The Franchise Memorandum

The Sixth Circuit Court of Appeals affirmed a Michigan federal court’s finding that Michigan was a proper forum and Michigan law applied to dealer agreements between a Michigan manufacturer and a dealer in the Dominican Republic. S2 Yachts, Inc. v. ERH Marine Corp., 2021 WL 1943371 (6th Cir. May 14, 2021). S2 Yachts, a Michigan marine-vessel manufacturer, entered into dealer agreements that contained Michigan choice of law provisions with ERH Marine Corp., a marine dealer and maintenance provider who does business in the Dominican Republic. Over time, the parties signed additional dealer agreements but, in January 2018, S2 Yachts notified ERH Marine that it did not plan to renew the dealer agreements when they expired in July 2018. ERH Marine disputed the termination, arguing that under Dominican Republic law S2 Yachts was required to demonstrate “just cause” for the nonrenewal. However, under Michigan law, “just cause” was not required. S2 Yachts filed suit in the Western District of Michigan seeking a declaratory judgement that it complied with all its obligations under the dealer agreements. About one month later, ERH Marine filed suit in the Dominican Republic and moved to dismiss the Michigan action, arguing the Michigan court should not exercise its jurisdiction in this matter and instead should allow the action to proceed only in the Dominican Republic. ERH Marine also argued the court should apply Dominican Republic law to the dispute. Finding Michigan law controlled the dispute and Michigan was a proper venue, the district court granted summary judgment for S2 Yachts.

The Sixth Circuit affirmed. With regard to the choice of law issue, ERH Marine argued that the Michigan court should apply Dominican Republic law citing fundamental public policy factors and Dominican Republic Law 173, which governs agents and distributors. The Sixth Circuit agreed with the district court’s determination that Law 173 was not applicable under the Dominican Republic-Central America-United States Free Trade Agreement. Further, applying Michigan’s choice of law rules, the court found that public policy did not favor applying Dominican Republic law because it did not differ significantly from Michigan law, which was chosen in the agreements. The court also found the district court properly exercised jurisdiction over the dispute. ERH Marine argued that Michigan was not a convenient forum and the Dominican Republic was better suited to hear the dispute, but the appellate court disagreed, stating that S2 Yachts properly brought the action in Michigan pursuant to a valid forum selection clause. Further, public policy factors weighed in favor of the Michigan court exercising jurisdiction because, although the controversy was localized to the Dominican Republic, this alone did not offset other public interest factors such as a lack of administrative difficulties and Michigan’s interest in the dispute of its resident S2 Yachts.