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United States District Court for Maryland found that it lacked personal jurisdiction over Non-resident Corporation in claims arising out of franchise negotiation

A Love of Food I, LLC v. Maoz Vegetarian USA, Inc.
No. 10-cv-02352 (D.Md. June 28, 2012)
by Wayne Heavener, Summer Associate
Semmes, Bowen & Semmes (www.semmes.com)

In A Love of Food I, LLC v. Maoz Vegetarian USA, Inc., the United States District Court of Maryland transferred claims by A Love of Food I, LLC (“Plaintiff”) against Maoz Vegetarian USA, Inc. (“Defendant”) to the District of Columbia, because the Court lacked personal jurisdiction. The Court considered whether it had specific jurisdiction over Defendant, such that the Court could adjudicate Plaintiff’s claims without running afoul of Defendant’s right to due process. Reasoning that Defendant did not purposely avail itself of the privilege of conducting activities in Maryland, the Court indicated held that it did not have personal jurisdiction. The Court transferred the action to the United States District Court for the District of Columbia, where both parties stipulated jurisdiction would be proper.

This case arose out of a failed attempt to open a franchise quick-service vegetarian restaurant in Washington D.C. Defendant was a Delaware company, with its principal place of business in New York, which sold franchise agreements to operate “Maoz Vegetarian” restaurants throughout the United States. Plaintiff was also a Delaware company, with its principal place of business in Chevy Chase, Maryland. Plaintiff procured rights from Defendant to operate a Maoz Vegetarian in Washington D.C. on August 27, 2007, and operated the restaurant from November 18, 2009, until the restaurant closed in January 2012.

Plaintiff and Defendant entered into the franchise agreement after about a year of negotiations. Plaintiff and Defendant would often exchange emails about the franchise. Several times, both parties met in either New York or Washington D.C. to discuss the venture, but the parties never met in Maryland. During this period, Defendant was never aware that Plaintiff’s principal place of business was Maryland. While Plaintiff indicated that it had a Maryland mailing address, Defendant never sent any important documentation to this address, nor placed any calls to a Maryland office. Plaintiff operated its restaurant solely out of Washington D.C. after signing the franchise agreement.

On August 25, 2010, Plaintiff filed three claims against Defendant. Plaintiff alleged violations of the Maryland Franchise Registration and Disclosure Law, MD. CODE ANN., BUS. REG § 14-201 to 14-233, and New York Franchise Sales Act, N.Y. GEN. BUS. L. §§ 680–95. Plaintiff also alleged common-law fraudulent inducement. On November 18, 2010, Defendant moved to dismiss for lack of personal jurisdiction. The Court denied Defendant’s Motion to Dismiss, reasoning that Plaintiff had made a prima facie case for personal jurisdiction. After discovery revealed that negotiations took place almost entirely in Washington D.C., Defendant filed a Motion for Summary Judgment, once again arguing that the Court lacked personal jurisdiction.

The Court held that it did not have personal jurisdiction over Defendant, and that to adjudicate the case would run afoul of the Maryland Long-Arm Statute, MD. CODE ANN., CTS. & JUD. PROC. § 6-103, and Defendant’s basic due process rights. The Court first examined the Long-Arm Statute, which limits specific jurisdiction to causes of action enumerated in the statute. In this case, the Court held that Defendant neither “[t]ransacted business” in Maryland, CTS. & JUD. PROC. § 6-103(b)(1), nor caused “tortious injury in the State by an act or omission in the State,”, CTS. & JUD. PROC. § 6-103(b)(3). The Court held particularly persuasive the fact that Defendant never sent any documentation to Plaintiff’s Maryland mailing address. Therefore, Defendant was not amendable to jurisdiction under the Long-Arm Statute.

The Court also held that finding jurisdiction would offend traditional notions of fair play and substantial justice. The Court held that Defendant neither purposely availed itself of conducting activities in Maryland, nor did the cause of action arise out of Defendant’s forum-related contacts. The Court noted that after Plaintiff opened its restaurant in 2009, Plaintiff transacted business solely from its Washington D.C. location. Hence, finding personal jurisdiction would violate Defendant’s rights to due process.

Having found that it lacked personal jurisdiction, the Court transferred the action to the United State District Court of the District of Columbia, rather than dismiss the action. The Court noted that if Plaintiff preferred the Court to enter an Order of Dismissal in order to either appeal the Court’s decision or bring the suit elsewhere, the Court shall consider Plaintiff’s request. The Court granted Defendant’s Motion for Summary Judgment on personal jurisdiction grounds, denying its remaining argument as moot.