Befco Manufacturing Company, Inc. v. IST Industries, Inc. et al, No. 1:2013cv07808 - Document 21 (N.D. Ill. 2014)
Court Description: Enter MEMORANDUM Opinion and Order Signed by the Honorable Elaine E. Bucklo on 7/7/2014. Mailed notice (jdh)
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Befco Manufacturing Company, Inc. v. IST Industries, Inc. et al Doc. 21 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION Befco Manufacturing Company, Plaintiff, v. IST Industries, Inc., and James Broad Defendants. ) ) ) ) ) ) ) ) ) ) ) ) No. 13 C 7808 MEMORANDUM OPINION AND ORDER In this action, plaintiff asserts claims of unfair competition and false designation of origin under the Lanham Act; misappropriation of trade secrets under the Illinois Trade Secrets Act; and common law breach of fiduciary duty. Defendants moved for abstention and a stay of these proceedings under Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800 (1976), arguing that they are parallel to an ongoing case plaintiff filed in Illinois state court in October of 2011. In the course of analyzing the motion to stay, I became concerned that I may lack subject matter jurisdiction pursuant to International Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912 (7th Cir. 2001) and directed the parties to brief the issue. Not surprisingly, their submissions reveal a Dockets.Justia.com disagreement over whether jurisdiction is proper. Having considered their respective arguments and reviewed the case law from this circuit and others, I conclude that jurisdiction is lacking and dismiss the case for the reasons explained below. I. Plaintiff’s entered into complaint an Asset alleges that July 7, Agreement Purchase on 2010, it (the “Agreement”) pursuant to which it acquired all of the assets of a company called Midwest including all Imperial of Steel that Fabricators, (“MISF”), intellectual company’s LLC, property. Plaintiff claims that per the Agreement, it bought a “family of trade names, trademarks designation ‘Imperial.’” designations featuring Midwest a this crown, intellectual Designations.” The as names that Cmplt. at ¶¶ 9-10. and Imperial the the This includes the Steel collectively Tank, logos domain Internet Cmplt. at ¶¶ 10-11. property utilized name Plaintiff refers as the “Imperial Id. at ¶ 11. complaint plaintiff, domain Imperial, www.midwestimperial.com. to and attaches Buyer, and the Agreement, Phillip Firrek, benefit of MISF’s creditors, as Seller. which identifies assignee for the Cmplt., Exh. A, at 1. In support of its ownership allegations, plaintiff points to section A of the Agreement, captioned “ASSETS TO BE SOLD,” which recites: 2 A. The Seller will sell substantially all of the assets of MISF in a single lot “AS IS WHERE IS” basis and without express or implied warranties. The assets of MISF include the assets of IST Industries, Inc., d/b/a/ Imperial Steel Tank. The assets to be sold shall include: … (iii) The right to unlimited use of all corporate trade and assumed names, telephone numbers and fax numbers, all internet domain names, any and all intellectual property of Seller, and the right to use Seller’s logo, to both MISF and IST Industries, Inc., d/b/a/ Imperial Steel Tank. Cmplt., Exh. A, at 2. The complaint goes on to allege that immediately after the Agreement took effect, defendants “began doing business as IST and began using identical and confusingly similar trade names to [plaintiff]’s Imperial Designations,” including on the website www.imperialsteeltank.com, plaintiff’s conduct site. violates damages, plus Id. the which was ¶¶ 13-14. Lanham interest, as nearly Plaintiff Act and well as seeks identical claims actual that and to this treble exemplary and punitive abstention and a damages, attorneys’ fees, and costs. In support defendants of argued substantially the their that same motion for plaintiff’s issues as federal plaintiff’s claim state stay, presents action. Defendants attached plaintiff’s amended complaint in the state case, dated October 17, 2012, as well as defendants’ respective answers and affirmative defenses to plaintiff’s claims in that action. The amended complaint includes allegations that the 3 Agreement transferred to plaintiff “substantially all of the assets of MISF in a single lot [which] shall include the assets of IST Industries, specifically Inc., including d/b/a “any and Imperial all Steel Tank,” intellectual property and of Seller, and the right to use Seller’s logo, to both MISF and IST Industries, complaint breached Inc., goes the domain on d/b/a to allege Agreement names Imperial by that Tank.” The amended defendants (and others) “continu[ing] owned www.imperialsteeltank.com.” Steel by to operate Plaintiff, internet including Def.’s Mem., Exh. 1 at ¶¶ 26, 27, 81. See also id. at ¶¶ 76-78. (DN 6-1). Defendants’ answers and affirmative defenses admit that