211 F.3d 495 (9th Cir. 2000), 99-55633, Jones v. GNC Franchising

Docket Nº:99-55633
Citation:211 F.3d 495
Party Name:CHARLES B. JONES,Plaintiff-Appellee, v. GNC FRANCHISING, INC., a Pennsylvania Corporation; and DOES 1 through 50,Defendant-Appellant.
Case Date:May 03, 2000
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

Page 495

211 F.3d 495 (9th Cir. 2000)

CHARLES B. JONES,Plaintiff-Appellee,

v.

GNC FRANCHISING, INC., a Pennsylvania Corporation; and DOES 1 through 50,Defendant-Appellant.

No. 99-55633

UNITED STATES COURT OF Appeals, FOR THE NINTH CIRCUIT

May 3, 2000

Argued and Submitted March 13, 2000

Page 496

COUNSEL: Philip A. Kramer, Kramer & Kaslow, Los Angeles, California, for the plaintiff-appellee.

Jonathan Solish, Law Offices of Garrett J. Zelen, Los Angeles, California, and Howard A. Kroll, Preston Gates & Ellis, Los Angeles, California, for the defendant-appellant.

Appeal from the United States District Court for the Central District of California

Before: Henry A. Politz,1 Stephen Reinhardt, and Michael Daly Hawkins, Circuit Judges.

Opinion by Judge Politz

POLITZ, Circuit Judge:

GNC Franchising, Inc., challenges the district court's refusal to enforce a forum selection clause in its franchise agreement with Charles B. Jones. The company contends that the court erred in denying its motion to either dismiss or transfer venue under 28 U.S.C. SS 1404 and 1406. For the reasons assigned, we affirm.

BACKGROUND

GNC, a subsidiary of General Nutrition Companies, Inc., is franchisor of General Nutrition Stores throughout the United States. The company's principal place of business is Pittsburgh, Pennsylvania. Jones is the franchisee of a GNC store in LaVerne, California.

In January 1995 and August 1996, the parties entered into written agreements, including an Option Agreement and a Franchise Agreement, for Jones' store. Each agreement contains a choice of law clause requiring that it be "interpreted and construed under the laws of the Commonwealth of Pennsylvania, which laws shall prevail in the event of any conflict of law." Both agreements also contain a forum selection clause providing that any action instituted by a franchisee against GNC "in any court, whether federal or state, shall be brought only within the Commonwealth of Pennsylvania in the judicial district in which Franchisor has its principal place of business; and the parties waive all questions of personal jurisdiction or venue for the purpose of carrying out this provision."

A dispute about the agreements arose and Jones filed suit in California state court alleging multiple causes of action.2 GNC timely removed the litigation to federal court, invoking diversity jurisdiction.3 The company subsequently moved to either dismiss or transfer venue to the Western District of Pennsylvania, citing 28 U.S.C. S 1406(a). 4 Alternatively, GNC

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sought a transfer of venue under 28 U.S.C. S 1404(a).5

After considering the motions and Jones' response, the district court denied the motion to dismiss or transfer under S 1406(a), concluding that the forum selection clause was unenforceable because it contravened California's strong public policy against such provisions. The court also denied the motion to transfer under S 1404(a) after weighing the relevant factors under the requisite "interest of justice " analysis.

GNC petitioned for permission to appeal the district court's decision, citing 28 U.S.C. S 1292(b) and Federal Rule of Appellate Procedure 5. Permission was granted.

ANALYSIS

I. Enforcement of the Forum Selection Clause under S 1406

In diversity cases, federal law governs the analysis of the effect and scope of forum selection clauses. 6 We have held that the rule set forth by the Supreme Court in M/S Bremen v. Zapata Off-Shore Co.7 controls the consideration of a motion to dismiss for improper venue based upon a forum selection clause.8

In Bremen, the Supreme Court held that a forum selection clause is presumptively valid and should not be set aside unless the party challenging the clause "clearly show[s] that enforcement would be unreasonable and unjust, or that the clause was invalid for such reasons as fraud or overreaching."9 The court added, however, that a contractual forum selection clause is "unenforceable if enforcement would contravene a strong public policy of the forum in which suit is brought, whether declared by statute or by judicial decision."10 Moreover, even though a clause is the product of a full and free bargaining process, and contravenes no public policy of the forum, it "may nevertheless be `unreasonable' and unenforceable if the chosen forum is seriously inconvenient for the trial of the action."11 The party challenging the forum selection clause bears a "heavy burden" of establishing the existence of one of the aforementioned grounds for rejecting its enforcement.12

The district court declined to enforce the parties' contractual forum selection clause, concluding that it contravened California's strong public policy against enforcing such clauses in franchise agreements, as expressed inS 20040.5 of the California Business and Professions Code. Section 20040.5 provides that "[a] provision in a franchise agreement restricting venue to a forum outside this state is void with respect to any claim arising under or relating to a franchise agreement involving a franchise business operating within this state."13 The forum selection clause at bar would restrict venue to Pennsylvania courts. It is apparent thatS 20040.5 is

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intended to void this clause with respect to any claim arising under or relating to the agreement involving the franchise located in LaVerne, California. GNC, however, contends that the district court erred in concluding that the California statute embodies a strong public policy interest precluding enforcement of the clause under federal law.

We find this contention to be without merit. Bremen teaches that a strong public policy may be "declared by statute."14 By voiding any clause in a franchise agreement limiting venue to a non-California forum for claims arising under or relating to a franchise located in the state,S 20040.5 ensures that California franchisees may litigate disputes regarding their franchise agreement in California courts.15 We conclude and hold that S 20040.5 expresses a strong public policy of the State of California to protect California franchisees from the expense, inconvenience, and possible prejudice of litigating in a non-California venue. A provision, therefore, that requires a California franchisee to resolve claims related to the franchise agreement in a non-California court directly contravenes this strong public policy and is unenforceable under the directives of Bremen. Accordingly, we affirm the district court's order denying GNC's motion to dismiss or transfer the action under S 1406(a).

II. Transfer of Venue under S 1404(a)

GNC also claims error in the district court's denial of its motion to transfer venue to the Western District of Pennsylvania under the provisions of S 1404(a). We review that order for abuse of discretion.16

Under S 1404(a), the district court has discretion "to adjudicate motions for transfer according to an`individualized, case-by-case consideration of convenience and fairness.' "17 A motion to...

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