TKE Enterprises, Inc. v. Crack Team, U.S.A, Inc., et al.
Filing
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OPINION MEMORANDUM AND ORDER IT IS HEREBY ORDERED that Defendants Braintree Brands, LLC and John R. McCarthys Motion to Dismiss for Lack of Subject Matter Jurisdiction,[Doc. No. 60], is granted IT IS FURTHER ORDERED that Plaintiffs Motion to Dismiss Counterclaim, [Doc. No. 61], is granted. 60 61 Signed by District Judge Henry E. Autrey on 5/6/13. (CLA)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
TKE ENTERPRISES, INC.,
Plaintiff,
vs.
CRACK TEAM, U.S.A., INC. et al.,
Defendants.
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Case No. 4:11CV1435 HEA
OPINION, MEMORANDUM AND ORDER
This matter is before the Court on the following motions: (1) Defendants
Braintree Brands, LLC and John R. McCarthy’s Motion to Dismiss for Lack of
Subject Matter Jurisdiction, [Doc. No. 60] and (2) Plaintiff’s Motion to Dismiss
Counterclaim, [Doc. No. 61]. For the reasons set forth below, the Motions are
granted.
Facts and Background
This is an action for breach of franchising agreement, transfer in fraud of
creditors, and civil conspiracy. Plaintiff claims that Defendant Kodner, as sole
owner of CT USA and CT Licensing, sold Crack Team foundation repair system
franchises throughout the United States. Plaintiff entered into a franchise
agreement and a modification with CT USA for a substantial portion of the St.
Louis County territory. The Complaint further alleges that CT USA [the Court
assumes Plaintiff intended to allege Plaintiff, rather than CT USA,] paid a Seven
Hundred Thousand Dollar franchise fee to CT USA shortly after the execution of
the franchise agreement and agreed to pay an ongoing royalty fee of six percent of
TKE’s monthly gross income. As a key element of the franchise, the franchisee
was granted a territorially restricted license to use certain intellectual property
owned by CT Licensing, which consisted of certain logos, names and mascots,
collectively referred to as “Marks.”
Plaintiff paid the royalty fee to CT USA’s judgment creditors from
December, 2007, and continued through the filing of this action.
Subsequently, Kodner sent correspondence to Plaintiff purporting to
terminate the agreement, citing ongoing collection efforts of an unnamed judgment
creditor of CT USA as the sole reason for the termination of the Agreement. The
Termination Notice further stated that a new licensing agreement would be sent.
CT Licensing assigned all of its interest in the Marks to Braintree, which is
owned by Defendant McCarthy. The Complaint alleges that the assignment was a
breach of the agreement and a fraudulent transfer.
Discussion
Defendants Braintree and McCarthy move to dismiss for lack of subject
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matter jurisdiction. “Whenever it appears by suggestion of the parties or otherwise
that the court lacks jurisdiction of the subject matter, the court shall dismiss the
action.” Fed.R.Civ.P. 12(h)(3). A district court has authority to consider matters
outside the pleadings when subject matter jurisdiction is challenged under Rule
12(b)(1). Harris v. P.A.M. Transport, Inc., 339 F.3d 635, 637, n. 4 (8th Cir.2003).
In such a challenge, this court is “free to weigh the evidence and satisfy itself as to
the existence of its power to hear the case.” Osborn v. United States, 918 F .2d
724, 729 (8th Cir.1990). No presumptive truthfulness attaches to the plaintiff's
allegations, and the existence of disputed material facts will not preclude the court
from evaluating for itself the merits of jurisdictional claims. Id. The party
invoking federal jurisdiction bears the burden of affirmatively pleading and
proving subject matter jurisdiction. McNutt v. General Motors Acceptance Corp.
of Indiana, 298 U.S. 178, 189 (1936). Accordingly, Plaintiff has the burden of
proving that jurisdiction does in fact exist. Osborn, 918 F.2d at 730.
Diversity jurisdiction exists where the amount in controversy exceeds
$75,000.00 and where there is complete diversity of citizenship. 28 U.S.C. §
1332(a). Complete diversity of citizenship exists where no defendants are citizens
of a state where any plaintiff is a citizen. Capital Indemnity Corp. v. Russellville
Steel Company, Inc., 367 F.3d 831, 835 (8th Cir.2004). A corporation is a citizen
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of the state in which it is incorporated and of the state where it has its principal
place of business. 28 U.S.C. § 1332(c)(1).
