The Franchise Memorandum

A federal district court in Minnesota has approved a manufacturer’s decision to file suit in its home jurisdiction to resolve a dispute with a distributor in Hearth & Home Technologies, Inc. v. J&M Distributing, Inc., 2012 U.S. Dist. LEXIS 170405 (D. Minn. Nov. 30, 2012). J&M, a distributor of fireplaces and other hearth products, in 2011 and 2012 had sent a series of letters to Hearth & Home Technologies (HHT) alleging that HHT gave favorable pricing to other distributors in violation of federal antitrust laws, and that HHT violated the parties’ distributorship agreement by failing to provide adequate support. Represented by Gray Plant Mooty, HHT stopped selling to J&M in early 2012 and filed a declaratory judgment action seeking an order ratifying and enforcing the termination of the parties’ distribution relationship, as well as declaring that HHT did not violate J&M’s rights during the relationship.

In the ruling two weeks ago, HHT successfully defeated J&M’s motions to dismiss the case or transfer venue to J&M’s own home state of West Virginia.

First, the court rejected J&M’s contention that there was no obvious “controversy” between the parties and no federal jurisdiction over the case for that reason. J&M’s own complaint against HHT, filed in West Virginia after HHT had commenced its lawsuit in Minnesota, demonstrated that both sides believed there was a real and immediate controversy between them, the court found. The court also disagreed that HHT had engaged in forum shopping or a “preemptive strike” that would warrant discretionary dismissal. HHT logically filed suit in its home forum. There was no evidence that HHT deceived J&M into believing it would not initiate litigation if the parties were unable to resolve their differences. Moreover, the fact that J&M did not file its suit in West Virginia until two months after HHT filed its suit in Minnesota demonstrated that HHT was not racing to the courthouse to file first.

Finally, the court declined to transfer the suit to West Virginia. J&M failed to carry its burden to specifically identify witnesses (particularly third parties) who would be inconvenienced by having the case proceed in Minnesota. A transfer would merely shift the inconvenience to HHT, making transfer inappropriate, the court ruled.