Executive Summary:
In an unpublished decision, Magistrate Judge Hanna of the United States District Court for the Western District of Louisiana ruled against a motion to transfer to California made by a California member / franchisee even where there was no forum selection clause.
Citation:
Krispy Krunchy Foods LLC v. Jenna Marketing LLC, 2021 WL 1916151 (W.D. La. Apr. 16, 2021).
Relevant Background:
Krispy Krunchy Foods LLC (“KKF”) is a Louisiana company whose business is the production of quick service food items sold in convenience stores, gas stations, and other similar retailers throughout the United States. KKF creates a network of LLC’s composed of KKF–often in a majority ownership stake–-and “Marketing Partners” focused on each geographic territory in which KKF’s products are sold. Net profits are distributed between KKF and its Marketing Partners in proportion to each party’s ownership percentage within the LLC.
In 2011, Jenna Marketing LLC (“Member”) entered into a New Member Agreement (“Agreement”) where Member became a co-owner in the Los Angeles territory. That same year, Member and KKF also created an LLC for the Phoenix territory. In 2015, KKF sought to renegotiate all of its contracts with its various members. Member felt that the proposed contract was unfair and negotiations became acrimonious. After not being able to reach an agreement, in 2020, KKF filed suit in the Western District of Louisiana seeking judicial dissolution of its LLCs with Member. In response, Member filed suit in the Central District of California. Because KKF had filed its lawsuit against Member before Member filed its lawsuit against KKF, the Central District Court transferred Member’s suit to the Western District of Louisiana. Member now seeks to transfer the consolidated suit back to the Central District of California.
Decision:
Unlike most other cases concerning the proper forum and jurisdiction for a lawsuit between a franchisor and franchisee, the agreement at issue did not contain a forum selection clause. Indeed, the Court here indicated that if a forum selection clause was included, it likely would have applied the same rationale as in the recent case of PostNet International Franchise v. Wu. Without a forum selection clause, the Court evaluated the public and private interest factors set forth by the United States Supreme Court in Gulf Oil Corp. v. Gilbert, 330 U.S. 501 (1947). Specifically, the private interest factors include: (1) the relative ease of access to sources of proof; (2) the availability of compulsory process to secure the attendance of witnesses; (3) the cost of attendance for willing witnesses; and (4) all other practically problems that make trial of a case easy, expeditious, and inexpensive. Similarly, the public interest factors include: (1) the administrative difficulties flowing from court congestion; (2) the local interest in having localized interests decided at home; (3) the familiarity of the forum with the law that will govern the case; and (4) the avoidance of unnecessary problems of conflict of laws or in the application of foreign law.
While the Court deliberately analyzed each element, in a post-COVID twist, the Court essentially negated many or most of the elements based on technological advances. There are several passages where the Court makes such a finding with the below just one example:
“Additionally, the Court and many others adopted and continue to operate under stringent COVID-19 protocols. Having incorporated new methods of operation with great success, it is the view of the undersigned that, to the extent that use of stipulated deposition testimony at trial is not possible, live testimony by video teleconferencing is now an economical and safe option. Fed. R. Civ. P. 43 permits live testimony by contemporaneous transmission from another location, thereby enabling the use of popular teleconferencing platforms, such as Zoom. the use of this technology may also be a helpful tool in securing testimony by otherwise reluctant witnesses, reducing the need for compulsory process. Given the availability of technological aids to testimony, we find that this factor is neutral.”
Based on the Court’s analysis, and even though Member sued for violation of the California Franchise Investment Law, the Court denied Member’s motion to transfer.
Looking Forward:
From the Court’s opinion, it is not clear how Member framed its violation of California’s Franchise Investment Law but it appears that the Member did not make a persuasive argument regarding California’s interests in hearing suits regarding its own franchisees. Nevertheless, the most important takeaways from this matter are as follows:
- The forum chosen by the first-to-file more often than not ends up being the forum that the lawsuit is ultimately heard. While there are exceptions such as if a party moving to transfer can successfully argue that a lawsuit was an “anticipatory” lawsuit or if the moving party can demonstrate that the public and private Gilbert factors weigh in its favor, that burden was difficult to overcome.
- The burden of overcoming the Gilbert factors for a party seeking to relocate a case to a more convenient forum were already hard but technology–particularly Zoom–has made this burden even harder. While there are not any cases currently pending before the Supreme Court on this issue, it is likely that the Supreme Court will need to reformulate the Gilbert test to accommodate the technological innovations over the last 70 years. Said differently, while Gilbert remains good law, logic and not precedent are likely to be more persuasive until the test is reformulated.
This article was originally published on the California Franchise Network.
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Thomas O’Connell – Tom O’Connell is a Shareholder at Buchalter APC, where he serves as Chair of the firm’s Franchise Law Practice and Chair of Litigation for the firm’s San Diego office.
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