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The Franchise Memorandum

Federal Court Upholds Franchise Agreement Forum Selection Clause

The United States District Court for the Eastern District of Pennsylvania has denied a motion to transfer filed by California franchisee defendants, finding the forum selection clause in their franchise agreement valid and enforceable and concluding that the defendants failed to demonstrate that the action should be moved to the Northern District of California. Maaco Franchising, Inc. v. Tainter, 2012 U.S. Dist. LEXIS 80790 (E.D. Pa. June 6, 2013). Franchisor Maaco filed the action asserting breaches of the franchise agreement. The agreement contained a choice-of-law provision requiring it to be interpreted and construed under the laws of Pennsylvania, and a forum selection clause providing that any action arising out of or relating to the agreement must be brought and litigated in a state or federal court of general jurisdiction in Pennsylvania.

In reaching its decision, the court began by weighing party-specific factors, most notably their agreement as to the forum, which choice was entitled to substantial consideration but was not dispositive. The court found Tainter’s preference to defend the action in California to be insignificant because the purpose of a transfer is not to shift the inconvenience from one party to another. Further, witnesses and documents were located in Pennsylvania, where Maaco conducts substantial business. Public factors also supported denial of transfer. Though a judgment would need to be enforced in California, there was little significance in enforcing it in one federal forum over another. Further, the court found that cases are resolved more quickly in the Eastern District of Pennsylvania than in the Northern District of California. Finally, Pennsylvania courts have an equal interest in deciding a controversy involving an agreement governed by Pennsylvania law, and Pennsylvania had a significant public policy interest in enforcing forum selection clauses consistent with Pennsylvania public policy.

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The Franchise Memorandum is a collection of postings on summaries of recent legal developments of interest to franchisors brought to you by Lathrop GPM LLP. 

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