The Franchise Memorandum

A district court in Missouri recently held that a forum selection clause did not survive the mutual termination of a franchise agreement. Serv. Team of Prof’ls, Inc. v. Folks, 2018 WL 2051516 (W.D. Mo. May 2, 2018). The parties had previously entered into a franchise agreement with a forum selection clause dictating that all actions be brought in Kansas City, Missouri. Following a dispute between the parties, they agreed to terminate the franchise agreement and enter into a settlement agreement. The settlement agreement provided that except for certain post-termination obligations relating to the use of the franchisor’s service marks and other proprietary materials, the two parties were relieved of all terms and conditions of the franchise agreement. When a dispute arose as to the franchisee’s compliance with those post-termination obligations, the franchisor brought suit in Missouri. The franchisee moved to dismiss on the grounds that the forum selection clause did not survive the termination of the franchise agreement and that there was no other basis to assert personal jurisdiction in Missouri.

The court agreed with the franchisee and held that the settlement agreement had terminated the forum selection clause. The court noted that under the common law contractual provisions related to the manner in which disputes are to be resolved generally survive the contract’s termination. However, that general rule assumes that the contract expired by its terms or upon the parties’ agreement to terminate. In this case, the parties entered into a settlement agreement specifying that they were relieved from all provisions of the franchise agreement except for certain, specifically enumerated provisions, not including the forum selection clause. Accordingly, the forum selection clause did not survive termination of the franchise agreement and the franchisor could not rely on it to bring suit in Missouri. The court further held that the franchisee was not otherwise subject to personal jurisdiction in Missouri because the requirements of Missouri’s long arm statute and the Due Process Clause had not been satisfied.