Ajax Holdings LLC v. Comet Cleaners Franchise Group LLC

Filing 13

OPINION AND ORDER denying 9 motion to remand; granting 6 Motion to Transfer Case. The Court directs the Clerk to transfer this action immediately to the Northern District of Texas. Signed by Judge Susan Webber Wright on 10/9/2015. (ks)

IN THE UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF ARKANSAS
WESTERN DIVISION
AJAX HOLDINGS, LLC,

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Plaintiff,
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vs.
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No. 4:15CV00494 SWW
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COMET CLEANERS FRANCHISE
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GROUP, LLC,
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Defendant.
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OPINION and ORDER
This an action for violations of the Arkansas Franchise Practices Act that plaintiff
brought in the Circuit Court of Pulaski County, Arkansas. Defendant removed the action to this
Court. Now before the Court is defendant’s motion to dismiss and motion to transfer, and
plaintiff’s motion to remand. For the reasons stated, the Court denies the motion to remand and
grants the motion to transfer.
I.
According to the complaint, Plaintiff Ajax Holdings, LLC (“Ajax”) and Defendant
Comet Cleaners Franchise Group, LLC (“Comet Cleaners”) entered into twelve license
agreements (“Agreements”) for Ajax to operate a dry cleaning and laundry business under the
Comet Cleaners name and trademark. Ajax says it entered into the Agreements with the
expressed understanding , based upon Comet Cleaners’s representation, that it was obtaining
profitable stores and would be paid royalties from the revenue of each of the stores.1 Under the
terms of the Agreements, Ajax was to have sole responsibility for all employment decisions.
The operation and management of the stores, however, were to be handled by various pre-

1

Compl. at ¶ 6.

determined managers and/or operators who were responsible for paying required fees and
expenses, and for paying Ajax a portion of the revenues from each store.2
Ajax complains that shortly after taking over the stores, it began to have issues such as
learning that one store had no lease in effect; revenue/profitability of a majority of the stores
being far below that represented by Comet Cleaners; realizing the Agreements did not reflect
how the stores were actually operated; failure by Comet Cleaners to monitor and provide
training; Comet Cleaners telling operators/managers not to pay Ajax royalties that Comet
Cleaners had agreed to pay; and collusion with the manager of one of the only profitable stores
to cut Ajax out of the business and turn the franchise over to the manager without notice to
Ajax.3 Ajax alleges Comet Cleaners violated the Arkansas Franchise Practices Act (“AFPA”)
by its misrepresentations, fraudulent acts, and intentional omissions.4
Comet Cleaners moved to dismiss the complaint in state court for lack of jurisdiction,
improper venue, and failure to state a claim, all based on the fact that Ajax did not attach a copy
of the written agreements on which its claim is based, in violation of Ark.R.Civ.P. 10(d). Comet
Cleaners also filed a motion to transfer venue to the Northern District of Texas pursuant to a
forum-selection clause in the Agreements. Ajax filed a motion to remand to state court, arguing
Comet Cleaners waived it right to remove by filing a motion to dismiss in state court. The
motions are ripe for determination.
II.

2

Id. at ¶¶7 & 8.

3

Id. at ¶ 9.

4

Id. at ¶ 14.

