The Franchise Memorandum

The United States District Court for the Southern District of Indiana dismissed a franchisor's claims under the Minnesota Franchise Act ("MFA") in a case recently transferred from a Minnesota federal court. Rogovsky Enterprise, Inc. v. Masterbrand Cabinets, Inc., 2015 WL 7721223 (S.D. Ind. Nov. 30, 2015). Rogovsky, the franchisor of Kitchen & Home Interiors remodeling franchises, brought suit against Masterbrand, a manufacturer and distributor of cabinets, following Masterbrand's termination of the exclusive distribution agreement between the parties. Under the distribution agreement, Masterbrand agreed to sell cabinets to Rogovsky's franchisees and to pay rebates to Rogovsky in connection with those sales, provided that Rogovsky required all of its future franchisees to purchase cabinets exclusively from Masterbrand. Rogovsky argued before the Minnesota court that the relationship between the parties constituted a franchise under the MFA and other state franchise laws and that Masterbrand had wrongfully terminated the distribution agreement without good cause in violation of those laws. Masterbrand sought to transfer the case to Indiana based on the forum selection clause in the distribution agreement and ultimately moved to dismiss Rogovsky's claims.

The Minnesota court rejected Rogovsky's argument that an anti-waiver regulation promulgated under the MFA prohibited a transfer of the litigation, reasoning that the relationship between the parties did not satisfy the threshold requirements for application of the statute. First, the court concluded that the distribution agreement did not constitute a franchise because Rogovsky had not paid any franchise fee for the right to enter into business with Masterbrand, which is a prerequisite for the establishment of a franchise relationship under the MFA. Next, the court concluded that Rogovsky did not separately qualify as an area franchisor within the meaning of the statute because it could not establish that it sold franchises in the name of or on behalf of Masterbrand. Because the distribution agreement did not create a franchise relationship but merely identified Masterbrand as the sole supplier of cabinets for Kitchen & Home Interiors franchises, the MFA did not apply to void the agreement's forum selection clause.

After the case was transferred, the court in Indiana found no reason to depart from the Minnesota court's conclusions under the law of the case doctrine, and it dismissed all claims in the lawsuit that were based on the MFA.