August 17, 2020
By: Thomas M. O’Connell
T.A.W. Performance, LLC v. Brembo, S.p.A., 53 Cal.App.5th 632 (2020).
In a partially published decision, the California Court of Appeal, First District, Division 3, found that it lacked specific jurisdiction over a purported California franchisee without addressing if the CFIL governed their relationship or if the CFIL voided its forum selection clause.
Defendant Brembo, S.p.A. (“Defendant”) manufacturers brake systems for vehicles which it exports for international sale. In July 2014, Defendant entered into a distribution agreement with T.A.W. Performance (“Plaintiff”). The distribution agreement had a five year term and either party could cause early termination by giving at least one year’s notice in writing. The distribution agreement further states that the parties consented to the exclusive jurisdiction of the state and federal courts of the State of New York and that all disputes would be governed by the laws of the State of New York.
On August 1, 2016, Defendant sent a termination notice to Plaintiff stating that the distribution agreement would terminate in one year’s time. Thereafter, both parties filed suit against one another in New York. While those lawsuits were pending, Plaintiff also filed suit in California alleging causes of action including violations of the California Franchise Relations Act (“CFRA”). As support for that cause of action, Plaintiff alleged that the distribution agreement met the elements of a franchise agreement under the CFRA and, as such, Defendant could not terminate the distribution agreement without good cause. Defendant moved to quash service for lack of jurisdiction.
The Court of Appeal affirmed the trial court’s decision to quash service of process for lack of both general and specific jurisdiction. It’s analysis on the issue of general jurisdiction was limited and while the Court could have limited its analysis on specific jurisdiction given Defendant did not “purposefully avail itself of the benefits and protections of the laws of California such that it had fair warning and should have anticipated being brought into a California court to defend this lawsuit,” the Court addressed the franchise allegations as follows and in full:
We also see no merit to TAW’s reliance on the fact that its lawsuit is premised on a violation of the Franchise Act. In Shaffer, supra, 433 U.S. 186, the high court specifically rejected the plaintiff’s assertion that “if a State’s law can properly be applied to a dispute, its courts necessarily have jurisdiction over the parties to that dispute.” (Id. at p. 215.) In other words, even if a forum state’s law governs the obligations of a defendant, such a finding “does not demonstrate that [the defendant has] purposefully avail[ed itself] of the privilege of conducting activities within the forum State,’ … in a way that would justify bringing [it] before” the forum state. (Id. at p. 216.) Whether or not the enforceability of the parties’ 2014 agreement is governed by California law “has nothing to do with whether the enforceability may be determined by a California court. The required relationship among [Brembo, California, and this lawsuit] cannot be based on what [TAW’s] argument assumes, i.e., that California substantive law applies.” (Halyard Health, supra, 43 Cal.App.5th at p. 1072 fn. 7 [Halyard Health court found that plaintiff’s assumption that California law would apply “is not one that leaps off the pages” of the contract in which the parties agreed that the contract “‘shall be governed by and construed and enforced in accordance with the substantive laws of the State of Delaware and the federal laws of the United States of America applicable therein, as though all acts and omissions related hereto occurred in Delaware’”].)
Analysis regarding general and special jurisdiction are not exactly page turners–particularly where the issues before the Court are relatively obvious that the party seeking to bring a defendant into a jurisdiction has no real basis to do so. This single passage by the Court regarding franchise law is, however, quite interesting and presents several questions that the Court did not directly address:
- First, in pleading the CFIL related claims and alleging that the distribution agreement was a franchise agreement, many courts begin with an initial analysis of whether the contract in question or relationship in question satisfies the three elements of a franchise under the CFIL. (See Campbell v. FAF, Inc., et al., 2019 WL 2574119 (S.D. C.A. 2019)). Here, the Court did not perform that analysis.
- Second, the intent of the plaintiff in this matter was quite obviously to plead violation of the CFIL in order trigger Section 20040.5 of the California Business and Professions Code which states, “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.” While there have been numerous cases where this section has been discussed and distinguished, the Court here did not discuss this issue.
- Third, the Court’s focus here was strictly on the question of whether if California’s laws would apply to a dispute, should that also mean that the state should exercise jurisdiction over that dispute. Without addressing the first two points, it is unclear how the Court could have rendered this analysis. Given this is a published decision, it will be interesting to see if this paragraph of a multi-page decision will be relied on in the future and, if so, how other courts will respond to this analysis.
This article was originally published on the California Franchise Network.