A Washington federal court denied a franchisor’s motion to dismiss for lack of personal jurisdiction, finding the court had personal jurisdiction over a franchisor’s agents who reside in Louisiana, based on their purposeful direction of activities toward Washington State in connection with soliciting and entering into a franchise agreement.
Plaintiffs agreed to open a franchise of HOTWORX, a “hot sauna” fitness studio, in Washington state, but the studio never opened. The plaintiffs filed suit against the franchisor, a Wyoming limited liability company based in Louisiana, the franchisor’s CEO, the “franchise recruiter” and an employee of the franchisor, each citizens of Louisiana.
The franchisor and the individual defendants filed a motion to dismiss for lack of personal jurisdiction. The court focused its analysis on specific jurisdiction, which concerns the individuals’ contacts with the state. The court analyzed each individual defendants’ interaction with Washington State to determine whether the individuals purposefully directed their activities or consummated some transactions with the state.
The court noted the franchisor’s franchise recruiter communicated with the plaintiffs many times prior to the franchise agreement’s execution. The court also found that the franchise recruiter was a registered franchise broker in the state of Washington and the registration included consent to any action or proceeding being brought in the state of Washington. The court concluded the franchise recruiter purposefully directed her business activities in Washington by signing the franchise broker application and proceeding to conduct business in Washington.
The court also asserted personal jurisdiction over the franchisor employee named as a defendant. The employee participated in sales-related conversations with the plaintiffs and was likewise a registered franchise broker in Washington. As with the franchise recruiter, the court found the employee was subject to personal jurisdiction in Washington because she purposefully availed herself of the forum by executing the franchise broker application and then conducting franchise-sale related activities in Washington.
The franchisor’s CEO, on the other hand, was not a franchise broker registered in Washington. The court nevertheless found personal jurisdiction because the CEO held a video conference with the plaintiffs, which reinforced the communications and contact between the plaintiffs and the other agents of the franchisor.
The court acknowledged the CEO engaged in only one communication, but the quantity of correspondence is not dispositive. It is the quality of the contacts, which the court found to be sufficient contact for personal jurisdiction.
Absent a provision in a franchise agreement where the parties consent to jurisdiction in a particular forum, franchisors and their agents and employees should consult with counsel on whether sufficient contact with franchisees and prospective franchisees in different states has been made that could subject them to personal jurisdiction.
Skistimas v. Hotworx Franchising LLC, No. 3:23-cv-05975-DGE, 2024 U.S. Dist. LEXIS 191958 (W.D. Wash. Oct. 22, 2024).
