United States: Location, Location, Location: Franchise Litigation in the Venue of your Choosing

Last Updated: June 28 2016
Article by Alexander S. Radus

A Massachusetts franchisor can sue an Oregon franchisee in Massachusetts, according to a recent decision from the United States Court of Appeals for the First Circuit. The case contains important lessons for franchisors seeking to keep lawsuits on their home turf.

When parties to a lawsuit hail from different states – or, as here, different coasts –the first issue adjudicated is often not the merits of the case, but rather, where the case will be adjudicated. This issue can be especially important for franchisors, who often engage in complex business relationships with franchisees across the country. If one or more of those relationships sours, how can a franchisor ensure that litigation occurs in a convenient forum?

While there are no certainties, Baskin-Robbins Franchising LLC v. Alpenrose Dairy, Inc. ("Alpenrose Dairy") provides a glimpse into the analysis a court might conduct when determining jurisdiction in the franchise context. No. 15-2190 (1st Cir. June 6, 2016).

The Background

Alpenrose Dairy involves a dispute over renewing a franchise agreement. From 1965 until 2014, Alpenrose Dairy, Inc. ("Alpenrose") was a franchisee of Baskin-Robbins Franchising, LLC ("B-R") and the parties renewed their franchise agreement multiple times. Alpenrose could renew at its option with at least 1 year's notice. When the parties negotiated the original franchise agreement, B-R was headquartered in California and the negotiations occurred in Oregon. In 1998, B-R moved its operations to Massachusetts.

After B-R's move, Alpenrose exercised its renewal option two times, in 2001 and 2007 (for a term ending on December 8, 2014). On December 2, 2013, Alpenrose notified B-R that it would not renew the franchise agreement. But in July 2014, Alpenrose wrote again, stating that it wished to "revoke" its decision and renew the franchise agreement again. Later, Alpenrose warned that if the franchise agreement was not renewed, it would be entitled to compensation under a Washington state law. B-R refused on the grounds that Alpenrose should have exercised its option prior to December 8, 2013; it also rejected Alpenrose's claim that compensation was due in connection of the non-renewal.

With an impasse on the horizon, B-R filed suit in federal court in Massachusetts, seeking a declaration that the franchise agreement expired on December 8, 2014 and that it owed no compensation to Alpenrose. Alpenrose moved to dismiss or to transfer the case, arguing that the Massachusetts federal court did not have personal jurisdiction over the Oregon-based franchisee.

The Analysis

Courts must have jurisdiction to hear cases, and one form of jurisdiction is a court's "personal jurisdiction" over defendants. When a person is sued, that person must have "minimum contacts" with the state in which the lawsuit is filed. Alpenrose argued that because it was based in Oregon, it did not have sufficient contacts with Massachusetts, and therefore the Massachusetts federal court did not have jurisdiction over Alpenrose.

The court disagreed. It analyzed three relevant factors and found that it had jurisdiction over Alpenrose.

Factor 1: Does the claim directly arise out of, or relate to, the defendant's forum state activities?

Factor 1 was satisfied because the claim arose directly out of the 2013 and 2014 letters that Alpenrose sent to B-R's Massachusetts offices. The letters related directly to B-R's claims that Alpenrose's renewal notice was not timely and that Alpenrose was not entitled to compensation in connection with the agreement's expiration.

Factor 2: Do the defendant's in-state contacts represent a purposeful availment of the privilege of conducting activities in the forum state, thereby invoking the benefits and protections of that state's laws and making the defendant's involuntary presence before the state's courts foreseeable?

Factor 2 is a mouthful, but essentially asks whether a defendant's connections with a forum state are voluntary and whether litigation in that state is foreseeable. Accordingly, under Factor 2, the court analyzed whether (i) Alpenrose's contacts with Massachusetts resulted from Alpenrose's own actions and whether (ii) it was foreseeable that Alpenrose could be sued in a Massachusetts court. The court specifically noted the services that B-R provided to its franchisees, e.g., a product quality assurance process, customer service department, and assistance on a wide variety of operational issues. The court recognized (as would most zees and zors) that these activities were "vital to the continuation of the franchisor-franchisee relationship." Therefore, the court found that Alpenrose deliberately targeted the Massachusetts economy and reasonably should have foreseen that a controversy could be adjudicated in a Massachusetts court.

Factor 3: Is the exercise of jurisdiction reasonable?

Under Factor 3, the court found that the exercise of jurisdiction was reasonable. The analysis need not be addressed in detail; however the court did note that both parties had significant means and, therefore, cross-country travel was not an obstacle. A court could decide the matter differently in the context of a less successful or start-up franchisee.

Mature franchise concepts often have franchisees across the country, and emerging franchisees aspire to. This model risks franchisors becoming involved in litigation in multiple jurisdictions far from home base. As Alpenrose Dairy demonstrates, franchisors can take certain steps to increase their odds of litigating on their own turf.

  1. Make sure your franchise and other agreements include forum selection clauses that require all controversies to be litigated (or arbitrated) in the state of your choosing.
  2. In consultation with counsel, when litigation looks imminent, consider filing a claim first in your preferred court. The Alpenrose Dairy court specifically noted that B-R had "raced" to the federal court in Massachusetts and sued Alpenrose when the impasse became clear
  3. Require correspondence between you and your franchisees to be in writing and addressed to your offices in your preferred forum state. While this may not be sufficient in itself, it can help build a case for personal jurisdiction. The Alpenrose Dairy court noted in particular that B-R's move to Massachusetts was "unilateral activity" and that Alpenrose's letters to Massachusetts, by themselves, were insufficient to satisfy Factor 2.  However, the letters helped establish Factor 1, because the lawsuit arose directly out of those written communications.
  4. If possible, provide the bulk of your services as a franchisor from your preferred home state. This may help demonstrate that franchisees voluntarily take advantage of your state's economy and expect that a lawsuit could be filed against them there.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Alexander S. Radus
 
In association with
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.