Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: License agreement not a “franchise” under New Jersey Franchise Practices Act, (Oct 13, 2015)

By Linda O’Brien, J.D., LL.M.

A licensing agreement between a footwear manufacturer and a distributor was not a “franchise” within the New Jersey Franchise Practices Act, and therefore the Act’s prohibition on forum selection clauses did not apply, a magistrate judge in the federal district court in Newark, New Jersey has decided. Thus, the defendant manufacturer’s motion to transfer venue pursuant to the agreement’s forum selection clause was granted (B-Jays USA, Inc. v. Red Wing Shoe Company, Inc., October 6, 2015, Mannion, S.).

Red Wing Shoe Company is a Minnesota corporation engaged in the manufacturing of footwear and holds trademarks associated with its products that it licenses to distributors. Headquartered in New Jersey, B-Jays USA, Inc. distributes footwear and operates retail stores. B-Jays entered into a licensing agreement with Red Wing to market and sell footwear under Red Wing’s “Vasque” trademark. The agreement contained a forum selection clause, pursuant to which each party agreed to submit to the exclusive jurisdiction of the courts in Minnesota for the resolution of any claim or dispute arising under the agreement.

In March 2015, B-Jays filed suit, alleging that Red Wing wrongly terminated the licensing agreement and asserting claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and a violation of the New Jersey Franchise Practices Act (NJFPA). Red Wing moved to transfer venue to the District of Minnesota.

The court found that the licensing agreement between Red Wing and B-Jay did not qualify as a franchise under the NJFPA and therefore the Act’s prohibition on forum selection clauses as against public policy did not apply. The NJFPA only applies to a franchise (1) that is required to establish a place of business in New Jersey; (2) under which the gross sales of products or services between the franchisor and franchisee exceed $35,000 for the twelve month period preceding the institution of suit pursuant to the Act; and (3) where more than 20 percent of the franchisee’s gross sales are derived from such franchise, the court explained.

According to the court, the record failed to show that the gross sales of the products or services between the plaintiff and defendant exceeded $35,000 for the twelve months preceding the institution of the suit. B-Jays declaration that the company exceeded $35,000 in gross sales was insufficient. Moreover, the only fact presented to suggest that the requirement was met was the issuance of a $100,000 payment from B-Jay to Red Wing in August 2014. However, the payment was cancelled before it could be honored and does not represent a completed transaction.

Furthermore, the court found that private and public interest factors weighed in favor of transfer to the District of Minnesota. B-Jay’s argument that it would be financially burdened by litigating in Minnesota was rejected since the plaintiff agreed to the forum selection clause in the licensing agreement and must bear the risk of such inconvenience. Since the transfer to Minnesota would allow for an expeditious and less expensive litigation, and alleviate administrative difficulties, the transfer was granted.

The case is No. 2:15-cv-02182-SDW-SCM.

Attorneys: Charles M. Fisher (Windels, Marx, Lane & Mittendorf, LLP) for B-Jays USA, Inc. George Karousatos (Biancamano & Di Stefano, PC) for Red Wing Shoe Company, Inc.

Companies: B-Jays USA, Inc.; Red Wing Shoe Company, Inc.

Cases: FranchisingDistribution NewJerseyNews