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A. Motion to Remand
Comet Cleaners removed the action asserting that the Court has jurisdiction under 28
U.S.C. § 1332(a) because the action is between citizens of different states and the matter in
controversy exceeds $75,000.00. Ajax contends that by filing a motion to dismiss in state court
and thus manifesting its intent to proceed in that court, Comet Cleaners waived its right to
remove. Ajax also argues that because its claim is based entirely on state law, Arkansas has a
greater interest in adjudicating the case and policy is in favor of the case being resolved in state
court.
In PR Group, LLC v. Windmill Int’l Ltd., 792 F.3d 1025, 1026 (8th Cir. 2015), the court
held that a defendant can waive its right to remove if it takes “some substantial offensive or
defensive action in the state court action indicating a willingness to litigate in that tribunal before
filing a notice of removal with the federal court.” (Internal quotation and citation omitted.) The
Eighth Circuit held that Windmill’s motion to dismiss for failure to prosecute did not constitute
“clear and unequivocal” waiver of its right to remove. “Windmill's motion to dismiss was based
on PR Group's two-year-plus failure to complete service on Windmill. Because it neither
addressed the merits of PR Group's complaint nor sought an adjudication on the merits, the
motion did not clearly and unequivocally demonstrate any willingness on Windmill's part to
litigate in state court.” See also Resolution Trust Corp. V. Sloan, 775 F.Supp. 326, 335
(E.D.Ark. 1991)(quoting Rothner v. City of Chicago, 879 F.2d 1402, 1415 (7th Cir. 1998), which
held the right to remove “is not lost by action in the state court short of proceeding to an
adjudication on the merits”).
Here, Comet Cleaners moved to dismiss based on Ajax’s violation of a procedural rule, a
defect which could be fixed by filing an amended complaint with the agreements attached. See
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Gemini Capital Group, LLC v. McFarland, 2014 Ark. App. 83, at 6, 2014 WL 576431 at *3
(Ark. App. 2014). Comet Cleaners filed a notice of removal the same day. The Court finds
Comet Cleaners did not waive its right to remand.
The Court further finds unpersuasive Ajax’s argument that the case should be remanded
because the claim is based on state law. The case was removed based on diversity of citizenship.
There is no reason that the case should be remanded so that Arkansas can decide the claim. See
Clark v. Matthews Int’l Corp., 639 F.3d 391, 397 (8th Cir. 2011)(“Supreme Court has indicated
that, as a general rule, the novelty or complexity of a state-law issue is not an appropriate basis
upon which to remand a case when diversity-of-citizenship jurisdiction exists”).
B. Motion to Transfer
Pursuant to 28 U.S.C. § 1404(a), for “the convenience of parties and witnesses, in the
interest of justice, a district court may transfer any civil action to any other district or division
where it might have been brought.” Whether to grant or deny a motion for change of venue is
within the discretion of the trial court. See Hubbard v. White, 755 F.2d 692 (8th Cir.), cert.
denied, 474 U.S. 834 (1985). Comet Cleaners moves to transfer this case to the district court in
Texas according to the forum-selection clause contained in the Agreements. However, Ajax
asserts that the forum-selection clause does not apply to its claim, that the forum-selection clause
violates Arkansas public policy, and that the §1404 factors weigh against transfer.
Assuming a contractually valid forum-selection clause, the Supreme Court said:
In the typical case not involving a forum-selection clause, a district court
considering a § 1404(a) motion (or a forum non conveniens motion) must evaluate
both the convenience of the parties and various public-interest considerations.
Ordinarily, the district court would weigh the relevant factors and decide whether,
on balance, a transfer would serve ‘the convenience of parties and witnesses’ and
otherwise promote ‘the interest of justice.’ § 1404(a). The ‘enforcement of valid
forum-selection clauses, bargained for by the parties, protects their legitimate
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expectations and furthers vital interests of the justice system.’ For that reason,
and because the overarching consideration under § 1404(a) is whether a transfer
would promote ‘the interest of justice,’ ‘a valid forum-selection clause [should
be] given controlling weight in all but the most exceptional cases.’ The presence
of a valid forum-selection clause requires district courts to adjust their usual §
1404(a) analysis in three ways.
First, the plaintiff's choice of forum merits no weight. Rather, as the party defying
the forum-selection clause, the plaintiff bears the burden of establishing that
transfer to the forum for which the parties bargained is unwarranted. Because
plaintiffs are ordinarily allowed to select whatever forum they consider most
advantageous (consistent with jurisdictional and venue limitations), we have
termed their selection the ‘plaintiff's venue privilege.’ But when a plaintiff agrees
by contract to bring suit only in a specified forum—presumably in exchange for
other binding promises by the defendant—the plaintiff has effectively exercised
its ‘venue privilege’ before a dispute arises. Only that initial choice deserves
deference, and the plaintiff must bear the burden of showing why the court should
not transfer the case to the forum to which the parties agreed.
Second, a court evaluating a defendant's § 1404(a) motion to transfer based on a
forum-selection clause should not consider arguments about the parties' private
interests. When parties agree to a forum-selection clause, they waive the right to
challenge the preselected forum as inconvenient or less convenient for themselves
or their witnesses, or for their pursuit of the litigation. A court accordingly must
deem the private-interest factors to weigh entirely in favor of the preselected
forum. As we have explained in a different but ‘instructive’ context, ‘[w]hatever
‘inconvenience’ [the parties] would suffer by being forced to litigate in the
contractual forum as [they] agreed to do was clearly foreseeable at the time of
contracting.’
As a consequence, a district court may consider arguments about public-interest
factors only. Because those factors will rarely defeat a transfer motion, the
practical result is that forum-selection clauses should control except in unusual
cases. Although it is ‘conceivable in a particular case’ that the district court
‘would refuse to transfer a case notwithstanding the counterweight of a forumselection clause,’ such cases will not be common.
Third, when a party bound by a forum-selection clause flouts its contractual
obligation and files suit in a different forum, a § 1404(a) transfer of venue will not
carry with it the original venue's choice-of-law rules—a factor that in some
circumstances may affect public-interest considerations.
Atlantic Marine Const, Co., Inc. v. U.S. Dist. Court for Western Dist. of Texas, ___ U.S. ___, 134
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S.Ct. 568, 581-82 (2013)(internal citations and quotations omitted).
Under the Agreements, Ajax contracted to bring all lawsuits against Comet Cleaners in
state or federal courts in Tarrant County, Texas: “You and the Owners must file any suit against
us, and we may file suit against you or the Owners, in the federal or state court where our
principal office is located at the time suit is filed. The parties waive all objections to personal
jurisdiction and venue for the purpose of carrying out this provision.”5 Ajax argues that its claim
does not arise out of or relate to the Agreements because it is brought under the AFPA and alleges
misrepresentations and omissions before the Agreements were executed. Ajax asserts the forumselection clause “was not intended to encompass all claims of any sort that may have arisen”
between Ajax and Comet Cleaners.6
In Terra Int’l v. Mississippi Chem. Corp., 119 F.3d 688, 694 (8th Cir. 1997), the plaintiff
argued that the forum selection clause did not apply to its tort claim. The Eighth Circuit held that
“[c]ontract-related tort claims involving the same operative facts as a parallel claim for breach of
contract should be heard by the forum selected by the contracting parties.” The clause under
consideration in Terra Int’l applied to “[a]ny dispute or disputes arising between the parties
hereunder.” Terra Int’l, 199 F3d at 690. As Comet Cleaners points out, the clause here is
broader than the forum-selection clause in Terra Int’l.
Ajax also argues that the forum-selection clause is against public policy because
enforcement of the clause will displace the protection afforded to it by the enactment of the
AFPA. In response, Comet Cleaners argues that unlike the Procedural Fairness for Restaurant

