Opinion
DEFENDANT'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, TO TRANSFER VENUE [Dkt. 13]
DEAN D. PREGERSON, District Judge.
Presently before the Court is Defendant Burger King Corporation's motion to dismiss or, in the alternative, to transfer venue (the "Motion"). For the reasons stated in this Order, the Motion is GRANTED and the action is dismissed for improper venue under Rule 12(b)(3).
I. Background
Plaintiffs Syed Musavi and Shakeb H. Zuberi ("Plaintiffs") owned the rights to operate four franchise locations of Burger King restaurants, all located within the Central District of California. (Complaint ¶ 9.) Plaintiffs purchased the rights from third parties in 2007 and have been operating the franchises since that time. (Id.) Plaintiffs allege that they have operated the franchises in substantial compliance with their obligations under the Franchise Agreements with Defendant Burger King Corporation ("Defendant"). (Id. ¶ 10.)
In September 2012, Defendant sent Plaintiffs a letter, alleging that Plaintiffs were in default of their obligations under the Franchise Agreements. (Id. ¶ 15.) Plaintiffs dispute the allegation that they breached any material terms of the contract. (Id.) On January 15, 2013, Defendant unilaterally terminated the Franchise Agreements due to "unpaid rent, royalty, advertising, common area maintenance, and property tax charges." (Id.) Plaintiffs allege that this termination was fraudulent and in bad faith. (Id. ¶ 16.)
On January 16, 2013, Defendant filed a lawsuit against Plaintiffs in the Southern District of Florida. (Id. ¶ 18.) That action was dismissed upon Plaintiffs entering into a Limited License Agreement ("LLA") with Defendant on the same day the case was filed. (Id. ¶ 19.) The LLA provided that the Franchise Agreements were terminated, but that Plaintiffs could continue operating their franchises until May 29, 2013 for the purpose of allowing Plaintiffs to attempt to sell the franchises as going concerns. (Motion at 2-3.) Plaintiffs also acknowledged by signing the LLA that they "waive[] any... defense, offset, claim, or counterclaim" to Defendant's "default of the Franchise Agreements." (LLA, Exh. 4 to Motion.)
The LLA stated that "the Parties hereto agree that the Franchise Agreements are hereby terminated as of January 16, 2013." (LLA, Exh. 4 to Motion.)
Plaintiffs neither sold nor closed their franchises by the deadline. (Motion at 4.) On the day of the deadline, Plaintiffs filed this lawsuit, alleging that the LLA is unconscionable and unenforceable, in part because it limits Plaintiffs' ability to sell their franchises. (Complaint ¶¶ 19-21.) Plaintiffs also allege that their franchises have been unprofitable since 2008, in part due to specific actions and failures of Defendant. (Id. ¶ 11.) Plaintiffs allege that Defendant's actions constituted breaches of the Franchise Agreements and the LLA. (Id. ¶¶ 26-30.) On June 6, 2013, Defendant filed an action against Plaintiffs in the Southern District of Florida, alleging that Plaintiffs breached the LLA. (Motion at 4.)
Defendant argues that this action should be dismissed under Fed. R. Civ. Proc. 12(b)(3) for improper venue. Defendant points to the forum selection clause contained in the LLA, which states:
The parties acknowledge and agree that this Agreement is deemed entered into in Miami, Florida, and is governed by Florida law, and that the U.S. District Court for the Southern District of Florida shall be the venue and exclusive proper forum in which to adjudicate any case or controversy arising, either directly or indirectly, under or in connection with this Agreement. If such court lacks jurisdiction, then the 11th Judicial Circuit (or its successor) in and for Miami-Dade County, Florida, shall be the exclusive venue and proper forum for any such case or controversy.
(LLA, Exh. 4 to Motion.)
In the alternative, Defendant argues that the Court should transfer venue to the Southern District of Florida pursuant to 28 U.S.C. § 1404. Finally, Defendant argues that the action should also be dismissed under Fed. R. Civ. Proc. 12(b)(6) for failure to state a claim.
Because the Court grants Defendant's Motion on the grounds of improper venue, the Court does not reach the merits of Defendant's alternate grounds for dismissal or transfer.
II. Legal Standard
A forum selection clause can properly be enforced through a motion to dismiss for improper venue under Federal Rule of Civil Procedure 12(b)(3). Argueta v. Banco Mexicano, S.A. , 87 F.3d 320, 324 (9th Cir. 1996). Forum selection clauses are presumptively valid and should be honored "absent some compelling and countervailing reason." Bremen v. Zapata Off-Shore Co. , 407 U.S. 1, 12 (1972). The party challenging the clause bears a "heavy burden of proof" and must "clearly show that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or over-reaching." Id. at 15.
