Deciding whether to choose state or federal court can be outcome determinative. This is particularly important in deciding to remove a case from state to federal court. Some state franchise statutes clearly allow a court to enjoin threatened or actual violations of the franchisee protective statutes. Federal courts, however, answer to Congress, and under the Federal Rules of Civil Procedure, may impose a higher bar to granting injunctions.
For franchisees, state court may offer the substantive benefit of enforcing the state franchise statute as written. A franchisor might remove such litigation to federal court if federal jurisdiction is available. A recent Third Circuit case decided that a franchisee cannot enjoin termination of a franchise, even if apparently in violation of the New Jersey Franchise Practices Act. The federal requirement is that a showing of irreparable harm must be demonstrated. Irrepparable harm means in federal court that the viability of the business as a whole must be likely to fail, or lead to bankruptcy. This is not helpful to franchisees whose business is only partially reliant upon the franchise agreement income and the franchise is not vital to the overall business.
Franchisors generally want to be in federal court for cases in which they are terminating franchises. Federal courts are empowered to enjoin post-termination trademark infringement. Irreparable harm is automatically assumed in trademark infringement cases so a franchisor does not need to prove it will be forced to end its business to obtain an injunction for trademark infringement.
Franchise litigation strategy, offense and defense, requires a fresh look in every case. Forum selection is an important decision which can be outcome determinative.
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