Stoelting LLC v. Levine et al

Filing 62

ORDER denying 48 Motion to Dismiss for Lack of Jurisdiction. (cc: all counsel) (Griesbach, William)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
PW STOELTING LLC,
Plaintiff,
v.

Case No. 16-C-381

STEVEN J. LEVINE, ADVANCED
FROZEN TREAT TECHNOLOGY, INC.
d/b/a SUPERIOR FREEZERS CALIFORNIA,
and PRISM MARKETING CORPORATION
d/b/a SUPERIOR FREEZERS NORTHWEST,
Defendants.

DECISION AND ORDER

Plaintiff PW Stoelting LLC filed this action against Defendants Advanced Frozen Treat
Technology (AFTT), Prism Marketing Corporation (Prism), and Steven Levine alleging
infringement of a federally registered trademark in violation of 15 U.S.C. § 1114 against all
Defendants; unfair competition and making of false and misleading designations and
representations in violation of 15 U.S.C. § 1125(a) against all Defendants; and breach of
contract against AFTT and Prism. The court previously denied Defendants’ motion to dismiss
for lack of personal jurisdiction and venue.
Defendants have now moved to dismiss Plaintiff’s claims for lack of subject matter
jurisdiction under Federal Rule of Civil Procedure 12(b)(1). (ECF No. 48.) Defendants
contend Plaintiff’s purported trademark infringement claims are actually nothing more than
contract claims in disguise and thus federal question jurisdiction is not present under 28
U.S.C. § 1331. Defendants also allege that Plaintiff failed to satisfy the amount in controversy

necessary for diversity jurisdiction. The facts of the case are set forth in the court’s order
deciding Defendants’ previous motion to dismiss and will not be repeated here. For the reasons
set forth below, Defendants’ motion to dismiss will be denied
ANALYSIS
Plaintiff asserts that federal jurisdiction exists under 28 U.S.C. § 1338(a), which states
that “[t]he district courts shall have original jurisdiction over any civil action under any Act of
Congress relating to patents, plant variety protection, copyrights and trademarks.” The
complaint sets forth two causes of action: trademark infringement against all Defendants and
breach of distributorship agreements against AFTT and Prism. On the face of the complaint,
it appears federal jurisdiction exists for the trademark infringement claim. However, Defendants
allege that Plaintiff engaged in artful pleading and that the entirety of the matter is nothing more
than a contract dispute in disguise. “[I]f the complaint is formally sufficient but the contention
is that there is in fact no subject matter jurisdiction, the movant may use affidavits and other
material to support the motion.” United Phosphorus, Ltd. v. Angus Chemical Co., 322 F.3d
942, 946 (7th Cir. 2003). As the party asserting jurisdiction, Plaintiff has the burden of proof
to establish federal jurisdiction. Id.
The majority of courts have adopted the rule outlined by Judge Friendly in T.B. Harms
Co. v. Eliscu, to determine if trademark subject matter jurisdiction exists:
an action “arises under” the Copyright Act if and only if the complaint is for a
remedy expressly granted by the Act, e.g., a suit for infringement or for the
statutory royalties for record reproductions, or asserts a claim requiring
construction of the Act . . . or, at the very least and perhaps more doubtfully,
presents a claim where a distinctive policy of the Act requires that federal
principles control the disposition of the claim.

