Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Fla.: Forum selection clauses did not require transfer of franchisee's claims, (Apr 22, 2016)

By Edward L. Puzzo, J.D.

The claims of a Florida-based franchisee against a Maryland-based franchisor were not required to be transferred to a Maryland court from a Florida court because the forum selection clauses of the franchise agreement and guarantee were permissive and not mandatory, and a forum non conveniens analysis did not mandate transfer, the federal district court in Tampa has ruled (Cluck-U Chicken, Inc. v. Cluck-U Corp., April 20, 2016, Merryday, S.).

In May 2013, Cluck-U Chicken, Inc., a Florida corporation, and its personal guarantor Anthony Tartaglia, entered into a franchise agreement with Maryland corporation Cluck-U Corp. to operate a fast-food chicken restaurant franchise in North Port, Florida. The franchisee and guarantor moved forward with franchise development and opened for business in February 2014.

Subsequently, the franchisee alleged that the franchisor had made material misrepresentations and had violated its financial disclosure obligations in its franchise disclosure document (FDD). Contrary to the representations made by the franchisor in the FDD, the franchisor allegedly (1) had no formal training program or on-the-job training, (2) failed to provide advertising assistance or negotiate favorable pricing for food and supplies, (3) failed to provide lists of equipment and build-out requirements necessary to open a business, (4) failed to provide site and market criteria, and (5) required unnecessary expenditures for opening inventory. The franchisee also alleged that the costs necessary to begin operations were not provided in good faith and the unexpected increased start-up costs left the plaintiffs without sufficient funding to cover operating losses. As a result of the defendants’ breaches of their legal obligations, the plaintiffs invested more than $925,000 in a business that operated at a substantial loss.

The franchisee brought various claims against the franchisor under the Sherman Act, the Florida Franchise Act, the Florida Sale of Business Opportunities Act, and the Florida Deceptive and Unfair Trade Practices Act. The franchisor moved to transfer the action to the District of Maryland.

Forum selection clause. The franchisor argued that the forum selection clause of the franchise agreement required that the claims be heard in a Maryland court. The court noted that, in the clause, the parties consented to jurisdiction and venue in Maryland courts. However, venue in that location was not required nor was venue in another location excluded. Further, the clause only contained consent to jurisdiction and venue in a Maryland state court located in Prince Georges' County, not a particular federal district court. Parties can consent to jurisdiction and venue only in a court that has original jurisdiction over the parties’ action.

Guaranty clause. The franchisor also argued that the forum selection clause of the personal guarantee signed by Anthony Tartaglia required that the claims be heard in a Maryland court. But the court viewed the language of the clause as a hybrid that provided for permissive jurisdiction in one forum that becomes mandatory upon the party sued.

The court determined that the forum selection clauses in both the franchise agreement and the guarantee were permissive, not mandatory. Under such circumstances, the normal forum non conveniens analysis applied. Under those rules, the plaintiff's choice of forum should not be disturbed unless it is clearly outweighed by other considerations, such as the convenience of the parties and witnesses, the locus of the operative facts, trial efficiency, and the interests of justice, the court stated.

The franchisor argued that the FDD and corporate records were located in Maryland, but the court replied that they were available electronically and were easily transferable to Florida. The franchisor also argued that their staff and witnesses were all in Maryland. The court noted that the witnesses’ convenience was less significant when witnesses were employees of a party that could compel their presence. The court concluded that there was no compelling reason to transfer the matter from the Florida federal court where the plaintiff had filed the complaint. Therefore, the franchisor's motion to transfer the action to the District of Maryland was denied.

The case is Civil Action No. 8:15-cv-02274-SDM-MAP.

Attorneys: Mary M. Clapp (Clapp Business Law, LLC) for Cluck-U Chicken, Inc. Douglas William Grissinger (Mellor & Grissinger) for Cluck-U Corp.

Companies: Cluck-U Chicken, Inc.; Cluck-U Corp.

Cases: FranchisingDistribution StateUnfairTradePractices FloridaNews