Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 1 of 10 PageID #: 520
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF MISSOURI
`EASTERN DIVISION
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`LC FRANCHISOR, LLC, and
`LC CORPORATE, LLC,
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`Plaintiffs,
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`v.
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`VALLEY BEEF, LLC,
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`Defendant.
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`Case No. 4:15-cv-00383 JCH
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`MEMORANDUM AND ORDER
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`This matter is before the Court on Defendant Valley Beef LLC’s Motion to Dismiss
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`Plaintiff’s First Amended Complaint. (Motion, ECF No. 10). The Motion has been fully briefed
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`and is ready for disposition.
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`BACKGROUND
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`Plaintiffs LC Franchisor, LLC and LC Corporate, LLC (collectively “Lion’s Choice”)
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`initiated this action by filing a complaint in this Court. (ECF No. 1). They later amended the
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`complaint, and that amended complaint (the “Complaint”) is now operative. (Complaint, ECF
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`No. 8). Prior to Lion’s Choice’s filing of this action, Valley Beef had initiated an action in the
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`Circuit Court for St. Louis County, Missouri. (VB Petition, ECF No. 11-1). Lion’s Choice then
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`removed that state action to this Court, and the removed action was assigned Case No. 4:15-cv-
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`00563 JAR. (Removal Notice, No. 15-cv-563, ECF No. 1). The removed action was consolidated
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`with this case upon motion by Lion’s Choice. (Consolidation Order, ECF No. 18).
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`The Complaint explains that “[t]his action arises out of a franchise agreement [(the
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`“Franchise Agreement”)] to operate Lion’s Choice® restaurants entered into by and between LC
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`1
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 2 of 10 PageID #: 521
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`Franchisor” and Valley Beef. (Complaint ¶ 1). “After entering into the Franchise Agreement,
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`[Valley Beef] provided financial documents demonstrating that it was insolvent, thus triggering
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`Lion’s Choice’s contractual right to terminate the Franchise Agreement and to preclude [Valley
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`Beef’s] continued use of Lion’s Choice’s copyrights and trademarks.” Id. Lion’s Choice also
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`allege that Valley Beef breached the Franchise Agreement in five other ways. Id. ¶ 2. Based on
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`these events, which the Complaint discusses in detail, Lion’s Choice bring ten counts against
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`Valley Beef. Three counts relate directly to the Franchise Agreement—one for a declaration that
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`Valley Beef breached the Agreement, one for a declaration that Lion’s Choice properly
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`terminated the Agreement, and one for breach of the Agreement. Id. at ¶¶ 77-105. The Complaint
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`also contains counts of copyright infringement, trademark infringement, and other violations of
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`the Lanham Act. Id. at ¶¶ 106-146. Based on these claims, the Complaint seeks remedies
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`provided under the relevant federal statutes. Id. at pp. 28-30.
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`Valley Beef has moved for dismissal of Lion’s Choice’s Complaint under Fed. R. Civ. P.
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`12(b)(1).
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`DISMISSAL UNDER FED. R. CIV. P. 12(B)(1)
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`Rule 12(b)(1) allows federal courts to dismiss for “lack of subject-matter jurisdiction.” Id.
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`In ruling on a motion under Rule 12(b)(1), a district court “must accept all factual allegations in
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`the pleadings as true and view them in the light most favorable to the nonmoving party.” Great
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`Rivers Habitat Alliance v. Fed. Emergency Mgmt. Agency, 615 F.3d 985, 988 (8th Cir. 2010)
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`(quoting Hastings v. Wilson, 516 F.3d 1055, 1058 (8th Cir. 2008)). The parties seeking to invoke
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`federal jurisdiction, in this case Lion’s Choice as Plaintiffs, have the burden “to establish
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`jurisdiction by a preponderance of the evidence.” Newhard, Cook & Co. v. Inspired Life Ctrs.,
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`Inc., 895 F.2d 1226, 1228 (8th Cir. 1990).
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`2
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 3 of 10 PageID #: 522
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`DISCUSSION
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`Valley Beef suggests the Court lacks subject-matter jurisdiction over Lion’s Choice’s
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`Complaint for two reasons. First, Valley Beef maintains that, although Lion’s Choice alleges
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`copyright and trademark infringement, the Complaint is better understood as one sounding in
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`contract. Since the thrust of the Complaint therefore involves state law, according to Valley
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`Beef, the Court lacks jurisdiction. Valley Beef’s second contention is that Lion’s Choice’s claims
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`do not satisfy Article III’s “case or controversy” requirement because they are not ripe for
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`decision.
