FranNet, LLC v. Grant

MEMORANDUM OPINION & ORDER

Benjamin Beaton, District Judge United States District Court

This is a contract dispute between a Kentucky plaintiff and Nevada defendants regarding a contract struck with a Colorado counterparty. That contract contains a Colorado forum-selection clause. The defendants objected to personal jurisdiction and venue in the Western District of Kentucky because the contract routes all disputes to Colorado state or federal courts. The law favors enforcing such provisions, and no good reason counsels against enforcing this one. So the Court transfers the case to the U.S. District Court for the District of Colorado.

I.

According to the facts alleged in the Complaint, the plaintiff, FranNet, is a franchise-consulting business based in Kentucky. DN 1 at 2-3. The company identifies potential franchisees and introduces them to franchisors in exchange for a fee. Motion to Dismiss (DN 10-1) at 1-2. A FranNet licensee called Wahoo, Inc., which does business as “FranNet Mountain West” is a Colorado-based company that connected FranNet with consultants who could help it recruit franchisees and franchisors. Employment Agreement (DN 1-1) at 1; MTD at 1. Wahoo entered into an agreement with Douglas Grant, a Nevada citizen who agreed to serve as a Wahoo consultant, which “operat[ed] under [a separate] agreement with FranNet, LLC.” See Employment Agreement at 1; Id. at 17. Grant's territory covered all of Nevada with the exception of the Reno area. See Grant Declaration (DN 10-2) ¶ 11.

Apart from his employment agreement, Grant also signed a restrictive covenant with Wahoo that contained a two-year non-compete clause and an agreement not to disclose any of FranNet's or Wahoo's proprietary information. See Restrictive Covenant (DN 1-2) ¶¶ 1-5. This agreement expressly recognized FranNet as “a third party beneficiary” that had “the independent right to enforce th[e] Agreement as if an original party.” ¶ 12. It also contained a choice-of-law clause providing that Colorado law applied, as well as a forum-selection clause requiring that “if any dispute arises out of this Agreement, such dispute must be resolved exclusively in the state and federal courts in Denver County, CO.” ¶ 7.

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Grant worked with Wahoo and FranNet for several years, visiting the Commonwealth for additional trainings and support in 2017, 2018, and 2019. See Brief in Opp. (DN 15) at 2; MTD at 13. And his work continued until November 2019, when Grant and Wahoo decided to reform their contract in hopes of escaping the commission FranNet took from each deal. See Grant Decl. ¶ 12; MTD at 5. Grant and Wahoo assigned Grant's contractual obligations to Grant Group (a company owned by Mr. Grant) and modified the contract to remove references to the noncompete provision and other restrictive clauses. Grant Decl. ¶¶ 14-15; MTD at 5-6.

Then, according to FranNet, Grant performed work for the International Franchise Professionals Group-a direct competitor of FranNet. See Compl. ¶¶ 41-42. FranNet also says that between November and December of 2019, Grant disclosed its secret corporate information by engaging an IT firm to transfer all the information he obtained from FranNet--regarding customers, leads, and emails- to his personal server. ¶ 45. Similarly, FranNet alleges that Grant asked Google for all the information and emails from the account he used for FranNet work- dgrant@gmail.com. ¶ 46. All of this, FranNet alleges, violated Grant's obligations not to compete or disclose confidential information.

So FranNet sued Grant and his company for breach of contract, violation of the Federal Defend Trade Secrets Act (18 U.S.C. § 1836 et seq.), misappreciation of trade secrets under Kentucky and Nevada law, conversion, and various other contract and tort claims under state law. See Compl. at pp. 11-14. Shortly thereafter, the Defendants filed a motion to dismiss based on lack of personal jurisdiction, forum non conveniens, and venue. DN 10.

II.

A trial court may exercise its discretion, in response to a motion to enforce a forum-selection clause, by construing the request as a motion to transfer venue under 28 U.S.C. § 1404(a). SeeFirst of Mich. v. Bramlet, 141 F.3d 260, 262 (6th Cir. 1998); Carver v. Knox County, 887 F.2d 1287, 1291 (6th Cir. 1989); Jumara v. State Farm Ins. Co., 55 F.3d 873, 878 (3d Cir. 1995). The federal venue statute provides that “[f]or the convenience of parties and witnesses, in the interest of justice, a district court may transfer any civil action to any other district or division where it may have been brought.” § 1404(a).^[1] And “[w]hen the parties have agreed to a valid forum-

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selection clause, a district court should ordinarily transfer the case to the forum specified in that clause.” Atl. Marine Const. Co., v. U.S. Dist. Ct. for W. Dist. of Tex., 571 U.S. 49, 59 (2013).

