The Franchise Memorandum

A federal court in Colorado denied WD Ventures, LLC’s motion to dismiss for forum non conveniens pursuant to the forum selection clause in the parties’ franchise agreement indicating that the parties contemplated federal litigation in Colorado. Old Chicago II Franchising, LLC v. WD Ventures, LLC, 2024 WL 1911221 (D. Colo. May. 1, 2024). Old Chicago and WD entered into a franchise agreement for a pizzeria and taproom that lasted until WD “unilaterally re-brand[ed] . . . as a competing business and ceas[ed] to make royalty and other payments.” Old Chicago filed suit in a Utah federal court for three claims of breach of contract and misappropriation of trade secrets. The Utah court transferred the case to the District of Colorado. WD moved to dismiss on the grounds of forum non conveniens alleging that the Colorado state court system was the proper forum for the case to the exclusion of Colorado federal court.

The court denied WD’s motion to dismiss stating that the defendant bears a “heavy burden” in opposing the plaintiff’s chosen forum and a valid forum selection clause is given controlling weight except in the most exceptional cases. Critical to the court’s analysis was the language in the forum selection clause that stated “any arbitration hearings and matters which are to be heard in state or federal court . . . will take place exclusively in Broomfield, Colorado.” While the court states that the doctrine of forum non conveniens allows a court “to order the dismissal of an action over which it declines jurisdiction because the court lacks a mechanism to transfer it to the proper forum,” here, the forum selection clause indicates that the parties to the case contemplated federal litigation occurring in Colorado, regardless of whether Broomfield has a federal court within its boundaries or not. The court determined that a change of venue under the doctrine of forum non conveniens requires a balance of public and private interests and the forum selection clause language should be carefully worded to express the franchisor’s intent. Outlining that the forum selection clause applies to specific courts to the exclusion of others would provide further clarity.

*Asad Imam is a Summer Associate for Lathrop GPM who contributed to the writing of this post.