Forum Selection Clause an Important Provision in Franchise Agreements

In a case reminiscent of a man-bites-dog story, a franchisor's action to enforce its post-term restrictive covenant was recently dismissed for being in violation of its own forum selection clause. TGA Premier Junior Golf Franchise v. BP Bevins Golf, C.A., No. 12-4321 (D.N.J. Oct. 12, 2012), concerns a franchisor's unremarkable decision to waive its contractual right to sue in California and instead bring suit in New Jersey against its former New Jersey franchisee. By all accounts, the franchisee always operated in New Jersey, was allegedly competing in New Jersey and had no relationship whatsoever with California other than that was where the franchisor was located.

Choosing a Forum

There are many reasons a franchisor might elect not to sue in its home forum, including a desire to avoid the time and cost of opposing a transfer motion based on its being unfair or oppressive to force a franchisee to travel great distances to defend itself. State franchise laws that prohibit out-of-state litigation may also sway a franchisor to disregard its forum selection clause. (See, e.g., Cal. Bus. & Prof. Code ' 20040.5 (voiding any provision in a franchise agreement requiring a California franchisee to litigate outside of California); Kubis & Persyzky Assoc. v. Sun Microsystems, 146 N.J. 176 (1996) (holding that forum selection clauses in franchise agreement are presumptively invalid under New Jersey Franchise Practices Act).)

Substantive law also can play a role, especially where, as in TGA Premier, the selected forum (California) is generally hostile to the claim being asserted. (See Cal. Bus. & Prof. Code ' 16600 (generally prohibiting enforcement of noncompetition covenants).) Unfortunately for the franchisor, its former franchisee either did not appreciate losing an excuse to travel to sunny California, even if it was only for litigation, or believed that his chances of avoiding the restrictive covenant were better in a California court. (But see Application Group v. Hunter Group, 61 Cal. App. 4th 881, 900-01 (1998) (suggesting that a non-California resident may not be protected under California statute prohibiting enforcement of noncompetition agreements).) The franchisee therefore moved to dismiss based on the franchise agreement's forum selection clause that provided:

The parties agree that any action brought by either party against the other in any court, whether federal or state, shall be brought within the state of California in the county in which [the] franchisor has its principal place of business at the time the action is initiated, and the parties hereby waive all questions of personal jurisdiction or venue for the purpose of carrying out this provision.

The Court's Decision

First, the court decided that dismissal, as opposed to transfer, was an available remedy, citing Salovaara v. Jackson Nat'l Life Ins., 246 F.3d 289, 298 (3d Cir. 2001). Next, the court addressed the forum selection clause itself and held it to be “clear and unambiguous.” Faced with a franchisee who wanted to travel 3,000 miles away to litigate and no basis to deny the request, the court wasted little time removing the case from its docket and dismissing the action. In reaching its decision, the court also rejected the franchisor's arguments that the franchisee had failed to meet its burden for transferring the case to California.

In arguing against transfer, [the] plaintiff has pointed to such factors as Bevins being domiciled in New Jersey, the parties conducting business in New Jersey, witnesses being located in New Jersey and New Jersey courts being more familiar with applicable law. However, the court finds that while such things may make litigating this matter in California less convenient than litigating it here, [the] plaintiff has not made the requisite 'strong showing' that litigating the matter in California is 'so gravely difficult and inconvenient' that he will for all practical purposes be deprived of his day in court.

Perhaps feeling somewhat sorry for the franchisor, the court did throw it a small bone by stating in a footnote that having exercised his rights under the forum selection clause, the former franchisee should not “be heard to complain that he will be required to litigate this matter in California should [the] plaintiff refile its action there.”

Conclusion

While not many parties are likely to complain about litigating in their home forum instead of traveling thousands of miles away to do so, this case is a good reminder that all provisions in franchise agreements are critical, including provisions often considered “boilerplate” or favoring only the franchisor. As TGA Premier establishes, franchisors are not likely to find a sympathetic ear when they seek to avoid their own contractual provisions.

Craig R. Tractenberg is a partner in the Philadelphia and New York offices of Nixon Peabody and an adjunct professor teaching franchise law at Temple University's Beasley School of Law. Gregg Rubenstein is a partner in the firm's Boston office. This article also appeared in The Legal Intelligencer, an ALM sister publication of this newsletter.

