FranNet, LLC v. Grant et al

Filing 26

ORDER: The Court grants in part Defendants' motion to dismiss (DN 10 ), transfers the case to the U.S. District Court for the District of Colorado, and denies as moot Defendants' motion to dismiss for lack of personal jurisdiction. cc: Counsel, District Court-Colorado (SMJ)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
LOUISVILLE DIVISION
FRANNET, LLC

Plaintiff

v.

No. 3:20-cv-203-BJB-CHL

DOUGLAS GRANT, et al.

Defendants
***

MEMORANDUM OPINION & ORDER
This is a contract dispute between a Kentucky plaintiff and Nevada defendants
regarding a contract struck with a Colorado counterparty. That contract contains a
Colorado forum-selection clause. The defendants objected to personal jurisdiction
and venue in the Western District of Kentucky because the contract routes all
disputes to Colorado state or federal courts. The law favors enforcing such provisions,
and no good reason counsels against enforcing this one. So the Court transfers the
case to the U.S. District Court for the District of Colorado.
I.
According to the facts alleged in the Complaint, the plaintiff, FranNet, is a
franchise-consulting business based in Kentucky. DN 1 at 2–3. The company
identifies potential franchisees and introduces them to franchisors in exchange for a
fee. Motion to Dismiss (DN 10-1) at 1–2. A FranNet licensee called Wahoo, Inc.,
which does business as “FranNet Mountain West” is a Colorado-based company that
connected FranNet with consultants who could help it recruit franchisees and
franchisors. Employment Agreement (DN 1-1) at 1; MTD at 1. Wahoo entered into
an agreement with Douglas Grant, a Nevada citizen who agreed to serve as a Wahoo
consultant, which “operat[ed] under [a separate] agreement with FranNet, LLC.” See
Employment Agreement at 1; id. at 17. Grant’s territory covered all of Nevada with
the exception of the Reno area. See Grant Declaration (DN 10-2) ¶ 11.
Apart from his employment agreement, Grant also signed a restrictive
covenant with Wahoo that contained a two-year non-compete clause and an
agreement not to disclose any of FranNet’s or Wahoo’s proprietary information. See
Restrictive Covenant (DN 1-2) ¶¶ 1–5. This agreement expressly recognized FranNet
as “a third party beneficiary” that had “the independent right to enforce th[e]
Agreement as if an original party.” ¶ 12. It also contained a choice-of-law clause
providing that Colorado law applied, as well as a forum-selection clause requiring
that “if any dispute arises out of this Agreement, such dispute must be resolved
exclusively in the state and federal courts in Denver County, CO.” ¶ 7.
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Grant worked with Wahoo and FranNet for several years, visiting the
Commonwealth for additional trainings and support in 2017, 2018, and 2019. See
Brief in Opp. (DN 15) at 2; MTD at 13. And his work continued until November 2019,
when Grant and Wahoo decided to reform their contract in hopes of escaping the
commission FranNet took from each deal. See Grant Decl. ¶ 12; MTD at 5. Grant
and Wahoo assigned Grant’s contractual obligations to Grant Group (a company
owned by Mr. Grant) and modified the contract to remove references to the
noncompete provision and other restrictive clauses. Grant Decl. ¶¶ 14–15; MTD at
5–6.
Then, according to FranNet, Grant performed work for the International
Franchise Professionals Group—a direct competitor of FranNet. See Compl. ¶¶ 41–
42. FranNet also says that between November and December of 2019, Grant
disclosed its secret corporate information by engaging an IT firm to transfer all the
information he obtained from FranNet——regarding customers, leads, and emails—
to his personal server. ¶ 45. Similarly, FranNet alleges that Grant asked Google for
all the information and emails from the account he used for FranNet work—
[e-mail]. ¶ 46. All of this, FranNet alleges, violated Grant’s obligations
not to compete or disclose confidential information.
So FranNet sued Grant and his company for breach of contract, violation of the
Federal Defend Trade Secrets Act (18 U.S.C. § 1836 et seq.), misappreciation of trade
secrets under Kentucky and Nevada law, conversion, and various other contract and
tort claims under state law. See Compl. at pp. 11–14. Shortly thereafter, the
Defendants filed a motion to dismiss based on lack of personal jurisdiction, forum non
conveniens, and venue. DN 10.
II.
A trial court may exercise its discretion, in response to a motion to enforce a
forum-selection clause, by construing the request as a motion to transfer venue under
28 U.S.C. § 1404(a). See First of Mich. v. Bramlet, 141 F.3d 260, 262 (6th Cir. 1998);
Carver v. Knox County, 887 F.2d 1287, 1291 (6th Cir. 1989); Jumara v. State Farm
Ins. Co., 55 F.3d 873, 878 (3d Cir. 1995). The federal venue statute provides that
“[f]or 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 may have
been brought.” § 1404(a).1 And “[w]hen the parties have agreed to a valid forum-

