Franchisor 101: Not at Liberty to Change Venue

Lewitt Hackman

A Dallas-based federal district court denied a franchisor’s request to keep its action against former franchisees in Texas and transferred the action to the Eastern District of Virginia.

Plaintiff JTH Tax, LLC dba Liberty Tax Service (“Liberty”) is a nationwide tax preparation service. Liberty filed suit in Northern District of Texas against franchisees, who are all Houston residents located in the Southern District of Texas. Liberty alleged the franchisees violated the Defense Trade Secrets Act and breached their franchise agreements. The franchisees moved to dismiss or alternatively, to transfer to Virginia, based on the location of the franchisees, the absence of ties to the Fort Worth Division of the Northern District of Texas, and the contractual choice of law provisions at issue.

Liberty argued the court should keep the action in the Northern District of Texas. But the court determined that transferring venue to the Eastern District of Virginia heavily favored interests of convenience, efficiency, and justice. The only basis asserted by Liberty for keeping the action in Texas was that the franchisees consented to jurisdiction in Fort Worth under their franchise agreements. The court found the franchise agreements at issue “unequivocally choose” the state law of Virginia as their governing law and the state or federal courts of Virginia as their jurisdiction and venue of choice.

When filing suit against a franchisee, franchisors and their counsel should be wary of choosing a venue not contemplated in written agreements between the parties and not proper venue for at least one defendant. Further, upon a defendant’s motion to transfer venue based upon plain language of an agreement, here—Virginia, franchisors and their counsel should consider whether to oppose such request as the courts are quick to point out meritless arguments when relevant written agreements “unequivocally” identify choice of law and venue.

JTH Tax, LLC v. Cortorreal, No. 4:23-cv-0173-P (N.D. Tex Jul. 20, 2023) 2023 U.S. Dist. LEXIS 124998

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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