Postnet Int'l Franchise Corp. v. Wu

• Decision Date: 19 February 2021
• Docket Number: Civil Action No. 1:20-cv-03790-DDD-SKC
• Citation: 521 F.Supp.3d 1087
• Parties: POSTNET INTERNATIONAL FRANCHISE CORPORATION, Plaintiff, v. James WU, Defendant.
• Court: U.S. District Court — District of Colorado

521 F.Supp.3d 1087

POSTNET INTERNATIONAL FRANCHISE CORPORATION, Plaintiff,

v.James WU, Defendant.

Civil Action No. 1:20-cv-03790-DDD-SKC

United States District Court, D. Colorado.

Signed February 19, 2021

Jess Alexander Dance, Polsinelli PC, Denver, CO, for Plaintiff.

Bryan Warren Dillon, Lagarias Napell & Dillon LLP, San Rafael, CA, David James Meretta, Miller & Law, P.C., Littleton, CO, for Defendant.

ORDER DENYING DEFENDANT'S MOTION TO DISMISS OR TRANSFER AND DENYING PLAINTIFF'S MOTION FOR A PRELIMINARY INJUNCTION

Daniel D. Domenico, United States District Judge

Modern choice-of-law rules have been described as a "judicial night-mare" and "veritable jungle" leading to "a reign of chaos" in the courts that must apply those rules. In re Air Crash Disaster at Washington, D.C. on Jan. 13, 1982 , 559 F. Supp. 333, 335 (D.D.C. 1983) (internal citation and quotation marks omitted).¹ When true conflicts of law arise, federal courts often must wade through a litany of available bodies of law that may govern any particular issue: federal statute, federal common law, forum-state law, another state's law, and foreign law. Even in a single case, different bodies of law may govern different issues under the "widely approved" doctrine of Dépeçage. See Johnson v. Cont'l Airlines Corp. , 964 F.2d 1059, 1062 n.4 (10th Cir. 1992).

Such thorny choice-of-law issues bear on several central issues in this case. Plaintiff franchisor seeks to enjoin its former franchisee from operating a competing business in violation of a covenant not to compete. In the parties’ franchise agreement, they agreed to resolve disputes relating to the franchise in Colorado courts and pursuant to Colorado law. But Defendant franchisee, who ran the franchised store in California, argues that California law governs this dispute. Under California law, the parties’ forum-selection clause and the franchise agreement's non-competition covenant may be invalid.

But to the extent there are any conflicts of law here, Colorado or federal law govern the various issues, the forum-selection clause is valid and enforceable, this court has jurisdiction, venue is proper here, and the covenant not to compete is likely valid and enforceable. The Defendant's motion to dismiss or transfer will therefore be denied. Plaintiff's evidence that Defendant's operation of a competing business in violation of the covenant will cause it irreparable harm pending trial is insufficient, however, to warrant the extraordinary relief of a preliminary injunction. Plaintiff's motion therefore is also denied.

BACKGROUND

In 2005, Defendant James Wu and Plaintiff PostNet International Franchise Corporation agreed to renew a franchise agreement for a printing, shipping, and copying store located in Moorpark, California. (Doc. 31-1 (the "Agreement" or "Franchise Agreement").) Pursuant to the Agreement and a related assignment of interest, Mr. Wu became the sole owner of the California PostNet franchise. ( Id. at p. 1.) That renewal extended the franchise term for fifteen years unless otherwise terminated. (Id. at § 2.1.) At the time of signing renewal, PostNet's headquarters were located in Denver, Colorado. (See id. at p. 2, 38.)

Upon termination, the Agreement required Mr. Wu to cease using certain confidential information and systems, to cease using any PostNet trademarks, and to assign any lease interest Mr. Wu had in the franchise location. (See id. at §§ 14.1-14.4.) Mr. Wu also agreed, after termination or expiration of the franchise agreement, not to own, maintain, or operate a business "which offers the same or similar products" for one year within a ten-mile radius of the prior franchise location. (Id. at § 15.3.)

The Franchise Agreement contained a dispute-resolution provision. The parties first agreed to pursue non-binding mediation and arbitration to resolve any disputes involving the agreement, with certain carve-outs that excluded, among other things, PostNet's ability to seek injunctive relief in court. (See id. at §§ 22.2-22.7.) To the extent the agreement allowed filing a lawsuit, the parties agreed that PostNet could file suit in the federal district court encompassing the location of PostNet's principal place of business at the time of filing suit. (Id. at § 22.5.) The parties also agreed that, while jurisdiction was permissive as to lawsuits initiated by PostNet, Mr. Wu was required to file any lawsuit between them in Colorado courts. (Id. ) The parties agreed to "waive all questions of personal jurisdiction or venue for the purpose" of carrying out this forum-selection clause. (Id. ) They agreed that Colorado law "exclusively" governs disputes arising out of the Agreement. (Id. at § 21.1.) The choice-of-law clause also provided that Colorado law "shall prevail, without regard to the application of Colorado conflict of law rules." (Id. )

