Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Colo.: Personal jurisdiction conferred on out-of-state franchisee, (Feb 3, 2016)

By Michael Menzhuber, J.D., LL.M.

The federal district court in Denver refused to exercise personal jurisdiction over the individual guarantors to a franchise agreement with a Colorado-based franchisor. The court, however, denied the franchisee’s motion to dismiss for lack of jurisdiction because the franchisee had a substantial connection to the franchisor in Colorado (Red Robin International, Inc. v. Lehigh Valley Restaurant Group, Inc., February 2, 2016, Blackburn, R.).

The Lehigh Valley Restaurant Group, Inc. (LVRG) entered into a 20-year franchise agreement with Red Robin International, Inc. to operate a Red Robin restaurant in Pennsylvania. LVRG was a Pennsylvania corporation with its principle place of business in Pennsylvania. LVRG’s obligations under the franchise agreement were personally guaranteed by three individuals. Two of the individuals were residents of Pennsylvania, and one individual was a resident of Tennessee.

When the franchise agreement became effective, Red Robin was a Nevada corporation headquartered in California. A year later, however, Red Robin moved its headquarters to Colorado. After the move, LVRG and Red Robin executed a second agreement which superseded, in part, the original franchise agreement.

Over the next 19 years, LVRG representatives: (1) regularly communicated with corporate residences of Red Robin in Colorado; (2) made numerous trips to Colorado to meet with Red Robin corporate representatives; (3) attended training at Red Robin’s corporate headquarters; and (4) attended franchise and training meetings in Colorado. In addition, LVRG: (1) submitted payments due under the franchise agreement to Red Robin at its Colorado office; (2) contacted Red Robin at its Colorado headquarters for technical and operation support; and (3) executed at 18 additional franchise agreements.

After the franchise agreement expired, Red Robin alleged that LVRG refused to comply with its post-termination obligations and it brought an action against LVRG and the three guaranteeing individuals (collectively, “defendants”) for trademark infringement, trade dress infringement, unfair competition, and breach of contract. The defendants moved to dismiss the action on the basis that the court lacked personal jurisdiction.

Personal jurisdiction. The court held that LVRG had sufficient minimum contact with Colorado to support the exercise of personal jurisdiction. LVRG contended that the court lacked personal jurisdiction because: (1) Red Robin was a Nevada corporation headquartered in California when their franchise relationship was established; and (2) the franchise agreement provided that it would be interpreted and construed under California law. However, the court found that, one year into the 20-year franchise agreement, Red Robin moved its headquarters to Colorado and, since that time, LVRG had substantial contacts with Red Robin in Colorado. It therefore determined that, although the Red Robin franchise agreement did not provide that Colorado law controlled any dispute under the contract, the parties’ dispute arose directly from a franchise contract with a substantial connection to Colorado.

The court also found that the exercise of personal jurisdiction over LVRG comported with “fair play and substantial justice” because, over the course of 19 years, the LVRG’s commercial efforts were purposefully directed toward Red Robin at its Colorado headquarters. Consequently, it determined that the limited physical contacts of LVRG with Colorado did not serve to undermine personal jurisdiction.

The court, however, found that none of the individual defendants purposefully directed commercial activity toward Red Robin in Colorado or had any contact with Colorado. The court, therefore, concluded that, as to the individual defendants, Red Robin had not established a prima facie case of personal jurisdiction.

The case is No. 15-cv-02602-REB-KLM.

Attorneys: Allison Renee Grow (Cheng Cohen, LLC) for Red Robin International, Inc. Neal J.G. McConomy (Snell & Wilmer, LLP) for Lehigh Valley Restaurant Group, Inc.

Companies: Red Robin International, Inc.; Lehigh Valley Restaurant Group, Inc.

Cases: FranchisingDistribution ColoradoNews