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`1. Whether the Complaint “Arises Under” 28 U.S.C. § 1338(a)
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`Under 28 U.S.C. § 1338(a), federal district courts “have original jurisdiction of any civil
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`action arising under any Act of Congress relating to . . . copyrights and trademarks.” Id. Federal
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`jurisdiction over copyright actions is exclusive. Id. (“No State court shall have jurisdiction over
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`any claim for relief arising under any Act of Congress relating to . . . copyrights.”). The
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`determination of whether a claim “arises under” federal copyright and trademark law, thus
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`conferring federal jurisdiction, is a difficult issue, one which the Eighth Circuit has yet to
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`address. In the circuits that have addressed the issue, one thing is clear: “not every complaint that
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`refers to the Copyright Act [or the Lanham Act] ‘arises under’ that law for purposes of Section
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`1338(a).” Bassett v. Mashantucket Pequot Tribe, 204 F.3d 343, 347 (2d Cir. 2000); accord
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`1mage Software, Inc. v. Reynolds and Reynolds Co., 459 F.3d 1044, 1049 (10th Cir. 2006); Int’l
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`Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912, 915 (7th Cir. 2001); Jim
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`Arnold Corp. v. Hydrotech Sys., Inc., 109 F.3d 1567, 1572 (Fed. Cir. 1997). There is some
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`dispute, however, over what should be taken into account in determining whether § 1338(a)
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`confers jurisdiction over a claim.
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`3
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 4 of 10 PageID #: 523
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`According to Valley Beef, Lion’s Choice’s copyright and trademark infringement claims
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`are nothing more than artful pleading designed to defeat state court jurisdiction. (Support Memo,
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`ECF No. 11, at 8). Valley Beef concedes that if Lion’s Choice properly terminated the Franchise
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`Agreement, it has no right to use the Lion’s Choice copyrights and trademarks. Id. Thus, looking
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`beyond the face of Lion’s Choice’s Complaint, Valley Beef contends that this is really a contract
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`dispute and therefore not one arising under federal copyright or trademark law. Id. Lion’s Choice
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`responds that the Court has subject-matter jurisdiction because the Complaint facially invokes
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`rights conferred under federal copyright and trademark statutes, and it seeks remedies created by
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`those statutes. (Response, ECF No. 13, at 2).
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`To support its position, Valley Beef relies on a line of cases from the Second Circuit,
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`which adopted an approach that was described most thoroughly in Schoenberg v. Shapolsky
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`Publishers, Inc., 971 F.2d 926 (2d Cir. 1992). (See Support Memo at 8-11). In Schoenberg, an
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`author and a publisher entered into an agreement under which the author retained ownership of
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`the copyright of his book and granted the publisher a license to publish it. Id. at 928. The
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`publisher’s successor-in-interest ultimately published the author’s work in 1989, which was
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`about four years later than the date to which the parties agreed. Id. The author alleged in his
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`complaint that the offending publication infringed his copyright, thus conferring jurisdiction on
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`the federal district court. Id. The Schoenberg court noted that the author had alleged infringement
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`and requested remedies based on that infringement. Id. at 931. This facial allegation of
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`infringement, however, was insufficient to confer federal jurisdiction. Id. Instead, the court
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`explained, district courts must go behind the face of the complaint and use a three-part test to
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`determine the true “essence” of the complaint. Id. at 932-33.
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`4
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 5 of 10 PageID #: 524
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`Valley Beef also relies on a case from the Seventh Circuit for support. (Reply, ECF No.
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`14, at 7 (citing Moloney Coachbuilders, 272 F.3d 912)). In Moloney Coachbuilders, a limousine
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`customizer named Earle Moloney sold the name of his limousine business, “Moloney Coach
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`Builders,” to an individual buyer. Moloney Coachbuilders, 272 F.3d at 913. The sale of this
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`name was held in an earlier action to include both the right to use it as a corporate name and as a
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`trademark. Id. Moloney eventually started a new company. Id. In advertising his new company,
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`Moloney made use of his name and made reference to the work he had done as owner of his first
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`company. Id. One advertisement, for example, referred to the new company as “A Moloney
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`Owned Entity.” Id. Moloney then filed suit against the buyer in federal court “seeking a
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`declaratory judgment that use of these and similar phrases does not violate § 43 of the Lanham
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`Act . . . .” Id. The buyer then filed a counterclaim for violation of the Lanham Act. Id. at 917.
