United States: Rhode Island: Long Arm Of State Courts May Reach Many Out-of-State Franchisors

Last Updated: October 27 2015
Article by Alexander S. Radus

Franchisors can be made to litigate in their franchisee's state courts due to commonplace features of the franchisor/franchisee relationship, according to a recent Rhode Island court decision.

In Korsak v. Honey Dew Associates, Inc., a Rhode Island franchise employee alleged that she was sexually harassed and discriminated against by the franchisee's security service vendor at a Rhode Island franchise location.  No. PC 13-0105 (R.I. Super. Sept. 15, 2015).  The out-of-state franchisor and its subfranchisor were parties to a license agreement that gave the subfranchisor the right to franchise in Rhode Island.  The employee sought to hold the franchisor and subfranchisor responsible for the alleged harassment at the Rhode Island franchise.

The court recognized the general rule that a franchisor does not have to litigate in a state just because of the "mere presence" of its franchisees in that state.  However, the court found that the franchisor could be made to litigate in Rhode Island due to the "sufficient relationship" between the franchisor and its franchisee.

Troublingly, the "sufficient relationship" that the court found was predicated on common features of the franchise model.  As a result, the court's analysis only paid lip service to the general "mere presence" rule.  The court determined that the franchisor exercised a "significant degree of control" over the franchisee via its subfranchisor, which "pervaded" the franchisee's dealings in Rhode Island and created a "sufficient relationship".  Specifically, the court noted that the following common franchise factors led it to the conclusion of a "sufficient relationship":

  1. the franchisor/subfranchisor license agreement permitted the franchisor to reject prospective franchisees;
  2. the subfranchisor's standard franchise agreement mirrored the franchisor's franchise agreements;
  3. the franchisor could terminate the license agreement if the subfranchisor failed to keep franchisees in compliance with their respective franchise agreements;
  4. the subfranchisor/franchisee franchise agreement required the franchisee to "strictly adhere" to the franchisor's operations manual, which provided mandatory guidelines for all aspects of shop operations; and
  5. the franchisee agreed to permit representatives of the franchisor or subfranchisor to inspect the franchise during regular hours without notice.

Having imputed the franchisee's Rhode Island contacts to the franchisor, the court next looked to the relationship between the various franchise entities and the accused security service vendor, John Frigault.  In other words, did the plaintiff's sexual harassment and discrimination claims sufficiently relate to the franchisor's Rhode Island contacts?  According to the court, they did.

The court specifically noted that the franchisor hired Mr. Frigault to perform "secret shopper" operations in Rhode Island and recommended him to all of its Rhode Island franchises.  Additionally, the franchisee hired Mr. Frigault to perform "tape reviews" and "mini reviews" of the store at which the plaintiff worked.  Because the alleged harassment and discrimination took place when Mr. Frigault conducted such work, there was a sufficient nexus between the franchisor's Rhode Island contacts and the litigation to bring the out-of-state franchisor into Rhode Island's courts.

The court eventually denied the franchisor and subfranchisor's motion for summary judgment, concluding that they could be held liable for Mr. Frigault's conduct because both entities had hired him to perform various services, including at the franchisee's location.

Arguably, the court could have exercised jurisdiction and denied summary judgment based solely on the fact that Mr. Frigault was employed by the franchisor and subfranchisor.  However, the court engaged in a broader analysis that created a basis for jurisdiction predicated on commonplace features of the franchisor/franchisee relationship.  The court's rationale waters down the general rule that the "mere presence" of franchises is not enough to bring an out-of-state franchisor into Rhode Island courts.  The court's decision creates a strong incentive for employee-plaintiff's counsel to expand their claims to include franchisors when suing franchisees for workplace harassment and similar claims.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Alexander S. Radus
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