Jones v. GNC Franchising, Inc.

Citations: 211 F.3d 495; 2000 Cal. Daily Op. Serv. 3453; 2000 Daily Journal DAR 4691; 2000 U.S. App. LEXIS 8647; 2000 WL 526993Docket: No. 99-55633

Court: Court of Appeals for the Ninth Circuit; May 3, 2000; Federal Appellate Court

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GNC Franchising, Inc. appeals the district court's refusal to enforce a forum selection clause in its franchise agreement with Charles B. Jones, arguing the court improperly denied its motion to dismiss or transfer the case under 28 U.S.C. 1404 and 1406. GNC, based in Pittsburgh, Pennsylvania, is the franchisor for General Nutrition Stores, including one operated by Jones in LaVerne, California. The franchise and Option Agreements include a choice of law clause favoring Pennsylvania law and a forum selection clause requiring that any franchisee action against GNC be filed in Pennsylvania.

Following a dispute, Jones initiated litigation in California state court, which GNC removed to federal court. GNC then sought to dismiss or transfer the case back to Pennsylvania, citing the forum selection clause. The district court denied both motions, ruling the clause unenforceable due to California's public policy against such provisions in franchise agreements, as outlined in California Business and Professions Code § 20040.5, which voids any clause restricting venue to outside the state for claims related to franchises operating within California.

The appeals court affirmed the district court's decision, noting that enforcement of the forum selection clause is subject to federal law, which presumes such clauses are valid unless challenged on specific grounds, including strong public policy considerations. The court reiterated that while contractual clauses may be valid under normal circumstances, they can be deemed unreasonable and unenforceable if they contravene public policy or if the selected forum is seriously inconvenient. The burden of proof lies with the party contesting the clause, which in this case, the court found was met by the public policy considerations in California.

The forum selection clause limits venue to Pennsylvania courts, but California's statute 20040.5 aims to invalidate this clause for claims related to franchises in LaVerne, California. GNC argues that the district court wrongly interpreted this statute as indicative of a strong public policy against enforcing the clause under federal law. The court finds this argument unsubstantiated, referencing Bremen, which allows for strong public policy to be declared by statute. The statute protects California franchisees by ensuring they can litigate in California, as requiring them to resolve disputes in another state contravenes this public policy, rendering such provisions unenforceable.

Regarding GNC's motion to transfer venue to Pennsylvania under 1404(a), the court reviews for abuse of discretion. The district court evaluates multiple factors, including the negotiation location of agreements, familiarity with governing law, plaintiff's forum choice, and relative party contacts with the forums. The presence of a forum selection clause is also considered significant. The court ultimately finds that GNC did not demonstrate Pennsylvania as the more suitable forum, noting that most agreements were negotiated in California, Jones' choice of forum aligns with California's public policy, and the majority of relevant witnesses and evidence are based in California. The court affirms the denial of GNC’s motion to transfer venue, concluding that the trial court acted within its discretion. The judgment is affirmed in all respects.

Jones asserts multiple claims against GNC, including breach of contract, negligence, breach of the covenant of good faith, and various forms of misrepresentation. Initially, the district court remanded the case to state court due to a lack of diversity jurisdiction. However, upon GNC's second removal attempt, the court found that diversity jurisdiction did exist. Under 28 U.S.C. § 1406(a), a district court can dismiss or transfer a case if it is filed in the wrong venue, while 28 U.S.C. § 1404(a) allows for the transfer of civil actions for the convenience of parties and witnesses. Case law indicates that the party seeking to escape the contractual forum must demonstrate significant inconvenience. California's Business and Professions Code § 20040.5 reflects a public policy against forum selection clauses that unfairly disadvantage franchisees, particularly when such clauses require litigation in the franchisor's out-of-state venue. Legislative history emphasizes the need to protect California franchisees from excessive costs and disadvantages inherent in these clauses, which are often non-negotiable. The courts have ruled that while forum selection clauses are relevant, they are not determinative in transfer motions under 1404(a), and public policy considerations must also be factored into the analysis. GNC has the burden to prove the existence of an adequate alternative forum under the doctrine of forum non conveniens.