A recent decision by the United States District Court (The Business Store, Inc. v. Mail Boxes Etc., Case No. 11-3662 (Wolfson, U.S.D.J.)- February 16, 2012) servers as a reminder that a franchisor’s forum selection clause may not be enforceable in New Jersey. In this case, the plaintiff franchisee filed suit in New Jersey state court for alleged breaches of the franchise agreement. The franchisor removed the case to federal court and sought to transfer venue to the Southern District of California pursuant to the franchise agreement’s forum selection clause.
The District Court held that the franchise agreements were subject to the New Jersey Franchise Practices Act (NJFPA), and that the enforcement of the forum selection clause was against New Jersey public policy. The Court denied the franchisor’s motion to transfer venue.
The District Court relied on the public policy rationale set forth by the New Jersey Supreme Court in Kubis & Persyzky Assoc., Inc. v. Sun Microsystems, Inc, 146 N.J. 176 (1996). In Kubis, the plaintiff brought a claim against a franchisor in state court alleging a violation of the NJFPA. That violation arose from the wrongful termination of the parties’ agreement by the franchisor. Although the franchise agreement contained a forum selection clause, the NJ Supreme Court refused to enforce it based on public policy grounds. The Court held that in cases related to the NJFPA, forum selection clauses are “presumptively invalid because they fundamentally conflict with the basic legislative objectives of protecting franchisees from the superior bargaining power of franchisors and providing swift and effective judicial relief against franchisors that violate the Act.”
The District Court held that the NJFPA demonstrates a strong public policy that New Jersey franchisees have a forum to litigate against franchisors in New Jersey. The NJFPA’s legislative history reflects the concern that franchise agreements are often adhesion contracts in which franchisors pressure franchisees into agreeing to disadvantaged terms. As such, the central purpose of the NJFPA is to “protect franchisees from unreasonable termination by franchisors that may result from a disparity of bargaining power between national and regional franchisors and small franchisees.”