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`The Seventh Circuit held that it had no jurisdiction over the action. It reasoned that ownership of
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`the trademark was at the heart of the dispute and that the action therefore was one arising under
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`state contract law. Id. at 916-17. The trademark claims were, according to the court, nothing
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`more than “a coat of water-soluble paint that washes away to reveal the contract dispute
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`underneath.” Id. at 916.
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`Lion’s Choice note several problems with the authority on which Valley Beef relies,
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`especially regarding Schoenberg. They note first that the approach described by the Second
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`Circuit in Schoenberg was later abandoned by that circuit in Bassett, 204 F.3d 343. (Response at
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`3). Bassett dealt with a situation that was similar to Schoenberg in that the complaint involved
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`the alleged breach of a contract that had conferred the right to use certain copyrights, and the
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`alleged use of the copyrighted material after the breach amounted to infringement. Id. at 346.
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`The Second Circuit held that such a claim arises under § 1338(a), at least where remedies for
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`5
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 6 of 10 PageID #: 525
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`infringement are sought. Id. at 355-56. It began its reasoning with a discussion of T.B. Harms
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`Co. v. Eliscu, 339 F.2d 823 (2d Cir. 1964), the seminal Second Circuit case on this topic. The
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`T.B. Harms court held that a claim involving a copyright can be said to arise under § 1338(a) in
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`three situations: (1) when “the complaint is for a remedy expressly granted by the [Copyright]
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`Act[;]” (2) when the complaint “asserts a claim requiring construction of the Act[;]” or (3) when
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`the complaint “presents a case where a distinctive policy of the Act requires that federal
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`principles control the disposition of the claim.” T.B. Harms, 339 F.2d at 828.
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`Bassett explained that courts in the Second Circuit became divided into two camps over
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`application of the T.B. Harms standard. Bassett, 204 F.3d at 351-52. On one side stood courts
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`that looked at the face of the complaint to determine whether one of the T.B. Harms elements
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`applied. On the other stood those courts that used an approach like the one described in
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`Schoenberg, looking beyond the face of the complaint to determine the “essence” of the dispute.
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`Bassett, 204 F.3d at 351-52. The Bassett court noted several problems with the essence-of-the-
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`dispute approach. The first was that it “left a class of plaintiffs who suffered copyright
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`infringement bereft of copyright remedies” because state courts have no jurisdiction to grant
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`remedies under the Copyright Act. Id. at 348, 352. The court also noted that the Schoenberg test
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`is unworkable and vague, that it departs from the Supreme Court precedent on which T.B. Harms
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`relied, and that it required courts “to make complex factual determinations relating to the merits
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`at the outset of the litigation—before the court has any familiarity with the case.” Id. at 352-55.
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`In addition to these weaknesses, the Bassett court demonstrated that the weight of
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`authority in other circuits favors the T.B. Harms approach. Id. at 350-51 (citing MCA Television
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`Ltd. v. Pub. Interest Corp., 171 F.3d 1265, 1269 (11th Cir. 1999); Arthur Young & Co. v. City of
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`Richmond, 895 F.2d 967, 969-70 (4th Cir. 1990); Vestron, Inc. v. Home Box Office, Inc., 839
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 7 of 10 PageID #: 526
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`F.2d 1380, 1381 (9th Cir. 1988); Goodman v. Lee, 815 F.2d 1030, 1031 (5th Cir. 1987)). The
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`court also cited two treatises on copyright law that praise the face-of-the-complaint approach. Id.
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`at 349 (citing 3 Melville B. Nimmer & David Nimmer, Nimmer on Copyright § 12.01[A], at 12-4
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`(1999); 2 William F. Patry, Copyright Law and Practice 1065, 1067 (1994)). It should also be
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`noted here that at least two other circuit courts have accepted the T.B. Harms approach since the
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`Second Circuit decided Bassett. 1mage Software, 459 F.3d at 1048-51; Scandinavian Satellite
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`Sys., AS v. Prime TV Ltd., 291 F.3d 839, 844-45 (D.C. Cir. 2002).
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`The Court agrees with the many circuits and other authorities that have adopted the T.B.
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`Harms approach. Two of the reasons set forth by the Bassett court are especially apt here. The
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`first is that if this case were forced into state court, Lion’s Choice would be left without a remedy
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`on its copyright claims. This would be an especially troubling precedent considering that some
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`type of contract dispute “will almost always be a threshold issue in a copyright infringement
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`action[,]” since contracts are a common way of conferring ownership of or the right to use a
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`copyright. See Vestron, 839 F.2d at 1382. The second reason that stands out is the difficulty of
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`determining what the essence of this dispute is. While it is true the Complaint includes contract
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`claims that must be decided before the infringement claims, it requests remedies under both sets
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`of theories, and it is not clear which will predominate. To determine at this early stage which set
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`of theories is the Complaint’s “essence” therefore would be premature.
