Here are the facts. Franchisor sends area developer franchisee a default notice. A dispute between the franchisor and franchisee erupts regarding the alleged default and franchisor’s right to terminate the area developer agreement. The franchisor and franchisee begin to negotiate a settlement. They enter into a ‘Standstill Agreement’ where the franchisor and franchisee agree not to sue each other until May 18, 2012.
The case is Motorscope, Inc. v. Precision Tune, Inc., et al. Guess what happens? You guessed it! No settlement is reached by May 18, 2012 (if a settlement was reached, this case would not have made the Gettins’ Blawg). On May 30, 2012, at 5:01 p.m. EDT, Motorscope [the franchisee] filed a lawsuit in Minnesota . One day later, on May 31, 2012, Precision Franchising [the franchisor] filed a lawsuit in the Eastern District of Virginia concerning the same underlying events.
Two courts, two cases, same events, how does this work? Do both cases proceed? If the franchisee wins in Minnesota and the franchisor wins Virginia, then what happens? The franchisee filed in Minnesota. The laws in Minnesota are very favorable to franchisees. The franchisor is located in Minnesota. Franchisor filed in Virginia. The area developer franchisee operates his business in Virginia. The laws in Virginia are better for franchisors.
What happened? The Minnesota Court ordered the franchisor to dismiss or stay its suit in Virginia. The Minnesota Court applied the “first to file rule”. The first to file rule states that a defendant to a lawsuit cannot simply file a lawsuit in another court (which may be more favorable) in order deflect or combat an existing court case.
The franchisor alternatively asked the Minnesota court to move the case to Virginia, but again the court held firm to the case in Minnesota. The only argument that the franchisor presented was- it would really be more convenient to have this case in Virginia, where the area developer franchisee is located. The Minnesota court stated that both states had equal connection to the case and injuries were felt in Minnesota. Minnesota had an interest in enforcing its franchise protection laws. The franchisor must resign itself to litigating in court that may not be as franchisor friendly, because it was a day late!
Lesson from the Court: You may not be able to run to more favor ground. Be prepared to defend yourself against franchise law claims.