Wellness Community-National v. Wellness House

• Decision Date: 09 November 1995
• Docket Number: TM-NATIONA,No. 95-2614,P,95-2614
• Parties: The WELLNESS COMMUNITYlaintiff-Appellee, v. WELLNESS HOUSE f/k/a The Wellness Community TM Chicago/Western Suburbs, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 46

70 F.3d 46

36 U.S.P.Q.2d 1786

The WELLNESS COMMUNITY TM-NATIONAL, Plaintiff-Appellee, v. WELLNESS HOUSE f/k/a The Wellness Community TM Chicago/Western Suburbs, Defendant-Appellant.

No. 95-2614.

United States Court of Appeals Seventh Circuit.

Argued Sept. 6, 1995.

Decided Nov. 9, 1995.

James H. Ryan (argued), Jeffrey A. Zaluda, Michael S. Friman, Horwood, Marcus & Braun, Chicago, IL, for Plaintiff-Appellee.

Patrick W. O'Brien, John E. Muench, Lillian K. Miller, Jeffrey W. Sarles (argued), Mayer, Brown & Platt, Chicago, IL, for Defendant-Appellant.

Before CUMMINGS, ROVNER, and DIANE P. WOOD, Circuit Judges.

DIANE P. WOOD, Circuit Judge.

This case arose when The Wellness Community TM-National (Wellness Community) and its affiliate The Wellness Community TM Chicago/Western Suburbs (Wellness House) decided to part ways. Recognizing that this required it to change its name, The Wellness Community TM Chicago/Western Suburbs ultimately settled on "Wellness House." Wellness Community believes that the new name might be confusing to the public, and thus that Wellness House breached the termination clause of the contract. Interesting though this question is, we do not reach it in this opinion. Because we conclude that federal jurisdiction was never established under 28 U.S.C. Sec. 1332, and that the supplemental jurisdiction provisions of 28 U.S.C. Sec. 1367 could not apply here, we vacate the judgment below and dismiss for lack of jurisdiction.

Both Wellness Community and Wellness House are charitable corporations in the business of providing free psychological and social support to cancer patients. Wellness Community is a California corporation, with its principal place of business in California; Wellness House is an Illinois corporation, with its principal place of business in Illinois. On July 13, 1989, the parties entered into an affiliation agreement, in which Wellness House agreed to carry out the Wellness Community program in the western Chicago area, and Wellness Community agreed to furnish various forms of assistance. Section 8 of the Agreement gave either party the right to terminate upon giving ninety days' notice. In that event, the Agreement specified that

[i]mmediately upon giving notice or receiving notice of revocation, Grantee shall take all steps so that the words "The Wellness Community" and all similar words which might prove confusing to the public shall be deleted from all of Grantee's activities of any and all types and kinds, and Grantee shall immediately take all steps as are necessary so that all persons will know that Grantee is no longer associated with [Wellness Community].

In August 1993, Wellness/Western Suburbs decided to disaffiliate from Wellness Community. It did so officially on November 1, 1993, when it adopted as its new name "Wellness House." Less than three weeks later, Wellness Community filed this suit in federal court.

Wellness Community's original complaint raised claims under both federal and state law, and alleged both federal question and diversity jurisdiction. Count II of the original complaint claimed violations of Section 43(a) of the Lanham Act, 15 U.S.C. Sec. 1125(a), while Counts I and III-VI raised a variety of state law claims, both under the contract and otherwise. Wellness Community requested a permanent injunction that would require its former affiliate to eliminate the word "Wellness" from its name. Wellness House counterclaimed for declaratory relief that would confirm its right to use its new name.

After some months of preliminary skirmishing over motions for judgment on the pleadings, on April 20, 1994, the parties submitted an agreed motion to dismiss all but the breach of contract count. The next day, they filed another motion, urging the court "promptly [to] dispose of this matter," again referring only to the breach of contract issue. The district court initially denied the motion, but on June 7, 1994, it entered an order scheduling a pretrial conference, setting a trial date, and noting that plaintiff orally dismissed counts 2 through 6 of the complaint and that defendant orally withdrew its counterclaim.

