## Facts

- Banek, Inc., a Michigan corporation owned by Mr. and Mrs. Banek, purchased and operated a Freshens frozen-yogurt franchise in Monroe, Michigan.
- Banek entered a Franchise and Development Agreement with Yogurt Ventures U.S.A., Inc., a Georgia corporation; the agreement selected Georgia law to govern the parties’ rights and obligations.
- The Monroe franchise performed poorly and ultimately closed in March 1992.
- In October 1991, Banek sued Yogurt Ventures in Michigan state court alleging breach of contract, violations of the Michigan Franchise Investment Law (MFIL), violations of FTC franchise rules, fraud/misrepresentation, and negligence.
- In May 1992, Banek sued Yogurt Ventures’ owners, Richard Stern and John W. Stern, in a separate state action; the cases were consolidated.
- Defendants removed the consolidated action to federal court based on diversity jurisdiction and moved to dismiss certain claims.
- The district court enforced the Georgia choice-of-law clause under Michigan law and dismissed the MFIL claim; Banek pursued an interlocutory appeal limited to the enforceability of that clause.

## Issues

1. Under Michigan conflict-of-laws rules, is a franchise agreement’s Georgia choice-of-law clause valid and enforceable, or void as contrary to Michigan public policy and MFIL’s anti-waiver provision?
2. If enforceable, does the clause apply only to contract claims or also to related statutory and tort claims connected to the franchise relationship?

## Decision

- The Sixth Circuit affirmed the district court’s interlocutory order enforcing the Georgia choice-of-law clause.
- The court held Georgia had a substantial relationship to the parties and transaction because the franchisor was a Georgia corporation and its principals resided there.
- The court rejected the argument that MFIL’s anti-waiver provision automatically invalidates a foreign choice-of-law clause, noting MFIL does not expressly bar such clauses.
- The court held Banek failed to show that applying Georgia law would violate a fundamental Michigan policy, including by failing to identify concrete, outcome-determinative conflicts between Georgia law and MFIL.
- The court construed the clause broadly to cover all claims arising out of or closely related to the franchise relationship, including MFIL-based and tort theories, not merely breach of contract.
- Because Georgia law governed, dismissal of Banek’s MFIL claim was proper.

## Legal Principles

- A federal court sitting in diversity applies the forum state’s conflict-of-laws rules to evaluate a contractual choice-of-law clause.
- Michigan generally enforces contractual choice-of-law provisions when (1) the chosen state has a substantial relationship to the parties or transaction (or another reasonable basis exists), and (2) applying the chosen law is not contrary to a fundamental policy of a state with a materially greater interest whose law would otherwise apply.
- The party opposing enforcement bears the burden to show that applying the selected law would contravene a fundamental policy of the otherwise-applicable state’s law.
- A statutory anti-waiver provision does not, without express legislative direction, render a choice-of-law clause unenforceable merely because it results in application of non-forum law.
- Broadly worded choice-of-law clauses may govern contract, statutory, and tort claims that originate in or are closely linked to the contractual relationship.

## Conclusion

The Sixth Circuit enforced a Georgia choice-of-law provision in a Michigan franchise dispute, holding the clause was valid under Michigan conflict-of-laws doctrine, did not violate fundamental Michigan policy embodied in MFIL, and applied broadly to related statutory and tort claims, thereby supporting dismissal of MFIL-based claims.


Banek, Inc. v. Yogurt Ventures U.S.A., Inc., 6 F.3d 357 (6th Cir. 1993)