Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—EDMo: Franchisee’s Suit Against Franchisor Dismissed on Jurisdictional Grounds , (May 8, 2013)

By John W. Arden, J.D., LL.M.

A foundation repair system franchisee’s action—alleging that its franchisor breached a franchise agreement, transferred ownership of the franchisor in fraud of creditors, and participated in a civil conspiracy—was dismissed by the federal district court in St. Louis for lack of subject matter jurisdiction (TKE Enterprises, Inc. v. Crack Team, U.S.A., Inc., May 6, 2013, Autrey, H.). The franchisee failed to show a complete diversity of citizenship between it and the defendants.

TKE Enterprises entered into a franchise agreement and a modification with CT USA for a territory covering a substantial portion of St. Louis County, allegedly paying a $700,000 franchise fee and agreeing to an ongoing royalty of six percent of monthly gross income. The franchisee received a territorially-restricted license to use certain marks owned by CT Licensing, including logos, names, and mascots.

TKE paid its royalties to CT USA’s judgment creditors from December 2007 through the filing of this action. Kodner, the sole owner of CT USA and CT Licensing, sent correspondence to the franchisee, purporting to terminate the agreement, citing ongoing collection efforts of an unnamed judgment creditor of CT USA as the sole reason for termination. CT Licensing assigned all of its interests in its marks to Braintree Brands, LLC, which is owned by John R, McCarthy.

Braintree and McCarthy moved to dismiss the action for lack of subject matter jurisdiction. Diversity jurisdiction exists when the amount of controversy exceeds $75,000 and there is complete diversity of citizenship—that is, no defendants are citizens of a state where any plaintiff is a citizen. A corporation is a citizen of a state where it is incorporated and the state where it has its principal place of business.

In this case, there was no evidence that complete diversity was present at the inception of the action, the court held. Defendants CT USA, CT Leasing, and Kodner were all citizens of Missouri, as was plaintiff TKE Enterprises. Thus, the federal district court lacked subject matter jurisdiction over the action, requiring dismissal of the plaintiff’s claims and the defendants’ counterclaims.

The case is No. 4:11CV1435 HEA.

Attorneys: Patrick W. Keefe (The Keefe Law Firm) for TKE Enterprises, Inc. Robert P. Berry (Berry and Maxson, LLC) for Braintree Brands, LLC.

Companies: TKE Enterprises, Inc.; Crack Team, U.S.A., Inc.; CT USA; CT Licensing: Braintree Brands, LLC.

Cases: FranchisingDistribution MissouriNews