Will our out-of-state forum clause hold up against a New Jersey counterparty?
Not in a franchise. Forum-selection clauses in franchise agreements subject to the New Jersey Franchise Practices Act, which applies only to a franchise whose performance contemplates or requires the franchisee to establish or maintain a place of business in New Jersey, where covered gross sales between franchisor and franchisee exceeded $35,000.00 in the 12 months next preceding suit and more than 20% of the franchisee's gross sales are intended to be or are derived from the franchise, or to a franchise for the sale of new motor vehicles whose performance contemplates or requires a New Jersey place of business (§ 56:10-4): are PRESUMPTIVELY INVALID and should not be enforced unless the franchisor can satisfy the burden of proving that the clause was not imposed on the franchisee unfairly on the basis of its superior bargaining position, because such clauses fundamentally conflict with the Act's objectives of protecting franchisees from the superior bargaining power of franchisors and providing swift and effective judicial relief. The legislature has gone further for motor vehicle franchises, making it a violation of the Act for a franchisor to require a franchisee to agree to a jury-trial waiver, to a term specifying (or excluding) jurisdictions, venues or tribunals, or to submit disputes to arbitration or other binding alternate dispute resolution, though the franchise may authorise arbitration if both voluntarily agree to it at the time the dispute arises. The motor-vehicle statute also presumes compulsion: a franchisee is presumed to have been REQUIRED to agree to a proscribed term if, at the offer, grant or renewal, it "is not offered the option of an identical franchise, lease or agreement without the term or condition" (§ 56:10-7.3(b)); and under the Act generally a franchisee may sue in the Superior Court for damages and, where appropriate, injunctive relief, and if successful recovers costs including reasonable attorney's fees (§ 56:10-10). The Kubis rule is not limited to agreements signed after it: the Court said that although its decision established a new rule of law, “settled principles dictate that it should apply retroactively to franchise agreements entered into prior to the filing of this opinion.”
The trap
The presumption puts the burden on the franchisor, which must affirmatively prove the clause was not imposed through superior bargaining power, and the Court said what will and will not discharge it: a clause that is simply part of the standard franchise agreement, “without more, is insufficient to overcome the presumption of invalidity”, while “evidence of specific negotiations over the inclusion of the forum-selection clause and that it was included in exchange for specific concessions to the franchisee” could. The clause that failed in Kubis is the ordinary shape: a single Dispute Resolution subparagraph combining California law with suit “brought exclusively in the United States District Court for Northern California or the California Superior Court of the County of Santa Clara” and a submission to those courts' jurisdiction and venue, and the franchisee won, the Court reversing the Appellate Division and remanding to the Law Division. Kubis itself contrasts 'the function of a forum-selection clause in an arms-length commercial contract' with its function in a franchise. The motor-vehicle statute adds a trap with a clock: the franchisee may REVOKE an offending term by written notice within 60 days of receiving the fully executed agreement, and the rest of the agreement survives, so the clause can disappear while the deal stands. A second New Jersey statute fixes the forum by its own force rather than by policing a clause, and it has nothing to do with franchises: in a civil action to collect payment under the prompt-payment section, N.J.S. 2A:30A-2 provides that the action “shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.” So on a New Jersey construction payment claim the venue question is answered by statute before any clause is read, and the fee award follows the outcome rather than the contract. Read that sentence where it sits, in subsection f., because the same subsection carries a drafting mandate: every contract for the improvement of structures entered into after P.L.2006, c.96 took effect must provide that disputes over whether a party failed to make the required payments may go to alternative dispute resolution, which does not reach disputes about the bid solicitation or award process, or about the formation of contracts or subcontracts.
11 authorities
- case146 N.J. 176Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc.N.J.decided 1996read it at the source ↗
The words that state the rule
Accordingly, we hold that forum-selection clauses in franchise agreements are presumptively invalid, and should not be enforced unless the franchisor can satisfy the burden of proving that such a clause was not imposed on the franchisee unfairly on the basis of its superior bargaining position.
- case146 N.J. 176Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc.N.J.decided 1996read it at the source ↗
The words that state the rule
We hold that such clauses are presumptively invalid because they fundamentally conflict with the basic legislative objectives of protecting franchisees from the superior bargaining power of franchisors and providing swift and effective judicial relief against franchisors that violate the Act. A significant difference exists between the function of a forum-selection clause in an arms-length commercial contract and its function in a typical contract subject to the Franchise Act.
- statuteN.J. Stat. Ann. § 56:10-7.3enactment date not established
The words that state the rule
2. a. It shall be a violation of the "Franchise Practices Act," P.L.1971, c.356 (C.56:10-1 et seq.) for a motor vehicle franchisor to require a motor vehicle franchisee to agree to a term or condition in a franchise, or in any lease or agreement ancillary or collateral to a franchise, which: (1) Requires the motor vehicle franchisee to waive trial by jury in actions involving the motor vehicle franchisor; or (2) Specifies the jurisdictions, venues or tribunals in which disputes arising with respect to the franchise, lease or agreement shall or shall not be submitted for resolution or otherwise prohibits a motor vehicle franchisee from bringing an action in a particular forum otherwise available under the law of this State; or (3) Requires that disputes between the motor vehicle franchisor and motor vehicle franchisee be submitted to arbitration or to any other binding alternate dispute resolution procedure; provided, however, that any franchise, lease or agreement may authorize the submission of a dispute to arbitration or to binding alternate dispute resolution if the motor vehicle franchisor and motor vehicle franchisee voluntarily agree to submit the dispute to arbitration or binding alternate dispute resolution at the time the dispute arises.
