The Franchise Memorandum

A federal court in South Carolina granted franchisor Petland, Inc.’s motion to dismiss based on the court’s lack of personal jurisdiction. Madden v. Petland Summerville, 2021 WL 5770294 (D.S.C. Dec. 6, 2021). The underlying claims centered around dogs purchased by the plaintiffs at a franchised Petland store operated by Petland Summerville in Summerville, South Carolina; the dogs later developed illnesses attributable to breeding practices. The plaintiffs also alleged that employees of Petland Summerville enticed them into purchasing the dogs by representing that the dogs were healthy and had come from reputable breeders. The plaintiffs’ claims included negligence, breach of contract, fraud and misrepresentation, intentional infliction of emotional distress, violations of the South Carolina Unfair Trade Practices Act, and related claims. Petland asserted that it was not involved in breeding, selecting, purchasing, reselling, or making any representations to plaintiffs. Hence, its contacts to South Carolina that were established by the franchise agreement were unrelated to the plaintiff’s claims. The court agreed.

The court applied the following three-prong test to determine whether it could exercise specific jurisdiction over Petland: (1) whether the defendant purposely availed itself of the privileges of conducting activities in the forum state and thus invoked the benefits and protections of its laws, (2) whether the plaintiff’s claims arose out of or related to those forum-state activities, and (3) whether the exercise of jurisdiction was constitutionally reasonable. Focusing on the second prong, it noted the traditional rule that a “garden-variety” relationship between a franchisor and franchisee is not sufficient to establish jurisdiction. The plaintiffs argued that aspects of the franchise contacts were relevant to their specific claims, including the franchisor’s standards pertaining to sales tactics, the contractual requirement that the franchisee have a local consulting veterinarian perform periodic examinations, and Petland’s general provision of marketing services. The court disagreed, however, and found that Petland’s franchise-related South Carolina contacts were not sufficiently related to plaintiffs’ claims to satisfy the second prong of the specific jurisdiction test. Thus, an exercise of personal jurisdiction over Petland would not comply with due process.