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339 F.2d 823, 828 (2d Cir. 1964). The Seventh Circuit is among this majority. See Int’l.
Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912 (7th Cir. 2001).
Applying that test here, it is clear that the court has subject matter jurisdiction under §
1338(a). The complaint alleges that Plaintiff owns “a valid and subsisting United States
Trademark Registration No. 0823348 on the Principal Register of the United States Patent and
Trademark Office for the trademark Stoelting® (hereinafter "Stoelting® Mark") for frozen
confection and distributing equipment, which has become incontestable within the meaning of
Section 15 of the Lanham Act, 15 U.S.C. § 1065." Compl. ¶ 11. Although the complaint
alleges that Defendants AFTT and Prism, both of which are controlled by Levine, were
authorized distributors of certain of Plaintiff's products, the complaint also alleges the distributor
agreements for both have been terminated and, along with them, any authorization either had
to thereafter use Plaintiff's Stoelting® Mark. Following termination of the distributorship
agreements, Plaintiff sent Defendants letters demanding that they "immediately cease and desist
from using the Stoelting® Mark, and demanding (again) that they return all marketing,
promotional and advertising materials consistent with paragraph 7.6 of the Agreements."
Compl. ¶ 45. Despite the termination of their authority to use the Stoelting® Mark, the
complaint alleges that the Defendants have continued to use the Stoelting® Mark at their
websites and in their promotional, marketing and advertising materials thereby causing
confusion to the public and a negative impact to Plaintiff's brand and reputation. Based on these
allegations, Plaintiff seeks remedies specific to the Lanham Act: “injunctive and declaratory
relief and an award of any actual damages, including Defendant’s profits, as well as enhanced
damages and profits, reasonable attorneys’ fees and costs of the action under Section 34 and 35
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of the Lanham Act, 15 U.S.C. §§ 1116, 1117, together with prejudgment and post-judgment
interest.” Compl. ¶ 80.
Notwithstanding the fact that the complaint clearly sets forth a claim for trademark
infringement, Defendants argue that the trademark claims are entirely derivative of contract
issues. In support of their motion to dismiss, Defendants rely primarily on Int’l. Armor &
Limousine Company. But Int’l. Armor & Limousine Company was an action for declaratory
relief in which the plaintiff sought a determination that the agreement he entered into for the sale
of his business did not convey his right to continue using his name and business history so as to
violate the Lanham Act. In other words, the dispute the plaintiff presented to the court was
over the meaning of the terms of the contract for the sale of his business. The plaintiff's
complaint included no claim for damages under the Lanham Act. Although the defendant
purchaser of the business counterclaimed for damages under the Lanham Act, it is the complaint
that determines subject matter jurisdiction, not a counterclaim. See Caterpillar Inc. v. Williams,
482 U.S. 386, 392 (1987) ("The presence or absence of federal-question jurisdiction is governed
by the 'well-pleaded complaint rule,' which provides that federal jurisdiction exists only when
a federal question is presented on the face of the plaintiff's properly pleaded complaint.").
Here, by contrast, Plaintiff has sued Defendants directly for damages it claims it is
entitled to under the Lanham Act for infringement of Plaintiff's Stoelting® Mark. To prevail
on its Lanham Act claim, Plaintiff will have to prove that Defendants' use of its Stoelting® Mark
was without consent. 15 U.S.C. § 1114(1)(a). Defendants apparently take the position that
such consent was given under the distributorship agreements and that Plaintiff failed to
effectively terminate those agreements. If Defendants are successful in proving that the
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distributorship agreements were not terminated, they may be able to defeat Plaintiff's trademark
claim. But that doesn't mean the court lacks subject matter jurisdiction. The possibility that
the trademark claim may fail does not mean federal jurisdiction is lacking at the outset. A
federal court is not deprived of jurisdiction over a [trademark] action just because it involves
a question of contract law. Cf. Scandinavian Satellite Sys. v. Prime TV Ltd., 291 F.3d 839, 844
(D.C. Cir.2002) (“[W]hen a complaint alleges a claim or seeks a remedy provided by the
Copyright Act, subject matter jurisdiction under § 1338(a) is not lost merely because a contract
ownership dispute may be implicated.”).
The case for federal jurisdiction is even more clear as to the claim against Defendant
Levine. The parties do not dispute that Levine was not an individual party to the contracts at
issue. Based upon Plaintiff’s allegations, Levine infringed upon the Stoelting® Mark in a
manner separate and apart from the AFTT/Prism distribution agreements. Plaintiff alleges that
Levine used the Stoelting® Mark on the website of a third company, SES Associates, and did
so in a similar manner to the way AFTT and Prism used the trademark on their own websites.
Regardless of the interpretation of the distribution agreements, Levine clearly did not have
authority to individually take the Stoelting® Mark and use it with another company.
Accordingly, there is no serious argument that Plaintiff’s trademark claim against Levine is
derivative of a contract issue. For this reason as well, federal jurisdiction under 28 U.S.C. §
1338(a) is present. And because federal jurisdiction exists under 28 U.S.C. § 1338(a), it is not
necessary to determine whether it also exists under 28 U.S.C. § 1332.
CONCLUSION
For the reasons set forth above, the Defendants’ motion to dismiss for lack of subject
matter jurisdiction is DENIED. The Clerk is directed to set this matter on the Court’s calendar
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for a Rule 16(b) Scheduling Conference. See Fed. R. Civ. P. 16(b).
SO ORDERED at Green Bay, Wisconsin this 31st

day of January, 2017.

s/ William C. Griesbach
William C. Griesbach, Chief Judge
United States District Court

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