Federal District Court Screams For Ice Cream Franchise Venue Provision

| Nov 30, 2013 | Firm News

In a decision sprinkled with ice cream puns, the Rhode Island federal district court has enforced a venue provision in an ice cream store franchise agreement and ordered the case transferred to the District of Arizona. The court rejected the franchisees’ arguments that the venue provision was unconscionable or unreasonable.

Plaintiffs entered into a franchise agreement with defendant to operate an ice cream store. The franchise agreement includes a provision that any litigation between the parties will be commenced and maintained only in the courts located in Maricopa County, Arizona. Defendant is incorporated and based in Arizona. Plaintiffs also subleased from defendant the property in which the store was to be located. The parties had an arrangement by which defendant withdrew money monthly from plaintiffs’ bank account to make the lease payments. Allegedly, defendant made withdrawals but failed to make the lease payments which resulted in plaintiffs being evicted. They filed suit in Superior Court. Defendant removed to federal district court based on diversity. It then moved to dismiss based on improper venue under the franchise agreement. Plaintiffs argued the franchise agreement was an unconscionable contract of adhesion and the terms of the venue provision are unreasonable.

The court rejected the argument that franchise agreement was a contract of adhesion and that plaintiffs lacked any meaningful choice. The court said plaintiffs had the option not to sign the franchise agreement. It also turned away plaintiffs’ argument that the forum selection clause was buried in the franchise agreement and “couched in legalese.” Plaintiffs had viewed a separate franchise offering circular that prominently displayed a discussion of out-of-state litigation.

The court held that the venue provision was not unreasonable. The First Circuit has found that mere geographic contacts and convenience are insufficient to demonstrate the unreasonableness of a venue provision. While litigating in Arizona may increase plaintiffs’ costs, those costs should have been foreseeable when they signed the franchise agreement.

The court declined to dismiss the case but instead ordered it transferred to the United States District Court for the District of Arizona so plaintiffs would not incur additional filing fees.

Fowler v. Cold Stone Creamery, Inc., C.A. No. 13-662S, 2013 WL 6181817 (D.R.I. Nov. 25, 2013)

For information about our commercial and business litigation practice, please see: /Practice-Areas/Business-Commercial-Litigation.shtml


FindLaw Network