The Franchise Memorandum

A trio of recent decisions addresses issues of personal jurisdiction in the franchise context. In Noble Roman’s, Inc. v. French Baguette, LLC, 2008 WL 975078 (S.D. Ind. April 8, 2008), Noble Roman’s brought suit against terminated franchisees in Indiana, which was franchisor Noble Roman’s home state. The franchisees sought to dismiss that action, arguing that they were Florida residents with no contacts with the state of Indiana. The court disagreed and found that Noble Roman’s had demonstrated that defendants had sufficient contacts with Indiana to justify the exercise of jurisdiction over them in that state.

The court found that the defendants had purposefully availed themselves of the privilege of conducting business in Indiana by entering into a long-term franchise agreement with an Indiana corporation. The court also found persuasive defendants’ ongoing communications with Noble Roman’s in Indiana through telephone and fax. Moreover, the franchise agreement provided that it would be construed under Indiana law, putting the defendants on notice of the possibility that they might be required to defend a suit in that state. Because the defendants had an ongoing business relationship with an Indiana company, the court found that they could not demonstrate that forcing them to litigate in Indiana would be so inconvenient as to violate traditional notions of fair play and substantial justice. Finally, the court rejected the defendants’ argument that the federal venue statute required the case to be brought in Florida, where they resided. The court noted that for venue purposes a corporation is deemed to reside in any district in which it is subject to personal jurisdiction. Because defendants were subject to personal jurisdiction in Indiana, venue there was appropriate as well.

In JTH Tax, Inc. v. Liberty Services Title, Inc., 2008 WL 1699801 (E.D. Va. April 10, 2008), however, the court found that it lacked personal jurisdiction over an out-of-state defendant that had allegedly infringed upon a Virginia franchisor’s trademark. JTH Tax brought suit in Virginia against a Florida company that had allegedly displayed its trademarks without consent. JTH Tax argued that the defendant’s infringement constituted a tortious injury directed toward Virginia, thus permitting the Virginia court to exercise jurisdiction. The court disagreed and ordered the case to be transferred to Florida. The court found that the defendant had no contacts with the state of Virginia that would provide jurisdiction. The court also rejected JTH Tax’s argument that the defendant’s tortious conduct was felt by JTH Tax in Virginia, finding that any business lost by JTH Tax or its franchisees as a result of the alleged trademark infringement would have been in Florida, where the alleged infringement occurred. The mere presence in Virginia of the owner of the trademarks provided insufficient contacts to permit the court to exercise jurisdiction.

In R&K Lombard Pharmacy Corp. v. Medicine Shoppe International, Inc., 2008 WL 648509 (E.D. Mo. March 5, 2008), the court rejected an attempt by a group of franchisees to bring suit against their franchisor’s parent corporation in Missouri. The plaintiffs named as a defendant Cardinal Health, Inc., the parent company of franchisor Medicine Shoppe International, Inc. The plaintiffs claimed that Cardinal Health was subject to jurisdiction in Missouri based on Medicine Shoppe International’s contacts with that state. The court disagreed, holding that it could not assert jurisdiction over Cardinal Health. Among other things, the court rejected the plaintiffs’ argument that the use of Cardinal Health’s name on business cards and job postings made by Medicine Shoppe International was sufficient to provide a basis for jurisdiction. Accordingly, the court granted Cardinal Health’s motion to dismiss.