M. B. Restaurants Inc. v. CKE Restaurants Inc.

• Decision Date: 18 June 1999
• Docket Number: A-,INCLUDING,PLAINTIFFS-APPELLANTS,DEFENDANTS-APPELLEES,No. 98-3947,98-3947
• Citation: 183 F.3d 750
• Parties: (8th Cir. 1999) M. B. RESTAURANTS, INC., A SOUTH DAKOTA CORPORATION, DOING BUSINESS AS JB'S RESTAURANTS #140 AND #142, FRANCHISEES; MARK B. ROGERS, INDIVIDUALLY; D LUCKS, INC., AN IDAHO CORPORATION, DOING BUSINESS AS JB'S RESTAURANT #53, A FRANCHISEE; DALE TRAPPEN, INDIVIDUALLY; JB'S RESTAURANTS #54-MERIDIAN, A FRANCHISEE; BRYCE JOHNSON, INDIVIDUALLY; R & R HOSTS, INC., A WASHINGTON CORPORATION, DOING BUSINESS AS JB'S RESTAURANT #201, A FRANCHISEE; JOHN OR JANE DOES,FRANCHISEES AND INDIVIDUALS AS A CLASS,, v. CKE RESTAURANTS, INC., A CALIFORNIA CORPORATION, FRANCHISOR, DOING BUSINESS AS SUMMIT FAMILY RESTAURANTS, INC., A UTAH CORPORATION, FRANCHISOR, DOING BUSINESS AS JB'S RESTAURANTS, A DELEWARE CORPORATION, FRANCHISOR, Submitted:
• Court: U.S. Court of Appeals — Eighth Circuit

Page 750

183 F.3d 750 (8th Cir. 1999)

M. B. RESTAURANTS, INC., A SOUTH DAKOTA CORPORATION, DOING BUSINESS AS JB'S RESTAURANTS #140 AND #142, FRANCHISEES; MARK B. ROGERS, INDIVIDUALLY; D LUCKS, INC., AN IDAHO CORPORATION, DOING BUSINESS AS JB'S RESTAURANT #53, A FRANCHISEE; DALE TRAPPEN, INDIVIDUALLY; JB'S RESTAURANTS #54-MERIDIAN, A FRANCHISEE; BRYCE JOHNSON, INDIVIDUALLY; R & R HOSTS, INC., A WASHINGTON CORPORATION, DOING BUSINESS AS JB'S RESTAURANT #201, A FRANCHISEE; JOHN OR JANE DOES, A-Z, INCLUDING FRANCHISEES AND INDIVIDUALS AS A CLASS, PLAINTIFFS-APPELLANTS, v. CKE RESTAURANTS, INC., A CALIFORNIA CORPORATION, FRANCHISOR, DOING BUSINESS AS SUMMIT FAMILY RESTAURANTS, INC., A UTAH CORPORATION, FRANCHISOR, DOING BUSINESS AS JB'S RESTAURANTS, A DELEWARE CORPORATION, FRANCHISOR, DEFENDANTS-APPELLEES.

No. 98-3947

U.S. Court of Appeals, Eighth Circuit

Submitted: June 18, 1999

July 02, 1999

Rehearing and Rehearing En Banc Denied Aug. 4, 1999.

Appeal from the United States District Court for the District of South Dakota.

Before Murphy and Magill, Circuit Judges, and Reasoner, ¹ District Judge.

Murphy, Circuit Judge.

Mark Rogers, Dale Trappen, and Bryce Johnson acquired JB's Restaurant franchises, some of which were subsequently terminated. They sued CKE Restaurant's, Inc. in federal district court in South Dakota, alleging breach of contract and various torts on behalf of a class of franchisees. The franchise agreement contained a forum clause providing that any litigation be conducted in Utah, and the district court ² dismissed this action for improper venue.

Rogers, Trappen, and Johnson are former employees of JB's Restaurants, Inc. (JB's) who entered into franchise agreements with that company in the early 1990s. Trappen acquired a franchise in Mountain Home, Idaho; Johnson acquired one in Meridian, Idaho; and Rogers acquired two in the Rapid City, South Dakota area. JB's was headquartered in Salt Lake City at the time, and the franchise agreements all contained a forum selection clause requiring that disputes between the franchisor and franchisee be litigated exclusively in Utah. Apparently several of the franchises experienced financial difficulties, and in mid-1998 the franchise agreements of Trappen and Rogers were terminated for alleged failure to pay royalties and advertising fees (rent also in Rogers' case).

In June 1998 Rogers, Trappen, and Johnson (collectively Franchisees) filed their purported class action complaint against the successor to JB's, CKE Restaurants, Inc. (hereinafter Franchisor),³ alleging breach of contract, antitrust violations, breach of the fiduciary duty of good faith and fair dealing, and tortious interference in business relationships. In this case they seek to represent a class of individuals, predominately former managers of JB's Restaurants, who were allegedly improperly enticed into entering franchise agreements to operate their own individual JB's franchises. Franchisor filed a motion to dismiss for improper venue asserting that the contractual forum selection clauses required that litigation between the parties be conducted exclusively in Utah. The motion was granted in September 1998 and a motion to reconsider was denied.

Shortly after this case was dismissed in South Dakota, Franchisor filed cases against Rogers and Trappen, and their franchises, in the United States District Court for the District of Utah. The claims asserted by Franchisor included breach of contract and violations of federal trademark laws. Both Rogers and Trappen filed counterclaims in the Utah cases, raising claims similar to those in this action, and Trappen alleged that he intended to represent a class of all JB's Restaurant franchisees.

Franchisees argue on appeal that the district court abused its discretion by dismissing their South Dakota complaint for improper venue. They contend that enforcement of the forum selection clause deprives them of their fair day in court and that the contracts were procured through fraud. Franchisees focus on the disparity of bargaining power between their group and the Franchisor, the lack of negotiation of specific provisions in the contract, the expense for Rogers to litigate in Utah, and their alleged inability to assert rights under South Dakota franchise law in another forum. Rogers and Trappen also claim fraud. Rogers alleges Franchisor misled him by telling him there was a buyer for the restaurant in which he was interested and thus fraudulently induced him to sign the first franchise agreement. Trappen alleges that his name was forged on some unspecified documents.

The key issue is whether the clause is enforceable. See M/S Bremen v. Zapata Off-Shore Co., 407 U.S. 1 (1972). Although there may be some disagreement among the circuits regarding whether this is a procedural question governed by federal law or a substantive question governed by state law under Erie Railroad Co. v. Tompkins, 304 U.S. 64 (1938), the parties here do not argue the state and federal standards differ. ⁴ Forum selection clauses are prima facie...