Novus Franchising, Inc. v. Superior Entrance Systems, Inc. et al
AMENDED ORDER granting 45 Motion for Leave to File surreply. Motion for stay of proceedings 31 to be decided after 5/24/12 injunction hearing. Signed by District Judge William M. Conley on 5/21/2012. (voc)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF WISCONSIN
NOVUS FRANCHISING, INC.,
OPINION AND ORDER
SUPERIOR ENTRANCE SYSTEMS, INC.,
SUPERIOR GLASS, INC., and
KNUTE R. PEDERSEN,
Before this court are defendants’ motion for leave to file a sur-reply to plaintiff’s
motion for a preliminary injunction (dkt. #45) and defendants’ motion to stay
proceedings in the case (dkt. #31). The former will be granted, and the latter decided
after the hearing.
Motion for Leave to File Sur-Reply
Earlier in this case, plaintiff sought, and this court granted, permission to file a
reply brief in support of plaintiff’s motion for a preliminary injunction.
Defendants now seek leave to file a ten page sur-reply brief to respond to plaintiff’s reply
brief. As defendants point out, this court’s standard practice on such motions is to allow
the respondent the final word. See Procedure to be Followed on Motions for Injunctive Relief,
plaintiff extraordinary relief by allowing a reply, the court will grant defendants the same
relief, but, in addition to limiting the sur-reply to ten pages, will limit argument and
supporting materials to those matters raised in plaintiff’s reply. In addition, any surreply must be filed with this court by 1pm on May 22.
Motion to Stay the Proceedings
Defendants have moved to stay all proceedings in this case on a theory that
plaintiff is a foreign corporation transacting business in Wisconsin without having
obtained a certificate of authority to do so from the Wisconsin Department of Financial
Institutions. Under Wis. Stat. 180.1502(1), such a corporation “may not maintain a
proceeding in any court in [Wisconsin].” Plaintiff concedes that it has not obtained the
necessary certificate, but denies that it has ever transacted business in Wisconsin.
As an initial matter, defendants’ motion will be denied to the extent it seeks to
stay proceedings on plaintiff’s federal law claims (namely: trademark infringement under
the Lanham Act). Wisconsin Statute 180.1502(1) is inapplicable to federal law claims in
federal court, if not facially then as a matter of federal supremacy.
This leaves two
potential stay-related issues for the court’s hearing on May 24: (1) the factual and legal
question of whether plaintiff has been “transacting business” in Wisconsin; and (2) the
legal question of whether § 180.1502(1) bars plaintiff’s state law claims in federal court.
As to the first question, the court finds that defendants have thus far failed to
show that plaintiff transacts business in Wisconsin. Defendants allege that plaintiff “has
executed Franchise Agreements, collected royalties, sold products , sent correspondence
to companies and individuals in Wisconsin, and attempted to profit from its business
transactions in the State of Wisconsin.” (Dkt. #31) Plaintiff admits that it corresponds
with and sends supplies to its franchisees in Wisconsin, and collects royalty checks sent
from Wisconsin, but denies that it exercises any control over day-to-day operations of the
franchised businesses. (Dkt. #33, p3) Plaintiff also avers that each Wisconsin franchise
agreement was sent unsigned to the franchisee, and the executed copy was subsequently
signed by plaintiff’s officers in Minnesota. (Id.; dkt. #34 ¶4-5) The court understands
plaintiff to be denying that it “sells products” or “engages in business transactions” in
Wisconsin. At the hearing, both sides will be allowed to present evidence to show why
this denial is factually true or false, and to argue whether plaintiff’s franchising actions
constitute “transacting business” as a matter of law.
The second question before the court is one raised sua sponte, and the parties may
(but need not) address it at the hearing. The question is whether a state door-barring
statute such as § 180.1502(1) prevents a federal court from exercising its supplemental
jurisdiction to hear state law claims. This appears to be a somewhat unsettled legal issue.
See 6A Charles Alan Wright, Arthur Miller & Mary Kay Kane, Federal Practice and
Procedure § 1569.
In Woods v. Interstate Realty Company, 337 U.S. 535 (1949), the Supreme Court
found that state door-barring statutes, such § 180.1502(1), prevent a federal court
exercising diversity jurisdiction to hear state law claims. Id. at 538 (“[A] right which local
law creates but which it does not supply with a remedy is no right at all for purposes of
enforcement in a federal court in a diversity case; . . . where in such cases one is barred
from recovery in the state court, he should likewise be barred in the federal court.”).
However, the Woods holding may not be dispositive here for two reasons. First, this 1949
case holding has been called into question by some courts in light of Hanna v. Plumer,
380 U.S. 460 (1965). See Wright & Miller § 1569; Domino Media, Inc. v. Kranis, 9 F.
Supp. 2d 374, 381 (S.D.N.Y. 1998). Second, Woods involved a federal court sitting in
diversity, whereas here the court may take up plaintiff’s state law claims under its
supplemental jurisdiction. 28 U.S.C. § 1367. To the extent that § 180.1502(1) can be
characterized as a law governing capacity to sue (as opposed to a substantive right), the
court notes that plaintiff already has capacity to come before this court by virtue of his
federal claims, which cannot be taken away by state law.
Finally, the court hastens to add that while it is willing to grapple with the abovementioned legal and factual questions at the upcoming injunction hearing, plaintiff can
easily null defendants’ argument by registering with the State of Wisconsin. Of course,
while the court is under the impression that the procedure is relatively quick and
inexpensive, it also appreciates there may be business or tax reasons which will cause it
not to do so.
IT IS ORDERED that:
1) defendants’ motion for leave to file a sur-reply (dkt. # 45) is GRANTED; and
2) defendants’ motion for a stay of proceedings will be decided after the May 24
Entered this 21st day of May, 2012.
BY THE COURT:
WILLIAM M. CONLEY
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