Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION: Jury Trial Demand on Franchisee Claims Stands Despite Waiver Provision, but Counterclaims Dismissed, (Jun 5, 2013)

By Tobias J. Gillett, J.D., LL.M.

The federal district court in Newark, New Jersey has refused to strike an alleged franchisee’s demand for a jury trial in an action over Jackson Hewitt, Inc.’s termination of the franchisee for his alleged failure to remit certain payments, despite a contractual provision containing a waiver of the right to a jury trial, because the court could not determine whether the provision was valid (Jackson Hewitt, Inc. v. Luke, June 3, 2013, Linares, J.). However, the court dismissed the franchisee’s counterclaims as inadequately pled.

Jackson Hewitt allegedly had a franchise relationship with Terry Luke that it claimed it terminated because “Luke failed to remit specific payments to Jackson Hewitt pursuant to the terms of the franchise agreement.” Luke filed counterclaims alleging that Jackson Hewitt “was required to provide Luke with current individual federal tax return preparation processing material and software for Federal and State preparation and filing programs,” but instead provided software and equipment that “was inadequate, failed to work and was antiquated.” Jackson Hewitt filed a motion to dismiss and to strike Luke’s demand for a jury trial.

Jury demand. Jackson Hewitt asserted that a provision of the franchise agreement contained a waiver of Luke’s right to a jury trial, and therefore Luke was not entitled to a jury trial. The court explained that courts deciding whether a jury trial waiver was valid employ the following factors: “(1) there was no gross disparity in bargaining power between the parties, (2) the parties are sophisticated business entities, (3) the parties had an opportunity to negotiate the contract terms, and (4) the waiver provision was conspicuous.”

Reviewing those factors, the court declined to strike Luke’s demand for a jury trial. The court noted that it was “uncertain whether the provision was a bargained for term of the contract, whether Luke was represented by counsel at the time, and whether it was otherwise knowing and voluntary.” Moreover, although Jackson Hewitt also referred to a provision stating that the franchisee had read the agreement and the offering circular and had had an opportunity to consult with an attorney, the court observed that Jackson Hewitt had neglected to attach the franchise agreement in full, and therefore the court could not determine “whether the provision is indeed conspicuous,” as Jackson Hewitt asserted.

Motion to dismiss. However, the court dismissed Luke’s counterclaims without prejudice. The court found that “the only allegations of wrongdoing amount to no more than broad brushstrokes insufficient to satisfy the pleading requirements of the Federal Rules.” The court noted that Luke did not even refer to specific provisions in the agreement that he alleged Jackson Hewitt had breached.

Moreover, the court declined to consider two exhibits that Luke attached to his opposition to Jackson Hewitt’s motion to dismiss, one a complaint in an action by the California Attorney General alleging that Jackson Hewitt violated California law “with the intent to induce California consumers to purchase products and services,” and the other a judgment against Jackson Hewitt. The court explained “that a party may not amend its pleadings by way of arguments made in opposition to a motion to dismiss.” Although “a court may consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff’s claims are based on that document,” the exhibits here were “neither referenced in nor integral to the pleading.

The case is No. 13-512 (JLL).

Attorneys: James Simon Coons (Ansa Assuncao, LLP) for Jackson Hewitt Inc. Elliott Abrutyn (Morgan, Melhuish & Abrutyn) for Terry Luke.

Companies: Jackson Hewitt, Inc.

Cases: FranchisingDistribution NewJerseyNews