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Ramada Franchise Systems, Inc. v. Saturno Enterprises, Inc.

97-3053 (U.S. Dist. Ct. D. N.J.) (Unpublished)

GUARANTIES; DRAFTING—There was no forum selection provision in a personal guaranty. Therefore, the forum selection in the underlying agreement was deemed to apply to the guaranty as well.

A franchise entered into a license agreement for the operation of one of its hotels in Texas. The agreement was signed by a licensee and contained a forum selection clause stating that the licensee would be subject to the laws of New Jersey. The principals of the licensee concurrently executed personal guarantees which did not contain either a forum selection clause or a consent to personal jurisdiction in New Jersey, but which did include the express assumption by the guarantors of all of the licensee’s obligations. When the licensee ceased operations, the franchise sued the licensee and its principals in New Jersey. The licensee and its principals alleged that New Jersey did not have personal jurisdiction over the matter.

The United States District Court stated that once personal jurisdiction is disputed, a plaintiff bears the burden of establishing the Court’s jurisdiction by a preponderance of the evidence. This is done by establishing that a defendant had sufficient contact with the forum state. The Court then stated that, in addition to consideration of the relevant facts, it is required to accept as true the allegations of the complaint and resolve disputed issues of fact in favor of the plaintiff. The District Court found that the franchise established a prima facie case for personal jurisdiction over the licensee based on the forum selection clause in the license, and that the express assumption in the guarantees of all of the licensee’s obligations under the license agreement included the forum selection clause, thus giving New Jersey courts personal jurisdiction over the principals of the licensee. The Court stated that New Jersey had personal jurisdiction over the licensee and its principals regardless of whether Federal or New Jersey law were applied. In support of this finding, the Court relied on several cases holding that where several documents are produced and contemporaneously executed as part of one transaction, they may be read together as one. Even a person who only signed a guarantee and not the underlying agreement has been held subject to a forum selection clause in the agreement based on his assumption of all obligations of the entity. The fact that the franchise could have inserted a forum selection clause into the guaranty itself but did not was deemed irrelevant by the Court. The District Court concluded that this ruling neither violated due process nor offended traditional notions of fair play and substantial justice, since the forum selection clause gives a guarantor ample notice he may have to face claims in a particular jurisdiction.


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