United States District Court, M.D. Tennessee, Nashville Division
HOLMES, MAGISTRATE JUDGE.
WILLIAM L. CAMPBELL, UNITED STATES DISTRICT JUDGE.
before the Court are a Partial Motion to Dismiss
Counterclaims (Doc. No. 86), filed by Counterclaim Defendants
Servpro Industries, Inc. and Richard Connor (hereinafter
“Servpro”); an Opposition brief (Doc. No. 90),
filed by Counterclaim Plaintiffs Tammy Woloski, Paul Woloski,
and Delta Dawgs Construction Corporation (hereinafter
“Delta Dawgs”); and Servpro's Reply (Doc. No.
96). For the reasons set forth below, the Partial Motion to
Dismiss Counterclaims (Doc. No. 86) is
GRANTED, in part, and
DENIED, in part. Accordingly, Delta
Dawgs' first, fourth, fifth, and seventh counterclaims
are dismissed. The second counterclaim was dismissed by
previous Order (Doc. No. 99). The third and sixth
counterclaims remain pending.
Factual and Procedural Background
Industries, Inc., a franchisor of cleaning and damage
restoration services, initially brought this action against
Tammy Woloski, Paul Woloski, and Delta Dawgs Construction
Company d/b/a Servpro of Rosemead/South El Monte, alleged to
be a former franchisee, for federal statutory trademark
infringement; federal common law trademark infringement and
unfair competition; and breach of contract as to the
Franchise License Agreement (“Franchise
Agreement”), a Guaranty, and a Secured Promissory Note.
(Doc. No. 1). In turn, Delta Dawgs' latest pleading
brings the following counterclaims: violations of the
California Franchise Relations Act (“CFRA”); a
class action claim for violations of the California Business
& Professions Code Section 17200; breach of contract;
breach of the implied covenant of good faith and fair
dealing; violations of the California Penal Code Section 496;
violations of 42 U.S.C. § 1981; and violations of
California Civil Code Section 51.8. (Doc. No. 83). Through
the pending Motion, Servpro seeks to dismiss all the
counterclaims except the one alleging breach of contract.
the first counterclaim, Delta Dawgs seeks to enforce CFRA
Sections 20020 (Grounds for Termination), 20035 (Termination
or Failure to Renew), and 20040.5 (Venue) against Servpro.
Servpro argues this counterclaim should be dismissed because
the parties agreed to a Tennessee choice-of-law provision in
their agreements, and there is no prevailing California
public policy that overrides the agreements.
choice-of-law provision, in Section 13.10 of the Franchise
13.10 Governing Law. This Agreement, the rights
granted and the relationship created hereunder shall be
governed, interpreted and construed in all respects in
accordance with the internal laws of the State of Tennessee
without regard to its conflicts of laws provisions, except to
the extent governed by the United States Trademark Act of
1946 (Lanham Act, 15 U.S.C. § 1051 et seq.)
(Doc. No. 1-1, at 37).
“Addendum to the Franchise License Agreement for the
State of California” provides in Paragraph 6:
6. Section 13.10, Governing Law, is amended by
adding: The Agreement requires application of the law of the
State of Tennessee. This provision may not be enforceable
under California law.
(Doc. No. 1-1, at 43).
federal court sitting in diversity must apply the forum
state's choice-of-law rules to determine which
state's laws govern the dispute. See, e.g., Town of
Smyrna, Tenn. v. Municipal Gas Auth. of Ga.,
723 F.3d 640, 645 (6th Cir. 2013). Under Tennessee
law, a contract is presumed to be governed by the law of the
jurisdiction in which it was executed, absent a contrary
intent. Id. If the parties contracted to be governed
by the law of a specific jurisdiction, however, Tennessee
will honor that choice if the following requirements are met:
The choice of law provision must be executed in good faith.
Goodwin Bros. Leasing, Inc. v. H & B Inc., 597
S.W.2d 303, 306 (Tenn.1980). The jurisdiction whose law is
chosen must bear a material connection to the transaction.
Id. The basis for the choice of another
jurisdiction's law must be reasonable and not merely a
sham or subterfuge. Id. Finally, the parties'
choice of another jurisdiction's law must not be
‘contrary to “a fundamental policy” of a
state having [a] “materially greater interest”
and whose law would otherwise govern.' Id., n. 2
(citing RESTATEMENT (SECOND) OF CONFLICT OF LAWS §
Messer Griesheim Indus., Inc. v. Cryotech of Kingsport,
Inc., 131 S.W.3d 457, 475 (Tenn. Ct. App. 2003).
the first requirement, Delta Dawgs does not appear to contend
the choice-of-law provision was executed in bad faith. In
addressing the second requirement, Servpro argues Tennessee
bears a material connection to the transaction because its
principal place of business is in Gallatin, Tennessee, and
franchisees, including Delta Dawgs, attend training at the
corporate headquarters there and make payments to Servpro in
Tennessee. Delta Dawgs does not dispute these connections,
but instead argues that California's compelling interest
in consumer protection, as evidenced by its comprehensive
statutes in the area, demonstrates its greater interest in
litigating disputes governing franchise relationships.
Sixth Circuit addressed a similar argument in Banek v.
Yogurt Ventures U.S.A., Inc., 6 F.3d 357, 362
(6th Cir. 1993), in considering whether a Michigan
district court should enforce a choice-of-law clause
designating Georgia law apply to the parties' contract.
The Banek Court explained that recognizing
Michigan's “comprehensive and paternalistic
franchise investment law” as representing the
state's public policy “does not end the
inquiry.” Id. “The more central
question, ” the court explained, “is whether the
parties have selected, through their choice-of-law provision,
a jurisdiction [Georgia] in which there is a substantial
erosion of the quality of protection that the [Michigan
franchise law] would otherwise provide.” Id.
Because the plaintiff failed to show application of Georgia
law would violate a specific fundamental policy of Michigan,
the court upheld the choice-of-law provision. Id.,
at 363 (“It is not sufficient for plaintiff to simply
assert that Michigan law should apply ‘merely because a
different result would be reached under' Georgia
Dawgs' brief is wholly devoid of any discussion of
Tennessee law governing franchise relationships. Therefore,
Delta Dawgs has failed to demonstrate Tennessee law is
“contrary to a fundamental policy of a state having a
materially greater interest.” Nor has Delta Dawgs
established that Tennessee has “no material
connection” to the transaction, or that the
parties' selection of Tennessee law was unreasonable and
a sham. Accordingly, the Court concludes the choice-of-law
provision in the Franchise Agreement is enforceable.
the Court's conclusion, Delta Dawgs' first
counterclaim may not be maintained as a stand-alone claim
based on California law. Delta Dawgs contends, however, that
the parties incorporated the CFRA through the
“California Addendum” to the Franchise Agreement,
which provides, in part, as follows:
This Addendum to Franchise License Agreement is made in
recognition of the requirements of the California Business
and Professions Code Sections 20000 to 20043. The parties to
the attached Servpro Industries, Inc. Franchise License