Defendants’ also asked the Court to dismiss this case for lack of personal jurisdiction.
But because this Order resolves the case on non-constitutional grounds, no need remains to
address Defendants’ argument that the Due Process Clause deprives this Court of
jurisdiction. See, e.g., Ashwander v. TVA, 297 U.S. 288, 347 (1936) (Brandeis, J., concurring)
(“It is not the habit of the court to decide questions of a constitutional nature unless
absolutely necessary to a decision of the case.” (quotation omitted)); Muller Optical Co. v.
1

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selection clause, a district court should ordinarily transfer the case to the forum
specified in that clause.” Atl. Marine Const. Co., v. U.S. Dist. Ct. for W. Dist. of Tex.,
571 U.S. 49, 59 (2013).
Federal courts enforce forum-selection clauses absent a strong showing that
they should be set aside. See Carnival Cruise Lines, Inc. v. Shute, 499 U.S. 585, 595
(1991). The first question is whether the clause is valid and enforceable. Wong v.
PartyGaming, Ltd., 589 F.3d 821, 828 (6th Cir. 2009). Courts within the Sixth Circuit
answer that by considering “(1) whether the clause was obtained by fraud, duress or
other unconscionable means; (2) whether the designated forum would ineffectively or
unfairly handle the suit; and (3) whether the designated forum would be so seriously
inconvenient such that requiring the plaintiff to bring suit there would be unjust.”
Id.
Generally a decision whether to transfer venue under § 1404(a) is analyzed in
light of a series of public and private interests that the transfer might implicate. See
Moses v. Bus. Card Exp., Inc., 929 F.2d 1131, 1136–37 (6th Cir. 1991). Private
considerations include party “convenience and the convenience of potential
witnesses.” Id. at 1137. But if the clause is valid and enforceable, then the parties
have no right to “challenge the preselected forum as inconvenient or less convenient
for themselves or their witnesses.” Atl. Marine, 571 U.S. at 64. Instead, the Court
“must deem the private-interest factors to weigh entirely in favor of the preselected
forum.” Id.
This presumption, however, does not disturb the requirement that a court
consider the public-interest factors that may militate in favor of hearing the case in
the jurisdiction selected by the plaintiff, rather than the one selected in the contract.
See id. Those factors include (1) the relative congestion in the two courts of the two
forums; (2) the public’s interest in having localized controversies decided at home;
and (3) relative familiarity of each court with the law. Id. at 62 n.6. This publicfactor-only review is much more circumspect than a typical § 1404(a) review, which
considers both private convenience factors and public interest. Id. at 64. “Although
it is ‘conceivable in a particular case’ that the district court ‘would refuse to transfer
a case notwithstanding the counterweight of a forum-selection clause,’” the Supreme
Court has recognized that “such cases will not be common.” Id. at 65 (quoting Stewart
Org. v. Ricoh Corp., 487 U.S. 22, 30–31 (1988)).

EEOC, 743 F.2d 380, 386 (6th Cir. 1984) (“The duty to avoid decisions of constitutional
questions ... [is] based upon the general policy of judicial restraint.”).

