Mealey's (July 8, 2016, 3:09 PM EDT) -- LOS ANGELES — A federal judge on July 7 granted a motion to dismiss claims against a “fast service” restaurant franchisee filed in California, saying the doctrine of forum non conveniens makes a Canadian court an appropriate forum to try the matter (Carl’s Jr. Restaurants LLC v. 6Points Food Services Ltd., et al., No. CV 15-9827, C.D. Calif., Western Div.; 2016 U.S. Dist. LEXIS 88248).
(Opinion available. Document #98-160712-043Z.)
U.S. Judge George H. King of the Central District of California dismissed without prejudice Carl’s Jr. Restaurants LLC’s (CJR) claims against franchisee 6Points Food Services Ltd. and two of 6Points’ officers with leave to refile claims in “an appropriate Canadian forum.”
On Dec. 22, CJR filed this action against 6Points, Michael Meekins and Michael Levine and filed a first amended complaint on Jan. 14.
Allegations
CJR’s first amended complaint asserted claims for breach of development agreement by 6Points, breach of franchise agreement by 6Points, breach of letter of credit agreement by 6Points, breach of contract – anticipatory repudiation by 6Points, declaratory judgment of compliance with the Arthur Wishart Act (AWA; Ontario, Canada’s, franchise law), promissory estoppel by Meekins and Levine and breach of contract by Meekins and Levine.
CJR is a “fast service” restaurant group that operates the “Carl’s Jr.” chain and franchises Carl’s Jr. restaurants in the United States and Canada, among other places. It is wholly owned by CKE Restaurants Holdings Inc., which is incorporated in Delaware and has its principal place of business in Carpinteria, Calif.
6Points is a CJR franchisee based in Ontario. It is a limited liability company incorporated under the laws of Ontario with its principal place of business in Saskatchewan. Its sole member is Westbridge Capital Ltd. Westbridge has four members — Meekins, Levine, Jim Hutch and Kemco Holdings Inc. — all citizens of Canada and residents of Saskatchewan. Meekins is president and CEO of Westbridge and Levine is president of 6Points and an officer of Westbridge.
In early 2013, Levine allegedly approached CJR about franchising Carl’s Jr. restaurants in Ontario. He saw an Internet advertisement for Carl’s Jr. franchising opportunities in Canada which directed him to contact Jeff Branton, a Carl’s Jr. vice president based in Vancouver, British Columbia. Meekins and Levine met Branton in Saskatoon, Saskatchewan, where Branton put on a formal presentation about the opportunity to invest in CJR franchises in Ontario. Meekins and Levine negotiated with Branton over the next several months.
Development Agreement
In August 2013, Meekins and Levin visited CJR’s corporate offices in Carpinteria and made a financial presentation to CJR executives. On Nov. 13, 2013, CJR and 6Points entered into a development agreement for use in Canada that required 6Points to open a certain number of Carl’s Jr. restaurants by Jan. 31 of each year so that 6Points would operate a total of 30 restaurants by Jan. 31, 2020.
The development agreement contains a choice-of-law provision that states that any claim or controversy arising between the parties shall be governed by and construed in accordance with Ontario law. It also contains a forum selection clause that provides that any lawsuit 6Points files against CJR shall be filed in the federal or state court having jurisdiction where CJR’s principal offices are located at the time the suit is filed. It adds that “[i]f the Development Territory is located in Alberta, Prince Edward Island, Ontario, New Brunswick or Manitoba, or if Developer is domiciled in Alberta, nothing in this Section shall prohibit Developer [6Points] from filing suit in the applicable province.”
The development agreement also specifies that Meekins and Levine would jointly and severally guarantee 6Points’ payment and performance under the agreement. CJR and 6Points agreed that 6Points would provide CJR with a letter of credit, but CJR said 6Points did not do so. Nonetheless, between September 2014 and April 2015, CJR and 6Points entered into a franchise agreement relating to the opening of four Carl’s Jr. restaurants in Ontario. CJR claims that, pursuant to the AWA, it made certain “required disclosures” to 6Points in connection with each franchise agreement.
