The Franchise Memorandum

In Sanford v. Maid-Rite Corp., Civil File No. 13-2250 (D. Minn. Apr. 21, 2014), the court dismissed the plaintiffs' Minnesota Franchise Act ("MFA") claims against the defendant directors of franchisor Maid-Rite for failure to demonstrate minimum contacts necessary to establish personal jurisdiction. Sanford alleged two factors in support of personal jurisdiction over the defendant directors: a prima facie case for the directors' personal liability under the MFA, and the identification of the directors in Franchise Disclosure Document filed in Minnesota. In support of the first factor, Sanford claimed that MaidRite provided information inconsistent with the FDD in violation of the MFA. Under the MFA, control persons are liable for the corporation's MFA violations, unless they had no knowledge of the violation. Sanford claimed the directors had actual or constructive knowledge of the violations and were therefore potentially liable. In support of the second factor, Sanford argued that because the directors' names were included in the FDD, each of them had been put on actual notice that an FDD was being prepared, further establishing minimum contacts.

In response, the court found that potential liability under the MFA does not obviate the requirement that minimum contacts be established. In other words, potential liability under the MFA alone is not a contact. Additionally, the court observed the FDD merely listed the directors' names and job descriptions—it was not signed by them, and there was no allegation that the directors individually wrote or filed the FDD, or otherwise initiated contact with the forum. As a result, the court determined that it lacked personal jurisdiction over the directors and dismissed Sanford's claims against them.