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A.
The first question here is whether the forum-selection clause is enforceable
against FranNet, a third-party beneficiary identified by name throughout a contract
it did not sign.2
Forum-selection clauses may bind non-signatories if they are “so ‘closely
related’ to the dispute that it becomes ‘foreseeable’ that [they] will be bound.” Baker
v. LeBoeuf, Lamb, Leiby & Macrae, 105 F.3d 1102, 1106 (6th Cir. 1997) (quoting
Hugel v. Corp. of Lloyd’s, 999 F.2d 206, 209 (7th Cir. 1993)); see Wilson v. 5 Choices,
776 F. App’x 320, 329 (6th Cir. 2019). Many courts in this circuit have applied this
rule to enforce forum-selection clauses against third-party beneficiaries. See, e.g.,
Wiedo v. Securian Life Ins. Co., No. 3:19-cv-97, 2020 WL 5219536, at *6 (E.D. Ky.
Sept. 1, 2020) (citing Baker and transferring case involving non-signatory); Washburn
v. Garner, No. 5:04-cv-229, 2005 WL 1907530, *11 (W.D. Ky. Aug.10, 2005) (same);
Veteran Payment Sys., LLC v. Gossage, No. 5:14-CV-981, 2015 WL 545764, at *7 (N.D.
Ohio Feb. 10, 2015) (same); Regions Bank v. Wyndham Hotel Mgmt., Inc., No. 3:091054, 2010 WL 908753, at *6 (M.D. Tenn. Mar. 12, 2010) (same); Farina v. Sirpilla
RV Centers, 5:18-cv-2734, 2019 WL 2436987, at *5 (N.D. Ohio, June 11, 2019)
(enforcing forum-selection clause against non-signatory when it was “foreseen that it
might be bound”).
Foreseeability depends on the totality of the circumstances. Courts ask
“whether it should have been reasonably foreseeable to the non-signatory that
situations might arise in which the non-signatory would become involved in the
relevant contract dispute.” Regions Bank, 2019 WL 908753 at *6.
FranNet’s situation meets that standard quite readily. The contract expressly
designates FranNet as the ultimate “beneficiary of th[e] Agreement” and vests the
company with “the independent right to enforce th[e] Agreement as if an original
party.” Restrictive Covenant ¶ 12. Further, the contract expressly grants FranNet
the right to restrict Grant’s ability to disseminate FranNet’s confidential information
or to compete against the company for a period of two years. ¶¶ 1–5. The contract
also grants FranNet the right to seek injunctive relief against Grant for any violation
of any term. ¶ 9.
Under binding Sixth Circuit caselaw, therefore, the contract’s forum-selection
clause binds FranNet. The contract expressly anticipates FranNet’s right to enforce
the contract’s terms against Grant, and also anticipates such disputes being heard in
FranNet’s brief does not raise, and therefore forfeits, any argument against the
enforceability of the contract generally or the parties’ agreement to the forum-selection clause
specifically. See United States v. Layne, 192 F.3d 556, 566–67 (6th Cir. 1999). To the
contrary, the crux of FranNet’s case is that Grant violated other terms (non-compete and
non-disclosure) of this same contract. Compl. at 11–13. FranNet challenges the forumselection clause as a matter of fairness and convenience under the standards set forth in Atl.
Marine, 571 U.S. 49 and Wong, 589 F.3d 821. See Brief in Opp. at 12–18.
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Colorado. See Restrictive Covenant ¶¶ 7, 12; Baker 105 F.3d at 1106; Regions Bank,
2019 WL 908753 at *6.
B.
Since the forum-selection clause applies to FranNet’s lawsuit, the Court must
next determine whether the clause is enforceable under the principles announced by
the Sixth Circuit in Wong, 589 F.3d at 828.
First, FranNet has not argued that the forum-selection clause was obtained by
fraud, duress, or other unconscionable means. Contra Great Earth Comps., Inc. v.
Simons, 288 F.3d 878, 884, 890 (6th Cir. 2002) (upholding denial of venue-transfer
based on fraudulent forum-selection clause).
Second, nothing suggests a federal district court in Colorado would adjudicate
this case with any less care or precision than this Court, much less that it would
“ineffectively or unfairly handle this suit.” Wong, 589 F.3d at 828. The Sixth Circuit
has enforced forum-selection clauses specifying English, German, and Brazilian
forums notwithstanding challenges to the effectiveness or fairness of those forums.
See id. at 829 (collecting cases). And district courts in this circuit routinely transfer
venue to other district courts around the country. See, e.g., Wiedo, 2020 WL 5219536
at *8 (transfer from E.D. Ky. to N.D. Cal.); Veteran Payment Systs., 2015 WL 545764
at *10 (transfer from N.D. Ohio to M.D.N.C.); Farina, 2019 WL 2436987 at *6
(transfer from N.D. Ohio to N.D. Ind.).
Third, “the plaintiff must show that enforcement of the clause would be so
inconvenient that its enforcement would be unjust or unreasonable.” Wong, 589 F.3d
at 829. In M/S Bremen v. Zapata Off-Shore Co., the Supreme Court explained that
a party “seeking to escape his contract” must show that “trial in the contractual forum
will be so gravely difficult and inconvenient that he will for all practical purposes be
deprived of his day in court.” 407 U.S. 1, 18 (1972).
FranNet argues the forum-selection clause is inconvenient, and thus
unenforceable, because none of the parties are domiciled in Colorado. This would
unnecessarily require travel by lawyers and witnesses for both parties, according to
FranNet’s Brief in Opposition (DN 15) at 13–14. As a preliminary matter, FranNet
may not assert the Defendants’ convenience as a reason to deny the Defendants the
agreed-to forum. See Bremen, 407 U.S. at 16 (“It is difficult to see why any such claim
of inconvenience should be heard to render the forum clause unenforceable.”); Moses,
929 F.2d at 1138–39 (rejecting argument that financial or travel inconveniences
barred enforcement of forum-selection clause). Especially when the Defendants
themselves are the ones who want to litigate the case elsewhere.
FranNet also claims—without citation or documentation—that transfer is
unreasonable because the evidence and witnesses needed to prove the
misappropriation claim are located in Kentucky. See Brief in Opp. at 12–15. This
appears to be entirely conjectural. The conduct at issue involves an alleged electronic
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theft. One claim focuses on data taken from a FranNet server in Kentucky; the other
