Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—D.P.R.: Franchisee’s action over advertising expenditure transferred, (Jun 5, 2014)

By Greg Hammond, J.D.

A Burger King restaurant franchisee’s claims for damages, injunctive relief, and declaratory relief against Burger King Corporation (BKC), arising from an alleged breach of numerous franchise agreements, were transferred from the federal district court in Puerto Rico to the federal district court in Miami based on a choice-of-forum provision in the franchise agreements (Caribbean Restaurants, LLC v Burger King Corporation, June 3, 2014, Perez-Gimenez, J). There was no evidence of fraud or overreaching, and public-interest factors weighed in favor of transfer.

Background. Caribbean Restaurants, LLC and BKC entered into 182 franchise agreements over the course of 37 years, whereby BKC licensed Caribbean the right to operate 182 Burger King restaurants in Puerto Rico. Of the franchise agreements, 41 were the “old form franchise agreement” and 141 were the “new form franchise agreement.” The new forms allowed BKC to require Caribbean to contribute “advertising funds” in a manner specified by BKC, but the old forms only allowed for the collection of advertising funds in the event there was more than one franchisee. Because Caribbean is the only Burger King franchisee in Puerto Rico, it brought suit against BKC, alleging the company violated the Dealer’s Contracts Act Law (Law 75), and seeking damages, injunctive, and declaratory relief. Both the old and new form franchise agreements provided that the federal district court in Miami, Florida was the exclusive and proper venue for any case or controversy under the agreements. Consequently, BKC filed a motion to dismiss for failure to state a claim, and alternatively, to transfer venue to the federal district court in Miami, Florida.

Transfer of venue. The court treated BKC’s motion as only a motion to transfer, noting that it is the proper mechanism to use when there is a clause that specifies a different federal court as the appropriate venue. Caribbean argued that the choice-of-forum clause was null and void because it violated Law 75, which states, “[a]ny stipulation that obligates a dealer to…litigate any controversy that comes up regarding his dealer’s contract outside of Puerto Rico, or under foreign law or rule of law, shall be likewise considered as violating the public policy set forth by this chapter and is therefore null and void.” However, the court rejected Caribbean’s argument, reasoning that Law 75 does not automatically disregard “freely-negotiated contractual obligations.”

Because Caribbean made no allegations of fraud or overreaching that could invalidate the franchise agreements, the court considered public-interest factors that are relevant to transfer of venue under 28 U.S.C. 1404. Specifically, the court determined that the following factors weighed in favor of transfer: (1) Puerto Rico’s court system is one of the most congested criminal and civil dockets in the country; (2) “home” is considered Miami, Florida due to the choice-of-law provisions in the franchise agreements; and (3) other than Caribbean’s Law 75 claim, Florida law applies to the dispute. The court therefore found that Caribbean failed to meet its burden to demonstrate transfer was unwarranted, and consequently granted BKC’s motion to transfer to the federal district court in Miami, Florida.

The case number is 14-1200 (PG).

Attorneys: Himanshu M. Patel (Zarco Einhorn Salkowski & Brito, PA) for Caribbean Restaurants, LLC. Michael D. Joblove (Genovese Joblove & Battista, PA), and Rossell Barrios-Amy (Goldman Antonetti & Cordova) for Burger King Corp.

Companies: Caribbean Restaurants, LLC; Burger King Corp.

Cases: FranchisingDistribution PuertoRicoNews