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The Franchise Memorandum

New Jersey Federal Court Upholds Forum Selection Clause

In Days Inns Worldwide, Inc. v. Royal Hospitality Group, LLC, 2013 U.S. Dist. LEXIS 19464 (D.N.J. Feb. 11, 2013), the United States District Court for the District of New Jersey upheld the validity of a forum selection clause contained in the parties’ franchise agreement. Days Inn terminated the franchise agreement after the franchisees, who were located in California, failed to pay outstanding fees. When Days Inn brought suit in New Jersey for breach of contract, the franchisees moved to dismiss the complaint on the grounds that the court lacked personal jurisdiction over them and that laying venue there would infringe upon their due process rights. The franchise agreement contained a forum selection clause in which the franchisees consented to the nonexclusive personal jurisdiction of New Jersey courts and waived any venue objection.

In denying the motion to dismiss, the court held that the franchisees could not overcome the plain language of the forum selection clause. The court first noted that forum selection clauses are presumptively valid and enforceable under federal law. The forum selection clause in this case constituted prima facie evidence that the court had personal jurisdiction over the franchisees because it (1) contained an express provision that conferred personal jurisdiction, (2) selected the district court of New Jersey as the venue in which disputes arising out of the franchise agreement would be adjudicated, and (3) designated New Jersey law as the governing authority. The court also rejected the franchisee’s venue objections, concluding that they had endorsed Days Inn’s venue selection by signing the franchise agreement, and that a substantial portion of the relevant events took place in New Jersey.

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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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