Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—W.D. Okla.: Signing franchise agreement amendment guarantee waived personal jurisdiction objections, (Jun 7, 2016)

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

A former franchisee, who was not a signatory to the franchise agreement but who signed a guarantee to the amendment incorporating it by reference, waived her personal jurisdiction objections by virtue of the franchise agreement’s forum selection clause, according to the federal district court in Oklahoma City, Oklahoma. The court, however, declined to exercise personal jurisdiction over a nonresident company that lacked minimum contacts with the forum state (Express Services, Inc. v. King, June 6, 2016, Russell, D.).

In November of 1998, Southern Staffing, Inc., a Georgia corporation, entered into a franchise agreement to operate an Express Services, Inc. franchise. Southern was owned by Don G. King and Emily D.S. King, both Georgia residents. Mr. King signed the franchise agreement and Mrs. King attested to it. Among other things, the franchise agreement contained a forum selection clause. In August of 2008, Southern and Express (a Colorado corporation) signed an amendment to the original franchise agreement, stating that both parties would continue to be bound, for an additional five years, by all of the original franchise agreement’s terms and conditions. In conjunction with the amendment, the Kings each executed a shareholders guarantee.

Southern and Mr. King also entered into a developer agreement with Express on September 1, 2004. Around April 2011, Mr. King began soliciting Express on behalf of Impact Outsourcing Solutions, Inc., which up to this time had been paying a fixed monthly fee to Express for monthly services. However, Express rejected the entreaties to expand its existing business relationship with Impact.

The relationship between the parties subsequently deteriorated, and Express eventually brought an action against Mr. King, Mrs. King, Southern, and Impact for breaches of contract, violation of the Lanham Act, tortious interference with contractual and business relations, violation of the Oklahoma Deceptive Trade Practices Act, unfair competition, and unjust enrichment. Mrs. King and Impact filed a motion to dismiss for lack of personal jurisdiction and Express filed a request for jurisdictional discovery.

Person jurisdiction objections. The court determined that Mrs. King waived her personal jurisdiction objections by virtue of a forum selection clause in the franchise agreement. Although she did not sign the franchise agreement, the clause was incorporated by reference in the amendment to the franchise agreement, and Mrs. King signed the guarantee to the amendment. The court determined that the amendment incorporated the franchise agreement by reference because: (1) the amendment made clear reference to the extrinsic document, the franchise agreement; (2) the identity and location of the franchise agreement was ascertainable beyond a doubt to Mrs. King, in her capacity as an owner and corporate secretary of Southern; and (3) Mrs. King had knowledge and assented to this incorporation because of the clear and unambiguous language of the franchise agreement.

The court also determined that enforcement of the forum selection clause against Mrs. King would not be unfair or unreasonable because, although she was a non-party to and did not negotiate the franchise agreement, she was a signatory to the guarantee which bound her to the forum selection clause in the franchise agreement and her personal policy of refusing to be a signatory to agreements involving Southern and Express negated her claim that the forum selection clause was the result of unequal bargaining power or a lack of meaningful choice.

Minimum contacts. The court determined that it lacked personal jurisdiction over Impact. Personal jurisdiction requires minimum contacts between the defendant and the forum state. The minimum contacts requirement can be satisfied by showing that the court has specific jurisdiction over the defendant. The court determined that specific jurisdiction did not exist because, despite Express’ arguments to the contrary, there was no evidence that Impact purposefully directed its activities at the forum state, Oklahoma.

The court further determined that, even if "purposeful direction" could be shown, there was no evidence that Express’ injury arose from those purposefully directed activities. Specifically, the court found no evidence of a causal connection under either the "but-for" test or the "proximate-cause" test between Impact’s solicitations or Impact’s retention of Express’s services and Express’s injury resulting from the alleged theft of intellectual property and confidential information.

The court found it unnecessary to address whether the exercise of personal jurisdiction would "offend traditional notions of fair play and substantive justice" because Express did not meet its minimum-contacts burden.

The court denied Express’ request for jurisdictional discovery because Express did not meet its prima facie burden to show that specific jurisdiction existed over Impact or how discovery on this issue would be productive, necessary, or helpful.

The case is No. CIV-15-1181-R.

Attorneys: Gary S. Chilton (Holladay & Chilton PLLC) for Express Services Inc. d/b/a Express Employment Professionals. Daniel G. Webber, Jr (Ryan Whaley Coldiron Shandy PC) for Don G. King.

Companies: Express Services Inc. d/b/a Express Employment Professionals

Cases: FranchisingDistribution OklahomaNews