- statuteN.J. Stat. Ann. § 2A:30A-2enactment date not established
The words that state the rule
f. All contracts for the improvement of structures entered into after the effective date of P.L.2006, c.96 between owners, prime contractors, subcontractors or subsubcontractors shall provide that disputes regarding whether a party has failed to make payments required pursuant to this section may be submitted to a process of alternative dispute resolution. Alternative dispute resolution permitted by this section shall not apply to disputes concerning the bid solicitation or award process, or to the formation of contracts or subcontracts. In any civil action brought to collect payments pursuant to this section, the action shall be conducted inside of this State and the prevailing party shall be awarded reasonable costs and attorney fees.
- case146 N.J. 176Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc.decided 1996read it at the source ↗
The words that state the rule
Evidence that the forum-selection clause was included as part of the standard franchise agreement, without more, is insufficient to overcome the presumption of invalidity. We anticipate that a franchisor could sustain its burden of proof by offering evidence of specific negotiations over the inclusion of the forum-selection clause and that it was included in exchange for specific concessions to the franchisee. Absent such proof, or other similarly persuasive proof demonstrating that the forum-selection clause was not imposed on the franchisee against its will, a trial court should conclude that the presumption against the enforceability of forum-selection clauses in franchise agreements subject to the Act has not been overcome.
- statuteN.J. Stat. Ann. § 56:10-7.3enactment date not established
The words that state the rule
b. For the purposes of this section, it shall be presumed that a motor vehicle franchisee has been required to agree to a term or condition in violation of this section as a condition of the offer, grant or renewal of a franchise or of any lease or agreement ancillary or collateral to a franchise, if the motor vehicle franchisee, at the time of the offer, grant or renewal of the franchise, lease or agreement is not offered the option of an identical franchise, lease or agreement without the term or condition proscribed by this section.
- statuteN.J. Stat. Ann. § 56:10-7.3enactment date not established
The words that state the rule
c. In addition to any remedy provided in the "Franchise Practices Act," any term or condition included in a franchise, or in any lease or agreement ancillary or collateral to a franchise, in violation of this section may be revoked by the motor vehicle franchisee by written notice to the motor vehicle franchisor within 60 days of the motor vehicle franchisee's receipt of the fully executed franchise, lease or agreement. This revocation shall not otherwise affect the validity, effectiveness or enforceability of the franchise, lease or agreement.
- statuteN.J. Stat. Ann. § 56:10-10enactment date not established
The words that state the rule
Any franchisee may bring an action against its franchisor for violation of this act in the Superior Court of the State of New Jersey to recover damages sustained by reason of any violation of this act and, where appropriate, shall be entitled to injunctive relief. Such franchisee, if successful, shall also be entitled to the costs of the action including but not limited to reasonable attorney's fees.
- case146 N.J. 176Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc.decided 1996read it at the source ↗
The words that state the rule
The critical provision of the IVAR Agreement is subparagraph 17A, entitled Dispute Resolution, which provides: Any action related to this Agreement will be governed by California law, excluding choice of law rules, and will be brought exclusively in the United States District Court for Northern California or the California Superior Court of the County of Santa Clara. The parties hereby submit to the personal jurisdiction and venue of such courts.
- case146 N.J. 176Kubis & Perszyk Associates, Inc. v. Sun Microsystems, Inc.decided 1996read it at the source ↗
The words that state the rule
Although our decision establishes a new rule of law, settled principles dictate that it should apply retroactively to franchise agreements entered into prior to the filing of this opinion. See Frazier v. New Jersey Mfrs. Ins. Co., 142 N.J. 590, 606-07 , 667 A. 2d 670 (1995); Williams v. Bell Tel. Labs., Inc., 132 N.J. 109, 122-23 , 623 A. 2d 234 (1993). IV We reverse the judgment of the Appellate Division and remand the matter to the Law Division for further proceedings consistent with this opinion.
- statuteN.J. Stat. Ann. § 56:10-4enactment date not established
The words that state the rule
4. This act applies only: a. to a franchise (1) the performance of which contemplates or requires the franchisee to establish or maintain a place of business within the State of New Jersey, (2) where gross sales of products or services between the franchisor and franchisee covered by such franchise shall have exceeded $35,000.00 for the 12 months next preceding the institution of suit pursuant to this act, and (3) where more than 20% of the franchisee's gross sales are intended to be or are derived from such franchise; or b. to a franchise for the sale of new motor vehicles as defined in R.S.39:10-2, the performance of which contemplates or requires the franchisee to establish or maintain a place of business within the State of New Jersey.
“Defective” means that reading found something to correct. What you are reading is the rule as it stands after that reading.