Common boiler plate, in many if not all agreements, will say what law governs the agreement and where litigation may take place. Franchise agreements are no different. But if an agreement says what laws and where litigation can take place, does that make it so?
Law is the similar to grammar. As in grammar where there are many rules, there are many exceptions. I before e, except after c. The law has many statutes and rules, but there are many exceptions. Legally, the answer is sometimes and it depends. A contract can set forth what state’s law may govern the agreement. A contract may set forth where disputes under the agreement may be litigated, but language in a contract cannot override statutes.
Many states have enacted laws that say that if the franchisee lives in this state or if the franchise business operates in this state, then the franchisee [or franchisor] may file litigation in this state irrespective of what the franchise agreement says.
A recent case in point is Rob & Bud’s Pizza, LLC v. Papa Murphy’s Int’l, Inc. Rob & Bud’s Pizza, a Papa Murphy franchisee, sued its franchisor, Papa Murphy’s Int’l, Inc. in Arkansas complaining of retaliatory termination for the franchisee’s failure to accept a settlement in an existing class action case in Washington state court.
The Papa Murphy franchisor attempted to dismiss or move the case to Washington, citing language in the franchise agreement that said claims should be filed in Washington. The court did not agree. Arkansas has a statute that says:
‘Neither a franchisee nor a franchisor shall be deprived of the application and benefits of this subchapter [Arkansas Law] by a provision of a franchise purporting to designate the law of another jurisdiction as governing or interpreting the franchise, or to designate a venue outside of Arkansas for the resolution of disputes.’
That means, per Arkansas law, a franchise agreement can say that another state law governs and the franchise agreement can say that complaints can be filed in another state. That is okay. But if it is a restaurant franchise that is owned by a resident of Arkansas or if the restaurant is in Arkansas, nothing in the franchise agreement can prevent the franchisee [or franchisor] from filing a complaint in Arkansas.
Arkansas is not unique. Many states have laws that say if you are a franchisee and you live here or your franchise is here, you can sue here. And, it does not matter what the franchise agreement says.