AFC Franchising, LLC v. Purugganan

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AFC FRANCHISING, LLC, Plaintiff, v. DANILO PURUGGANAN, Defendant.

No. 2:20-cv-00456-JHE

United States District Court, N.D. Alabama, Southern Division

January 24, 2023

MEMORANDUM OPINION ^[1]

JOHN H. ENGLAND, III UNITED STATES MAGISTRATE JUDGE

Plaintiff AFC Franchising, LLC (“AFC”) commenced this action against Danilo Purugganan (“Purugganan”) in the Circuit Court of Shelby County, Alabama, asserting two counts for declaratory judgment concerning provisions of a Master Development Agreement and one count for attorneys' fees and costs. (Doc. 1-1). Thereafter, Purugganan removed the action to this Court. (Doc. 1). Because this is an improper anticipatory action and relevant factors favor against entertaining it, this action is TRANSFERRED to the United States District Court for the District of Connecticut pursuant to 28 U.S.C § 1404(a).

The Court will first explain the extensive factual and procedural background of this case. The Court will then discuss the compelling circumstance that supports its decision to decline to exercise discretionary authority over this declaratory judgment action and the factors favoring transfer to the District Court for the District of Connecticut.

I. Factual & Procedural History

AFC is an Alabama limited liability company with its principal place of business in Shelby County, Alabama. (Doc. 1-1 at ¶ 2). Purugganan is a resident individual of the State of New York. (Doc. 1-1 at ¶ 3). On August 26, 2009, Purugganan executed a Master Developer Agreement (“MDA”) with franchisor Doctors Express Franchising, LLC (“DEF”). (Doc. 1-1 at ¶¶ 4, 5; Doc 1-2). The MDA is a franchise agreement pursuant to which Purugganan obtained the rights to develop and manage DEF urgent care centers. (See doc. 1-2 at 6-7). After a series of acquisitions, AFC was assigned DEF's interest in the MDA. (Doc. 1-1 at ¶¶ 6-7). The parties succeeded to the terms of the MDA, including § 19.7 (“Consent to Jurisdiction”), which provides the following forum selection requirement:

You and your owners agree that all actions arising under this Agreement or otherwise as a result of the relationship between you and us must be commenced in a state or federal court of competent jurisdiction within such state or judicial district in which we have our principal place of business at the time the action is commenced, and you (and each owner) irrevocably submit to the jurisdiction of those courts and waive any objection you (or the owner) might have to either the jurisdiction of or venue in those courts.

(Doc. 1-1 at ¶ 8; Doc. 1-2 at 31, § 19.7).

A dispute arose between AFC and Purugganan over the interpretation of certain provisions in the MDA, and the parties engaged in negotiations. (Doc. 1-1 at ¶¶ 1 4, 9-10; Doc. 1-2). Purugganan threatened to file suit in venues other than Alabama, which AFC regarded as a breach of the MDA's forum selection clause. (Doc. 1-1 at ¶ 9). Additionally, Purugganan challenged AFC's ability to develop company-owned franchises in the territory defined by the MDA. (Doc. 1-1 at ¶ 10).

A. AFC's Complaint in the Circuit Court of Shelby County, Alabama

Due to Purugganan's alleged threat to breach the forum selection clause, AFC filed a complaint against Purugganan in the Circuit Court of Shelby County, Alabama, on March 6, 2020. (Doc. 1-1). As noted previously, the complaint asserts two counts for declaratory judgment and one count for attorneys' fees and costs. (Doc. 1-1 at ¶¶ 13-23).

AFC's first claim is for a declaratory judgment that the MDA's forum selection clause requires the parties to litigate any contract disputes in Alabama. (Doc. 1-1 at ¶¶ 8, 11, 13-16; doc. 1-2 at 31, § 19.7). Specifically, AFC alleges Purugganan threatened to breach the forum selection clause by filing lawsuits related to the MDA in venues outside of Alabama, where AFC has its principal place of business. (Doc. 1-1 at ¶¶ 2, 9).

AFC's second claim is for a declaratory judgment that the MDA's limited exclusivity clause permits it to develop company-owned franchises in the territory defined by the MDA. (Doc. 1-1 at ¶¶ 10, 17-19). The limited exclusivity clause in the MDA states:

Provided that you are in compliance with the terms of this Agreement, we will not grant another master developer the right to solicit Prospects for Doctors Express Urgent Care Businesses in the Territory. Except as expressly granted by this Section 1.4, we and our affiliates retain all rights with respect to identification of Prospects and Franchisees for Doctors Express Urgent Care Businesses and Doctors Express Urgent Care Centers, the System, operation of business under the Marks, the sale of franchises for similar or dissimilar services, the operation of businesses offering similar or dissimilar services and any other activities we deem appropriate whenever and wherever we desire and you acknowledge that we have not granted you any exclusive rights.