on emails stored on a Google server found who-knows-where. Compl. ¶¶ 45–46.
FranNet identifies no Kentucky witnesses who would need to travel to
Colorado, no evidence that would need transporting, and no reason why either would
prove unreasonably difficult in any event. The pleadings and briefs suggest witnesses
could come from at least three states: Kentucky (FranNet’s home), Nevada (Grant
and Grant Corp.), and Colorado (Wahoo, Inc.). Given this distribution and
uncertainty, the Court cannot say that litigation in Colorado would be “so gravely
difficult and inconvenient that [FranNet] will for all practical purposes be deprived
of [its] day in court.” Bremen, 407 U.S. at 18. “[E]nforcement of a forum selection
clause would not be unreasonable where”—as here—"the opposing party failed to
produce any evidence that it was exploited or unfairly treated.” Wong, 589 F.3d at
829; see also Gen. Elec. Co. v. G. Siempelkamp GmbH & Co., 29 F.3d 1095, 1099 (6th
Cir. 1994) (same); Ellenberger v. Alphabet, Inc., No. 3:19-cv-527, 2020 WL 11772628,
at *4 (W.D. Ky. July 17, 2020) (similar).
C.
The next question is how the Court will enforce this valid and enforceable
forum-selection clause. See Kelly v. Liberty Life Assur. Co., No. 17-139, 2018 WL
558643, at *3 (E.D. Ky. Jan. 25, 2018). The Defendants ask the Court to dismiss the
case under the forum non conveniens doctrine, apparently with the expectation that
FranNet would try to refile in Colorado state court. See MTD at 22–28. FranNet
disagrees, arguing that transfer to the U.S. District Court in Colorado under § 1404(a)
would represent the most desirable course if the clause proves enforceable. See Brief
in Opp. at 17–18.
The answer turns on the identity of the destination court. Transfer to a
different district under § 1404(a) is “a mechanism for enforcement of forum-selection
clauses that point to a particular federal district.” Atl. Marine, 571 U.S. at 59. “If,
however, a forum-selection clause indicates that a matter should be heard by a state
or foreign court, then forum non conveniens is the appropriate method of
enforcement.” Lakeside Surfaces, Inc. v. Cambria Co., 16 F.4th 209, 215 (6th Cir.
2021) (quotation omitted).
In this case, the forum-selection clause allows for litigation: “in the state and
federal courts in Denver County, Colorado.” Restrictive Covenant ¶ 7 (emphasis
added). In other words, either transfer to the U.S. District Court for the District of
Colorado under § 1404(a) or dismissal for forum non conveniens would satisfy the
parties’ agreement. And the Sixth Circuit has recognized that “the decision of
whether to dismiss or transfer is within the district court’s sound discretion.”
Bramlet, 141 F.3d 260, 262 (6th Cir. 1998); see, e.g., Smith v. Aegon Companies
Pension Plan, 769 F.3d 922, 933–34 (6th Cir. 2014) (same); Bradley v. D&B Trucks &
Equip., LLC, No. 1:16-CV-00159, 2017 WL 4102483, at *4 (W.D. Ky. Sept. 15, 2017)
(same); Podesta v. Hanzel, 684 F. App’x 213, 216 (3d Cir. 2017) (recognizing inherent
authority for district court to choose between transfer and dismissal).
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Transferring this long-pending suit makes more sense here to avoid any
questions of timeliness if FranNet had to refile. A transfer preselects a federal forum
on FranNet’s behalf, but FranNet selected a federal forum when it sued in this court,
and noted its desire to remain in federal court. See Brief in Opp. at 17–18. Given a
choice between transfer or dismissal, this Court agrees with the Third Circuit that
“it makes better sense, when venue is proper but the parties have agreed upon a notunreasonable forum selection clause that points to another federal venue, to transfer
rather than dismiss.” Salovaara v. Jackson Nat’l Life Ins. Co., 246 F.3d 289, 299 (3d
Cir. 2001). That’s so especially when the forum-selection clause contemplates either
a state or federal forum. Id.; see, e.g., Williams v. CIGNA Corp., No. 5:10-cv-155, 2010
WL 5147257, *6 (W.D. Ky. Dec. 13, 2010) (denying motion to dismiss in favor of sua
sponte transfer under § 1404(a)); Ellenberger, 2020 WL 11772628 at *5 n.2
(transferring case to federal court, rather than dismissing, given that forum-selection
clause permitted state or federal forum).
D.
Finally, the Court must consider whether the public factors set forth in Atlantic
Marine tilt against a transfer. See 571 U.S. at 62 n.6.
Those factors include (1) the relative congestion in the two courts of the two
forums; (2) the public’s interest in having localized controversies decided at home;
and (3) relative familiarity of each court with the law. Id.
For the first factor, according to statistics published by the Administrative
Office of the United States Courts, the District of Colorado has a median time interval
for case resolution of 7.6 months, while the Western District of Kentucky’s median
interval is slightly higher at 9.1 months. See U.S. DISTRICT COURTS—CIVIL FEDERAL
JUDICIAL CASELOAD STATISTICS, TABLE C-5 (March 31, 2021), available at
https://www.uscourts.gov/statistics/table/c-5/federal-judicial-caseload-statistics/2021
/03/31. This prong leans in favor of transferring the case to Colorado.
Second, the public’s interest in the case is diffuse because it more-or-less
occurred online in violation of a contract signed in Colorado for work performed in
Nevada by a Nevada citizen. See MTD at 2–3. FranNet claims Grant’s theft of
proprietary information from a protected server in Kentucky provides a strong public
interest in retaining the case in a Kentucky-based federal court. Brief in Opp. at 3.
But Nevadans would have a similar interest in the case given the subject matter of
the contract and the Defendants’ domicile. Coloradoans may too be interested in the
case given that the contract at issue was executed there. No one state has an
overwhelming or unique interest in the case—at least the case as framed by the
pleadings at this stage. See Payment Alliance Int’l, Inc. v. Deaver, 3:17-cv-693, 2018
WL 661491, at *6 (W.D. Ky. Feb. 1, 2018) (finding “public-interest” prong neutral
when multiple states had similarly compelling interest). This factor is effectively a
wash.

