Flying Pigs, Inc v. RRAJ Franchising, LLC

Summarized by Robert Stenzhorn , Virginia Legal Aid Society, Inc.
11 years 8 months ago

Citation:

Flying Pigs, LLC v. RRAJ Franchising, LLC., 4th Cir. No.: 13-2135 (July 01, 2014), 2014 U.S. App. LEXIS 12404

Tag(s):

Ruling:

Vacated and remanded, via published opinion on July 01, 2014, to the Superior Court of Lenior County, North Carolina.

Procedural context:

This matter is an appeal from the United States District Court for the Eastern District of North Carolina. District Judge Terrence W. Boyle presided (4:13-cv-00010-BO). 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. The instant appeal by Flying Pigs, LLC seeks to return the matter to the state courts on the issue of its ownership rights in the specific intellectual property arising under North Carolina law.

Facts:

Flying Pigs, LLC sought to enforce its equitable lien on certain trademarks and associated goodwill presently owned by RRAJ Franchising, LLC. The lien arose from a 2010 state court judgment regarding rents owed by Flying Pigs' co-tenants Chelda, Inc. and Ham's Restaurant, Inc. Ham's subsequently filed for a Chapter 11 reorganization and rejected its lease with Flying Pigs, leaving Chelda, Inc. with the recourse liabilities under the lease. The bankruptcy court ordered the sale of Ham's assets ("as is") and converted the matter to a liquidation under Chapter 7. The Bank of North Carolina had asserted a prior perfected security interest in the assets sought to be transferred by the Trustee to high bidder RRAJ through a related entity RJR. The Bank obtained a temporary restraining order in state court. The Trustee went forward with the sale and closing as planned, viewing the state court injunction as a contravention of the automatic stay and therefore void ab initio. The parties. The state action was subsequently removed to the Middle District of North Carolina. By agreement and in compromise, the Bank, Chelda and RCR, a sister entity of instant appellee RRAJ, dismissed the matter with prejudice. The intellectual property rights were then assigned to instant appellee RRAJ. Flying Pigs then sought, inter alia, to foreclose on its equitable lien in contravention of the trasnfer to RRAJ in the state courts. RRAJ then removed the matters to the Eastern District of North Carolina. Flying Pigs asserted, in seeking a remand, a lack of federal jurisdiction. The district court denied the remand and granted RRAJ's 12(b)(6) motion based upon res judicata. Flying Pigs appealed. The appellate court found no proper federal jurisdiction, holding that the dispute was not one of trademark (Lanham Act) but of equitable lien rights arising under state law. The court held that Flying Pigs state court action was "nothing more than an action to enforce that equitable lien" and that the issue was not one of federal concern. In footnote 7, the court explains that, although RRAJ would likely assert a defense under the Lanham Act, "a case may not be removed to federal court on the basis of a federal defense" as in the instant matter. Further, the court reasoned that the Lanham Act does not confer jurisdiction based upon the dispute arising over ownership of a trademark, as in the instant matter. Such issues differentiate between infringement of the trademark and ownership rights to that trademark. The district court's holding was vacated and the issue remanded to the state courts for final resolution.

Judge(s):

Judge Robert B. King, Judge Roger L. Gregory, and Judge Stephanie D. Thacker. Opinion by Judge King, in which Judge Gregory and Judge Thacker joined.

ABI Membership is required to access the full summary. Please Sign In using your ABI Member credentials. Not a Member yet? Join ABI now - it is absolutely worth it!