Court Opinion

ID: 3023138
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:28:24.279416+00
Date Added: 2024-06-11T18:18:25.960712
License: Public Domain

United States Court of Appeals
                          FOR THE EIGHTH CIRCUIT
                                   ___________

                                   No. 98-3947
                                   ___________

M.B. Restaurants, Inc., a South Dakota    *
Corporation, doing business as JB's       *
Restaurants #140 and #142,                *
franchisees; Mark B. Rogers,              *
individually; D Lucks, Inc., an Idaho     *
Corporation, doing business as JB's       *
Restaurant #53, a franchisee; Dale        *
Trappen, individually; JB's Restaurants   *
#54 - Meridian, a franchisee; Bryce       *
Johnson, individually; R & R Hosts,       *
Inc., a Washington Corporation, doing     *
 business as JB's Restaurant #201, a      *
franchisee; John or Jane Does, A-Z,       *
including franchisees and individuals     * Appeal from the United States
as a class,                               * District Court for the District of
                                          * South Dakota.
             Plaintiffs - Appellants,     *
                                          *
   v.                                     *
                                          *
CKE Restaurants, Inc., a California       *
Corporation, franchisor, doing business *
as Summit Family Restaurants, Inc., a *
Utah Corporation, franchisor, doing       *
business as JB's Restaurants, a           *
Deleware Corporation, franchisor,         *
                                          *
             Defendants - Appellees.      *
                                          *
                                     ___________
                              Submitted: June 18, 1999

                                   Filed: July 2, 1999
                                    ___________

Before MURPHY and MAGILL, Circuit Judges, and REASONER,1 District Judge.
                           ___________

MURPHY, Circuit Judge.

       Mark Rogers, Dale Trappen, and Bryce Johnson acquired JB's Restaurant
franchises, some of which were subsequently terminated. They sued CKE Restaurant's,
Inc. in federal district court in South Dakota, alleging breach of contract and various
torts on behalf of a class of franchisees. The franchise agreement contained a forum
clause providing that any litigation be conducted in Utah, and the district court2
dismissed this action for improper venue.

       Rogers, Trappen, and Johnson are former employees of JB's Restaurants, Inc.
(JB's) who entered into franchise agreements with that company in the early 1990s.
Trappen acquired a franchise in Mountain Home, Idaho; Johnson acquired one in
Meridian, Idaho; and Rogers acquired two in the Rapid City, South Dakota area. JB's
was headquartered in Salt Lake City at the time, and the franchise agreements all
contained a forum selection clause requiring that disputes between the franchisor and
franchisee be litigated exclusively in Utah. Apparently several of the franchises
experienced financial difficulties, and in mid-1998 the franchise agreements of Trappen
and Rogers were terminated for alleged failure to pay royalties and advertising fees
(rent also in Rogers' case).

      1
       The Honorable Stephen M. Reasoner, United States District Judge for the
Eastern District of Arkansas, sitting by designation.
      2
       The Honorable Richard H. Battey, United States District Judge for the District
of South Dakota.

                                          -2-
       In June 1998 Rogers, Trappen, and Johnson (collectively Franchisees) filed their
purported class action complaint against the successor to JB's, CKE Restaurants, Inc.
(hereinafter Franchisor),3 alleging breach of contract, antitrust violations, breach of the
fiduciary duty of good faith and fair dealing, and tortious interference in business
relationships. In this case they seek to represent a class of individuals, predominately
former managers of JB's Restaurants, who were allegedly improperly enticed into
entering franchise agreements to operate their own individual JB's franchises.
Franchisor filed a motion to dismiss for improper venue asserting that the contractual
forum selection clauses required that litigation between the parties be conducted
exclusively in Utah. The motion was granted in September 1998 and a motion to
reconsider was denied.

       Shortly after this case was dismissed in South Dakota, Franchisor filed cases
against Rogers and Trappen, and their franchises, in the United States District Court
for the District of Utah. The claims asserted by Franchisor included breach of contract
and violations of federal trademark laws. Both Rogers and Trappen filed counterclaims
in the Utah cases, raising claims similar to those in this action, and Trappen alleged that
he intended to represent a class of all JB's Restaurant franchisees.