5

Def’s. Mot. and Br. to Transfer Venue, Ex. A-1 (licensing agreement) at 29 (ECF No. 6 at 44).

6

Pl’s. Resp. to Mot. to Transfer at 3 (ECF No. 8).

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Franchisees Act, Ark. Code Ann. §4-72-603(c), the AFPA does not preclude forum-selection
clauses in non-restaurant franchise agreements. Compare Applied Energy of Ar-La -Ms., Inc. v.
Pall Corp, 2014 U.S. Dist, LEXIS 170810, *4 (E.D.Ark. 2014)(enforcing forum-selection clause
in non-restaurant franchise agreement) with Rob & Bud’s Pizza, LLC v. Papa Murphy’s Int’l,
Inc., 2015 U.S. LEXIS 82927, * 4-5 (8th Cir. 2015)(not enforcing forum-selection clause in
restaurant franchise agreement because the express Arkansas public policy in the Procedural
Fairness for Restaurant Franchisees Act applied to restaurant franchises). The Court finds Ajax
fails to establish that this is the unusual case where the forum-selection clause should not control.
Lastly, under Atlantic Marine, the § 1404(a) factors are inapplicable. Even if they
applied, the Court finds transfer would not be appropriate. See Terra Int’l, 119 F.3d at 697
(courts enjoy “much discretion” when deciding whether to grant a motion to transfer).
III.
IT IS THEREFORE ORDERED that plaintiff’s motion to remand [ECF No. 9] is denied
and defendant’s motion to transfer [ECF No. 6] is granted. The Court directs the Clerk to transfer
this action immediately to the Northern District of Texas.
DATED this 9th day of October, 2015.
/s/Susan Webber Wright
UNITED STATES DISTRICT JUDGE

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