Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—Tex. App.: Forum selection clause in franchise agreement bound nonresident part-owner of franchise, (Feb 7, 2014)

By Edward L. Puzzo, J.D.

A nonresident part-owner of a Gold’s Gym franchisee was bound by the forum-selection clause of the franchise agreement that he did not sign, because he did sign a personal guarantee that incorporated the franchise agreement by reference, the Texas appellate court in Dallas has ruled (Pritchett v. Gold’s Gym Franchising, February 4, 2014, Myers, L).

Tim Pritchett brought an interlocutory appeal of a trial court’s order denying his special appearance in a suit for breach of a guaranty agreement brought by Gold’s Gym Franchising.

Background. In 2006, Gold’s Gym signed an agreement making West Athletic Club a franchisee in Georgia. In 2007, Gold’s agreed to transfer that franchise to a corporation, Bodies in Balance, owned by the Langstons (Pritchett’s daughter and son-in-law), as long as Pritchett, owner of half of Bodies in Balance, was added as a personal guarantor. Under the “Consent to Transfer,” the transferees agreed to assume all of West Athletic Club’s obligations, covenants, and undertakings under the 2006 franchise agreement. The Langstons and Pritchett ostensibly signed the Consent to Transfer as guarantors, although Pritchett now alleged that the signature purporting to be his was actually signed by his daughter.

In 2008, a new franchise agreement was entered into by the same parties, replacing the 2006 franchise agreement. The 2008 agreement contained a “Consent to Jurisdiction” clause providing that state and federal courts in Dallas County, Texas would have exclusive jurisdiction over all disputes between Gold’s Gym and Bodies in Balance and its owners.

In 2011, Gold’s Gym notified Bodies in Balance that the franchise was being terminated for failure to pay amounts owed under the franchise agreement. Gold’s Gym instituted a legal action against Bodies in Balance, Pritchett, and the Langstons to collect the unpaid balance.

It was at this point that Pritchett filed a special appearance asserting that the Texas courts had no jurisdiction over him because his signature had been forged on the pertinent agreements, that he owned no portion of Bodies in Balance, and that he had no other contacts with Texas. The trial court denied Pritchett’s special appearance. On appeal, Pritchett contended that the trial court erred in denying his special appearance because the forum-selection clause relied on by Gold’s Gym was in a document he did not sign.

Incorporation by reference. A mandatory forum-selection clause in a contract is one way a party may consent to jurisdiction, the court explained. Such clauses are prima facie valid. In this instance, the forum-selection clause appeared only in the 2008 franchise agreement replacing the 2006 franchise agreement, and was not signed by Pritchett. However, Gold’s Gym argued that Pritchett was nonetheless bound by the forum-selection clause because he had signed the personal guarantee as an owner of the franchisee Bodies in Balance, and that guarantee incorporated by reference the 2006 franchise agreement.

The appellate court agreed that the incorporating language in the guaranty clearly showed that the parties intended for the franchise agreement and its forum-selection clause to become part of the guaranty agreement. An exhibit to the franchise agreement and the share subscription agreement showed Pritchett was a fifty-percent shareholder of Bodies in Balance and therefore was an “Owner” as defined in the franchise agreement, the court stated. Thus, if Pritchett signed the guaranty, then he was subject to the forum-selection clause and waived any jurisdictional objection to being sued in Dallas County, Texas. The court therefore rejected Pritchett’s argument that the forum-selection clause did not apply to him because he did not sign the franchise agreement itself.

Validity of signature. Whether Pritchett signed the guaranty or whether his signature was forged was a fact question for the trial court, the appellate court stated. The documents showed they were signed by Pritchett, but Pritchett and his daughter denied that Pritchett signed them. The trial court’s determination involved the resolution of this conflicting evidence, and an appellate court should not disturb a trial court’s resolution of conflicting evidence that turns on the credibility or weight of the evidence.

Because the trial court’s implied finding that Pritchett signed the guaranty supported the conclusion that the forum-selection clause in the franchise agreement was incorporated by reference into the guaranty, the appellate court concluded the trial court did not err by denying Pritchett’s special appearance.

The case is Civil Action No. 05-13-00464-CV.

Attorneys: Jeffrey Robert Sandberg (Palmer & Manuel, LLP) for Tim Pritchett. Eric D. Fein (Law Offices of Eric D. Fein) for Gold’s Gym Franchising, LLC.

Companies: Gold’s Gym Franchising, LLC

Cases: FranchisingDistribution TexasNews