September 26, 2025|Franchise Frontlines
September 26, 2025 | U.S. District Court for the Western District of North Carolina | Unpublished Opinion
Executive Summary
In an unpublished order, Senior Judge Frank D. Whitney of the Western District of North Carolina denied CARSTAR Franchisor SPV LLC’s motion for default judgment without prejudice after concluding that the record did not yet establish personal jurisdiction over a Wisconsin-based former franchisee and guarantor. CARSTAR alleged breaches of two franchise agreements and two guaranties, along with post-termination trademark infringement under the Lanham Act. The defendants did not appear, and the Clerk entered default. CARSTAR sought monetary damages and permanent injunctive relief. The court declined to enter default judgment, holding that it could not make the necessary jurisdictional findings based solely on the pleadings and affidavits.
Relevant Background
According to the allegations in the complaint, CARSTAR entered into two separate franchise relationships with entities controlled by the same Wisconsin operator. CARSTAR alleged that Wilson Auto Collision, Inc., doing business as Wilson CARSTAR Niagara, and GBWAC, LLC, doing business as Wilson CARSTAR Green Bay West, each failed to meet contractual obligations, including payment of royalties, insurance fees, marketing fees, and other required charges. CARSTAR further alleged that Kevin Wilson executed personal guaranties for both agreements, making him jointly and severally liable for the obligations of each operating company.
CARSTAR asserted that the defendants continued to use CARSTAR trademarks, trade names, and trade dress after the termination of the franchise agreements, giving rise to claims under the Lanham Act for trademark infringement and unfair competition. After serving the complaint, CARSTAR received no response, and the Clerk entered default under Rule 55(a). CARSTAR then moved for default judgment, seeking damages, interest, attorneys’ fees, and a permanent injunction prohibiting further use of CARSTAR branding and system elements.
Because the defendants were Wisconsin residents and the franchised locations were based in Wisconsin, CARSTAR alleged that personal jurisdiction in North Carolina was proper based on the assertion that the defendants made contractual promises involving performance in Charlotte, North Carolina. CARSTAR relied on North Carolina’s long-arm statute and asserted that the claims arose out of promises made to the franchisor in North Carolina.
Decision
The court denied the motion for default judgment without prejudice solely because the record did not yet allow the court to determine whether personal jurisdiction existed over the Wisconsin defendants. The court noted that the franchise agreements were governed by Kansas law and included forum-selection provisions naming Kansas courts as the exclusive forum for most types of disputes. Although the agreements allowed CARSTAR to file actions in other jurisdictions for certain types of relief, such as collection of unpaid amounts or injunctive relief, the court found the record insufficient to determine whether the claims in this case fit within that exception.
The court also observed that a contract with an out-of-state franchisee does not automatically establish minimum contacts with the franchisor’s home state. The court cited authority explaining that personal jurisdiction requires a showing that the defendant purposefully availed itself of the privilege of conducting activities within the forum state, and that more information was needed about how the franchise relationship was initiated, the nature of the parties’ communications, the extent of contacts with North Carolina, and the contemplated performance under the agreements.
Because personal jurisdiction must be confirmed before a federal court may enter default judgment, and because the current record did not resolve those jurisdictional questions, the court denied the motion without prejudice, allowing CARSTAR to supplement the record and refile.
Looking Forward
This ruling may serve as a reminder that franchisors seeking enforcement actions against former franchisees, particularly those located in other states, may need to carefully document jurisdictional bases before seeking default judgment. Even where a defendant does not appear and the allegations of contractual breach and post-termination trademark use are uncontested, courts may independently evaluate personal jurisdiction and require evidence concerning how the franchise relationship connects to the forum state.
The decision also illustrates that courts may look closely at forum-selection and choice-of-law clauses when determining whether a franchisor may sue outside the contractually designated forum. When agreements provide that most disputes must be brought in a specific jurisdiction, courts may require a clear explanation for why an enforcement action—particularly one involving injunctive relief or monetary defaults—is being pursued elsewhere. Contractual language authorizing suit in multiple jurisdictions may be relevant, but courts will examine whether the claims fall within those exceptions.
Franchisors operating nationwide may wish to review the consistency of their forum provisions, their documentation of pre-suit communications, and their approaches to filing enforcement actions against out-of-state franchisees. Different courts may reach different conclusions depending on the contractual framework and the facts developed regarding contacts with the forum. This case underscores that jurisdictional clarity may be just as important as liability evidence when seeking prompt enforcement remedies against former franchisees who do not participate in litigation.
This article is based solely on the opinion of the Court in this matter. The author has not conducted any independent investigation into the facts. For the avoidance of doubt, each statement related to the law and facts in this article is drawn from the Court’s opinion in this case.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create, and does not create, an attorney-client relationship or any other legal relationship. No statement herein constitutes legal advice, nor should it be relied upon or interpreted as such. This communication is for general informational purposes only and is not a substitute for legal counsel. Readers should not act or refrain from acting based on any information provided without seeking appropriate legal advice specific to their situation. For more information, visit www.buchalter.com.
