The California Court of Appeals upheld a lower court’s decision finding that a Texas court had personal jurisdiction over a California franchisee.
GlobalCFO, LLC and GlobalCFO Franchise, LLC (collectively, “GlobalCFO”), the franchisor of bookkeeping and accounting, fundraising, and financial modelling and budgeting services businesses, initiated a lawsuit in Texas against a franchisee and its owner and her husband, alleging violations of GlobalCFO’s intellectual property rights and certain non-compete and non-disclosure agreements.
The franchisee made a special appearance and filed a motion to dismiss the Texas action for lack of personal jurisdiction. The Texas court found that it had personal jurisdiction over the franchisee and ordered the franchisee to make a general appearance. After the franchisee failed to make a general appearance, the Texas court entered a monetary judgment and a permanent injunction against the franchisee. GlobalCFO filed an application in California state court to enforce the Texas judgment.
The franchisee asked the California superior court to vacate the judgment, arguing that the Texas court did not have personal jurisdiction because the franchisee had never been to Texas. The court denied the franchisee’s motion to vacate the judgment and the franchisee appealed.
On appeal, the franchisee again argued that Texas lacked personal jurisdiction because the franchisee had never been to Texas. In an unpublished decision, the appellate court agreed with the court’s finding that “specific personal jurisdiction” over the franchisee was established by the franchise agreement, since the franchise agreement designated a Texas venue and stated, “the parties waive all questions of personal jurisdiction or venue for the purposes of carrying out this provision.”
The franchisee also argued that because the franchisee only made a special appearance in Texas and not a general appearance, the Texas judgment could not be enforced against them. The court explained that the franchisee declined to make a general appearance even though the Texas court ordered them to do so, and the California appellate court must give the Texas court full faith and credit and not subject the Texas court to collateral attack on its express ruling.
Lastly, the franchisee argued that because the franchise agreement included a California-specific addenda that mentioned the California Franchise Relations Act, Bus. & Prof. Code, § 20000 et seq., any provision calling for a venue outside California was void.
The court was not persuaded by this argument, finding that the franchisee did not address the California superior court’s conclusion that venue is distinct from jurisdiction and a party may consent to a foreign jurisdiction via contract. The court held that the franchisee failed to establish that Texas lacked personal jurisdiction and affirmed the superior court’s order to deny the motion to vacate.
Prospective franchisees should seek the advice of franchise counsel before entering into a franchise agreement with a franchisor located in another state to determine where they may be subject to personal jurisdiction. A franchisee may be subject to personal jurisdiction in a state other than the one in which the franchisee resides, which will increase the franchisee’s litigation costs.
GlobalCFO LLC v. Venkataramanappa, No. A168800 (Sep. 18, 2024) (Unpub.)
