Franchise 101: A Rub in the Right Direction; and Side Hustles Can Bite Back
Franchisor 101: A Rub in the Right Direction
A federal district court in New Jersey transferred a case brought by a New Jersey-based franchisee against its franchisor to the Eastern District of Missouri, where the franchisor maintained its headquarters. The court found that the forum selection clause in the contract between the franchisor and franchisee was valid, and that the relevant factors warranted transfer.
In 2014, franchisor Massage Luxe International entered into an area development agreement and franchise agreement with a franchisee to develop franchises in New Jersey. As the area developer, the franchisee would receive a portion of the monthly franchise fee paid to Massage Luxe by all franchisees in the franchisee’s territory.
The area development agreement required any legal disputes to be filed in Missouri. The relationship continued until May 2022, when Massage Luxe sent a letter terminating the area development agreement and stopped making payments to the franchisee. The franchisee alleged Massage Luxe withheld more than two years of disbursements.
The franchisee filed suit in New Jersey state court, raising claims including breach of contract, unjust enrichment, and violation of the New Jersey Franchise Practices Act. The franchisee argued that New Jersey’s strong public policy against enforcing foreign state forum selection clauses in franchise agreements should override the Missouri forum selection clause in the area development agreement. Massage Luxe removed the case to New Jersey federal court and moved to transfer it to Missouri.
The court sided with the franchisor. It held that federal law, not state law, governs whether a forum selection clause is enforceable in federal court. Under federal law, forum selection clauses carry a strong presumption of validity, and the franchisee must make a “strong showing” that enforcement would be unreasonable or violate public policy.
The court found the franchisee could not clear that bar. The court also noted practical factors: New Jersey courts carry nearly five times the caseload per judge compared to Missouri, and the franchisee had already filed three prior lawsuits against Massage Luxe in Missouri voluntarily, undermining any claim that litigating there was unfair.
Most franchise agreements include clear, mandatory forum selection clauses. Federal courts will generally enforce them, even in states like New Jersey that have laws that protect franchisees. As this case illustrates, state-law presumptions against these clauses in franchise agreements are unlikely to overcome a forum selection clause in federal cases. A well-drafted clause remains one of the simplest tools a franchisor can use to control where disputes are resolved.
Sapan Inamdar & SPI Investments, LLC v. Massage Luxe International, LLC, No. 25-6045 (D.N.J. May 26, 2026)
Franchisee 101: Side Hustles Can Bite Back
A federal district court in Arizona granted in part and denied in part a franchisee’s motion to dismiss a franchisor’s claims arising from a franchisee’s owner’s allegedly competing medical-billing business. The court found the franchisor plausibly alleged that the franchisee’s owner breached the franchise agreement and guaranty by operating a competing business, diverting clients to that business, and misusing the franchisor’s confidential information.
Valenta Franchise LLC offers franchises for a technology and business consulting franchise system that provides franchisees with digital systems centered on artificial intelligence, outsourcing, and digital transformation services. Initially, the franchisee’s owner proposed forming a medical billing company called VaQya in 2023.
Valenta initially supported the idea, agreeing that VaQya would use Valenta-sourced staff and serve Valenta customers. Over time, however, VaQya stopped using Valenta employees, hired its own staff, began undercutting Valenta’s pricing, and diverted prospective Valenta clients.
By October 2025, the franchisee’s owner told Valenta he planned to terminate the franchise agreement and run VaQya independently. Valenta then sued, alleging breach of non-compete and confidentiality provisions in the franchise agreement and personal guaranty, trade secret misappropriation, unfair competition, and trademark infringement.
The franchisee’s owner moved to dismiss, arguing Valenta knew about and assisted VaQya’s formation from the start. The court rejected this argument, finding that VaQya’s shift from complementary business to competitor was gradual and that Valenta had tried to intervene along the way.
The court also found that the non-compete clauses were plausibly enforceable and that Valenta’s trade secrets claims were adequately supported. However, the court dismissed the trademark infringement claim because the Valenta and VaQya logos were dissimilar and unlikely to result in consumer confusion.
Franchisees should be aware that a franchisor’s knowledge of a franchisee’s “side hustle” within the same field does not waive the franchise agreement’s non-compete clause. Courts will examine whether a venture gradually shifted from complementary to competitive. If it did, franchisees and any personal guarantors can face significant liability. Before launching any side business, carefully review your franchise agreement’s restrictive covenants with franchise counsel.
Valenta Franchise LLC v. Innerworks LLC, No. CV-24-03502-PHX-KML (D. Ariz. May 22, 2026)