Villager Franchise Systems, Inc. v. Yoo

01-4228 (U.S. Dist. Ct. D. N.J. 2002) (Unpublished)

Opinion Date: July 11, 2002
Business Law
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FRANCHISES; FORUM SELECTION —The New Jersey Franchise Act is intended to protect New Jersey businesses and its forum requirements will not be extended to protect out of state franchisees, especially where the franchisee can not make the required strong showing of unequal bargaining power needed to justify upsetting an agreed-upon forum selection clause.

A hotel franchisor terminated a franchise agreement, alleging that its franchisee had breached a number of its provisions. It then sued, seeking to recover damages. The franchisee sought to dismiss the action for lack of personal jurisdiction and also moved, in the alternative, to transfer the action to California, where she and the business were located. The franchisee and her husband were Korean. The franchise agreement contained a forum selection clause designating New Jersey as the appropriate place for litigation. The franchisee’s owner also signed a personal guaranty related to the franchise agreement. The franchisee essentially argued that, “absent a forum selection clause, [the New Jersey] Court [had] no basis to assert personal jurisdiction over her.” Accordingly, she argued that the forum selection clause was invalid because: “(1) it was the result of coercive bargaining power; (2) the enforcement of the clause would be seriously inconvenient to [her and the business] and created an undue burden; and (3) enforcement of the clause would violate public policy.” The Court was unsympathetic. In the Third Circuit, “forum selection clauses are given a presumption of validity in accordance with the dictates of the Supreme Court. ... [and] will be upheld unless the moving party makes a strong showing that the clause is unreasonable. ... To show that the clause is unreasonable, the moving party must establish: (1) that it is the result of fraud or overreaching, (2) that enforcement would violate a strong public policy of the forum, and (3) that enforcement of the clause would be so inconvenient as to be unreasonable. ... A clause may be invalidated in cases of fraud, undue influence or overweening bargaining power.” Essentially, the franchisee’s owner argued that this particular forum selection clause was “unreasonable because it was unfairly entered into and because [the franchisor’s] overweening bargaining power invalidated the clause.” She argued that she was disadvantaged by her limited English skills and that she was “unsophisticated and unaware of the import of the waiver clause due to her poor command of the English language.” She also contended that the contract was “one-sided boilerplate drafted by the [franchisor] and the relative bargaining powers” were “lopsided.” Therefore, according to her, the Court should “grant little or no weight” to the forum selection clause. She pointed out that she was not represented by an attorney throughout her negotiations. In response, the franchisor pointed to modifications to the franchise agreement that were made as a result of negotiations. The Court examined the modifications and believed that they “all seemed to be for the benefit of the franchisee.”

The Court upheld the forum selection clause, saying that simply asserting that the franchisee’s “limited English skills and status as a small business owner [evidenced] unequal bargaining power so unfair as to invalidate the forum selection clause” did not meet the “strong showing of unequal bargaining power required to justify invalidating the forum selection clause.” As to the franchisee’s assertion that the forum selection clause violated the public policy of New Jersey, the Court pointed out that although the “New Jersey Supreme Court [has] found that forum selection clauses in franchise agreements were presumptively invalid as a matter of public policy,” other similar cases had “been held not to apply to out-of-state franchisees.” Essentially, the public policy of the New Jersey Franchise Practice Act is to protect franchisees in New Jersey and not those in California, as was the situation in this case. Further, the Court opined that “if California law were to apply, the forum selection clause would not be against California’s public policy.”

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