The Franchise Memorandum

The Sixth Circuit Court of Appeals ruled that a forum selection clause in a franchise agreement was unenforceable. Lakeside Surfaces, Inc. v. Cambria Co., LLC, --- F.4th ---, 2021 WL 4807182 (6th Cir. Apr. 20, 2021). As reported in Issue 253, Lakeside and Cambria entered into a franchise agreement in which Lakeside would sell fabricated countertops manufactured by Cambria. Lakeside met its contractual targets for a number of years, but Cambria terminated the franchise agreement after discovering that Lakeside carried a different manufacturer’s product. Lakeside sued Cambria alleging, in part, that Cambria violated the Michigan Franchise Investment Law, and Cambria moved to dismiss on the basis of the franchise agreement’s designation of Minnesota law and forum. The trial court agreed and dismissed the case, and Lakeside appealed.

The Sixth Circuit reversed. First, the appellate court clarified its precedent regarding the deference afforded to the plaintiff’s choice of forum and held that an enforceable forum selection provision presumptively controls where a litigation must occur. The Michigan Franchise Investment Law, however, represents strong Michigan public policy and voids any out-of-state forum selection provision. Cambria argued that the Franchise Investment Law did not apply because of the Franchise Agreement’s choice of Minnesota law. The appellate court would not permit the use of a choice of law provision to circumvent a strong public policy. The appellate court was skeptical that the Michigan legislature would create such a simple loophole to what it otherwise rendered quite explicit: that out-of-state forum selection clauses were not enforceable in franchise agreements. The Sixth Circuit therefore reversed and remanded the decision back to the district court.