Determination of citizenship for the purpose of diversity is a mixed question
of law and fact. Altimore v. Mount Mercy College, 420 F.3d 763, 768 (8th
Cir.2005). Whether diversity of citizenship exists is determined at the time the
suit is filed. Grupo Dataflux v. Atlas Global Group, L.P., 541 U.S. 567, 570-71
(2004). The time of filing rule “measures all challenges to subject matter
jurisdiction premised upon diversity of citizenship against the state of facts that
existed at the time of filing.” Id. at 571 (characterizing time-of-filing rule as
hornbook law taught to first-year law students in any basic civil procedure course).
In certain cases, a jurisdictional defect can be cured by dismissal of a
dispensable party that destroys jurisdiction. Grupo Dataflux, 541 U.S. at 571;
Caterpillar Inc. v. Lewis, 519 U.S. 61, 74 (1996) (both holding that dismissal of
nondiverse defendant will cure initial jurisdictional defect). Rule 21 provides that
“[p]arties may be dropped or added by order of the court on motion of any party or
of its own initiative at any stage of the action on such terms as are just.”
Fed.R.Civ.P. 21. “It is well settled that Rule 21 invests district courts with
authority to allow a dispensable nondiverse party to be dropped at any time, even
after judgment has been rendered.” Newman-Green, Inc. v. Alfonzo-Larrain, 490
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U.S. 826, 832 (1989).
That is not to say, however, that the court can confer jurisdiction that was
not present at the outset by permitting addition or substitution of a party. See
Aetna Cas. & Sur. Co. v. Hillman, 796 F.2d 770, 776 (5th Cir.1986) (noting that
“[j]urisdiction cannot be created retroactively by substituting a diverse claimant
for a nondiverse party”). While a district court can “remedy inadequate
jurisdictional allegations,” it cannot remedy “defective jurisdictional facts.”
Newman-Green, 490 U.S. at 831, 832 n. 5; Iron Cloud v. Sullivan, 984 F.2d 241,
243-44 (8th Cir.1993); see Whitmire v. Victus Ltd., 212 F.3d 885, 888 (5th
Cir.2000); State Farm Mutual Automobile Ins. Co. v. Narvaez, 149 F.3d 1269,
1272 (10th Cir.1998) (rejecting attempts to add new claims to satisfy the amount
in controversy necessary for diversity jurisdiction); Mills v. State of Maine, 118
F.3d 37, 53-54 (1st Cir.1997) (denying motion to add new parties to case to
preserve a federal forum); 4 James Wm. Moore, et al, Moore's Federal Practice §
15.14 at 15-34 (3d ed. 1999) (“Essentially, a plaintiff may correct the complaint to
show that jurisdiction does in fact exist; however, if there is no federal
jurisdiction, it may not be created by amendment.”)
In the present case, there is no evidence that complete diversity was in fact
present at the inception of this action. Defendants CT USA, CT Leasing and
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Kodner are all citizens of Missouri, as is Plaintiff.
The record before the Court shows that there was no complete diversity
among Plaintiff and all defendants at the inception of this action. This Court
accordingly had no subject matter jurisdiction over the action. If a federal court
lacks subject matter jurisdiction, it must dismiss the action. Fed.R.Civ.P. 12(h)(3).
Likewise, because the Court lacks jurisdiction, it would have no jurisdiction
over Defendant’s counterclaims.
Conclusion
Based upon the foregoing analysis, the Court is without jurisdiction over
this matter and it must therefore be dismissed.
Accordingly,
IT IS HEREBY ORDERED that Defendants Braintree Brands, LLC and
John R. McCarthy’s Motion to Dismiss for Lack of Subject Matter Jurisdiction,
[Doc. No. 60], is granted
IT IS FURTHER ORDERED that Plaintiff’s Motion to Dismiss
Counterclaim, [Doc. No. 61], is granted.
Dated this 6th day of May, 2013.
_______________________________
HENRY EDWARD AUTREY
UNITED STATES DISTRICT JUDGE
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