Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—MDGa: Wings Restaurant Franchisor Did Not Waive Right to Challenge Venue; Area Developer’s Action Dismissed , (Mar 29, 2013)

By Peter Reap, J.D., LLM

A franchisor of chicken wings restaurants, WOW Café & Wingery Franchising Account, LLC, did not waive its right to challenge the venue of an action brought against it by franchise area developer, Spencer Franchise Services of Georgia, Inc., by engaging in substantive litigation before filing its motion to dismiss for improper venue, the federal district court in Macon, Georgia, has decided (Spencer Franchise Services of Georgia, Inc. v. WOW Café and Wingery Franchising Account, LLC, March 26, 2013, Treadwell, M.). Therefore, the case was dismissed without prejudice pursuant to the choice of forum clause in the parties’ agreement. The franchisor’s motion for an award of attorney fees and costs was denied.

Background. The parties entered into an area development agreement on June 19, 2007. The agreement contains a forum selection clause requiring any action to be brought within the judicial district in which the franchisor has its principal place of business, namely, St. Tammany Parish in the State of Louisiana.

Spencer filed its suit against WOW in the federal district court for the Middle District of Georgia. Spencer alleged claims for breach of contract, fraud, negligent misrepresentation, and violation of the Georgia Sale of Business Opportunities Act, among others. Before the court was WOW’s motion to dismiss for improper venue.

The parties agreed that the forum selection clause was valid and that Spencer’s claims fell within the scope of the clause.

Waiver. Spencer argued that WOW waived its right to challenge venue because it filed: (1) a Motion to Appear Pro Hac Vice; (2) a Stipulation Extending Time to File Responsive Pleadings; (3) an Answer and Counterclaim; and (4) a Supplemental/Amended Answer and Counterclaim.

Pursuant to Federal Rule of Civil Procedure 12(h), a defense of improper venue was waived unless it was included in the defendant’s first Rule 12 motion or, if no such motion was filed, in the answer to the complaint, the court noted. Here, WOW moved to dismiss based on improper venue pursuant to Rule 12(b)(3) on January 18, 2013. That same day, WOW also answered the complaint.

Had WOW merely alleged improper venue in its answer, while also asserting a counterclaim, Spencer’s argument could be more persuasive, the court observed. However, WOW did not, as Spencer characterized it, “join” its objection to venue with a counterclaim. Instead, WOW first moved to dismiss because of improper venue pursuant to Rule 12(b)(3). WOW then, in a separate filing, answered the complaint and asserted its compulsory counterclaim.

Rule 12(h) gave the court clear guidance. Because WOW raised the defense of improper venue in a timely Rule 12 motion prior to filing a responsive pleading, WOW did not waive its defense of improper venue, the court held.

Spencer’s slightly different argument—that because WOW filed a counterclaim, WOW engaged in “conduct amounting to waiver as a matter of law”—was also rejected. Nothing prohibited a defendant challenging venue from answering the complaint.

Dismissal v. transfer. Prior to Slater v. Energy Services Group International, 634 F.3d 1326 (11th Cir. 2011), courts in the Eleventh Circuit generally ruled that transfer was the appropriate mechanism to enforce a valid forum-selection clause. However, while the Eleventh Circuit in Slater recognized the circuit split on the “appropriate vehicle for enforcing forum-selection clauses,” it made clear which camp it wanted to be in:

[W]e conclude that § 1404(a) is the proper avenue of relief where a party seeks the transfer of a case to enforce a forum-selection clause, while Rule 12(b)(3) is the proper avenue for a party’s request for dismissal based on a forum-selection clause. Thus, the district court did not err in analyzing [the defendant’s] case under Rule 12(b)(3) and dismissing [the plaintiff’s] claims for improper venue.

Id. at 1333. Thus, Slater required the court to allow WOW to enforce the forum selection clause through a Rule 12(b)(3) dismissal.

At oral argument, it became apparent that the parties’ real concern was that the mechanism used to enforce the forum-selection clause, i.e. transfer or dismissal, could have broader implications once the case is in the proper federal court. Though the agreement contained a choice of law provision, a dismissal under Rule 12(b)(3) could affect the appropriate district court’s determination of any potential choice of law issues.

Specifically, under some Fifth Circuit jurisprudence, a transfer pursuant to § 1404(a) could result in the application of the transferor’s choice of law, while a transfer pursuant to § 1406 could result in application of the transferee’s choice of law.

This concern did not impact the court’s analysis of whether the Eleventh Circuit’s decision in Slater required it to enforce the forum-selection clause by dismissing the case. However, given those concerns, the court noted that its determination that Slater required that the forum-selection clause be enforced by granting the defendant’s Rule 12(b)(3) motion to dismiss was not intended—in any way—to resolve any potential choice of law issue that could eventually arise.

Attorney fees and costs. Because WOW cited no statutory authority for its requested award of costs and fees, the court assumed its request was based on the clause in the parties’ agreement awarding attorney fees and costs to the prevailing party.

Here, the court determined a pure venue issue. Neither party briefed the issue of whether WOW would be considered the “prevailing party” in the event of dismissal. Thus, the court refused to find that WOW was the “prevailing party” for purposes of the agreement’s attorney fees provision.

The case is Civil Action No. 5:12-CV-470 (MTT).

Attorneys: Beau T. Shrable for Spencer Franchise Services of Georgia, Inc. Christopher M. Hatcher (Blue Williams, L.L.P.) for WOW Café and Wingery Franchising Account, LLC.

Companies: Spencer Franchise Services of Georgia, Inc.; WOW Café and Wingery Franchising Account, LLC.

Cases: FranchisingDistribution GeorgiaNews