       Franchisees argue on appeal that the district court abused its discretion by
dismissing their South Dakota complaint for improper venue. They contend that
enforcement of the forum selection clause deprives them of their fair day in court and
that the contracts were procured through fraud. Franchisees focus on the disparity of
bargaining power between their group and the Franchisor, the lack of negotiation of

      3
       Sometime after the franchise agreements were entered into, JB's was converted
to Summit Family Restaurants, Inc., which was then bought by CKE Restaurants,
Inc.(CKE) CKE has numerous restaurant franchise chains, including JB's, Hardees,
and Carl Jr.'s. CKE is not a named party in the related litigation in Utah which was
brought by JB's Family Restaurants, Inc. To avoid confusion we refer to the parties as
Franchisor and Franchisees.

                                           -3-
specific provisions in the contract, the expense for Rogers to litigate in Utah, and their
alleged inability to assert rights under South Dakota franchise law in another forum.
Rogers and Trappen also claim fraud. Rogers alleges Franchisor misled him by telling
him there was a buyer for the restaurant in which he was interested and thus
fraudulently induced him to sign the first franchise agreement. Trappen alleges that his
name was forged on some unspecified documents.

       The key issue is whether the clause is enforceable. See M/S Bremen v. Zapata
Off-Shore Co., 407 U.S. 1 (1972). Although there may be some disagreement among
the circuits regarding whether this is a procedural question governed by federal law or
a substantive question governed by state law under Erie Railroad Co. v. Tompkins, 304
U.S. 64 (1938), the parties here do not argue the state and federal standards differ.4
Forum selection clauses are prima facie valid and are enforced unless they are unjust
or unreasonable or invalid for reasons such as fraud or overreaching. M/S Bremen, 407
U.S. at 15. They are enforceable unless they would actually deprive the opposing party
of his fair day in court. Carnival Cruise Lines Inc. v. Shute, 499 U.S. 585, 590-95
(1991); see also McDonnell Douglas Corp. v. Islamic Republic of Iran, 758 F.2d 341,
346 (8th Cir. 1985).

      Franchisees argue that the presumption of validity does not attach to the forum
clause in these agreements because it is invalid for fraud and because it would deny

      4
          As the district court noted, both the Eleventh and Second Circuits have
determined that interpreting a forum selection clause is a procedural question to be
decided under federal law, Jones v. Weibrecht, 901 F.2d 17, 19 (2d Cir. 1990);
Steward Org., Inc. v. Richo Corp., 810 F.2d 1066, 1068 (11th Cir. 1987) (en banc) (per
curiam), aff'd on other grounds, 487 U.S. 22 (1988), while the Third Circuit has held
that it is a substantive legal question governed by state law. General Engineering Corp.
v. Martin Marietta Alumina, Inc., 783 F.2d 352, 356-57 (3rd Cir. 1986). The Eight
Circuit does not yet appear to have established a definitive position. See Farmland
Industries, Inc. v. Frazier-Parrott Commodities Inc., 806 F.2d 848 (8th Cir. 1986).

                                           -4-
them a fair opportunity to present their claims. Franchisees only allege a belief that the
contracts were procured by fraud, however, and they have not alleged that the forum
selection clause was itself a product of fraud. Fraud must be pled with particularity,
see Fed. R. Civ. P. 9(b), and they have not alleged facts to support their statements that
Franchisor misrepresented the potential profitability of the franchises and the expected
increase in the number of JB's franchises, that Franchisor was not telling the truth when
it told Rogers another buyer was interested in the store, or that the alleged forgery of
Trapper's signature on unspecified documents is in some way tied to the validity of the
franchise agreement itself. The fact that the contract was a form contract and that the
individual clauses were not actually negotiated does not render the clause per se
unenforceable. Carnival Cruise Lines, 499 U.S. at 593. Franchisees have not alleged
that the Utah court is biased or incompetent or unwilling to apply South Dakota law if
applicable. Instead, they rely primarily on Rogers' assertion that he could not afford
to litigate in Utah. We note that Rogers is the only named plaintiff who resides in
South Dakota, and the other two live in Idaho. Furthermore, inconvenience to a party
is an insufficient basis to defeat an otherwise enforceable forum selection clause. See,
e.g., Sun World Lines, Ltd. v. March Shipping Corp., 801 F.2d 1066, 1068 (8th Cir.
1986) (clause upheld requiring Missouri company to litigate in Germany). The
allegations of the Franchisor are thus insufficient to overcome the presumption of
validity, and the district court did not abuse its discretion in dismissing the case.

      The judgment is therefore affirmed.

      A true copy.

             Attest:

                 CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

                                           -5-