Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—M.D. Fla.: Negotiations with prospective franchisees, application for exemption did not subject franchisor to jurisdiction in Florida, (Jul 8, 2013)

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

A Nebraska-based restaurant franchisor’s negotiations with prospective Florida franchisees, sending of franchise disclosure documents to parties in Florida, and submission of an application for a franchise exemption from the Florida business opportunities law did not subject the franchisor to personal jurisdiction within Florida, according to the federal district court in Tampa (Mio, LLC v. Valentino’s of America, Inc., July 3, 2013, Lazzara, R.). Thus, a declaratory judgment action of noninfringement of the franchisor’s trademark—brought by a Florida restaurant—was dismissed for lack of personal jurisdiction over the franchisor.

Valentino’s of America, Inc. is a Nebraska corporation with its sole office in Lincoln, Nebraska. It franchises pizza restaurants, using the service mark VALENTINO’S. It opened its first restaurant in 1957 and has approximately 35 franchises in five Midwestern states. Valentino’s is not registered to do business in Florida; does not hold real or personal property within Florida; and has no address, post office box, or telephone number in Florida.

In 2012, four individuals contacted Valentino’s about opening a franchise in Florida. Three of these individuals had ties to Nebraska and two or three of them resided in Florida. In response to this contact, Valentino’s applied for a franchise exemption to the Florida Sale of Business Opportunities Act; sent a Franchise Disclosure Document to two of the prospective franchisees in Florida; and made several communications with the prospective franchisees regarding management of the potential franchise facilities and potential franchise locations in Orlando and Ft. Myers.

While the franchisor never entered into franchise agreements with any of the prospective franchisees, it discovered in its investigations a restaurant in Sarasota, Florida known as Valentino Pizzeria Trattoria. The franchisor’s counsel sent a cease and desist letter to the restaurant, alleging trademark infringement. In response, the restaurant brought an action for a declaratory judgment of non-infringement in the federal district court in Tampa. The franchisor filed a motion to dismiss for lack of jurisdiction, and the restaurant filed an opposition.

The district court concluded that neither the franchisor’s negotiations with prospective franchisees nor its application for an exemption from the Florida business opportunities law brought the franchisor within the personal jurisdiction of the court.

Personal Jurisdiction

To determine personal jurisdiction over a non-resident, courts engage in a two-part inquiry, the court observed. The court first must ascertain what grounds enumerated under Florida’s long-arm statute would permit the exercise of personal jurisdiction. If the long-arm statute provides a basis for jurisdiction, then the court must further apply a due process analysis and consider whether there are sufficient constitutional minimum contacts between the defendant and the forum to satisfy traditional notions of fair play and substantial justice.

In this case, there was neither general nor specific jurisdiction over the franchisor within the Florida long-arm statute.

General jurisdiction. The court agreed with the franchisor that general jurisdiction did not exist because the franchisor was not engaged in substantial and non-isolated activity in Florida. While general jurisdiction does not require a connection between the defendant’s activities and the cause of action, it requires a more demanding showing of “continuous and systematic” business contacts than specific jurisdiction under the statute.

The franchisor never consummated a franchise sale within Florida; did not market its franchises within Florida; did not have an office or hold real estate within Florida; and did not send any representative to scout for locations in Florida.

The one step that Defendant undeniably took was the submission of the Franchise Exemption Application in May 2012 to Florida’s Department of Agriculture & Consumer Services in order to receive an exemption from the state business opportunity law.

“Although no authority has been located that addresses the effect of a defendant’s act of applying for an exemption for the purposes of personal jurisdiction under the long-arm statute, the Court finds that this act would not satisfy the ‘substantial and not isolated’ aspect of the statute.”

The designation of a state agent to accept service of process, standing alone, did not meet the general jurisdiction requirement either, the court ruled.

Specific jurisdiction. To fall within the specific jurisdiction of the long-arm statute, allegations of a complaint, coupled with the ensuing submissions, must show that this action for declaratory judgment “arises from” the particular contact on the part of the defendant.

The trademark infringement asserted against the restaurant in a cease and desist letter did not arise out of “the quest undertaken by the four individuals to find a location for a Valentino’s franchise in Florida,” the court reasoned. First, the alleged infringement was directed at the Sarasota restaurant, which was not part of the plans of the four individuals to start a Valentino’s franchise. Second, the trademark infringement claim did not “arise from” the pursuit of a franchise. In fact, the potential infringement claim had nothing to do with the four individuals’ relationship to the franchisor. The absence of any franchise relationship coming to fruition in Florida confirmed that the franchisor was not involved in a general course of activity for pecuniary benefits in Florida.

The case is No. 8:13-cv-191-T-26TGW.

Attorneys: Gordon E.R. Troy (Gordon E.R. Troy, PC) for Mio, LLC. Mary Ann Novak (Cline Williams) for Valentino’s of America, Inc.

Companies: Mio, LLC; Valentino’s of America, Inc.

Cases: FranchisingDistribution FloridaNews