A California federal court has handed a significant victory to our franchisee client, Frango Grille USA, Inc., in denying a franchisor’s motion to dismiss and allowing the franchisee’s lawsuit to proceed.
The franchise agreement contained a “choice of forum” provision that required any lawsuit between the parties to be brought in London, England, where the franchisor was located. California law, however, states that any contract provision requiring a franchisee to bring suit outside of California is void. In December 2013, the United States Supreme Court issued a decision holding that any valid forum selection clause should be enforced. The defendant franchisor, Pepe’s Franchising, Ltd., represented by Gray Plant Mooty, argued that under the Supreme Court decision, the case had to be dismissed or transferred to London.
The court agreed with our position that the California law rendered the forum selection provision invalid and therefore unenforceable. The court rejected the franchisor’s position that the Supreme Court’s decision controlled, and that the California law did not apply. Rather, the court held the California provision to be a matter of state substantive law, unaffected by Federal procedural law. For that reason, the court allowed the suit to proceed in California and denied the motion.
The decision is significant because most states with franchise relationship laws have provisions that void similar forum selection clauses, and in the beer, automobile and farm implement industries, many laws have prohibitions on forum selection clauses. The decision thus paves the way for franchisees in many states to sue in their own courts to recover for franchise law violations by their franchisors.
Our client, Frango, is suing not only the franchisor and two of its officers and directors, but also the attorneys who represented the franchisor in preparing the FDD, Shelton & Power. The complaint alleges that Shelton & Power held itself out as admitted to practice in California, with a California office when, in fact, it is not licensed in California.
For a copy of the decision, just send an email to info@franchisedealerlaw.com.