Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. Md.: Conspiracy theory confers personal jurisdiction over non-party to restaurant franchise agreement, (Jan 12, 2016)

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

An Arkansas company, that purchased a restaurant from “Wings to Go” franchisees and then operated it in a substantially similar manner but under a different name, was subject to personal jurisdiction under Maryland’s long-arm statute, according to the federal district court in Baltimore. The court also determined that the exercise of jurisdiction was proper because the due process requirement of fair warning was satisfied (Wings to Go, Inc. v. Reynolds, January 8, 2016, Blake, C.).

Coaches Enterprise, LLC, which was based in Arkansas, entered into a franchise agreement with Wings to Go, Inc. (WTG), which was principally located in Maryland, to operate a “Wings to Go” restaurant. Wade Reynolds and Michael Harrison, Coaches’ managing members, were guarantors to the agreement. The restaurant was operated as a “Wings to Go” restaurant until its sale to Bulldog Enterprises, LLC, which was also based in Arkansas. Reynolds was the sole member of Bulldog.

After the sale, Bulldog renamed the restaurant “Coaches” but advertised and operated it in a substantially similar manner as a “Wings to Go” restaurant. WTG filed an action against Coaches, Bulldog, Reynolds, and Harrison that alleged claims under contract and tort law.

Bulldog moved for dismissal on the basis that it was a non-resident corporate entity that had never transacted business in Maryland and, therefore, the court lacked personal jurisdiction over it.

Personal jurisdiction. Maryland’s long-arm statute for conferring personal jurisdiction can be satisfied under a conspiracy theory of personal jurisdiction. Pursuant to this theory, a court may exercise jurisdiction over nonresidents involved in a conspiracy when a co-conspirator performs jurisdictionally sufficient acts in furtherance of the conspiracy.

The court noted that, to engage in a jurisdictional analysis, the plaintiff must first state a prima facie case of civil conspiracy. The court determined that WTG satisfied the first three prongs of this requirement because it alleged that Bulldog, Harrison, and Reynolds knowing entered into an unlawful agreement to induce Coaches to breach the franchise agreement through: (1) reduced and stopped royalty payments; (2) unauthorized or unapproved use of the WTG’s intellectual property rights; and (3) conversion of the “Wings to Go” franchise to a substantially similar restaurant that operated under the name “Coaches.”

The court found that the fourth prong of the conspiracy theory analysis, whether these overt acts were sufficient to extend its jurisdiction over Harrison, was also satisfied because: (1) he was engaged in a persistent course of conduct in Maryland; and (2) his overt acts, in furtherance of the conspiracy, were part of that persistent course of conduct.

After determining that it had personal jurisdiction over Bulldog, the court considered whether exercising it comported with the state constitution’s due process requirement of fair warning. The court found that Bulldog had fair warning that his participation could subject to him to personal jurisdiction in Maryland because: (1) it reasonably expected Harrison to take actions that would subject him to personal jurisdiction in Maryland; (2) Harrison and Bulldog’s sole member, Reynolds, were signatories to the franchise agreement and participants in the ongoing relationship with WTG; and (3) any actions taken by Harrison to breach the franchise agreement were foreseeably linked to Maryland.

The case is No. CCB-15-2556.

Attorneys: Pierce Christopher Murphy (Leitess Friedberg PC) for Wings to Go, Inc. Richard W. Evans (McCarthy Wilson) for Wade Reynolds.

Companies: Wings to Go, Inc.

Cases: FranchisingDistribution MarylandNews