On January 12, 2023, a team of Faegre Drinker litigators obtained a decisive victory on a motion to dismiss on behalf of client American Dairy Queen on an issue that will help protect franchisors across Minnesota from forum shopping by out-of-state franchisees. The court’s ruling, an important precedent, makes clear that the Minnesota Franchise Act (MFA) does not apply to out-of-state franchisees merely because a Minnesota-based franchisor consented to the sale of the franchise to that franchisee.
The dispute arose after Dairy Queen exercised its rights under the franchise agreement regarding the relocation of an Oklahoma restaurant. Unhappy with Dairy Queen’s decision, the plaintiff — an out-of-state franchisee — brought suit against Dairy Queen in Minnesota federal court, asserting an MFA claim, among others.
The dispute involved an out-of-state franchise run by an out-of-state franchisee who had acquired the franchise through an out-of-state assignment from an out-of-state assignor. The plaintiff claimed that the MFA applied because Dairy Queen — which is headquartered in Minnesota — had consented to the out-of-state assignment. The consent Dairy Queen provided is something Minnesota franchisors do routinely, and if such consent were held sufficient to subject franchisors to the MFA, it would represent a significant expansion of the reach of the MFA.
The court granted Dairy Queen’s motion to dismiss the MFA claim, holding that consenting to the assignment of a franchise alone does not trigger the application of the MFA.