Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D. N.J.: Minnesota Franchise Law, contract did not prohibit franchisor from suing in New Jersey, (Oct 24, 2013)

By Peter Reap, J.D., LL.M.

Neither the language of the Minnesota Franchise Act, nor the language of the parties’ franchise agreement required a hotel franchisor with its principal place of business in New Jersey to bring its action against a terminated Minnesota franchisee in Minnesota, the federal district court in Newark has decided (Ramada Worldwide, Inc. v. Grand Rios Investments, LLC, October 23, 2013, Hammer, M.). The terminated franchisee and one of its individual guarantors were not entitled to a change of venue to the federal district court in Minneapolis because they failed to demonstrate that the public or private interest factors under the federal venue statute mandated a change.

Background. The franchisor (Ramada Worldwide, Inc.) brought suit against the franchisee (Grand Rios Investments, LLC), a Minnesota company with its principal place of business in Brooklyn Park, Minnesota, and its three individual guarantors, all Minnesota residents, after the franchisee allegedly ceased operating the 224-room facility that was the subject of the parties’ franchise agreement. The franchisor demanded and accounting and damages for premature termination.

Before the court was a motion by the franchisee and one of the guarantors (the “defendants”) to transfer venue. The defendants argued that the parties specifically agreed to Minnesota as the forum for disputes and that the franchisor was barred from requiring litigation to be conducted outside that state. The franchisor argued that their agreement contained a forum selection clause, which was incorporated in the guaranties, in which the defendants consented to the non-exclusive personal jurisdiction of the federal district court in Newark and venue within the district.

Forum selection. In support of their motion to transfer venue, the defendants relied on the Minnesota Franchise Act and the addendum to the franchise agreement to support their claim that the parties agreed to a forum selection clause in Minnesota. The relevant provision of the Minnesota Franchise Act states:

Any condition, stipulation or provision, including any choice of law provision, purporting to bind any person who, at the time of acquiring a franchise is a resident of this state, or, in the case of a partnership or corporation, organized or incorporated under the laws of this state, or purporting to bind a person acquiring any franchise to be operated in this state to waive compliance or which has the effect of waiving compliance with any provision of sections 80C.01 to 80C.22 or any rule or order thereunder is void.

Minn. Stat. § 80C.21.

Further, the defendants claimed that the parties incorporated this provision into the addendum to the franchise agreement which reads:

Minnesota Statutes, Section 80C.21 and Minn. Rules 2860.4400J prohibit us from requiring litigation to be conducted outside Minnesota. Nothing in the Franchise Disclosure Document or this Agreement can abrogate or reduce any of your rights as provided for in Minnesota Statutes 1987, Chapter 80C, or your rights to any procedure, forum or remedies provided for by the laws of Minnesota.

The defendants argued that the relevant language in the Addendum amounted to a forum selection clause precluding the franchisor from filing suit outside the state of Minnesota.

A plain reading of the Minnesota Franchise Act’s language indicated that it was designed to prohibit waiver of the protections afforded to franchisees under the statute, the court determined. Essentially, under Minn. Stat. § 80C.19, a Minnesota franchisee could not be prevented from filing suit in its “home” court in Minnesota by a franchisor. Thus, Grand Rios’s ability to file suit in Minnesota was preserved, and could not be contractually waived.

The franchise agreement did not contain any language indicating that the defendants waived any right to file suit in Minnesota, the court held. The agreement and its New Jersey choice of forum provision stipulated only that they assented to the “non-exclusive personal jurisdiction” of certain New Jersey courts. The defendants provided no legal authority for the proposition that the Minnesota Statute limited this litigation solely to the Minnesota courts. Thus, the defendants’ contention that the addendum and Minnesota Statute §80C.19 required this litigation to proceed in Minnesota was without merit, and the court would proceed to assess the defendants’ motion pursuant to the traditional standards under 28 U.S.C. §1404(a).

Federal venue statute. The defendants demonstrated that both the Ramada Hotel in question and its owner-operator were located in Brooklyn Park, Minnesota, and that the guarantors resided in Minnesota. However, the defendants presented no evidence that a change in venue would do anything other than shift the inconvenience of venue from the defendants to the franchisor, the court explained. Ordinarily, a plaintiff’s choice of forum is a “paramount consideration” and should not be “lightly disturbed.” Thus, the franchisor’s choice of venue in New Jersey was given substantial weight.

The defendants made no showing that the other factors under the federal venue statute weighed in favor of venue transfer to Minnesota. The party seeking transfer should support its motion with affidavits and other documentation establishing that the interests of justice and convenience of the parties would best be served by a transfer. Other than pointing out that the guarantors were Minnesota residents, the defendants presented nothing to indicate that any of the public or private interest factors weighed in their favor. Therefore, the defendants did not carry their burden to show that change of venue should be granted, the court ruled.

The case is Civil Action No. 13-3878 (KM).

Attorneys: Kelly Ann Krug (Clyde & Co US LLP) for Ramada Worldwide, Inc. Michael A. Orozco (Bailey & Orozco, LLC) for Grand Rios Investments, LLC.

Companies: Ramada Worldwide, Inc.; Grand Rios Investments, LLC

Cases: FranchisingDistribution NewJerseyNews