Actions Speak Louder Than Words: A Franchise Relationship Can Exist in Spite of a Contract’s Express Terms to the Contrary

In OTG New York, Inc. v. Ottogi America, Inc., OTG was the exclusive regional distributor for food company Ottogi from 2008–23, during which Ottogi shipped inventory to OTG’s New Jersey warehouse. In 2024, Ottogi terminated their indefinite-term contract without providing OTG a chance to cure its alleged breaches. OTG sued Ottogi in federal court in New Jersey, alleging violation of the New Jersey Franchise Practices Act (NJFPA) among other claims. Ottogi moved to dismiss OTG’s complaint, arguing that their contract stated that no franchise relationship existed rendering the NJFPA inapplicable and that their contract’s mandatory forum selection clause required claims to be adjudicated in California.

Ruling

On March 31, 2025, the court denied Ottogi’s Motion to Dismiss, holding that OTG sufficiently alleged that (1) a franchise relationship existed under the NJFPA, and (2) New Jersey law governed because the contract’s forum selection clause was presumptively invalid.

1. A Franchise existed: OTG sufficiently alleged a franchise relationship by showing that (1) a license existed between the parties where 100% of OTG’s business came from Ottogi’s products, and (2) the parties shared a community of interest whereby OTG’s business investments were specific to Ottogi and implicitly required by the contract.
2. Forum Selection Clause was Presumptively Invalid: In NJFPA cases, forum selection clauses are presumptively invalid. Ottogi had the opportunity to overcome this presumption with evidence that the clause was not imposed unfairly, but Ottogi did not make that argument. Thus, the New Jersey forum was proper, and New Jersey law governed the dispute.

Key Takeaways

1. Contractual language is not necessarily ironclad. Courts may examine the substance of a business relationship to determine whether a franchise exists, even if the contract disclaims such a relationship.
2. Make contingency arguments. Ottogi missed its chance to address the legal presumption that the forum selection clause was invalid, simply relying on its primary argument that no franchise existed in the first place. Litigating parties should plan for contingencies so that one legal argument or theory is not the single point of failure.

[View source.]