757 F.3d 177 (4th Cir. 2014), 13-2135, Flying Pigs, LLC v. RRAJ Franchising, LLC

Docket Nº:13-2135
Citation:757 F.3d 177, 111 U.S.P.Q.2d 1644
Opinion Judge:KING, Circuit Judge.
Party Name:FLYING PIGS, LLC, Plaintiff -- Appellant, v. RRAJ FRANCHISING, LLC, Defendant -- Appellee
Attorney:Ernest Bradley Evans, WARD & SMITH, PA, Greenville, North Carolina, for Appellant. Gavin James Reardon, ROSSABI BLACK SLAUGHTER, PA, Greensboro, North Carolina, for Appellee. Norman J. Leonard, II, WARD & SMITH, PA, Asheville, North Carolina, for Appellant. Amiel J. Rossabi, ROSSABI BLACK SLAUGHT...
Judge Panel:Before KING, GREGORY, and THACKER, Circuit Judges. Judge King wrote the opinion, in which Judge Gregory and Judge Thacker joined.
Case Date:July 01, 2014
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit

Page 177

757 F.3d 177 (4th Cir. 2014)

111 U.S.P.Q.2d 1644

FLYING PIGS, LLC, Plaintiff -- Appellant,

v.

RRAJ FRANCHISING, LLC, Defendant -- Appellee

No. 13-2135

United States Court of Appeals, Fourth Circuit

July 1, 2014

Argued April 11, 2014

Appeal from the United States District Court for the Eastern District of North Carolina, at Greenville. (4:13-cv-00010-BO). Terrence W. Boyle, District Judge.

VACATED AND REMANDED.

ARGUED:

Ernest Bradley Evans, WARD & SMITH, PA, Greenville, North Carolina, for Appellant.

Gavin James Reardon, ROSSABI BLACK SLAUGHTER, PA, Greensboro, North Carolina, for Appellee.

ON BRIEF:

Norman J. Leonard, II, WARD & SMITH, PA, Asheville, North Carolina, for Appellant.

Amiel J. Rossabi, ROSSABI BLACK SLAUGHTER, PA, Greensboro, North Carolina, for Appellee.

Before KING, GREGORY, and THACKER, Circuit Judges. Judge King wrote the opinion, in which Judge Gregory and Judge Thacker joined.

OPINION

Page 178

KING, Circuit Judge.

In late 2012, a North Carolina business called Flying Pigs, LLC, sued a North Carolina entity called RRAJ Franchising, LLC, in the Superior Court of Lenoir County, North Carolina, alleging a claim under North Carolina law. RRAJ removed that lawsuit to the Eastern District of North Carolina, asserting federal question jurisdiction pursuant to 28 U.S.C. § 1331. The district court denied Flying Pigs's motion to remand to Lenoir County for lack of federal jurisdiction, and then granted RRAJ's Rule 12(b)(6) motion to dismiss the complaint with prejudice. See Flying Pigs, LLC v. RRAJ Franchising, LLC, No. 4:13-cv-10, (E.D.N.C. Aug. 22, 2013), ECF No. 22 (the " Dismissal Order" ). As explained below, we vacate the Dismissal Order and remand for the Flying Pigs lawsuit to be returned to Lenoir County.

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I.

Flying Pigs initiated this action in an effort to enforce, by foreclosure and judicial sale, an equitable lien against certain trademarks and associated goodwill now owned by RRAJ Franchising. The equitable lien was the result of a 2010 lawsuit in the Superior Court of Guilford County, North Carolina, where Flying Pigs pursued and was awarded more than $500,000 for rental payments owed by its delinquent commercial tenant, Chelda, Inc.1

Chelda, which is headquartered in Greensboro, the county seat of Guilford County, owned Ham's Restaurants, Inc. Ham's operated a number of eponymously named family eateries in North Carolina and Virginia. In 1999, Chelda and Ham's executed a twenty-year lease with Flying Pigs to house a Ham's Restaurant in Kinston, the county seat of Lenoir County. By 2008, however, Chelda and Ham's were in financial turmoil and, by June 2009, ceased making their monthly rental payments to Flying Pigs. On October 9, 2009, Flying Pigs notified Chelda and Ham's that they were in breach of the lease, and on October 21, 2009, Flying Pigs entered the Kinston restaurant to secure the premises. The next day, Ham's (but not Chelda) filed for Chapter 11 bankruptcy in the Eastern District of North Carolina. Exercising its right under the bankruptcy code, see 11 U.S.C. § 365(a), Ham's rejected its Kinston lease with Flying Pigs, leaving Flying Pigs to pursue recourse solely from Chelda.

