Judge keeps out-of-state executives in California franchise lawsuit

In a ruling with significant implications for franchise litigation, an Orange County Superior Court judge held that nine out-of-state Xponential Fitness executives must face claims in California, finding their business activities created sufficient minimum contacts for specific jurisdiction.

Judge David A. Hoffer on Monday denied motions to quash service of summons, concluding the nonresident defendants -- based in Ohio, Arizona, Connecticut and Colorado -- purposefully availed themselves of California's franchise market. The ruling keeps the executives in the case and rejects their reliance on the fiduciary shield doctrine, according to Monday's court minutes. Dance Fitness Michigan, LLC v. AKT Franchise, LLC, 30-2023-01345433-CU-AT-CXC (O.C. Super. Ct., filed Aug. 30, 2023).

Plaintiff Dance Fitness Michigan LLC is represented by Briar Siljander of Trio Law. Defendants are represented by Allen L. Lanstra of Skadden, Arps, Slate, Meagher & Flom and Aaron P. Rudin of Gordon Rees Scully Mansukhani. None of the attorneys were available for comment.

According to the complaint, the executives urged the plaintiffs to attend a "discovery day" in Irvine as part of the sales process leading to an AKT franchise agreement that includes a California forum clause.

The court described extensive California contacts for each defendant. Rachel Markovic, primarily based in Ohio, attended a development meeting in Irvine in January 2020 and received pay and bonuses from the Irvine office. Board member Brenda Morris traveled to California frequently between 2019 and 2022 and took part in board meetings with California personnel. Franchise development director Justin LaCava visited Irvine several times, including for a January 2022 planning meeting, and received commissions processed in California.

The defendants argued they were shielded from jurisdiction because their conduct occurred in a corporate capacity. The court rejected that argument, noting California courts "have rejected application of this doctrine when 'primary participants in an alleged wrongdoing intentionally directed acted at a California resident, and jurisdiction over them is proper on that basis,'".

Hoffer also stressed that California's long-arm statute extends personal jurisdiction to the constitutional limit and cited Corporations Code § 31302, which holds corporate agents liable for franchise-related acts. "This section would have no effect if corporate agents can be shielded from liability just by engaging in the now-common practice of working from home," he wrote.

The court denied several requests for judicial notice, finding the documents were not the type whose factual assertions could be indisputably verified. "A court may take judicial notice of the existence of each document in a court file but can only take judicial notice of the truth of facts asserted in documents such as orders, findings of fact and conclusions of law, and judgments," the ruling stated. People v. Franklin (2016) 63 Cal. 4th 261, 280.)

Plaintiffs' supplemental opposition -- filed one day late -- was accepted because defendants were able to respond. Demurrers to the amended complaint are set for Jan. 26.