Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Mo.: Transfer of venue ordered in claims by Curves’ franchisees, (Oct 16, 2015)

By Edward L. Puzzo, J.D.

A forum selection clause in Curves’ franchise agreements could not be used to dismiss claims brought in another forum but could only be used to transfer those claims, the federal district court in St. Louis has ruled. The court further ruled that Texas unfair trade practices law applied to ongoing business relationships including franchise agreements (Armstrong v. Curves International, Inc., October 15, 2015, Mummert, T.).

Multiple groups of Curves International franchisees brought a number of charges against the franchisor in relation to 83 franchises, alleging misrepresentations, unanticipated demands by the franchisor and the franchisor’s failure to fulfill its obligations under the franchise agreements. Among other claims, plaintiffs allege that Curves’ actions violated the Texas Business Opportunity Act (TBOA) and the Texas Deceptive Trade Practices Act (DTPA). Curves moved to dismiss for failure to state a claim.

Forum selection clause. The Franchise Agreement contained a provision requiring cases or controversies arising under the agreement to be heard in Texas State or federal courts. Based on this provision, Curves moved for either the dismissal of the claims, or the transfer of the claims from Missouri federal court to Texas federal court.

The court stated that, under recent U.S. Supreme Court precedent, a defendant cannot enforce such a clause by a motion to dismiss, but can enforce it by a motion to transfer, Atlantic Marine Const. Co. v. U.S. Dist. Court for the Western Dist. of Tex., 134 S.Ct. 568 (2013). Plaintiffs argued that the case should not be transferred because Curves’ fraudulent conduct allowed the court to not enforce the forum selection clause. In response, the court stated that a forum selection clause was only unenforceable if the inclusion of that clause in the contract was the product of fraud or coercion. Since plaintiffs only presented a general allegation of fraud in connection with the franchise agreement, and not specifically fraud in relation to the forum selection clause, the court continued, the clause in this case was enforceable. Consequently, the court ruled that the case should be transferred to the U.S. District Court for the Western District of Texas.

Texas state law claims. The Texas Business Opportunity Act (TBOA) barred untrue statements of material fact in required filings and promotional material, as well as representations of earnings potential without substantiation. The TBOA also imposes mandatory disclosures or bars false or misleading statements in the sale of business opportunities, including franchise agreements. Violations of the TBOA are misleading practices under the Texas Deceptive Trade Practices Act (DTPA). Actions brought under both the TBOA and DTPA must be commenced within two years of the discovery of the deceptive practice.

Curves argued that the TBOA and DTPA protected consumers, and were not applicable to those in ongoing long-term contractual relationships. The court rejected Curves’ characterization, stating that the protections of the acts extended to business opportunities including the renewal of franchise agreements. It therefore declined to dismiss the TBOA and DTPA claims.

The case is No. 4:15-cv-01006-TCM.

Attorneys: Jonathan E. Fortman (Law Office of Jonathan E. Fortman, LLC) for Anne Armstrong. Duane L. Coleman (Lewis Rice, LLC) for Curves International, Inc. and Curves International Holdings, Inc.

Companies: Curves International, Inc.; Curves International Holdings, Inc.

Cases: FranchisingDistribution StateUnfairTradePractices MissouriNews