(Doc. 1-1 at ¶ 10; Doc. 1-2 at 3, § 1.4).

AFC's third and final claim asserts that Purugganan is obligated to pay AFC's attorneys' fees and costs allegedly incurred from his threats to violate the forum selection clause and challenge AFC's interpretation of the limited exclusivity clause. (Doc. 1-1 at ¶¶ 20-23).

B. Purugganan's Complaint in the District of Connecticut

On March 17, 2020, eleven days after AFC filed its complaint in Shelby County, Purugganan filed suit against AFC in the United States District Court for the District of Connecticut. (Doc. 3-4). The Connecticut action is styled Danilo Purugganan v. AFC Franchising, LLC, No. 3:20-cv-00360-KAD. (Doc. 48-6 at 2-3). In the Connecticut complaint, Purugganan raises thirteen claims against AFC related to the MDA. (Doc. 3-4 at ¶¶ 45-124). Purugganan asserts that he sued in the District of Connecticut because, among other reasons, all franchise businesses that he developed and managed pursuant to the MDA are in Connecticut and New York. (Doc. 3-2 at ¶ 7; Doc. 3-4). As explained further below, there have been extensive proceedings in Connecticut that bear heavily on the issues before this Court.

C. Removal and Motion to Dismiss Shelby County action

On April 2, 2020, Purugganan removed the Shelby County action to this Court based on diversity jurisdiction. (Doc. 1). He then moved to dismiss this action for lack of personal jurisdiction and improper venue or, alternatively, to transfer this action to the District of Connecticut. (Doc. 3 at 11-13). He asserted that Connecticut was the only proper forum because the District of Connecticut had personal and subject matter jurisdiction, all events and omissions giving rise to AFC's claims were occurring in Connecticut, and “the evidence, witnesses, convenience of parties and the interest of justice strongly favor the transfer of this case to Connecticut.” (Doc. 3 at 12).

AFC countered that the forum selection clause in the MDA defeated Purugganan's attempt to dismiss this action or transfer it to Connecticut. (Doc. 7 at 1-2). AFC argued that the forum selection clause unequivocally requires Purugganan to litigate any disputes in Alabama because that is where AFC's principal place of business is located. (Doc. 7 at 1-2). AFC asserted that the forum selection clause was enforceable and required litigation in Alabama even though DEF had its principal place of business in Maryland at the time the MDA was executed and later assigned its interest in the MDA to AFC. (Doc. 7 at 1-9).

D. AFC's Motion to Remand

On May 4, 2020, AFC moved to remand this action to the Circuit Court for Shelby County, Alabama, for lack of subject matter jurisdiction based on the forum selection clause. (Doc. 13). AFC argued that the amount in controversy did not exceed $75,000 to satisfy federal diversity jurisdiction. (Doc. 13 at 1-4). AFC also argued that the forum selection clause required Purugganan to submit to the jurisdiction of the Shelby County court because that is where AFC commenced the action. (Doc. 13 at 5-6).

E. Dismissal for Lack of Personal Jurisdiction

On September 14, 2020, the Court denied AFC's motion to remand and granted Purugganan's motion to dismiss. (Docs. 32, 33). The Court denied remand because Purugganan satisfied his burden of demonstrating that AFC's benefit from declaratory relief in its favor would exceed $75,000. (Doc. 32 at 4-7). The Court granted Purugganan's motion to dismiss for lack of personal jurisdiction, reasoning that he did not have sufficient contacts with Alabama and the forum selection clause did not subject him to suit in Alabama. (Doc. 32 at 9-14).

F. The Eleventh Circuit Reverses

AFC appealed this Court's dismissal for lack of personal jurisdiction and the Eleventh Circuit reversed. See AFC Franchising, LLC v. Purugganan, 43 F.4th 1285, 1296 (11th Cir. 2022). First, the Eleventh Circuit “conclude[d] that the forum-selection clause is applicable to this suit in the Northern District of Alabama where AFC has its principal place of business.” Id. at 1294. The Eleventh Circuit described the forum selection clause as “floating” “because it ties the chosen forum to a mutable fact-here, the franchisor's principal place of business.” Id. at 1289. At the time the MDA was executed, DEF was the franchisor and had its principal place of business in Maryland, but at the time this lawsuit was filed, DEF had assigned all of its rights in the MDA to AFC. Id. AFC argued, and the Eleventh Circuit agreed, that the forum selection clause “now refers to [AFC's] principal place of business [in Alabama] because-as a valid assignee-[AFC] succeeded to all of Doctors Express's rights and obligations under the contract.” Id. at 1291. The Eleventh Circuit explained that since the MDA explicitly authorized DEF to assign the MDA “to a third party without restriction,” AFC consequently acquired al...