A federal appellate court held that a forum selection clause requiring litigation to be in the jurisdiction where the franchisor’s principal place of business was located when the action was brought is enforceable.

A franchisee entered into a master developer agreement with franchisor, Doctors Express, to develop urgent-care centers in New York and Connecticut. Doctors Express was acquired by AFC Franchising, LLC, and the franchisee’s developer agreement was assigned to the new franchisor.

After the franchisee threatened to sue the franchisor in New York or Connecticut, the franchisor filed a lawsuit in Alabama seeking a declaration that (1) the parties had to litigate in Alabama due to the developer agreement’s forum selection clause requiring actions to be in the state where the franchisor had its principal place of business, and (2) that the franchisor did not breach the developer agreement.

The franchisee removed the action to federal court in Alabama and moved to dismiss for lack of personal jurisdiction and improper venue, asking to transfer the case to Connecticut, where the franchisee already sued the franchisor. The franchisee argued that the forum selection clause only referred to the principal place of business of the former franchisor, Doctors Express. The successor franchisor, however, argued that the clause now meant the current franchisor’s principal place of business because it acquired all Doctors Express’ rights and obligations under the developer agreement. The court agreed, holding that because the developer agreement let Doctors Express assign the agreement to a third party, the forum selection clause would allow the current franchisor to litigate in the state where its principal place of business was located.

The court also held that the franchisee did not show that enforcing the forum selection clause would be unreasonable or unjust. In entering into the developer agreement, the franchisee voluntarily agreed to the forum selection clause and this waived his right to contest personal jurisdiction.

Franchisees should consult with counsel before entering into a franchise or development agreement to determine which agreement provisions may adversely affect the franchisee, such as a forum selection clause requiring litigation in a state where the franchisee is not a resident, which may increase a franchisee’s litigation costs.

AFC Franchising, LLC v. Purugganan, 43 F.4th 1285 (11th Cir. 2022)