September 9, 2024
By: Thomas M. O’Connell
Citation:
M&N Luxury AV, LLC v. Bang & Olufsen America, Inc., 2024 WL 4869148 (C.D. Cal. 2024)
Executive Summary:
In this unpublished decision, Judge Dale S. Fischer of the United States District Court for the Central District of California denied a motion by Bang & Olufsen America, Inc. (Defendant) to dismiss the case or transfer it to the District of Delaware. The dispute centered on whether M&N Luxury AV, LLC (Plaintiff) was a franchisee of the Defendant under the California Franchise Investment Law (CFIL), Cal. Corp. Code § 31000 et seq., and whether California’s Franchise Relations Act (CFRA), Cal. Bus. & Prof. Code § 20040.5, rendered a forum selection clause in their agreement unenforceable. The court found preliminary evidence supporting the existence of a franchise relationship, rendering the forum selection clause unenforceable under California law.
Relevant Background:
M&N Luxury AV, LLC filed this lawsuit asserting that its relationship with Bang & Olufsen America, Inc. constituted a franchise under California law. The Plaintiff argued that the forum selection clause requiring disputes to be litigated in Delaware was unenforceable. According to Cal. Bus. & Prof. Code § 20040.5, “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 franchise business operating within this state.” The Defendant countered, disputing the characterization of their agreement as a franchise and defending the validity of the forum selection clause.
Under Cal. Corp. Code § 31005, a franchise is defined as an agreement where (1) the 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 by the franchisor, (2) the business is substantially associated with the franchisor’s trademarks or branding, and (3) the franchisee is required to pay a franchise fee. The Plaintiff cited its use of the Defendant’s branding, compliance with marketing guidelines, and payments that it claimed qualified as franchise fees. The Defendant challenged these points but failed to provide detailed arguments or evidence to refute the Plaintiff’s claims.
The court considered precedent, including Jones v. GNC Franchising, Inc., 211 F.3d 495 (9th Cir. 2000), which interpreted § 20040.5 as reflecting California’s strong public policy against requiring franchisees to litigate disputes outside the state. This precedent informed the court’s analysis of the forum selection clause.
Decision:
- The court denied the Defendant’s motion to dismiss or transfer venue. It interpreted Jones v. GNC Franchising, Inc., 211 F.3d 495 (9th Cir. 2000), to affirm that Cal. Bus. & Prof. Code § 20040.5 voids forum selection clauses that require franchisees to litigate disputes outside California. The court applied this principle, finding the forum selection clause unenforceable under the circumstances.
- The court also made a preliminary finding that the Plaintiff had provided sufficient evidence to establish a franchise relationship, thereby invoking the protections of the California Franchise Investment Law (CFIL). Although the Defendant challenged the Plaintiff’s evidence, it provided little substantive argument to refute the claims. The court noted that the Defendant’s response was largely conclusory, without specific legal or factual explanations to support its position.
- Further, the Defendant argued that the present tense in § 20040.5 (“operating within this state”) limited its application to active franchise businesses, thereby excluding disputes over terminated agreements. The court found this argument meritless, interpreting the statute’s language and purpose to include disputes arising from terminated relationships.
- Finally, the court rejected the Defendant’s assertion that the Supreme Court’s decision in Atlantic Marine Construction Co. v. U.S. District Court, 571 U.S. 49 (2013), abrogated the Ninth Circuit’s holding in Jones. The court referenced subsequent Ninth Circuit decisions, such as Depuy Synthes Sales, Inc. v. Howmedica Osteonics Corp., 28 F.4th 956, 964 (9th Cir. 2022), which reinforced that federal law does not preempt California’s strong public policy against enforcing such forum selection clauses.
The motion to dismiss or transfer was therefore denied in its entirety.
Looking Forward:
This decision highlights key considerations for franchisors operating in California.
- It underscores the importance of structuring agreements to ensure that they cannot be construed as franchises unless that is the intent. Franchisors should carefully review any use of marketing plans, trademarks, or fees to mitigate the risk of triggering franchise laws inadvertently.
- The case also reinforces the principle that California courts prioritize the state’s strong public policy against enforcing forum selection clauses in franchise disputes. Franchisors should consider this when drafting agreements with parties operating within the state.
Additionally, the court’s rejection of weak or unsupported arguments serves as a reminder of the importance of thoroughly addressing claims with specific evidence and legal reasoning. Poorly substantiated defenses may be disregarded, potentially undermining an otherwise strong position.