Out-of-state franchisors seeking to do business in Florida face location-specific challenges, ranging from the selection of potential franchisees and markets to compliance with the Florida Sale of Business Opportunities Act. Many activities undertaken by potential franchisors may unwittingly subject them to the personal jurisdiction of the Florida courts, even if the franchisor ultimately abandons a planned franchise without ever granting one in the state. Mio, LLC v. Valentino's of America, Inc. provides guidance and much needed clarity to potential franchisors seeking to do business in Florida. In particular, the case details which activities do—and more importantly, which do not—subject out-of-state franchisors to the personal jurisdiction of Florida courts.
Personal jurisdiction is defined as a court's power over a particular person or item of property. A defendant is subject to general personal jurisdiction if it is engaged in "substantial and not isolated" activity in Florida. Specific jurisdiction, on the other hand, is jurisdiction over causes of action arising from or related to a defendant’s particular actions within the state. Personal jurisdiction, in either form, is an essential threshold component of a plaintiff's lawsuit. Because there is not a consistent body of case law in Florida on this issue, activities that may subject an out-of-state franchisor to personal jurisdiction can vary.
In Mio, Judge Lazzara, of the U. S. District Court for the Middle District of Florida, highlighted the types of activities that franchisors should undertake with care to avoid unwittingly subjecting themselves to personal jurisdiction in the Florida courts. Valentino's of America, Inc., is a Nebraska-based pizza franchisor. Beginning in 2012, the franchisor was solicited by both Nebraska and Florida residents who expressed interest in opening Valentino's locations in Florida. To that end, the company explored the business opportunities in a new state. It began discussions with multiple Florida residents about the possibility of opening franchised restaurants throughout the state. The franchisor filed a Franchise Exemption Application with the Florida Department of Agriculture & Consumer Services and was assigned an Advertisement Identification Number. The franchisor mailed Franchise Disclosure Documents to the Florida residents and authorized the respective state agencies identified in its FDD to receive service of process on its behalf. The franchisor also reviewed floor plans of potential locations and began communications with two different Florida real estate brokers who submitted proposals and presented options for retail space.
During the course of these explorations of potential franchise locations, the franchisor discovered the plaintiff's similarly named Florida restaurant, "Valentino Pizzeria Trattoria." The franchisor's counsel sent multiple cease and desist letters to the plaintiff alleging trademark infringement, but the plaintiff, refusing to abide by the franchisor's demands, filed suit for declaratory relief.
The District Court ruled that these exploratory and seemingly extensive activities were insufficient to confer personal jurisdiction over the franchisor in Florida. In highlighting important distinctions that precluded the finding of personal jurisdiction, the District Court noted that the franchisor never registered to do business in Florida; did not hold real or personal property within Florida; never consummated a franchise sale within Florida; did not market its franchises within Florida; did not send any representative to scout for locations in Florida; and had no address, P.O. box or telephone number in Florida. Perhaps most importantly, the District Court noted that the franchisor's preparatory activities never resulted in a franchise agreement or preliminary understanding between the parties about a franchise.
The District Court also reasoned that the mere designation of an agent for service of process in an FDD for suits related to the franchise agreement did not constitute the "continuous general business contacts" necessary to support general personal jurisdiction. Similarly, the court held that applying for the exemption application did not satisfy the "substantial and not isolated" inquiry because simply filing the notice without more substantial economic activity is not sufficient. The District Court further held that it could not exercise specific jurisdiction because the underlying suit sought a declaratory judgment relating to a trademark infringement claim. The court noted that because the trademark infringement claim asserted by the franchisor did not arise out of the quest to find a location for Valentino's franchises in Florida, there was no nexus that would support the exercise of specific personal jurisdiction.
This case provides valuable guidance for franchisors that are evaluating franchise opportunities in Florida. The ultimate lesson in Mio is that, absent an actual contractual or business relationship with a potential Florida franchisee, a franchisor's evaluation of the Florida market and potential opportunities for entry, including compliance with Florida statutory and regulatory requirements, will not subject it to lawsuits in Florida by disappointed franchise applicants or third parties.