September 1, 2023
By: Thomas O’Connell
Citation:
JTH Tax, LLC v. Younan, 2023 WL 5673951 (E.D. Va. Sept. 1, 2023).
Executive Summary:
In this unpublished decision, Judge Jamar K. Walker of the United States District Court for the Eastern District of Virginia, Norfolk Division, denied Defendant Bassam Younan’s motion to dismiss or transfer venue. The case revolved around franchise agreements between JTH Tax, LLC, a tax preparation franchisor, and Younan, a franchisee, involving allegations of breach of contract and conversion of JTH property. The court found the forum-selection clause in the agreements to be valid and enforceable and ruled that the plaintiff’s choice of venue in Virginia was proper under federal law.
Relevant Background:
JTH Tax, LLC (“Plaintiff”), a Delaware corporation with its principal place of business in Virginia Beach, Virginia, is a franchisor of tax preparation businesses operating under the Liberty Tax and SiempreTax brands. In 2016, JTH entered into franchise agreements with Defendant Bassam Younan, a California resident, allowing him to operate Liberty Tax and SiempreTax franchises in North Hollywood, California.
The agreements contained choice-of-law clauses selecting Virginia law while disclaiming the Virginia Retail Franchising Act (VRFA) and venue-selection clauses requiring disputes to be litigated in the Eastern District of Virginia. A California Addendum referencing the California Franchise Relations Act (CFRA) was appended to one agreement, but no such addendum was included with the SiempreTax agreement.
In January 2022, JTH terminated the franchise agreements, alleging breaches by the Defendant. On September 13, 2023, JTH filed a complaint seeking damages and injunctive relief. The Defendant filed a motion to dismiss or transfer venue, contending that the CFRA invalidated the forum-selection clause and that venue in Virginia was improper. JTH countered that the forum-selection clause was valid under federal law and aligned with 28 U.S.C. § 1391.
Decision:
The court denied the Defendant’s motion on multiple grounds:
- The court reaffirmed the enforceability of forum-selection clauses under federal precedent, specifically citing M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). According to this standard, such clauses are presumed valid unless the party challenging them can prove they are unreasonable under specific circumstances, such as being induced by fraud, causing grave inconvenience that effectively denies a party their day in court, or violating strong public policy. The Defendant failed to demonstrate these that would make the clause unenforceable under Albemarle Corp. v. AstraZeneca UK Ltd., 628 F.3d 643, 650 (4th Cir. 2010).
- The court rejected the Defendant’s reliance on the CFRA, holding that the federal venue statute, 28 U.S.C. § 1391, supersedes state law. The court emphasized that venue was proper because a substantial part of the events giving rise to the claim occurred in Virginia, including JTH’s acceptance of the agreements and its provision of technical and professional support.
- The court balanced the factors under 28 U.S.C. § 1404(a) and found that while litigating in Virginia posed financial and logistical challenges for the Defendant, these did not outweigh the deference owed to the Plaintiff’s choice of venue, as highlighted in Atlantic Marine Const. Co. v. U.S. Dist. Ct., 571 U.S. 49, 63 (2013).
- The court determined that Virginia’s interest in adjudicating disputes involving its businesses and its familiarity with relevant laws, including the VRFA, weighed heavily against transferring the case. The court noted that enforcing the forum-selection clause did not contravene public policy.
Looking Forward:
This case underscores several important lessons for franchisors and franchisees:
- Franchisors must carefully draft choice-of-law and forum-selection clauses to ensure they are enforceable and align with federal and state laws. In this case, JTH Tax, LLC’s inclusion of a well-drafted forum-selection clause allowed the franchisor to retain control over where disputes would be resolved, providing a clear advantage in litigation.
- The court reaffirmed that federal venue laws, such as 28 U.S.C. § 1391, take precedence over conflicting state statutes like the CFRA. For franchisors, this reinforces the reliability of forum-selection clauses as long as they comply with federal standards, as seen in the court’s rejection of Younan’s argument relying on the CFRA.