III. Discussion
A. The Forum Selection Clause Is Mandatory
There are two types of forum selection clauses: mandatory and permissive. Northern Cal. Dist. Council of Laborers v. Pittsburgh-Des Moines Steel Co. , 69 F.3d 1034, 1036-37 (9th Cir. 1995). "A mandatory forum selection clause is presumed valid and is to be strictly enforced. A permissive forum selection clause, on the other hand, simply means that the parties consent to the jurisdiction of the designated forum." Hsu, et al. v. OZ Optics Limited , 211 F.R.D. 615, 618 (N.D. Cal 2002) (internal citation omitted). "To be mandatory, a clause must contain language that clearly designates a forum as the exclusive one." Laborers , 69 F.3d at 1036-37. Here, the language in the LLA is mandatory because it contains language stating that "the U.S. District Court for the Southern District of Florida shall be the venue and exclusive proper forum" for actions "arising, either directly or indirectly, under or in connection with this Agreement." (LLA, Exh. 4 to Motion (emphasis added).) Plaintiffs do not contest that the language of the forum selection clause is mandatory.
B. The Public Policy Exception
A mandatory forum selection clause is presumed valid, but can be invalidated if: (1) "the inclusion of the clause in the agreement was the product of fraud or overreaching;" (2) "the party wishing to repudiate the clause would effectively be deprived of his day in court were the clause enforced;" or (3) "enforcement would contravene a strong public policy of the forum in which suit is brought." Bremen , 407 U.S. at 12. Plaintiffs argue that the public policy exception to enforcement applies in this case.
Plaintiffs argue that the forum selection clause contained in the LLA is unenforceable because it violates California public policy as embodied in the California Franchise Relations Acts ("CFRA"), which provides that "[a] provision in a franchise agreement restricting venue to a forum outside this state is void with respect to any claim arising under or relating to a franchise agreement involving a franchised business operating within this state." Cal. Bus. & Prof. Code § 20040.5. The Ninth Circuit has found that § 20040.5 "expresses a strong public policy of the State of California to protect California franchisees from the expense, inconvenience, and possible prejudice of litigating in a non-California venue. A provision, therefore, that requires a California franchisee to resolve claims related to the franchise agreement in a non-California court directly contravenes this strong public policy and is unenforceable." Jones v. GNC Franchising, Inc. , 211 F.3d 495, 499 (9th Cir. 2000).
Defendant argues that the forum selection clause that it is seeking to enforce is not contained in a "franchise agreement, " but instead in the LLA. The Ninth Circuit has held that "Section 20040.5 applies only to forum selection clauses and only to franchise agreements; it therefore does not apply to any contract.'" Bradley v. Harris Research, Inc. , 275 F.3d 884, 890 (9th Cir. 2001). The threshold issue for determining whether the 12(b)(3) motion should be granted, then, is whether the LLA is a "franchise agreement." The CFRA defines "franchise" as
a contract or agreement, either expressed or implied, whether oral or written, between two or more persons by which:
(a) A franchisee is granted the right to engage in the business of offering, selling or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchisor; and (b) The operation of the franchisee's business pursuant to that plan or system is substantially associated with the franchisor's trademark, service mark, trade name, logotype, advertising, or other commercial symbol designating the franchisor or its affiliate; and (c) The franchisee is required to pay, directly or indirectly, a franchise fee.
Cal. Bus. & Prof. Code § 20001.
Plaintiffs entered into the LLA in order to settle prior litigation, in which Defendant alleged that Plaintiffs breached the Franchise Agreements. Plaintiffs specifically agreed to give up their rights under the Franchise Agreements in entering into the LLA. Although the LLA allowed Plaintiffs to continue operating the franchises for a limited period of time, the LLA can best be understood as an agreement terminating Plaintiffs' rights under the Franchise Agreements, rather than "granting" them rights.
In addition, the policy behind the CFRA provision would not be furthered by finding the LLA's forum selection clause unenforceable. The purpose of § 20040.5 is to prevent California franchisees from being unfairly forced to litigate in a forum outside of California under a "take it or leave it" franchise agreement. See Basalite Concrete Prod., LLC v. Keystone Retaining Wall Sys., 2011 WL 999198, at *4 (E.D. Cal. 2011). Here, Plaintiffs were not required to enter into the LLA. They could have asserted their rights under the CFRA when the first lawsuit was filed in January 2013 and sought to have that action transferred to California or dismissed under the public policy exception. Instead, Plaintiffs chose to settle that lawsuit and, in so doing, chose to give up their rights under the Franchise Agreements in exchange for the opportunity to attempt to sell their franchises as going concerns. Therefore, this Court finds that the LLA does not constitute a "franchise agreement" under the CFRA; as a result, the public policy exception to enforcement of the forum selection clause does not apply.
Plaintiffs argue that they were not represented by an attorney at the time the prior lawsuit was filed and that it is therefore unfair to enforce the forum selection clause contained in the LLA. Though Plaintiffs certainly would have benefitted from the advice of an attorney in the earlier action, Plaintiffs cannot now claim that their business agreement with Defendant is unenforceable as a result of their decision not to retain legal counsel in that action.
IV. Conclusion
For the reasons stated, the forum selection clause designating the Southern District of Florida as the exclusive forum for this action is enforceable. The Motion is GRANTED under Rule (12)(b)(3). The action is therefore dismissed without prejudice to Plaintiffs refiling the case or asserting their claims as counterclaims in the pending lawsuit between the parties in the Southern District of Florida.
IT IS SO ORDERED.