Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.N.J.: Difficulties litigating in another state did not make forum selection clause unenforceable, (Feb 24, 2015)

By Dan Selcke, J.D.

A franchisor’s choice to file a breach of contract suit in its home state of New Jersey should be honored, the federal district court in Newark, New Jersey held, despite the fact that the Minnesota franchisee would have difficulty litigating there. Those difficulties would not deny the franchisee its day in court, and the forum selection clause requiring the franchisee to submit to New Jersey jurisdiction was valid and enforceable (Ramada Worldwide Inc. v. SB Hotel Management Inc., February 23, 2015, Martini, W).

Franchise agreement. Ramada Worldwide Inc., which had its principle place of business in New Jersey, operated the nationally known Ramada hotel franchise. It entered into a franchise agreement with SB Hotel Management Inc., which had its principle place of business in Minnesota. The agreement allowed the franchisee to operate a Ramada Inn located in Wisconsin. Under the agreement, SB Hotel had to make periodic payments to Ramada. Under an addendum to the agreement made pursuant to the Minnesota Franchise Act. SB Hotel promised to pay damages in the event of an early termination.

Breach, lawsuit, and motion to dismiss. Several years after it went into effect, SB Hotel unilaterally terminated the agreement, according to Ramada’s complaint. Ramada filed suit. It claimed that SB Hotel breached the agreement and demanded payment of outstanding fees and damages. SB Hotel filed a motion to dismiss for improper venue pursuant to FRCP 12(b)(3) or, alternatively, to transfer venue pursuant to 28 U.S.C. Section 1404(a).

Agreement terms. First, SB Hotel argued that the court should dismiss Ramada’s complaint because a forum selection clause contained in the agreement required that any suit concerning it be filed in Minnesota. After noting that invoking FRCP 12(b)(3) was not the proper way to enforce a forum selection clause, the court concluded that the plain language of the agreement did not support SB Hotel’s argument.

Section 17.6.3 of the agreement, the forum selection clause, provided that SB Hotel waived any objection to the non-exclusive personal jurisdiction of and venue in New Jersey state courts. Meanwhile, Section 1 of the addendum prohibited Ramada from making SB Hotel waive its right to file suit in Minnesota, a right granted to SB Hotel by the Minnesota Franchise Act.

SB Hotel argued that the addendum subjected the agreement to certain provisions of the Minnesota Franchise Act, specifically Section 80C.21 and Minnesota Rule 2860.440J. Together, it argued, these provisions created a valid forum selection clause that prohibited Ramada from filing suit outside Minnesota. All these provisions did, however, was prohibit waiver of a Minnesota franchisee’s right to file suit in its “home” court of Minnesota. This was exactly what Section 1 of the addendum provided. Neither Sec. 80C.21 nor Minn. Rule 2860.440J prevented a franchisor like Ramada from filing suit outside Minnesota, which was exactly what Ramada had done. SB Hotel had plainly consented to submit to personal jurisdiction in New Jersey pursuant to Sec. 17.6.3 of the agreement, so Ramada’s choice of venue was proper.

Forum selection clause. Next, the court held that the forum selection clause was valid and enforceable, despite SB Hotel’s argument that it was unreasonable. SB Hotel produced no evidence of fraud or overreaching and was not able to show that the clause violated Minnesota public policy. It therefore failed to satisfy the first two elements of the unreasonableness analysis.

SB Hotel also failed to satisfy the third element: showing that enforcement of the clause would result in litigation so seriously inconvenient that it would effectively deny the company its day in court. SB Hotel produced affidavits demonstrating that some of its non-party witnesses would have difficulties testifying due to family and work responsibilities. It also argued that traveling to New Jersey would put financial strain on some of the SB Hotel principals. Litigating the case in New Jersey would, indeed, be inconvenient for SB Hotel, but that inconvenience was foreseeable at the time it entered into the agreement. Also, the company did not claim that its witnesses would be unavailable to litigate the case in New Jersey, just that it would be difficult for them. Under these circumstances, enforcing the forum selection clause would not effectively deny SB Hotel its day in court.

Transfer of venue. Having opted not to dismiss the case, the court then considered whether to grant SB Hotel’s motion to transfer it to a venue in Minnesota. Although the case could have been brought in Minnesota originally, the court decided against transferring it there. As a New Jersey corporation, Ramada’s preference of New Jersey as a venue was given substantial weight. SB Hotel cited the inconveniences it would experience in litigating the case in New Jersey, but the court noted that the records and witnesses concerning the SB Hotel’s execution and termination of the agreement were located there. Transferring the case to Minnesota would only shift the inconvenience from SB Hotel to Ramada. Also, SB Hotel’s inconvenience was entitled to less weight than Ramada’s, since SB Hotel had agreed to submit to jurisdiction in New Jersey when it signed the agreement.

Lastly, the court noted that both states had an interest in the litigation, and reiterated that letting the case proceed in New Jersey would not violate the public policy of Minnesota. It denied SB Hotel’s motion to dismiss or, in the alternative, to transfer venue.

The case number is: 2:14-02186

Attorneys: Justin Michael Vogel (LeClairRyan) for Ramada Worldwide Inc. Michael A. Orozco (Price, Meese, Shulman & D'Arminio) for SB Hotel Management, Inc.

Companies: Ramada Worldwide Inc.; SB Hotel Management, Inc.

Cases: FranchisingDistribution NewJerseyNews