The Franchise Memorandum

A federal court in Connecticut has ruled that a franchisor’s successor-in-interest cannot invoke a choice of venue provision in an agreement that refers to its predecessor’s principal place of business. Purugganan v. AFC Franchising, LLC, 2020 WL 2494718 (D. Conn. May 13, 2020). Purugganan entered into the Master Development Agreement with AFC’s predecessor-in-interest, Doctors Express Franchising LLC, to obtain exclusive rights to develop franchises in two New York counties and one county in Connecticut. Purugganan alleged AFC was not honoring the Master Development Agreement by attempting to purchase franchises belonging to him and brought suit to prevent the sale of the franchises and to enforce the agreement. Purugganan initiated the lawsuit in Connecticut federal court, and AFC sought to transfer venue to Alabama, which is where its principal place of business is located. The Master Development Agreement included a forum selection clause which formed the basis of AFC’s motion to dismiss for improper venue.

The court denied AFC’s motion to dismiss. Although the Master Development Agreement included an inconspicuous forum selection clause, the provision was worded such that the suit should be brought in the “state or judicial district in which we have our principal place of business.” The “we” and “our” only referred to Doctors Express and did not include or contemplate a possible successor-in-interest to the rights of the Master Development Agreement. The purpose of a forum selection clause is to provide certainty to parties regarding where they can expect to participate in legal proceedings, and the forum selection clause did not put Purugganan on notice of the possibility of a lawsuit in the principal place of AFC’s business. The fact that the Master Development Agreement did generally include a provision permitting the possibility of an assignment of rights was not sufficient to overcome the absence of a specific discussion of assignees or successors-in-interest in the forum selection clause.