel, Tarrant & Miller in San Francisco. He can be reached by phone at 415-956-1900 or by e-mail at [email protected].

Choose Language Carefully For an Enforceable Forum Selection Clause

Two recent cases have reinforced the importance of choosing the right words when drafting 'forum selection clauses.' In one case, the language in the forum selection clause was used to deprive a franchisee of its right to remove a case from state to federal court. In the other case, the language of the forum selection clause was narrowly read as a 'venue' clause, resulting in a finding that a motion to dismiss was untimely.

In Quizno's Franchising II LLC v. Gilco, CCH Business Franchise Guide 13,526 (D. Colo. Jan. 22, 2007), the franchise agreement provided that 'the exclusive venue for disputes between them [franchisee and franchisor] shall be in the [state] court or the [federal] court [in Denver], and each party waives any objection it might have to the personal jurisdiction of or venue in such courts.' The franchisor filed suit for breach of contract in state court, and the franchisees removed it to the federal court on the basis of federal diversity jurisdiction. The franchisor moved to remand the case, arguing that the franchisees, by virtue of the referenced clause, waived their right to remove. The district court agreed, based in large part on an unpublished decision by a fellow judge involving the same franchise agreement, and in part on the strong policy disfavoring removal. The court declined to follow another recent decision by the chief judge of the district denying a motion to remand. QFA Royalties LLC v. Bogdanova, CCH Business Franchise Guide 13,478 (D. Colo. Nov. 21, 2006).

The Bogdanova case reasoned that the waiver of objection to venue was in the plural and thereby covered both the state and federal courts. 'Since the language here is in the plural, I read it to mean that the parties waive their rights to litigate outside of the 'courts' designated in the agreement. It does not mean that they have waived their right to remove from one court to another.'

The more persuasive ground relied on by the court is that the waiver language only dealt with personal jurisdiction and venue. The court reasoned that actions can only be removed on the basis of federal subject matter jurisdiction (i.e., diversity jurisdiction or federal question jurisdiction). Unquestionably, the waiver clause did not deal with subject matter jurisdiction, only with personal jurisdiction. Thus, by waiving an objection to personal jurisdiction, the franchisee did not waive any objection to subject matter jurisdiction, which is the predicate to removal. As to venue, the franchisees were not objecting to venue, as they removed to the federal court in the same city and state.

From a drafting perspective, there might not have been conflicting opinions had the clause included a specific waiver of the right to remove. Such waivers are enforceable if they are clear and unequivocal. Milk 'N' More, Inc. v. Beavert , 963 F.2d 1242, 1246 (10th Cir. 1992). An additional provision waiving any objection to subject matter jurisdiction might prove a problem since normally the parties cannot confer subject matter jurisdiction by consent. The preferable course is to specifically waive removal rights. The advantage of the clause as drafted in the Quizno's agreement is that it allows either party to make the initial choice of whether to be in federal or state court, assuming either diversity or subject matter jurisdiction exists if the case is filed in federal court.

In Liu v. CICI Enterprises, Inc., CCH Business Franchise Guide 13,523 (Texas Court of Appeals, Jan. 9, 2007), the parties agreed to 'irrevocably submit themselves to the jurisdiction of the State Courts of Dallas County, Texas ' [and] agree that venue for any proceeding relating to or arising out of this agreement shall be Dallas County, Texas.' The franchisee sued the franchisor in a county other than Dallas County, and the franchisor moved to dismiss on the basis of what it thought was a 'forum' selection clause. The trial court dismissed the case, but the appellate court reversed, holding that the clause was not a forum selection clause, but a venue selection clause. As such, the objecting party had to comply with procedures governing challenges to venue, which had not been done on a short timetable and were not so done. The appellate court defined a 'forum selection clause' as one pertaining to the 'jurisdiction, generally of a nation or State, where suit may be brought.' Venue, on the other hand, 'concerns the geographical location within the forum where the case may be tried.' So, while the franchisor may have thought it had a forum selection clause, it did not. The court also stated that because venue 'is fixed by law, any agreement or contract whereby the parties try to extend or restrict venue is void or against public policy.' This is a corollary of the principle that the parties cannot consent to subject matter jurisdiction where none exists, since venue is considered an aspect of subject matter jurisdiction.

What does all of this mean in the context of modern franchising? Many clauses styled as 'forum' selection clauses may be 'venue' clauses under this holding. Many franchise agreements require that lawsuits be filed in a particular county and/or district within the state. Under the CICI case, those agreements would be treated pertaining to venue; and careful attention would have to be paid to the venue objection procedures of the particular jurisdiction.

It is also possible that not all states follow the Texas definition of 'forum' and 'venue,' so practitioners should check to determine whether there is any law in the respective states. If the clause is a 'venue' clause, then even if the procedures are followed, it still might not be enforced if it is viewed as extending or restricting venue, such as if the parties selected a 'venue' that was not proper under state law. However, this is not likely to occur often because most venue statutes allow certain types of cases, like breach of contract cases, to be brought in more than one locale, such as where the contract was entered into or where the breach occurred. Most franchise venue clauses select the home county of the franchisor, which is the likely place that the contract was made and breached. Nonetheless, in light of these decisions, franchise companies may want to revisit their 'forum' selection clauses.

Charles Miller is a member of Bartko, Zankel, Tarrant & Miller in San Francisco. He can be reached by phone at 415-956-1900 or by e-mail at [email protected].