The Franchise Memorandum

A federal court in Michigan recently dismissed a complaint filed by a distributor against its former manufacturer, rejecting the application of Michigan franchise laws and enforcing the choice of a Minnesota forum in the agreements between the parties. Lakeside Surfaces, Inc. v. Cambria Co., 2020 WL 1227047 (W.D. Mich. Mar. 13, 2020). Lakeside is a Michigan countertop distributor; Cambria is a Minnesota manufacturer of countertops. Cambria unilaterally terminated the relationship between the two over a disagreement concerning Lakeside’s offering of non-Cambria products. When Lakeside sued Cambria in Michigan, Cambria moved to dismiss the complaint based upon the forum selection clauses in the parties’ agreements. Lakeside responded that Michigan law invalidated the forum selection clause.

First, the court held that, under Sixth Circuit precedent, forum selection clauses are procedural and therefore subject to federal law, which generally supports the enforcement of forum selection clauses. The court was not persuaded by the argument that the Michigan Franchise Investment Law invalidated the forum selection clause as contrary to a strong public policy of Michigan. The court noted that the parties’ agreements contained a Minnesota choice of law provision, which the court determined violates no Michigan public policy, since the Minnesota Franchise Act (MFA) provides slightly more protection to franchisees than the Michigan franchise law. Michigan law does not prohibit parties from choosing another state's law to govern their franchise agreements, and Minnesota law does not prohibit forum-selection clauses. Finally, the court considered the possibility that the application of Minnesota law to Cambria’s offer of a distributorship would deprive Lakeside of the protection of the Michigan law governing the offer and sale of franchises — since some courts have held that the protections of the MFA do not extend to franchisees located outside of Minnesota. The court rejected this argument, concluding that the text of the MFA “suggests that it applies to out-of-state franchisees, and no Minnesota state court has held otherwise.” It cited to a 2018 Minnesota state court decision permitting claims by a Pennsylvania distributor against Cambria to proceed under the MFA. Based upon that decision, Lakeside requested leave to amend its complaint against Cambria to add claims under the MFA. The court denied this request and ultimately dismissed Lakeside’s complaint, ruling that it must pursue its claims in Minnesota in accordance with the forum selection clauses contained in the parties’ agreements.