Antitrust Law Daily Wrap Up, FRANCHISING & DISTRIBUTION—WDKy: Motion to Transfer Denied in Long John Silver’s and A&W’s Lawsuit Against Minnesota Franchisee, (Jan 8, 2013)

By Tobias J. Gillett, J.D., LLM.

The federal district court in Louisville, Kentucky, has denied a motion by the bankruptcy trustee for a former franchisee of Long John Silver’s, Inc. and A&W Restaurants, Inc. seeking to transfer venue to a federal district court in Minnesota because transfer would not “serve the interests of justice” (Long John Silver’s Inc. v. Nickleson, January 4, 2013, Heyburn, J.). The court also declined to abstain from deciding the case, since the franchisee no longer had any interest in his counterclaims, and therefore the counterclaims could not serve as property conferring exclusive jurisdiction on the court where the bankruptcy petition was filed.

Long John Silver’s, Inc. and A&W Restaurants, Inc. had brought suit against a former franchisee, Patrick J. Nickleson, and three business entities owned by him, in connection with a series of failed restaurant franchises in Minnesota, alleging claims for breach of contract, trademark infringement, and common law fraud. Nickleson counter-claimed for breach of contract, Minnesota Franchise Act violations, and common law fraud. Nickleson then filed for Chapter 7 bankruptcy, and his franchises later followed suit. The stays in both cases were lifted to permit the present case to proceed.

The trustee of Nickleson’s bankruptcy estate moved to have the case transferred to the United States District Court of Minnesota pursuant to 28 U.S.C. § 1412, or in the alternative for the court to abstain from deciding the case pursuant to 28 U.S.C. § 1334(e).

28 U.S.C. § 1412

The court first denied the motion for transfer, explaining that § 1412 contained two requirements: “(1) it must be a case or proceeding under title 11, and (2) the transfer must be either in the interest of justice or for the convenience of the parties.”

The court found that each of the relevant factors for deciding whether a transfer of venue would “serve the interests of justice” were either neutral or favored the present district, except a presumption that venue would exist in the district where a bankruptcy case was filed. Transferring the case would not likely have an impact on the administration of the bankruptcy cases. Moreover, extensive briefing had already occurred regarding a motion to dismiss the counter-claims, and the court had already denied a transfer of venue. Transfer would thus “likely result in some delay and needlessly waste both judicial and party resources,” and would deny Long John’s Silver’s and A&W their choice of forum. Moreover, the bankruptcy judge had already “indicated that he would likely remand the case if it was transferred to his court.”

28 U.S.C. § 1334(e)

The court also declined to abstain from deciding the case pursuant to 28 U.S.C. § 1334(e). § 1334(e) provides that “[t]he district court in which a case under title 11 is commenced or is pending shall have exclusive jurisdiction of all of the property, wherever located, of the debtor as of the commencement of such a case, and of property of the estate.” The defendants argued that their counterclaims constituted property, and hence exclusive jurisdiction belonged to the district court in which the bankruptcy petition had been filed.

The court disagreed, noting that Nickleson and his franchises had assigned all of their interests in the counterclaims to a third party. As the contracts assigning the interests did not provide for any reservations of right, the defendants had no remaining interest in their counterclaims. Therefore, the counterclaims were not property of the estate, and 1334(e) did not apply.

The case is Civil Action No. 3:11-CV-93-H.

Margaret R. Grant (Stites & Harbison, PLLC) for Long John Silver's, Inc. and A&W Restaurants, Inc. Stuart E. Alexander, III (Tilford, Dobbins, Alexander, PLLC) for Patrick Nickleson.

Cases: FranchisingDistribution KentuckyNews