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`Application of the face-of-the-complaint test is quite simple in this instance. T.B. Harms
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`makes clear that one situation in which federal courts have jurisdiction over claims involving
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`copyrights or trademarks is when a plaintiff pursues a remedy specifically provided in the
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`relevant federal statutes. As noted above, Lion’s Choice’s Complaint requests remedies created
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`7
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 8 of 10 PageID #: 527
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`by the Copyright Act and Lanham Act. The Court therefore has jurisdiction over this action
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`under the T.B. Harms approach.
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`It is difficult to see why the Court should follow Valley Beef’s recommendation of
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`adopting an approach like the one used in Schoenberg, since that approach has been expressly
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`abandoned by the circuit in which it arose. And even if the Court were to apply the standard
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`described by the Seventh Circuit in Moloney Coachbuilders, as Valley Beef suggests in its
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`Reply, the outcome of this case would not change. The Seventh Circuit made clear in Moloney
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`Coachbuilders that a key reason for its holding was that no relief had been requested under
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`federal trademark law. Moloney Coachbuilders, 272 F.3d at 916-17. Instead, the case began as
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`one for a declaration of non-infringement, rather than a positive claim of infringement. Id. at
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`913. The court stated explicitly that “[a] claim might arise under federal law even though all
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`dispositive issues depend on state law if” federal trademark law were to provide a remedy that
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`state law does not. Id. at 916-17. As Lion’s Choice includes claims for distinct remedies under
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`federal copyright and trademark law, a court applying the Moloney Coachbuilders approach thus
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`would conclude that the Complaint arises under federal copyright and trademark law. Valley
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`Beef has not provided a basis for dismissal.
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`II. Whether Lion’s Choice’s Claims are Ripe for Decision
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`Valley Beef next suggests the Complaint should be dismissed because it does not present
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`claims that are ripe for decision. (Support Memo at 13). According to Valley Beef, Lion’s
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`Choice’s federal claims are not definite enough for decision because they require the Court first
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`to determine whether the Franchise Agreement was properly terminated. Id. at 14. Valley Beef
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`characterizes this as a “contingent future event[]” that makes Lion’s Choice’s federal claims
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`“speculative . . . .” Id. Lion’s Choice respond, in part, that Valley Beef’s argument must fail
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 9 of 10 PageID #: 528
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`because the events surrounding the alleged termination and infringement have already occurred.
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`(Response at 11).
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`“The ripeness doctrine is aimed at preventing federal courts, through premature
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`adjudication, from ‘entangling themselves in abstract disagreements.’” Citizens for Equal Prot.
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`v. Bruning, 455 F.3d 859, 863 (8th Cir. 2006) (quoting Thomas v. Union Carbide Agric. Prods.
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`Co., 473 U.S. 568, 580 (1985)). The test for determining whether a claim is ripe for review has
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`two prongs. Courts must examine “both the ‘fitness of the issues for judicial decision’ and ‘the
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`hardship to the parties of withholding court consideration.’” Parrish v. Dayton, 761 F.3d 873,
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`875 (8th Cir. 2014) (quoting Nebraska Pub. Power Dist. v. MidAmerican Energy Co., 234 F.3d
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`1032, 1038 (8th Cir. 2000)).
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`Valley Beef’s argument rests on misunderstanding of the ripeness doctrine. Lion’s
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`Choice’s Complaint alleges that Valley Beef became insolvent, thus allowing Lion’s Choice to
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`terminate the Franchise Agreement. It also alleges that Valley Beef’s continued use of Lion’s
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`Choice’s copyrights and trademarks amounts to infringement. Thus, all of the events relevant to
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`Lion’s Choice’s Complaint have already occurred and continue to occur. The Court need only
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`determine the legal significance of those events. Lion’s Choice’s claims are therefore ripe for
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`review.
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`Accordingly,
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`IT IS HEREBY ORDERED that Defendant Valley Beef LLC’s Motion to Dismiss
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`Plaintiff’s First Amended Complaint, (ECF No. 10), is DENIED.
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`Case: 4:15-cv-00383-JCH Doc. #: 19 Filed: 07/02/15 Page: 10 of 10 PageID #: 529
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`Dated this 2nd day of July, 2015.
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` /s/ Jean C. Hamilton
` UNITED STATES DISTRICT JUDGE
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`10