Federal courts enforce forum-selection clauses absent a strong showing that they should be set aside. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595 (1991). The first question is whether the clause is valid and enforceable. Wong v. PartyGaming, Ltd., 589 F.3d 821, 828 (6th Cir. 2009). Courts within the Sixth Circuit answer that by considering “(1) whether the clause was obtained by fraud, duress or other unconscionable means; (2) whether the designated forum would ineffectively or unfairly handle the suit; and (3) whether the designated forum would be so seriously inconvenient such that requiring the plaintiff to bring suit there would be unjust.” Id.

Generally a decision whether to transfer venue under § 1404(a) is analyzed in light of a series of public and private interests that the transfer might implicate. See Moses v. Bus. Card Exp., Inc., 929 F.2d 1131, 1136-37 (6th Cir. 1991). Private considerations include party “convenience and the convenience of potential witnesses.” Id. at 1137. But if the clause is valid and enforceable, then the parties have no right to “challenge the preselected forum as inconvenient or less convenient for themselves or their witnesses.” Atl. Marine, 571 U.S. at 64. Instead, the Court “must deem the private-interest factors to weigh entirely in favor of the preselected forum.” Id.

This presumption, however, does not disturb the requirement that a court consider the public-interest factors that may militate in favor of hearing the case in the jurisdiction selected by the plaintiff, rather than the one selected in the contract. See Id. Those factors include (1) the relative congestion in the two courts of the two forums; (2) the public's interest in having localized controversies decided at home; and (3) relative familiarity of each court with the law. Id. at 62 n.6. This public-factor-only review is much more circumspect than a typical § 1404(a) review, which considers both private convenience factors and public interest. Id. at 64. “Although it is ‘conceivable in a particular case' that the district court ‘would refuse to transfer a case notwithstanding the counterweight of a forum-selection clause, '” the Supreme Court has recognized that “such cases will not be common.” Id. at 65 (quoting Stewart Org. v. Ricoh Corp., 487 U.S. 22, 30-31 (1988)).

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A.

The first question here is whether the forum-selection clause is enforceable against FranNet, a third-party beneficiary identified by name throughout a contract it did not sign.^[2]

Forum-selection clauses may bind non-signatories if they are “so ‘closely related' to the dispute that it becomes ‘foreseeable' that [they] will be bound.” Baker v. LeBoeuf, Lamb, Leiby & Macrae, 105 F.3d 1102, 1106 (6th Cir. 1997) (quoting Hugel v. Corp. of Lloyd's, 999 F.2d 206, 209 (7th Cir. 1993)); see Wilson v. 5 Choices, 776 Fed.Appx. 320, 329 (6th Cir. 2019). Many courts in this circuit have applied this rule to enforce forum-selection clauses against third-party beneficiaries. See, e.g., Wiedo v. Securian Life Ins. Co., No. 3:19-cv-97, 2020 WL 5219536, at *6 (E.D. Ky. Sept. 1, 2020) (citing Baker and transferring case involving non-signatory); Washburn v. Garner, No. 5:04-cv-229, 2005 WL 1907530, *11 (W.D. Ky. Aug.10, 2005) (same); Veteran Payment Sys., LLC v. Gossage, No. 5:14-CV-981, 2015 WL 545764, at *7 (N.D. Ohio Feb. 10, 2015) (same); Regions Bank v. Wyndham Hotel Mgmt., Inc., No. 3:09-1054, 2010 WL 908753, at *6 (M.D. Tenn. Mar. 12, 2010) (same); Farina v. Sirpilla RV Centers, 5:18-cv-2734, 2019 WL 2436987, at *5 (N.D. Ohio, June 11, 2019) (enforcing forum-selection clause against non-signatory when it was “foreseen that it might be bound”).

Foreseeability depends on the totality of the circumstances. Courts ask “whether it should have been reasonably foreseeable to the non-signatory that situations might arise in which the non-signatory would become involved in the relevant contract dispute.” Regions Bank, 2019 WL 908753 at *6.

FranNet's situation meets that standard quite readily. The contract expressly designates FranNet as the ultimate “beneficiary of th[e] Agreement” and vests the company with “the independent right to enforce th[e] Agreement as if an original party.” Restrictive Covenant ¶ 12. Further, the contract expressly grants FranNet the right to restrict Grant's ability to disseminate FranNet's confidential information or to compete against the company for a period of two years. ¶¶ 1-5. The contract also grants FranNet the right to seek injunctive relief against Grant for any violation of any term. ¶ 9.

Under binding Sixth Circuit caselaw, therefore, the contract's forum-selection clause binds FranNet. The contract expressly anticipates FranNet's right to enforce the contract's terms against Grant, and also anticipates such disputes being heard in

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Colorado. See Restrictive Covenant ¶¶ 7, 12; Baker ...