Notice Of Rescission
On Nov. 6, 6Points allegedly sent CJR a notice of rescission that asserted that CJR’s disclosures were “defective.” Citing the AWA, 6Points claimed that all agreements between it and CJR were rescinded, announced that it would cease operations of the Carl’s Jr. restaurants by Jan. 10 and claimed to be owed $700,000 for refunds, compensation and buybacks. CJR contended that 6Points had mismanaged the restaurants and that the rescission is merely an attempt to renege on an agreement under which 6Points could not perform.
Meekins and Levine moved to dismiss for lack of personal jurisdiction on March 24. That same day, 6Points moved to dismiss on forum non conveniens grounds. Judge King concluded that dismissal is warranted under the doctrine of forum non conveniens, granting 6Points’ motion and dismissing Meekins and Levine’s motion as moot.
Judge King said CJR merely argued that “Defendants knew, and indeed, affirmatively negotiated for permission to litigate a contractual dispute with CJR in California.”
Forum Selection
“But the fact that 6Points could ‘potentially’ be called to litigate here says nothing about whether the forum-selection clause mandates litigation in particular courts,” Judge King noted. “Given a plain language reading of the forum-selection clause, we conclude that the clause is permissive as it applies to CJR’s choice of forum.
“We therefore apply the traditional forum non conveniens analysis, evaluating whether an adequate alternative forum exists and whether the balance of private and public interest factors favors dismissal.”
Although CJR is a California citizen with headquarters in Carpinteria, CJR and its parent company expect to relocate their headquarters to Nashville, Tenn., which is far closer to Ontario than Los Angeles, when their lease expires in March 2017. Judge King noted that 6Points is a Canadian citizen with its principal place of business in Saskatchewan and that Meekins and Levine are also citizens of Canada who live in Saskatchewan.
“Thus, as of today, three of four parties are citizens of Canada,” the judge held. “Moreover, given that this litigation is in its infancy, the probability that a trial will begin by March 2017 is very low. . . . By the time the Parties are ready for trial, there is a strong likelihood that no party will be a citizen of California.
“While we accord CJR’s choice of forum some deference, this deference is lessened given CJR’s impending move to Tennessee. The residence of the witnesses further tilts this factor in favor of dismissal.”
Material Witnesses
Judge King noted that none of 6Points’ material witnesses, including Branton, Meekins and Levine, is a California resident; each is a citizen or resident of Canada. Because more material witnesses reside in Canada than in California, and because CJR is due to relocate its headquarters to Tennessee before a trial occurs, litigating in Los Angeles will be less convenient to the litigants than proceeding in Canada, Judge King wrote. He added that the costs of bringing witnesses to trial in California will likely be greater than the cost of bringing them to trial in Canada.
Judge King wrote that 6Points has sued CJR in Ontario concerning the same events and that that case is stayed pending the resolution of the motions that were before him.
“If this suit were refiled in Ontario, then the Ontario court could rule on all issues,” Judge King wrote. “However, if we do not dismiss this case and the Ontario court lifts the stay, then it is possible that this dispute will be litigated across two fora, resulting in duplicative efforts and potentially inconsistent rulings.”
As far as burden and congestion of the court, Judge King said “[t]here is no reason for the Court and a California jury to be burdened by a dispute that will have little to do with California citizens by the time of trial.”
Relevant Factors
“Having balanced the relevant factors, we conclude that dismissal based on forum non conveniens grounds is warranted, and therefore dismiss this case without prejudice,” the judge concluded.
CJR is represented by Scott J. Ferrell and Tyler J. Woods of Newport Trial Group in Newport Beach, Calif. Representing 6Points, Meekins and Levine are Jonathan Solish and David Harford of Bryan Cave in Santa Monica, Calif.
(Additional documents available: First amended complaint. Document #98-160712-049C. 6Points motion to dismiss. Document #98-160712-050M. Reply in support of motion. Document #98-160712-051W.)...