Minnesota Supreme Court Holds the Minnesota Franchise Act Does Not “Categorically Preclude” Enforcement by Out-of-State Franchisees

At a Glance

• The Minnesota Supreme Court concluded that the Minnesota Franchise Act can apply to franchisees that do not operate in Minnesota. 
• The court made clear, however, that the Act may not be enforceable by every out-of-state franchisee. 
• 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.

On September 11, 2024, the Minnesota Supreme Court issued an opinion holding that the Minnesota Franchise Act (MFA) does not “categorically preclude an out-of-state company from enforcing a claim for unfair practices” under Minnesota Statute § 80C.14.

The case, Cambria Company, LLC v. M&M Creative Laminants, Inc., No A-22-0723, 2024 WL 4139394 (Minn. Sept. 11, 2024), involved a dispute between a Minnesota-based company, Cambria Company, LLC (the purported franchisor), and a Pennsylvania-based company, M&M Career Laminates, Inc. (the purported franchisee). After Cambria terminated its relationship with M&M and sued for unpaid invoices, M&M brought a counterclaim asserting that the parties’ relationship qualified as a franchise and that Cambria’s termination violated the MFA.

The district court dismissed M&M’s MFA claim on the grounds that the parties’ relationship did not qualify as a franchise because M&M did not pay a franchise fee. The Minnesota Court of Appeals affirmed and alternatively concluded that M&M was precluded from bringing a claim under the MFA as an out-of-state company. 

The Minnesota Supreme Court agreed that M&M did not pay a franchise fee, and thus was not subject to the protections of the MFA. Though this holding provided sufficient grounds for the supreme court to affirm the lower court’s decision, it nevertheless considered whether M&M was precluded from bringing its MFA claim because it is not a Minnesota company. The supreme court held that the Act “does not categorically preclude an out-of-state company from enforcing” the Act’s protections against unlawful termination. The court explained that “plain language of Section 80C.14 does not indicate that the Legislature intended such a limitation.” But the supreme court made clear that the ruling does not “suggest that Section 80C.14 is enforceable by every out-of-state company.” An out-of-state company still maintains the burden of showing that “[S]ection 80C.14 is otherwise applicable, and companies without a connection to Minnesota may face jurisdictional or other hurdles.” 

The Minnesota Supreme Court found that the MFA could apply even though M&M operated entirely outside of Minnesota based on the following facts: (1) M&M engaged in eight years of “continuous business” with Cambria, a Minnesota company; (2) the parties’ agreements were drafted in Minnesota; (3) M&M sent personnel to Minnesota for training and certifications; and (4) the parties’ contract included a Minnesota choice-of-law provision.