Federal Court Deals with Personal Jurisdiction and Choice of Law Issues
In Luxury Concepts, Inc. v. Bateel International, LLC, a franchisee, Luxury Concepts, Inc. (LCI), sued a retail outlet and e-commerce franchisor, Bateel International LLC (Bateel), as well as multiple Bateel directors in federal court in Michigan. LCI sued Bateel for its alleged failure to meet its supply obligations under the parties’ franchise agreements.
The two parties entered into a franchise agreement whereby LCI developed retail outlets and an e-commerce presence within the state of Michigan, and Bateel supplied LCI with the required goods. The parties further entered into a second franchise agreement to create outlets in Texas. Both franchise agreements stated they were to be “interpreted and construed under the laws of the United Arab Emirates” to accommodate UAE-based Bateel.
LCI alleged Bateel breached its agreements, violated the Michigan Franchise Investment Law (MFIL), and violated the Texas Business Opportunity Act by failing to meet its obligations under both agreements and attempting to bypass LCI completely by changing payment terms, stopping shipments to LCI, and selling directly to American consumers after seeing LCI’s success in the e-commerce industry. Bateel also initiated a lawsuit of its own against LCI in the First Instance Court in the UAE. (The court’s opinion does not detail the allegations of that separate litigation.)
Bateel filed a motion to dismiss in the federal district court, challenging personal jurisdiction and whether LCI’s complaint stated a claim upon which the court could grant relief. The court began by analyzing personal jurisdiction and held that LCI failed to allege the individual defendants engaged in any activity “other than in their capacities as directors of Bateel,” which alone is insufficient for personal jurisdiction. Mere telephone calls with the plaintiff in Michigan, and occasional visits to other states within the U.S., did not constitute “minimum contacts” for specific personal jurisdiction. Additionally, potential liability under the MFIL alone did not create personal jurisdiction.
The court further held that Bateel itself was subject to personal jurisdiction because the company (1) regularly communicated with LCI in the forum state of Michigan, (2) was a party to a franchise agreement with LCI (a Michigan-based counterparty), and (3) distributed various goods and services within the state.
Bateel also argued the case should be dismissed on forum non conveniens grounds, proposing the UAE as a more appropriate forum. The court granted the motion to dismiss on this basis and cited the primary reason as being that the matter is governed by the laws of the UAE and, as such, the UAE courts are in a far better position to handle the dispute. Similarly, the district court relied heavily on the fact that the law governing the dispute was in Arabic as weighing in favor of the UAE as the proper forum.
While LCI argued litigation in the foreign forum was inadequate because the foreign law would be unable to provide remedies for the MFIL and Texas Business Opportunity Act claims, the court held that LCI essentially waived such claims by agreeing to have UAE law govern both the Michigan and Texas Franchise agreements.
This case is instructive because it reminds parties to franchise agreements that courts will enforce choice of law clauses even if they invoke the law of a faraway foreign jurisdiction.
