Franchise 101: Greener Grass in a Foreign Forum; and The Ties That Won’t Bind

Franchisor 101: Greener Grass in a Foreign Forum

A federal court in Maryland denied Marriott International, Inc.’s motion to dismiss plaintiffs’ action based on forum non conveniens.  

Plaintiffs sued Marriott and the JW Marriott hotel franchisee in India for premises liability, negligence, and loss of spousal consortium based on a plaintiff’s fall and resulting injury at a Mumbai hotel. 

Marriott and its franchisee moved to dismiss based on forum non conveniens, among other grounds. Marriott argued the case should be heard in India where the fall occurred. Federal courts may dismiss a case under forum non conveniens if a case should be litigated in a foreign nation when the alternative forum is (1) available; (2) adequate; and (3) more convenient in light of public and private interests. The defendant bears the burden of showing dismissal is appropriate. 

Marriott contended India was an available and adequate forum, and Marriott would make itself available in India to resolve the matter. Marriott provided an affidavit from an attorney in India, who explained the plaintiffs could maintain their claims in India as if they were citizens of India. The plaintiffs argued that while India may be an available forum, it was inadequate because it could take up to 15 or 20 years to reach resolution. While the court took “seriously” plaintiffs’ concern of timing, the court assumed without deciding that the forum is adequate, and proceeded to weigh the public and private interests. 

The court determined that while certain private interests may favor India as the forum, other private factors and public interests favored keeping the action in the United States. The court noted that plaintiffs’ choice of forum is entitled to great deference because plaintiffs had their home in the forum. The expense plaintiffs would likely incur for travel to India favored keeping the case in the United States. And any claimed difficulty relating to the court deciding foreign law was unpersuasive. The court noted prior cases finding federal courts are “quite capable” of deciding foreign law issues. The court concluded that Marriott did not overcome the substantial deference afforded to plaintiffs’ choice of forum.

Franchisors often seek to have actions litigated in other cities, states, or countries in which alleged harm or injury occurred. Before taking such action, franchisors should consult franchise counsel to evaluate the merits to reduce protracted litigation and associated fees and costs. 

Sant v. Marriott Int’l, Inc., No. GJH-22-1036, 2023 U.S. Dist. LEXIS 31395 (D. Md. Feb. 24, 2023)

Franchisee 101: The Ties That Won’t Bind

An Oregon federal court denied a franchisor’s motion to compel the principals and personal guarantors of a franchisee into arbitration because the parties did not sign arbitration agreements in the franchise documents.

The plaintiffs, two individuals and a trust, were owners or otherwise affiliated with franchisees of Black Rock Coffee Bar. Black Rock moved to compel six franchisee limited liability companies to arbitrate, but the motion did not include the plaintiffs. 

During the arbitration, Black Rock asked the arbitrator for leave to amend its claims to add plaintiffs as additional parties. After the arbitrator granted Black Rock’s motion over the plaintiffs’ objection, the plaintiffs refused to participate in the arbitration and filed an action in federal court. The court determined no arbitration agreement existed between the plaintiffs and Black Rock, so the court could not compel the plaintiffs to arbitrate. 

The court concluded there was no express arbitration agreement among the parties. Black Rock argued that plaintiffs were “Controlling Principals” of the franchisees as defined under the franchise agreements and therefore bound to the franchise agreements’ arbitration provisions. The court looked to the franchise agreements, which defined two types of principals: “Franchisee’s Principals” and “Controlling Principals.” The court rejected Black Rock’s argument as conflating these terms as the same because the specific provision had two conditions to be satisfied to be a Controlling Principal: (1) the person (or entity) must be a “Franchisee’s Principal” and (2) that person (or entity) also must be designated by Black Rock to be a Controlling Principal. The plaintiffs may have been “Franchisee’s Principals” but they were not designated as “Controlling Principals” by Black Rock. 

The court also concluded there was no implicit agreement based on common law principals of agency. Black Rock argued the franchisee entities, acting as agents for plaintiffs, bound the plaintiffs to the arbitration agreements since all plaintiffs are listed as “Franchisee’s Principals.” Simply ownership interest did not create common-law agency relationship. Further, designation as “Franchisee’s Principal” under the franchise agreements did not grant powers or obligations of an agency relationship. 

The court rejected Black Rock’s argument that plaintiffs as third-party beneficiaries, personal guarantors, and alter egos are bound by the terms of the franchise agreements. Under Oregon law, a third-party beneficiary to a contract is generally not bound to an arbitration clause in that contract. Finally, Black Rock had not sufficiently shown plaintiffs’ actual control over the franchisee entities and used that control to engage in improper conduct to Black Rock’s detriment. 

Franchisors generally invoke and enforce arbitration agreements in franchise agreements and related contracts. Franchisees and their principals should consult franchise counsel to evaluate which parties may be bound to franchise agreements and/or arbitration provisions in advance of commencing litigation. 

Goergen v. Black Rock Coffee Bar, LLC, 2023 U.S.Dist.LEXIS 19872 (D.Or. Feb. 6, 2023)