Issues of “Forum Selection” when Forced with Termination of Franchise and Dealership Rights
For franchisees and dealerships, "renewing" your franchise represents a critical issue that must be addressed to insure the continued success of your business. However, "renewal terms" and your continued right to remain a franchisee is an issue that is, too often, the subject of litigation. That is, although the franchisor and/or dealership offer "renewal" such offer is typically tied to a franchise or dealership agreement that substantially changes the terms of your existing franchise relationship.
When faced with a "costructive" non-renewal (that is a renewal on less favorable terms than you already have), as a franchisee, taking an aggressive litigation posture by commencing litigation (before the franchisor) may assist with cost savings and - depending on your jurisdiction - the outcome of your litigation.
This issue was recently raised in Eagle Auto Mall Corp., et al v. Chrysler Group, LLC, the plaintiff, franchisee Chrysler dealer commenced a lawsuit against Chrysler Group respecting the termination of their respective dealership rights. The dealership franchisees commenced their action in the United States District Court for the Eastern District of New York and based on their lawsuit on HR 3288-186§ 747 which was enacted to protect dealership franchisees when faced with a manufacturer bankruptcy.
Although the manufacturer franchisor objected to the "forum selected by the plaintiff franchisees" (i.e. the manufacturer wanted to transfer the case to a federal court in Michigan which would be more "convenient" forum for the manufacturer). In rejection the manufacturers motion to change venue the district court restated the significance of upholding the plaintiff/franchisees "initial choice of forum", and stated that "deference is to be given to plaintiff's choice of forum, and transfer should be ordered only if the balance of conveniences weigh strongly in favor of the choice of forum".
Although litigation should be viewed as a "last resort" when faced with the termination of franchise and dealership rights, it is nevertheless that a "litigation strategy" involving a thorough assessment of the benefits that preemptive litigation may afford. The Eagle Auto Mall Corp. decision is a good example of one tactical advantage that franchisees and litigation counsel should consider.
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