At the time of signing the Agreement, PostNet also provided Mr. Wu with separate disclosure documents relating to the Agreement and the franchise relationship. (Doc. 31-23 at ¶ 8.) One such disclosure document noted that "A PROVISION IN A FRANCHISE AGREEMENT REQUIRING THE APPLICATION OF THE LAWS OF ANOTHER STATE IS VOID ... UNDER THE CALIFORNIA FRANCHISE INVESTMENT LAW." (Doc. 31–3 at p. 1–2.) It also said that "UNDER CALIFORNIA LAW, A PROVISION IN A FRANCHISE AGREEMENT RESTRICTING JURISDICTION OR VENUE TO A FORUM OUTSIDE OF CALIFORNIA IS VOID ...." (Id. at p. 2.) The document also noted that a post-termination covenant not to compete "may not be enforceable under California law." (Id. at p. 53.) But other sections of the disclosure document noted that the parties agreed to litigate in Colorado and that Colorado law would govern. (Id. at p. 53.) The document noted that PostNet intended to enforce all provisions of the Agreement even if they may not be enforceable under California law. (Id. at p. 53.) And the document also said, "THE LAWS OF COLORADO MAY NOT PROVIDE THE SAME PROTECTIONS AND BENEFITS AS LOCAL LAW. YOU MAY WANT TO COMPARE THESE LAWS." (Id. at p. 2.)

After signing the Agreement, Mr. Wu operated his PostNet franchise for the full term until November 2020. (Doc. 31-23 at ¶ 17.) On the next business day following expiration of the Agreement, Mr. Wu opened a new business across the street from his former franchise called VC Digital. (See id. at ¶¶ 25, 27-28.) Mr. Wu's new business has two employees, including himself, and a commissioned salesman. ( Id. at ¶ 29.) Mr. Wu contends that he deleted or returned all confidential information and trademarked items and cancelled his business phone lines upon expiration of the Agreement. (Id. at ¶ 19.) Mr. Wu further contends that he no longer has access to customer data and transaction information because it was only viewable in software controlled by PostNet. (Id. at ¶ 20.) In response, PostNet contends that Mr. Wu initiated a "contact export" immediately prior to termination of the Agreement, but Mr. Wu says he did not, and that a PostNet employee or automatic process initiated the export. (See Doc. 28–6; Doc. 22.)

After discovering the competing business, PostNet sued Mr. Wu in Colorado state court for violating the terms of the Agreement and sought a preliminary injunction. Mr. Wu removed the case and seeks dismissal or transfer to a California court.

ANALYSIS

The central fact on the merits here is not in dispute: Mr. Wu is operating a competing business in violation of the parties’ agreed-upon post-termination covenant not to compete. Instead, the parties’ threshold dispute is over which law governs various issues in this suit. Mr. Wu favors the application of California law because it may render the Colorado forum-selection clause, the Colorado choice-of-law clause, and the post-termination covenant all void. PostNet favors the application of federal or Colorado law because those bodies of law would not invalidate the parties’ agreed-to terms. Mr. Wu also argues that, even if this court has jurisdiction, PostNet has not met is burden to show that a disfavored injunction is appropriate.

I. Motion to Dismiss

"The plaintiff bears the burden of establishing personal jurisdiction over the defendant." Behagen v. Amateur Basketball Ass'n of U.S.A. , 744 F.2d 731, 733 (10th Cir. 1984) (citation omitted). "Prior to trial, however, when a motion to dismiss for lack of jurisdiction is decided on the basis of affidavits and other written materials, the plaintiff need only make a prima facie showing." Id. (citations omitted).

The allegations in the complaint must be taken as true to the extent they are uncontroverted by the defendant's affidavits. If the parties present conflicting affidavits, all factual disputes are resolved in the plaintiff's favor, and the plaintiff's prima facie showing is sufficient notwithstanding the contrary presentation by the moving party.

Id. (citations omitted).

Most of Mr. Wu's arguments for dismissal or transfer pursuant to 28 U.S.C. § 1404(a) hinge on which law governs the enforceability and validity of the parties’ Colorado forum-selection clause. Mr. Wu raises three possible grounds for refusing to enforce the forum selection clause:

• California Business and Profession Code § 20040.5 voids all forum-selection clauses in franchise agreements that fail to select California as a forum;

• The parties’ forum-selection clause is invalid because there was no "meeting of the minds" as to the clause; and

• The parties’ forum-selection clause is unconscionable.

Resolution of all three issues depends on which law governs because Mr. Wu's arguments rely on California law. But California law does not govern any of these issues, and Mr. Wu's arguments fail.

A. Federal Law, Not California Law, Governs the Enforcement of the Forum-Selection Clause

California disfavors forum-selection clauses, but the Supreme Court of the United States does not. At least in the context of transfer under 28 U.S.C. § 1404(a), the statute that grants federal courts discretion to transfer cases "in the interest of...