In a case reminiscent of a man-bites-dog story, a franchisor's action to enforce its post-term restrictive covenant was recently dismissed for being in violation of its own forum selection clause. TGA Premier Junior Golf Franchise v. BP Bevins Golf, C.A., No. 12-4321 (D.N.J. Oct. 12, 2012), concerns a franchisor's unremarkable decision to waive its contractual right to sue in California and instead bring suit in New Jersey against its former New Jersey franchisee. By all accounts, the franchisee always operated in New Jersey, was allegedly competing in New Jersey and had no relationship whatsoever with California other than that was where the franchisor was located.

Choosing a Forum

There are many reasons a franchisor might elect not to sue in its home forum, including a desire to avoid the time and cost of opposing a transfer motion based on its being unfair or oppressive to force a franchisee to travel great distances to defend itself. State franchise laws that prohibit out-of-state litigation may also sway a franchisor to disregard its forum selection clause. (See, e.g., Cal. Bus. & Prof. Code ' 20040.5 (voiding any provision in a franchise agreement requiring a California franchisee to litigate outside of California); Kubis & Persyzky Assoc. v. Sun Microsystems , 146 N.J. 176 (1996) (holding that forum selection clauses in franchise agreement are presumptively invalid under New Jersey Franchise Practices Act).)

Substantive law also can play a role, especially where, as in TGA Premier, the selected forum (California) is generally hostile to the claim being asserted. (See Cal. Bus. & Prof. Code ' 16600 (generally prohibiting enforcement of noncompetition covenants).) Unfortunately for the franchisor, its former franchisee either did not appreciate losing an excuse to travel to sunny California, even if it was only for litigation, or believed that his chances of avoiding the restrictive covenant were better in a California court. ( But see Application Group v. Hunter Group , 61 Cal. App. 4th 881, 900-01 (1998) (suggesting that a non-California resident may not be protected under California statute prohibiting enforcement of noncompetition agreements).) The franchisee therefore moved to dismiss based on the franchise agreement's forum selection clause that provided:

The parties agree that any action brought by either party against the other in any court, whether federal or state, shall be brought within the state of California in the county in which [the] franchisor has its principal place of business at the time the action is initiated, and the parties hereby waive all questions of personal jurisdiction or venue for the purpose of carrying out this provision.

The Court's Decision

First, the court decided that dismissal, as opposed to transfer, was an available remedy, citing Salovaara v. Jackson Nat ' l Life Ins. , 246 F.3d 289, 298 (3d Cir. 2001). Next, the court addressed the forum selection clause itself and held it to be “clear and unambiguous.” Faced with a franchisee who wanted to travel 3,000 miles away to litigate and no basis to deny the request, the court wasted little time removing the case from its docket and dismissing the action. In reaching its decision, the court also rejected the franchisor's arguments that the franchisee had failed to meet its burden for transferring the case to California.

In arguing against transfer, [the] plaintiff has pointed to such factors as Bevins being domiciled in New Jersey, the parties conducting business in New Jersey, witnesses being located in New Jersey and New Jersey courts being more familiar with applicable law. However, the court finds that while such things may make litigating this matter in California less convenient than litigating it here, [the] plaintiff has not made the requisite 'strong showing' that litigating the matter in California is 'so gravely difficult and inconvenient' that he will for all practical purposes be deprived of his day in court.

Perhaps feeling somewhat sorry for the franchisor, the court did throw it a small bone by stating in a footnote that having exercised his rights under the forum selection clause, the former franchisee should not “be heard to complain that he will be required to litigate this matter in California should [the] plaintiff refile its action there.”

Conclusion

While not many parties are likely to complain about litigating in their home forum instead of traveling thousands of miles away to do so, this case is a good reminder that all provisions in franchise agreements are critical, including provisions often considered “boilerplate” or favoring only the franchisor. As TGA Premier establishes, franchisors are not likely to find a sympathetic ear when they seek to avoid their own contractual provisions.

Craig R. Tractenberg is a partner in the Philadelphia and New York offices of Nixon Peabody and an adjunct professor teaching franchise law at Temple University's Beasley School of Law. Gregg Rubenstein is a partner in the firm's Boston office. This article also appeared in The Legal Intelligencer, an ALM sister publication of this newsletter.