To that end, Flying Pigs sued Chelda on March 12, 2010, in the Superior Court of Guilford County. On July 6, 2010, Flying Pigs obtained a default judgment against Chelda in excess of $567,000. The lion's share of the judgment was attributed to Chelda's obligations through the remaining term of the Kinston lease, less any rents received in mitigation. In order to effectuate at least partial satisfaction of the default judgment, Flying Pigs sought an equitable lien against two federally registered trademarks, and their associated goodwill, which had been registered by Chelda but used exclusively by Ham's (the " intellectual property" ). On July 30, 2010, the Guilford County court granted Flying Pigs's request in that regard, imposing an equitable lien on -- and authorizing the judicial sale of -- the intellectual property. That very day, Flying Pigs registered a notice of its equitable lien with the United States Patent and Trademark Office (" PTO" ).

Meanwhile, the Ham's bankruptcy proceedings moved forward. A Greensboro entity called RCR Marketing, LLC, bid $360,000 in the Chapter 11 proceedings for

all of [Ham's] assets, property and rights, tangible and intangible, including without limitation . . . equipment, furniture, fixtures . . . goodwill, trademarks, licenses (including but not limited to any rights and/or licenses to the name 'Ham's Restaurant' and all related trademarks) and all other intellectual property.

J.A. 119. The assets of Ham's were to be sold in " as is" condition, " without any warranties, express or implied, including without limitation any warranties concerning title, merchantability, or fitness." Id. On August 3, 2010, the bankruptcy court approved

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the sale of Ham's assets to RCR, converting the Chapter 11 matter to a Chapter 7 liquidation proceeding. Consistent with the bankruptcy court's order, the parties scheduled the bankruptcy sale for closing on August 19, 2010.

On the morning of the bankruptcy sale's closing, however, the Bank of North Carolina (" BNC" ) filed suit in Guilford County against RCR and Chelda. Throughout the Ham's bankruptcy proceedings, BNC had asserted that it held a perfected security interest in Chelda's personal property, including its equipment and trademarks, and that Chelda -- rather than Ham's -- was the actual owner of a substantial portion of the assets RCR purported to have purchased from the bankruptcy estate.2 Thus, BNC's Guilford County lawsuit sought to prevent RCR's imminent and allegedly unauthorized appropriation of Chelda's property, including the intellectual property. That same morning, the Guilford County court awarded a temporary restraining order (" TRO" ) enjoining RCR and Chelda's use of the equipment and the intellectual property. Nonetheless, on the Bankruptcy Trustee's advice and insistence, the closing of the bankruptcy sale of Ham's assets to RCR proceeded as scheduled.3

On August 27, 2010, RCR removed BNC's Guilford County suit to the Middle District of North Carolina. By March 11, 2011, BNC, Chelda, and RCR had agreed to compromise and settle all their claims and disputes, pursuant to which the district court entered an order dismissing the BNC lawsuit with prejudice. Although the terms of the compromise and settlement are not of record here, it led to the following events: (1) on March 16, 2011, the PTO recorded an assignment of the intellectual property from Chelda to RCR, effective March 3, 2011; (2) then, on June 15, 2011, BNC released its security interest in the intellectual property; and (3) finally, on September 19, 2011, RCR assigned the intellectual property to its sister entity, defendant-appellee RRAJ Franchising, LLC.

Thereafter, on December 12, 2012, Flying Pigs filed the complaint underlying this appeal against RRAJ Franchising in the Superior Court of Lenoir County, seeking to foreclose on its equitable lien against the intellectual property, to subject that property to a judicial sale, and to enjoin RRAJ from any further use thereof in connection with operations of the Ham's restaurants. On January 17, 2013, RRAJ removed the Lenoir County case to the Eastern District of North Carolina, characterizing the complaint therein as a " dispute over two trademarks held and registered pursuant to the Federal Lanham Act." J.A. 7.

On February 25, 2013, RRAJ Franchising moved in the district court to dismiss the Flying Pigs complaint on the ground that the settlement of BNC's Guilford County lawsuit -- to which Flying Pigs was not a party -- nonetheless barred the foreclosure action under the principles of res judicata. The next day, Flying Pigs moved to remand the Lenoir County lawsuit to state court, asserting a lack of federal jurisdiction. On August 14, 2013,

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the district court conducted a hearing on the respective motions. On August 22, 2013, the court entered its Dismissal Order, denying the remand requested by Flying Pigs and granting RRAJ's Rule 12(b)(6) motion to dismiss on the basis of res judicata. On September 13, 2013,...

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