United States District Court, M.D. Pennsylvania
YVETTE KANE, District Judge.
Before the Court is Plaintiffs' "motion in limine to preclude Defendants' fraudulent inducement of contract defense as barred by Texas law, " which asks the Court to rule that the Defendants are barred from introducing evidence concerning alleged promises not included in the parties' written franchise agreement. (Doc. No. 142.) For the reasons that follow, the Court will grant the motion.
On November 21, 2011, Plaintiffs filed the above-captioned action, alleging that Defendants HI Hotel Group, LLC and 1450 Hospitality PA, LLC, along with their members, Defendants Navnitlal Zaver, Shailesh Patel, Priyesh Shah, and Indrajit Patel, infringed Plaintiffs' Motel 6 trademarks. (Doc. No. 1.) Plaintiffs' claims included breach of contract against Defendants HI Hotel Group, Shailesh Patel, and Navnitlal Zaver. (Id.)
With the trial date looming, Plaintiffs filed a "motion in limine to preclude Defendants' fraudulent inducement of contract defense as barred by Texas law." (Doc. No. 142.) Plaintiffs object to an anticipated affirmative defense by Defendants HI Hotel Group, Shailesh Patel, and Navnitlal Zaver to the breach of contract claim. Specifically, Plaintiffs object to the presentation of evidence setting forth that (1) the Plaintiffs allegedly promised these Defendants that a competing Motel 6 would close down, and (2) that the Defendants would have a right of first refusal to buy the competing motel, none of which was memorialized in the written contract. (Id.) Plaintiffs argue that this fraudulent inducement defense is not available under Texas law because the franchise agreement between the parties contained a disclaimer-of-reliance provision. They accordingly ask that the Court preclude Defendants from offering evidence relating to these alleged extra-contractual assurances. (Id.) The motion is fully briefed and ripe for disposition.
In their motion, Plaintiffs contend that under Texas law, fraudulent inducement claims are barred where the parties' contract contains an express disclaimer of reliance on extra-contractual representations. (See Doc. No. 142 at 3.) The franchise agreement in this case contains such a clause. (Id.) Defendant Zaver filed a brief in opposition, in which he argues that the Defendants never intended to bring a fraudulent inducement defense, and that such a defense is not raised in any of his filings. (Doc. No. 154.) Rather, Defendant Zaver categorizes this defense as relating to Plaintiffs' "breach of good faith and fair dealing." (Id.) Defendant Zaver also acknowledges that there is a question as to whether Pennsylvania or Texas law will govern the dispute, and insists that "Pennsylvania law plainly permits this defense and Texas law does not preclude the arguments raised by Defendant Zaver in this matter." (Id.) Notably, however, Zaver does not actually advocate for either state as the appropriate forum. Plaintiffs respond that the distinction is irrelevant, as neither Texas or Pennsylvania recognizes a duty of good faith and fair dealing in franchise agreements. (Doc. No. 163.) The Court will begin by addressing whether it will apply Pennsylvania or Texas law to the contract dispute.
A. Choice of Law
Neither party provided much briefing on the issue of choice of law. In their filings, Plaintiffs generally appear to assume that Texas law will apply. While Defendant Zaver acknowledges that whether Pennsylvania or Texas contract law applies is "for the Court to determine, " he presents no argument or advocacy in support of either state's law. (See Doc. No. 82 at 15)
When federal jurisdiction is based on diversity of citizenship, the Court must apply the choice-of-law rules of the state in which it sits. St. Paul Fire & Mar. Ins. Co. v. Lewis, 935 F.2d 1428, 1431 n.3 (3d Cir. 1991). Under Pennsylvania choice-of-law rules, "the first question to be answered in addressing a potential conflict of laws dispute is whether the parties explicitly or implicitly have chosen the relevant law." Assicurazioni Generali, S.P.A. v. Clover, 195 F.3d 161, 164 (3d Cir. 1999). "Pennsylvania courts generally honor the intent of the contracting parties and enforce choice of law provisions in contracts executed by them." Kruzits v. Okuma Mach. Tool, Inc., 40 F.3d 52, 55 (3d Cir. 1994) (citing Smith v. Commonwealth Nat. Bank, 557 A.2d 775, 777 (Pa.Super. Ct. 1989)).
A choice-of-law clause may be invalidated, however, if (1) the chosen state lacks a substantial relationship to the parties or the transaction, or (2) if application of the law of the chosen state would be contrary to a fundamental policy of a state with a materially greater interest than the chosen state in the determination of the particular issue. Kruzits, 40 F.3d at 55; Schifano v. Schifano, 471 A.2d 839, 843 n.5 (1984). Here, the parties elected that Texas law would govern the application of the franchise agreement, and Court must determine whether the choice-of-law provision should be invalidated for either of these preceding reasons. The Court concludes that the choice-of-law provision should be upheld, and Texas law should govern the contract dispute.
First, the Court finds that Texas has a substantial relationship to the parties and transaction because, although the hotel at issue was located in Pennsylvania, the Plaintiff corporations have their principal place of business in Texas. (Doc. No. 1.) See SKF USA Inc. v. Okkerse, 992 F.Supp.2d 432, 439 (E.D. Pa. 2014) ("It is well settled that when a [plaintiff] corporation has a principal place of business within a state, that state bears a substantial relationship to the parties."). The parties do not provide any detail about where the franchise agreement was executed or any other potentially pertinent factors. Accordingly, there is nothing suggesting that Texas' relationship to the parties and transaction is insubstantial enough that the Court should invalidate the choice-of-law provision on this basis. See Gay v. Credit Inform, 511 F.3d 369, 389 90 (3d Cir. 2007) (quoting Churchill Corp. v. Third Century, Inc., 578 A.2d 532, 537 (Pa. 1990)) ("Pennsylvania courts will uphold choice-of-law provisions in contracts to the extent that the transaction bears a reasonable relation to the chosen forum.").
As to the next question - whether application of the choice-of-law provision would be contrary to a policy of a state with a materially greater interest than the chosen state in determining a particular issue - neither party has raised any arguments on this point, and the Court cannot conclude Pennsylvania has a materially greater interest than Texas - the principal place of business of Plaintiffs - in resolving the breach of contract claim. See Hopkins v. GNC Franchising, Inc., No. 05-1510, 2006 WL 2266253, at *4 (W.D. Pa. Jan. 13, 2006) (noting that a corporation "has an interest in uniformity in dealings with its franchisees who are scattered in numerous states throughout the country, [it provides] a strong public policy reason in support of upholding [a] forum selection clause."). Moreover, even if Pennsylvania does have a materially greater interest in the dispute, the parties identify no fundamental Pennsylvania policy to which application of Texas law would run ...