American Dairy Queen Corporation v. Augustyn

• Citation: 278 F. Supp. 717
• Decision Date: 11 September 1967
• Docket Number: No. 67 C 1295.,67 C 1295.
• Parties: AMERICAN DAIRY QUEEN CORPORATION and S. D. Noble, Plaintiffs, v. Edward J. AUGUSTYN and Helen E. Augustyn, and Robert L. Detwiler and Peggy Detwiler, Defendants.
• Court: U.S. District Court — Northern District of Illinois

278 F. Supp. 717

AMERICAN DAIRY QUEEN CORPORATION and S. D. Noble, Plaintiffs, v. Edward J. AUGUSTYN and Helen E. Augustyn, and Robert L. Detwiler and Peggy Detwiler, Defendants.

No. 67 C 1295.

United States District Court N. D. Illinois, E. D.

September 11, 1967.

COPYRIGHT MATERIAL OMITTED

Owen J. Ooms, Erwin F. Adams, Chicago, Ill., for plaintiff.

Edward T. Havey, Burton Evans, Chicago, Ill., for Edward J. Augustyn and Helen E. Augustyn.

Ebers Metskas & Bjorvik, Chicago, Ill., for Robert L. Detwiler and Peggy Detwiler.

MEMORANDUM OPINION

WILL, District Judge.

This is an action for infringement of a trade mark and for unfair competition. The corporate plaintiff, American Dairy Queen Corporation (hereinafter called American), is incorporated under the laws of the State of Delaware and maintains its principal place of business in Minneapolis, Minnesota. The individual plaintiff is a resident of Illinois. The defendants are also residents of Illinois. The defendants have moved to dismiss on the grounds: (1) that the Court does not have jurisdiction of the subject matter; and (2) that the complaint fails to state a claim upon which relief can be granted.

The plaintiffs have sought to invoke federal jurisdiction under 28 U.S.C. §§ 1338(a) and 1338(b). Section 1338(a) provides that a federal district court shall have original jurisdiction of any civil action "arising under" any Act of Congress relating to trademarks. Section 1338(b) provides that a federal district court shall have jurisdiction of any civil action asserting a claim of unfair competition when joined with a "substantial and related" claim under the trademark laws. Thus, the central question presented by defendants' motion is whether plaintiffs' claim is one arising under the trademark laws. If it is, then the Court may also exercise jurisdiction over the plaintiffs' claim of unfair competition arising under state law.

Although the plaintiffs allege infringement of a registered trademark, the suit also involves the contractual rights of the parties in the mark. The facts alleged in the complaint indicate that American is the owner of the trademark and trade name "Dairy Queen" and that plaintiff Noble has the exclusive franchise and license to use the mark in Cook County and other counties of Illinois. Pursuant to this right Noble allegedly granted a sub-franchise to defendants Edward J. Augustyn and Helen E. Augustyn which allegedly authorized the Augustyns to build and operate three "Dairy Queen" stores. This agreement reserved the right to repurchase the sub-franchise or approve any sale of the sub-franchise to a third party, if the Augustyns wished to sell the businesses before the termination of their franchise. The plaintiffs assert that in violation of the agreement the Augustyns sold a "Dairy Queen" store in Calumet City, Illinois to the defendants Robert L. Detwiler and Peggy Detwiler without offering Noble the right to repurchase or obtaining his approval. Plaintiffs claim that the defendants were notified of the breach and that subsequently the sub-franchise was cancelled. The complaint alleges that the Augustyns have continued to represent themselves to be authorized "Dairy Queen" franchise holders and that the Detwilers have continued to operate the "Dairy Queen" store. This continued representation and use, plaintiffs claim, infringes upon their rights in the trademark "Dairy Queen."

In their prayer for relief, plaintiffs demand judgment (1) declaring American to be the owner of all right, title, and interest in the trademark; (2) declaring the defendants guilty of trademark infringement; (3) declaring the Augustyns to be in default of their agreement with Noble and the sub-franchise to be cancelled; (4) declaring the Detwilers to have no authority to use the trademark and trade name; and (5) enjoining the defendants from infringement of the trademark.

The instant case, obviously, is of a hybrid nature. Though the plaintiffs allege rights under the trademark laws and the infringement of these rights, their claims are dependent upon the preliminary questions of whether there was a breach of the sub-franchise agreement and whether the subsequent cancellation of the sub-franchise was effective. Several courts when faced with a case of this nature have characterized the action as one for the enforcement of a contract under state law, rather than a trademark or copyright suit under federal law. Accordingly, they have found such actions to be outside the jurisdiction of the federal courts. See, e. g., Danks v. Gordon, 272 F. 821, 827 (2d Cir., 1921); T. B. Harms Co. v. Eliscu, 226 F.Supp. 337, 340-341 (S.D.N.Y., 1964); Muse v. Mellin, 212 F.Supp. 315, 316-318 (S.D.N.Y., 1962). Nevertheless, we conclude that dismissal on the grounds of lack of jurisdiction of the subject matter would be improper.

If the sub-franchise agreement is no longer effective, it is clear that the plaintiffs have grounds for an infringement suit based on the defendants' actions since the alleged cancellation of the agreement. Certainly, there would be no question as to jurisdiction, if the plaintiffs had only alleged infringement of the trademark and the defendants had raised the validity of the franchise as a defense. Since jurisdiction is to be determined solely on the basis of the allegations in the complaint, it could not be defeated by the defendants' assertions in their answer. The result should be no different in this case. Jurisdiction is not defeated simply because the plaintiff has anticipated a defense based on state law and has not only alleged trademark infringement but has sought a determination of the entire controversy. See Luckett v. Delpark, Inc., 270 U.S. 496, 510-511, 46 S.Ct. 397, 70 L.Ed. 703 (1926) (dictum); Geneva Furniture Mfg. Co. v. S. Karpen & Bros., 238 U.S. 254, 258-259, 35 S.Ct. 788, 59 L.Ed. 1295 (1915); Healy v. Sea Gull Specialty Co., 237 U.S. 479, 480, 35 S.Ct. 658, 59 L.Ed. 1056 (1915); The Fair v. Kohler Die & Specialty Co., 228 U.S. 22, 25, 33 S.Ct. 410, 57 L.Ed. 716 (1913).

It is true that the plaintiffs could institute a suit for specific performance of the sub-franchise agreement in the state courts and receive the same relief which they seek here. It does not follow, however, that they must rely solely upon a state court suit on the franchise for any relief. In analogous situations, where a plaintiff has had a choice between relying upon federal law for copy-right or patent infringement and state law for breach of contract, it has been held that the plaintiff could base his claim on federal law and invoke federal jurisdiction. See, e. g., The Fair v. Kohler Die & Specialty Co., supra; Lyon v. Quality Courts United, Inc., 249 F.2d 790, 794 (6th Cir., 1957); Goss v. Henry McCleary Timber Co., 82 F.2d 476 (9th Cir., 1936); Venus Music Corp. v. Mills Music, Inc., 156 F.Supp. 753 (S.D.N.Y., 1957); contra, Dill Mfg. Co. v. Goff, 125 F.2d 676 (6th Cir., 1942); Lion Mfg. Corp. v. Chicago Flexible Shaft Co., 106 F.2d 930 (7th Cir., 1939).

The defendants also assert in their motion to dismiss that the complaint fails to state a claim upon which relief can be granted. F.R.Civ.Pro. 12 (b) (6). The general rule in the federal courts is that a complaint should not be dismissed for insufficiency unless it appears to a certainty that the plaintiff is entitled to no relief under any state of facts which could be proved to support the allegations. Conley v....