Court Declines to Apply the Minnesota Franchise Act to a Minnesota Franchisee Operating in Indiana

At a Glance

• As we previously reported in September 2024, the Minnesota Supreme Court concluded that the Minnesota Franchise Act can apply to franchisees that do not operate in Minnesota.
• A New Jersey federal court recently declined to apply the Minnesota Franchise Act to a franchise dispute involving a Minnesota-based franchisee operating in Indiana. 
• Franchisors should consult with a franchise attorney to understand whether and how the Minnesota Supreme Court’s decision may impact relations with franchisees that operate entirely outside of Minnesota.

In Cambria Company, LLC v. M&M Creative Laminants, Inc., 11 N.W.3d 318 (Minn. 2024), the Minnesota Supreme Court held that the Minnesota Franchise Act (MFA) does not “categorically preclude an out-of-state company from enforcing a claim for unfair practices” under Minnesota Statutes § 80C.14. Recently, a New Jersey federal court became one of the first to apply Cambria in deciding whether a New Jersey choice-of-law provision would be enforced in an action against a Minnesota franchisee operating in Indiana.

In La Quinta Franchising LLC v. Shin Hospitality, Inc., No. 22-5183, 2025 WL 2751542 (D.N.J. Sept. 29, 2025), a Nevada franchisor, La Quinta Franchising LLC, brought a declaratory judgment action against its franchisee, Shin Hospitality, Inc., a Minnesota corporation with a principal place of business in Minnesota, and two Minnesota residents. The parties’ franchise agreement included a choice-of-law provision establishing that New Jersey law would govern the agreement, except for conflict-of-laws principles, and that “[t]he New Jersey Franchise Practices Act [would] not apply to any Facility located outside the State of New Jersey.”

Relying on Cambria, Shin Hospitality argued that the New Jersey federal court was required to apply Minnesota law to La Quinta’s liquidated damages claim, and that liquidated damages provisions were not enforceable under the MFA. In analyzing the choice-of-law issue, the court reasoned that “New Jersey and Minnesota have similar interests in enforcing their laws and public policies pertaining to franchise contracts, but neither state’s interest outweighs the other’s, especially when the subject of the Franchise Agreement is located in the state of Indiana.” The court further noted that the Minnesota Supreme Court’s decision in Cambria to apply the MFA to an out-of-state franchisee was based, in part, on the fact that the parties’ agreement included a Minnesota choice-of-law provision. The New Jersey federal court therefore applied the New Jersey choice-of-law provision in the parties’ franchise agreement, and not Minnesota law or the MFA.

Conclusion

The La Quinta decision reaffirms that although the MFA can apply to franchisees that do not operate in Minnesota, whether it will, in fact, apply depends on the underlying factual circumstances, including any contractual choice-of-law provision.