Sixth Circuit Holds Michigan Franchise Investment Law Voids Forum Selection Clause

09 February 2022 Legal News: Distribution & Franchise Publication
Author(s): Peter Loh

The Sixth Circuit has held that a contractual forum-selection clause in a franchise agreement was unenforceable because it violated state law.

In Lakeside Surfaces, Inc. v. Cambria Company, LLC, Lakeside Surfaces, a stone countertop fabricator, entered into a franchise agreement with Cambria. Lakeside Surfaces agreed to buy stone pieces and products from Cambria, fabricate countertops from those materials, and then sell the fabricated countertops to retailers, builders, and designers. The agreement contained a choice-of-law provision and a forum-selection clause requiring that the laws of Minnesota would govern and any proceeding involving the agreement would take place in Minnesota.

Lakeside Surfaces subsequently filed suit in the Western District of Michigan, bringing claims for (1) breach of contract, (2) violations of the Michigan Franchise Investment Law (MFIL), (3) violations of the UCC, and (4) promissory estoppel. Cambria successfully moved to dismiss the case based on the agreement’s forum-selection clause. On appeal, the Sixth Circuit reversed the dismissal, holding that the forum-selection clause was unenforceable because it conflicted with the MFIL.

The MFIL renders void and unenforceable any provision in a franchise agreement requiring that litigation occur outside of Michigan. The MFIL applies to franchises based in Michigan or in situations where the offer or acceptance for the sale of the franchised business occurs in Michigan. The court noted that the Michigan legislature made a specific public-policy decision to alter the default presumption toward enforcing forum-selection clauses. In the narrow area of franchise agreements, the MFIL would govern, overriding any forum-selection clause requiring litigation take place outside of Michigan. Further, while the legislature specifically prohibited forum-selection clauses in franchise agreements, it declined to enact any similar prohibition of choice-of-law provisions. Thus, the parties must litigate in Michigan, but Michigan law need not always govern the dispute. Said another way, Cambria could not use the choice-of-law provision to do something the MFIL expressly prohibited (forcing a franchisee to litigate in an out-of-state forum). Additionally, the court noted that this was limited to causes of actions arising under the MFIL.

Parties to a franchise agreement should review forum-selection laws and evaluate whether a state statute might preclude its enforcement.

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