A federal court in Sacramento recently upheld a franchisor's forum selection clause and transferred an action brought by an area representative to the federal district court in the Western District of Texas.
HDYR operated a sushi restaurant in Austin, and sought to franchise the concept under the name How Do You Roll? HDYR entered into an area representative service agreement with the plaintiffs under which the plaintiffs were to solicit franchisees to purchase How Do You Roll? restaurants in Northern California.
The agreement contained a forum selection clause providing for exclusive venue for disputes in the state or federal district courts in Texas.
In the Ninth Circuit, a forum selection clause is generally considered unenforceable only if it was the result of fraud, undue influence, or overwhelming bargaining power; if the selected forum was so inconvenient that forcing the plaintiffs to litigate there would essentially deny them their day in court; or if enforcement would contravene a strong public policy in the forum where the suit was brought.
The court found that the plaintiffs presented no evidence that would void the forum selection clause. The court was not persuaded by the area representative's argument premised on the California Franchise Relations Act's (CFRA's) strong public policy against enforcing out-of-state forum selection clauses in franchise agreements, because the area representative agreement was not a franchise agreement. The court found that the area representative was retained to recruit franchisees, but was not a franchisee itself and was not the type of party that the CFRA was designed to protect.
The HDYR ruling is encouraging for franchisors since it illustrates the value of including well-conceived and well-drafted forum selection clauses in area representative agreements.
See: Estep v. Yuen Yung.