the Agreement purports, on its face, to transfer Defendants allege, ownership however, of that IST’s MISF assets and IST to plaintiff. were distinct corporate entities at the time of the Agreement, and that the Seller, as assignee of MISF’s assets for the benefit of MISF’s creditors, was not authorized to Mem., Exhs. 2, 3 (DN 6-2, 6-3). plaintiff’s post-sale conduct sell ISP’s assets. Def.’s Defendants also assert that waived its breach of contract claim. In their motion to stay, defendants argued that the state court pleadings reveal that the “focal point of both cases is the Agreement for the sale of Midwest’s assets and whether the Agreement operated to transfer 4 ownership of Imperial Steel’s assets.” Def.’s Mem., 6. Similarly, in their supplemental brief addressing jurisdiction, defendants argue that “[t]he real issue here is a determination of what property was transferred pursuant to the Agreement.” Def.’s Supp. Mem., 5. Plaintiff, for its part, insists that its trademark claims are not derivative of its contract claim, and that Int’l Armor does not control. In plaintiff’s view, the trademark rights asserted action in this flow from plaintiff’s undisputed ownership of the Midwest Imperial trademark and crown logo, not from its contested trademark and resolution of trademark claim. ownership crown the logo. contract of the accused Accordingly, dispute Moreover, will plaintiff Imperial plaintiff not seeks Steel reasons, dispose of remedies its not available under the state law of contracts. II. My duty limitations” “to on my police the jurisdiction constitutional requires me and to statutory review the pleadings for jurisdictional defects, regardless of whether the parties raise the issue. Joyce v. Joyce, 975 F.2d 379, 386 (7th Cir. 1992) (“Prompt, sua sponte recognition of flaws in subject matter jurisdiction is commendable.”) In cases such as this, where the complaint is formally sufficient (i.e., it articulates a claim facially arising under federal law), but it appears that “there is in fact no subject matter jurisdiction,” the plaintiff 5 bears the burden of establishing jurisdiction, and I am free to consider the evidence bearing on jurisdiction. United Phosphorus, Ltd. v. Angus Chemical Co., 322 F.3d 942, 946 (7th Cir. 2003), overruled on other grounds by Minn-Chem, Inc. v. Agrium, Inc., 683 F.3d 845 (7th Cir. 2012)) (original emphasis). “A lawsuit does not come within the federal question jurisdiction of 28 U.S.C. ' 1331 where the only serious dispute is how an agreement allocates ownership rights in a trademark.” Airoom LLC v. Demi & Cooper, Inc., No. 09 C 4205, 2011 WL 37836, *2 (N.D. Ill. Jan. 5, 2011) Armor, 272 F.3d at 916). examined the contours (Gottschall, J.) (citing Int’l In Int’l Armor, the Seventh Circuit of Article III “arising under” jurisdiction in the context of a claim styled as a trademark dispute but grounded in a contractual agreement. The court observed that: Many federal statutes create property rights that may become the subject of ownership disputes: copyright law, patent law, trademark law, and a score of licensing systems. Any fight about ownership could be recharacterized as a claim for redress under federal law. Int’l Armor, 272 F.3d at 914. Nevertheless, the court concluded that trademark suits that are “entirely derivative of” contract issues do not fall within federal courts’ original jurisdiction. Id. at 916. See also Fox v. iVillage, No. C-05-3327 SC, 2005 WL 3157413, *2 (N.D. Cal., 2005) 6 (“The Lanham Act establishes marketplace rules governing the conduct of parties not otherwise limited….If a contract is in place, it governs.”) (Original emphasis) (quotation marks and citation omitted)). As I explained in my previous order, the gravamen of plaintiff’s federal claim is that defendants are competing with it unlawfully by featuring, www.imperialsteeltank.com names that “Imperial are the same Designations” Agreement. and as, elsewhere, or argue the website trademarks and trade confusingly similar to, the acquired pursuant to the plaintiff Defendants on that although this claim ostensibly arises under the Lanham Act, because its success or failure ultimately turns on the interpretation and validity of the Agreement, it exemplifies the kind of “artful pleading” the Seventh Circuit eschewed in Int’l Armor. Defendants argue that the complaint in this case, like the one in Int’l Armor, “alerts the district court to the contractual foundation” of the claim. 