Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—E.D. Pa.: AAMCO’s action to enforce noncompetition pact to proceed, (Aug 22, 2014)

By John W. Arden, J.D., LL.M.

AAMCO Transmissions, Inc.’s action to enforce a noncompetition clause of a franchise agreement against a former Florida franchisee and his wife survived a motion to dismiss. The federal district court in Philadelphia found that it had personal jurisdiction over the franchisee and his wife, the noncompetition clause covered an independent transmission shop purportedly owned by the wife, and the Pennsylvania forum was appropriate (AANCI Transmissions, Inc. v. Romano, August 21, 2014, Brody, A.).

A franchisor of automotive transmission repair centers, AAMCO is a Pennsylvania corporation with its principal place of business in Horsham, Pennsylvania. In 1992, the franchisor entered into a 15-year franchise agreement with Florida citizen Robert Romano to operate a franchise in Hollywood, Florida. Romano operated the franchise until February 20, 2013, when he and AAMCO signed a franchise termination agreement. Under this agreement, Romano released all rights under the franchise agreement, and AAMCO released Romano from his obligations of the franchise agreement, with a few exceptions, such as the post-termination noncompetition clause. This clause prohibited the franchisee from directly or indirectly engaging in the transmission repair business for a period of two years after termination and within a radius of 10 miles of the former franchise or any other AAMCO transmission center.

Notwithstanding the noncompetition clause, the Romanos owned and operated a transmission repair business under the name Treasure Coast Transmissions in Stuart, Florida. The location was roughly 100 miles north of their Hollywood franchise, but less than 1.5 miles from the nearest AAMCO center.

AAMCO brought this action for specific performance of the noncompetition clause, as well as for costs and attorney fees. The Romanos moved to dismiss the action for lack of personal jurisdiction and for failure to state a claim, arguing that Robert Romano did not own or operate Treasure Coast Transmissions, his wife was not subject to the noncompetition clause of the franchise agreement, and the geographic scope of the noncompetition clause was unreasonable and unenforceable. In the alternative, the Romanos moved for a transfer of venue to the federal district court in Miami.

Venue. The Romanos initially argued that the forum selection clause of the franchise agreement—requiring venue in Pennsylvania—no longer applied to this dispute because the franchise agreement was terminated. Courts have consistently rejected this argument, according to the court. The forum selection clause broadly covered any legal dispute, and the termination agreement made no reference to the forum selection clause. Thus, there was no evidence that the forum selection clause would cease to apply to claims under the franchise agreement upon termination. Moreover, the forum selection clause was applicable to the franchisee’s wife, who was a nonsignatory of the franchise agreement. Linda Romano was so closely-related to the franchisee that she should have foreseen being bound by the forum selection clause.

Applicability, validity of noncompetition clause. The Romanos maintained that AAMCO failed to state a claim for breach of the noncompetition clause because (1) Robert Romano, who was bound by the clause, did not own or operate Treasure Coast Transmission; (2) Linda Romano, who owned and operated Treasure Coast Transmission, was not subject to the noncompetition clause as a nonsignatory of the franchise agreement; and (3) the geographic scope of the noncompetition provision was unreasonable and unenforceable.

Regarding the first contention, AAMCO claimed that Robert Romano was involved in the operation of Treasure Coast Transmission and held himself out as its owner, citing a business card identifying him as the owner. This allegation was sufficient to state a claim for breach of the franchise agreement.

With regard to the second point, it is well established that a nonsignatory who benefits from a signatory’s relationship with a competing business must abide by the same restrictive covenant, the court held. AAMCO’s allegation that Linda Romano operated Treasure Coast Transmission as Robert Romano’s agent was a sufficient basis to seek specific enforcement of the franchise agreement against her. The noncompetition clause may apply to Linda Romano, and the allegations were sufficient to state a claim.

At this stage of the litigation, the court could not conclude that the geographic scope of the noncompetition clause was unreasonable. AAMCO franchises across the country and in Canada. Robert Romano could use his specialized knowledge—disclosed to him by AAMCO—at any location in the U.S. or Canada to compete with current franchisees. “It is therefore possible that the geographic scope of the covenant is reasonable,” the court observed.

Motion to transfer. The Romanos argued that the district court should transfer the action to the federal district court in Miami because of the financial burden they would face in defending the action in Pennsylvania and because the records and witnesses were located in Florida. The court found that the Romanos failed to establish that the balance of private and public interests weighed in favor of the transfer. The U.S. Supreme Court has held that the choice of forum expressed through a forum selection clause carries great weight. When parties agree to a forum selection clause, they waive the right to challenge the selected forum as inconvenient or less convenient for themselves or their witnesses. The public interest factor also weighed in favor of retaining the case in Pennsylvania, since the local court had a greater interest in deciding a case where the alleged injury was sustained by a local company.

The case is Civil Action No. 13-5747.

Attorneys: James C. Rubinger (Plave Koch PLC), and William B. Jameson (Cottman Transmission Systems, LLC) for AAMCO Transmissions, Inc. Robert V. Romano, pro se.

Companies: AAMCO Transmissions, Inc.

Cases: FranchisingDistribution PennsylvaniaNews