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Last, the Colorado court has at least as much expertise as this Court in the
federal legal questions presented. Any state-law claims “aris[ing] out of” the contract
presumably will be governed by Colorado law in accordance with the terms of the
forum-selection clause. Restrictive Covenant ¶ 7 (“Colorado law governs this
Agreement without regard to its principles of conflicts of law.”). FranNet concedes
that the contract claims are governed by the Colorado choice-of-law provision. See
Brief in Opp. at 16–17. The company, however, argues that its tort claims are
governed by another state’s law—presumably Kentucky’s. See Compl. at pp. 11–14.
FranNet’s argument that a Colorado court would limit the choice-of-law provision to
only contract counts, while applying Kentucky’s law to the others, assumes the
outcome without citation. See, e.g., Sensoria, LLC v. Kaweske, No. 20-cv-942, 2021
WL 103020 at *8–9 (D. Colo. Jan. 12, 2021) (collecting Colorado choice-of-law cases);
Bio Med Techs. Corp. v. Sorin CRN USA, Inc., No. 14-cv-154 2015 WL 428580 at *1–
2 (D. Colo. Jan. 30, 2015) (same). But at this juncture, FranNet’s citationless
assumptions do not surmount the Court’s determination that Colorado law certainly
applies to some, and perhaps all, off of FranNet’s claims. In this case, as in most,
therefore, “the interest of justice is served by” giving effect to a preexisting
contractual agreement by transferring it to Colorado. Atl. Marine, 571 U.S. at 66
(quotation omitted).
ORDER
The Court agrees with the Defendants that this Court is an inappropriate
forum in light of the forum-selection clause. DN 10. But the Court declines to dismiss
the case entirely, and instead transfers this case to the U.S. District Court for the
District of Colorado, as anticipated by the forum-selection clause, 28 U.S.C. § 1404(a),
and the Plaintiff’s fallback request to transfer rather than dismiss this case in the
event the Court enforced the clause, see Brief in Opp. at 17–18. In light of this
transfer, the Court denies Defendants’ motion to dismiss for lack of personal
jurisdiction (DN 10) as moot.

December 15, 2021

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