The Franchise Memorandum

A federal court in Pennsylvania recently transferred a franchise dispute to Delaware pursuant to the franchise agreement’s forum selection clause, even though some defendants were not party to the agreement. Sweet Charlie’s Franchising, LLC v. Sweet Moo’s Rolled Ice Cream, LLC, 2020 WL 3405769 (E.D. Pa. June 19, 2020). Franchisor Sweet Charlie’s brought an action against a franchisee, Peter Aguib, and other third-parties (collectively, “Aguib”), alleging misappropriation of confidential information that Aguib gained while attending a training program for Sweet Charlie’s franchisees in Philadelphia. While Aguib and another defendant were both party to the franchise agreement, three other defendants were not. The franchise agreement’s forum selection clause named Delaware courts as the exclusive venue, but Aguib filed the motion to transfer the action to Tennessee, where the defendants are located and where a bankruptcy action was commenced for one of the noncontracting parties.

The court denied Aguib’s motion to transfer, and despite neither party requesting it, the court transferred the case to Delaware based upon the franchise agreement’s forum selection clause and balancing the equities. The court acknowledged that the property at issue was situated in Pennsylvania, but determined that Tennessee would be the most convenient forum for the noncontracting defendants. However, the court concluded that based upon the interest of efficiency, and the strong public interest in upholding the contracting parties’ forum selection clause, justice was best served by transferring the matter to Delaware pursuant to the franchise agreement. The court noted that there may be issues of personal jurisdiction for the noncontracting parties by transferring the case to Delaware, but because the noncontracting parties did not raise such questions, the court chose not to consider them.