A federal district court in California granted a franchisor’s motion to transfer venue of claims brought by non-California franchisees to Texas. The ruling was based on a forum selection clause in the franchise agreements. But the court denied the motion as to a California franchisee. The court ruled that with regard to a California franchisee, the forum clause was void.
Franchisees of OsteoStrong, a bone density improvement business, alleged the franchisor misrepresented and omitted information to get them to enter into franchise agreements. Each franchise agreement had an identical forum selection clause, requiring any action against the franchisor to be brought in the Southern District of Texas or Harris County, Texas. The franchisees sued in California federal court. The franchisor sought to transfer the case to Texas, based on the forum selection clause.
California law states that forum selection clauses in franchise agreements which set venue in a state other than California are unenforceable for claims under a franchise agreement. The statute applies only to franchisees residing or operating in California. Thus, the court found the forum selection clause was unenforceable against the California franchisee. But the California statute did not apply to the other franchisees since they resided outside California or operated their businesses in a different state.
The court determined that transfer of all non-California franchisees to a Texas court was appropriate. First, the court found that access to evidence favored transfer, because the franchisor is in Texas and the evidence sought in the lawsuit would be more easily accessible. Second, the court determined that because a similar lawsuit involving several of the same franchisees had already been filed in the Southern District of Texas, it made sense for the case to be in Texas. Third, the court found that a Texas court would have an interest in the outcome of the case, because the franchisor is Texas-based. Fourth, the court found that the California court was more congested than its Texas counterpart and resolution could likely happen earlier than if the case stayed in California. The court also ordered the California franchisee to show cause why the case should stay in California, while the other franchisees’ cases were transferred to Texas.
Franchisees should work with franchise counsel before filing a lawsuit against their franchisor to assess proper venue for the suit and whether or not the franchisor’s forum selection clause is enforceable under state law.
