Will New Jersey-based Franchisor’s forum selection clauses be enforced over the California Franchise Relations Act (“CAFRA”) and Franchise Investment Law (“CFIL”)? According to the Federal District Court, yes.
Alleged Breach of Franchise Agreement
This dispute arose when Weichert filed a complaint in the US District Court, Newark, alleging the breach of a franchise agreement by a California-based Franchisee. The defendants filed this motion to dismiss the complaint based principally upon the CAFRA and the CFIL, which generally invalidate forum selection clauses permitting California residents to be sued in other jurisdictions. (Note that CA also requires that the franchise agreement contain an addendum citing these laws as a condition to approval and registration of the proposed Franchise Disclosure Document.)
NJ Franchisor’s Forum Selection Clause Enforced Over CAFRA and CFIL
The Court held that Weichert had satisfied 28 U.S.C. §1391 by establishing that venue was independently proper (aside from the contract forum selection provision). The Court noted that this issue was determined purely by federal law (28 U.S.C. §1391) which was not impacted by California state law. Specifically, the propriety of New Jersey as the venue was supported by the facts, including (1) Franchisees had visited the Franchisor’s Morristown headquarters to attend the initial sales presentation and met with then president of the company, (2) had executed the franchise documents in New Jersey, (3) had re-visited New Jersey for a management academy, and (4) had established that Franchisor’s services were rendered in New Jersey. Moreover, this was the forum where the Franchisor suffered its injury, and where the company resided.
In a footnote, Magistrate Mark Falk, noted that “a plaintiff’s choice of venue is generally entitled to substantial deference, especially when it files suit in its home forum.” (See footnote 4.)
Court Denies Request to Transfer Case to California Federal District Court
The Court further denied the request to transfer the case to the California federal district court. Addressing the often argued issue of inconvenience suffered by small business Franchisees, as opposed to the substantial resources of the Franchisors, the Court responded, “[i]t is true that Plaintiff is a large company and defendants are individuals; however, transfer is not about shifting the inconvenience from the party being sued to the party suing.” (See footnote 4.)
Citation: Weichert Real Estate Affiliates, Inc. v. CKM16, Inc., 2018 U.S. Dist. LEXIS 15388 (Note: Not approved for publication.)
BE ADVISED that these comments are not intended as legal opinions and are not to be relied upon as legal advice. If you need franchise-related legal advice, please contact us to discuss the specifics of your franchise business. © KilcommonsLaw, P.C. 2018