272 F.3d at 917. Defendants note that plaintiff’s substantive allegations open with three paragraphs explicating the Agreement and the rights it purports to convey, reinforcing that its from the trademark claim is “anchored” in the Agreement. I agree that the fundamental dispute emerging parties’ submissions is the validity and scope of the Agreement. Neither of plaintiff’s plaintiff’s ownership of arguments the “Midwest 7 to the Imperial” contrary—that and “Midwest Imperial Steel Fabricators” trademarks and logo is not contested in the contract dispute, and that plaintiff seeks remedies under the Lanham Act that are not available under contracts law—places the case outside Int’l Armor’s reach. Plaintiff’s first argument crumbles under scrutiny, as the putative “difference between the asserted trademarks and the accused trademarks” is illusory. While the parties indeed agree that conveyed the Agreement validly ownership of the intellectual property belonging to MISF, including the marks and logos plaintiff asserts here, the scope of that conveyance— specifically, whether it also included the accused marks and logos—is precisely the issue in the contracts action. face, the Agreement expressly contemplates On its that IST’s intellectual property, including its logo and Internet domain names, are within the scope of the transferred assets. the provisions purporting to transfer IST’s But if intellectual property are determined to be invalid, then IST retained the right to use the marks, logos, and domain name plaintiff challenges under the Lanham Act. Moreover, plaintiff’s characterization of the trademarks it asserts as “different” from the ones it accuses is inconsistent with its complaint, which both asserts and challenges “Imperial Designations” it purchased in the Agreement. 8 the Cmplt. at ¶¶ 11-12, 18-19. 1 Resolution of the contracts dispute will determine which party owns the rights to which of the various marks, logos, and designations included within plaintiff’s asserted “family of trade names, trademarks and domain names that utilized the designation ‘Imperial.’” Cmplt. at 11. Then, as in Int’l Armor, “[w]hichever side owns the marks may use them, and whichever side does not own them is at risk under the Lanham Act as well as the law of contract.” 272 F.3d 912. See also DeliverMed Holdings, LLC v. Schaltenbrand, Nos. 10-cv-684JPG-DGW and 10-cv-685-JPG-DGW, 2011 WL 2134343, *3 (S.D. Ill. May 27, 2011) (“If the joint venture agreement existed and transferred DeliverMed’s marks to Medicate, Medicate owns the marks. If the agreement did not exist or did not transfer the marks, DeliverMed owns them, and Medicate’s use of those marks violates the Lanham Act.”). Plaintiff’s second argument—that its Lanham Act claim provides remedies not available under contract law—is rooted in the court’s speculation, in Int’l Armor, that a claim “might arise under federal law even though all depend on state law if the remedies differ.” 1 dispositive issues Id. at 916. But This characterization is further belied by the screen shots plaintiff includes in its complaint, which reveal that the asserted and accused websites containing the “Imperial Designations” are, in most every respect, identical, right down to their text. For illustrative purposes, I include plaintiff’s screen shots at the end of this decision. 9 plaintiff cites no case in which any court has asserted subject matter jurisdiction elsewhere have on that basis. explicitly Indeed, declined courts to here assert and federal jurisdiction over what is essentially a contract dispute on the basis that federal law provides unique relief. See Gibraltar, P.R., Inc. v. Otoki Group, Inc., 104 F.3d 616, 619 (4th Cir. 1997) (no jurisdiction injunction against over the plaintiff’s defendant’s future request for use disputed of an trademarks, as “[a] dispute does not invoke federal jurisdiction simply because the plaintiff seeks a remedy that happens to be available in a federal statute”); Airoom, 2011 WL 37836, *3 (declining to exercise jurisdiction based on the above dictum in Int’l Armor); Moog Controls v. Moog, Inc., 923 F. Supp. 427, 430 (W.D.N.Y. 1996) (“[f]ederal Lanham Act claims. 08 C 5448, 2009 relief Declaratory simply Others have dismissed for lack of jurisdiction despite for the lie Act.”). request under not relief plaintiff’s requested does because the is jurisdiction available only Judgment under its See Mindy’s Restaurant, Inc. v. Watters, No. WL 1606982 (N.D. Ill. June 9, 2009) (Der- Yeghiayan, J.) (dismissing pursuant to Int’l Armor, despite the plaintiff’s request for attorneys’ fees pursuant to the Lanham Act). Plaintiff offers no reasoned basis for departing from the prevailing view that the existence of relief available only under the Lanham Act does not, in itself, transform a garden10 variety contract dispute into a claim “arising under” federal law. III. For dismissed. the foregoing reasons, plaintiff’s complaint Defendants’ motion to stay is denied as moot. ENTER ORDER: _____________________________ Elaine E. Bucklo United States District Judge Dated: July 7, 2014 11 is Website allegedly operated by plaintiff: 12 Website allegedly operated by defendants: 13
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