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June 30, 2016

Franchise Activities Result in Personal Jurisdiction over Franchisee

Connor Choate

The First Circuit Court of Appeals recently held that a Massachusetts’ district court had personal jurisdiction over an Oregon company in a franchise dispute under the purposeful availment doctrine where the company had taken advantage of the benefits offered by the Massachusetts’s franchiser.

Alpenrose Dairy, Inc., headquartered in Oregon, entered into a territorial franchise agreement with Baskin-Robbins, at which time Baskin-Robbins was headquartered in California, allowing Alpenrose to operate Baskin-Robbins franchises in Washington and Oregon. The agreement lasted for six years and written notice of its renewal was given by Alpenrose at least one year before the six-year expiration. Alpenrose renewed the agreement five times without incident, and when Baskin-Robbins moved their headquarters to Massachusetts, Alpenrose sent the notice of renewal to Baskin-Robbins’s Massachusetts headquarters twice.

In 2013, Alpenrose notified Baskin-Robbins of their intent to not renew the agreement, after which negotiations began and soon stalled surrounding the transition out of the agreement. Alpenrose then notified Baskin-Robbins that they wanted to renew instead, though they were past the required date to give a year’s notice. Baskin-Robbins rejected their attempt to renew and denied that they owed Alpenrose any compensation for that denial.

Baskin-Robbins sought a judicial declaration in the U.S. District Court for Massachusetts that the agreement ended when its current term expired, and Alpenrose moved to dismiss for lack of personal jurisdiction and improper venue, or to alternatively move the case to Washington. The court dismissed the case for lack of in personam jurisdiction. Baskin-Robbins appealed.

With a diversity case, the district court’s “assertion of personal jurisdiction over Alpenrose… [must] satisfy the requirements of both the Due Process Clause of the federal Constitution and the Massachusetts long-arm statute.” In accordance with these jurisdictional requirements, the First Circuit assessed Baskin-Robbins’s claim of specific jurisdiction, which gives a court jurisdiction over a case such that the “case relates sufficiently to, or arises from, a significant subset of contacts between the defendant and the forum.”

The circuit court found that the letters of intent sent from Alpenrose to Baskin-Robbins’s Massachusetts office did not by themselves satisfy a minimum-contacts analysis. However,  Alpenrose’s interactive business relationship with Baskin-Robbins while they were headquartered in Massachusetts, and repeated contacts between both parties, in which Baskin-Robbins performed services in Massachusetts on Alpenrose’s behalf, was “vital to the continuation of the franchisor-franchisee relationship.” Such actions show that Alpenrose purposefully availed itself to the jurisdiction of the Massachusetts’ courts.

In assessing whether the exercise of jurisdiction over Alpenrose is fair and reasonable, the First Circuit concluded that it was, as there was no “unusual burden” on Alpenrose. For these reasons, the court held that jurisdiction over Alpenrose in Massachusetts is consistent with due process and reversed the district court’s dismissal.

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Connor Choate

Summer intern with Austin Law Firm in Raleigh, North Carolina.