The Franchise Memorandum - Issue # 259

Lathrop GPM

Colorado Federal Court Applies Forum Selection Clause to Non-Signatory Entities Controlled by Former Franchisees -

A federal court in Colorado held that entities controlled by former franchisees were bound by the forum selection clauses in the franchisees’ terminated franchise agreements. Fitness Together Franchise, LLC v. EM Fitness, LLC, 2020 WL 6119470 (D. Colo. Oct. 16, 2020). EM Fitness and related franchisee-defendants operated several Fitness Together franchises in Ohio under franchise agreements that contained post-termination noncompetition and Colorado forum selection clauses. The franchisee-defendants negotiated the early termination of their franchise agreements, but, at the same time, formed new entities through which they began operating competing businesses at the same locations previously occupied by the franchised businesses. Fitness Together sued its former franchisees and the newly formed entities in federal court seeking to enjoin them from breaching the post-termination noncompetition provisions of the franchisee-defendants’ agreements. The new entities challenged the court’s personal jurisdiction over them, arguing that they were not signatories to the franchise agreements and therefore should not be bound by their forum selection clauses.

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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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