On June 30, the court granted Wellness Community's motion to file an amended complaint. The amended complaint alleged only diversity jurisdiction, and it included only state law claims. Wellness House's answer, filed on July 5, denied that the amount in controversy exceeded $50,000. The answer also contested several allegations that might have indicated the amount in controversy, such as the assertion in First Amended Complaint Paragraph 15 referring to Wellness Community's planned $11,500,000 fund-raising and expansion program, and the claim in Paragraph 16 that the start-up cost for a new facility is approximately $200,000, and annual costs run $25,000 to $50,000. The answer to Paragraph 17 specifically denied the allegations that implied that Wellness House's former accomplishments were due in any significant part to its use of the name "The Wellness Community TM/Western Suburbs."

Most of the four-day trial to the court dealt with the use of the term "wellness" in Wellness House's new name, and whether it was on the one hand likely to mislead the public into thinking that Wellness House was still affiliated with Wellness Community, or on the other hand whether the word "wellness" has become generic in the health care industry. At the close of Wellness Community's case, Wellness House moved for judgment, both on the merits and on the ground that the plaintiff had not proven that its claim satisfied the amount in controversy requirement of 28 U.S.C. Sec. 1332. Although the trial court denied the motion, it did not make any findings on the jurisdictional amount question. The court again denied a similar motion at the close of all the evidence.

In its Memorandum Opinion, the district court recognized that a serious jurisdictional question existed. The court did not, however, make a clear finding on the existence of diversity jurisdiction, stating only that "we likely have diversity jurisdiction." 1995 WL 398985 * 7, fn. 5 (N.D.Ill.1995). More particularly, it never resolved the issue that had been joined with respect to the amount in controversy. Instead, the court turned to the supplemental jurisdiction statute, 28 U.S.C. Sec. 1367, concluding that supplemental jurisdiction existed and that this made resolution of the question about diversity jurisdiction unnecessary. It first noted that the claim as originally filed contained both federal and state law counts arising out of the same facts--a classic case for the exercise of supplemental jurisdiction. Relying on this court's decision in Wright v. Associated Insurance Cos., 29 F.3d 1244 (7th Cir.1994), the district court then concluded that the resources it had expended in holding the trial were substantial, that the parties would now be put to additional expense if they had to retry the claim, and that it would be unfair to allow Wellness House to prevail on a jurisdictional argument that "it fully made" only after the trial.

Initially, we must determine which complaint governs this suit. The original complaint raised both federal law and state law issues, supporting the former as a matter of federal question jurisdiction under 28 U.S.C. Secs. 1331 and 1338(a), and the latter as a matter of diversity jurisdiction under 28 U.S.C. Sec. 1332. Shortly before the trial, however, the court granted plaintiff's own motion to file a First Amended Complaint, which dropped all federal claims, and alleged only diversity jurisdiction. In these circumstances, it is well established that the amended pleading supersedes the original pleading. See Nisbet v. Van Tuyl, 224 F.2d 66, 71 (7th Cir.1955); Lubin v. Chicago Title and Trust Co., 260 F.2d 411, 413 (7th Cir.1958); Fry v. UAL Corp., 895 F.Supp. 1018 (N.D.Ill.1995). "Once an amended pleading is interposed, the original pleading no longer performs any function in the case.... [T]he original pleading, once superseded, cannot be utilized to cure defects in the amended pleading, unless the relevant portion is specifically incorporated in the new pleading." 6 C. Wright, A. Miller, & Mary Kay Kane, Federal Practice and Procedure Sec. 1476 at 556-57, 559 (1990). Thus, our jurisdictional inquiry must proceed on the basis of the First Amended Complaint, not the original one. Although amendments that affect the court's subject matter jurisdiction are rare, for obvious reasons, they plainly can occur. For example, Fed.R.Civ.P. 19(a) implicitly recognizes that an amendment adding a person who may be required for just adjudication of the case might "deprive the court of jurisdiction over the subject matter," and 19(b) specifies how to choose between dismissing the action and allowing it to go forward in the absence of such a party.

Turning to the question of jurisdiction, we conclude that Wellness Community failed to...