Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—N.D. Tex.: Foreign franchisor’s filing of lawsuit did not create personal jurisdiction, (Jul 14, 2015)

By Michael Menzhuber, J.D., LL.M.

In a franchisee’s action against a foreign fast food chain franchisor for tortious interference with a share purchase agreement, a magistrate judge’s finding that the franchisor’s filing of a lawsuit over franchisee fee payments did not constitute purposeful availment sufficient to subject it to personal jurisdiction was adopted by the federal district court in Dallas, Texas (SGIC Strategic Global Investment Capital, Inc. v. Burger King Europe GMBH, July 9, 2015, Boyle, J.).

Background. Christian Groenke, a U.S. citizen and resident of Texas, is the sole shareholder of SGIC Strategic Global Investment Capital, Inc. (SGIC), which is the sole shareholder of GRIL German Restaurant Investment & Lending, Inc. (GRIL). Groenke owns and operates several Burger King restaurants in Germany through various corporate entities under franchise agreements with Burger King Europe GmbH (BKE). The letter of credit for the franchise fee payments to BKE is secured by Groenke’s personal guarantee.

According to the plaintiff, BKE: (1) induced him to purchase shares of a corporation that owned nonperforming Burger King restaurants in exchange for a development agreement and the opportunity to purchase 91 Burger King restaurants in Germany; (2) terminated the development agreement; (3) sold the 91 restaurants without giving him an opportunity to purchase them; and (4) engaged in a course of contact to devalue Groenke’s performing restaurants. The plaintiff also alleged that he had formed, or was in the process of entering into, a share purchase agreement (SPA) for SGIC’s interest in GRIL but BKE threatened the potential buyer and stopped the sale.

BKE filed an action against Groenke for franchise fees, based on his personal guarantee, in Texas. Groenke filed a separate lawsuit against BKE which alleged tortious interference with the SPA.

After BKE filed a motion to dismiss for lack of personal jurisdiction and forum non conveniens, the plaintiff filed a motion for leave to conduct jurisdictional discovery so as to address the issues raised in BKE’s motion to dismiss. A magistrate judge denied the motion after determining that the plaintiffs failed to make a preliminary showing of either specific or general jurisdiction over BKE and failed to show that jurisdictional discovery was needed in the case.

Specific jurisdiction. The plaintiff contended that he made a preliminary showing of specific jurisdiction over BKE in that BKE purposely availed itself of the court’s jurisdiction by filing the lawsuit regarding the guarantee. The court, however, concurred with the magistrate judge’s finding that BKE’s filing of its lawsuit did not constitute purposeful availment and was insufficient to subject it to personal jurisdiction in the second lawsuit because: (1) the two lawsuits did not arise from the same general transaction and were, therefore, unrelated; and (2) the restaurants in the two lawsuits did not overlap and two of the three plaintiffs were not parties in the first lawsuit.

Need for jurisdictional discovery. The court noted that the magistrate judge correctly explained that jurisdictional discovery need not be permitted unless the motion to dismiss raises issues of facts and it concurred with his finding that the plaintiffs did not show any disputed issue of fact that required jurisdictional discovery. The court noted that the magistrate judge acknowledged the plaintiff’s argument that BKE knew Groenke was in Texas when the company communicated with him and BKE did not dispute this.

The case is No. 3:14-CV-3300-B

Attorneys: James H. Billingsley (Polsinelli PC) for SGIC Strategic Global Investment Capital Inc., and GRIL German Restaurant Investment and Lending Inc. Deborah S. Coldwell (Haynes & Boone LLP) for Burger King Europe GmbH.

Companies: SGIC Strategic Global Investment Capital, Inc.; GRIL German Restaurant Investment & Lending, Inc.; Burger King Europe GMBH

Cases: FranchisingDistribution TexasNews