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Inc. v. Schulenburg

United States District Court, N.D. Ohio, Eastern Division

June 22, 2018

KENNETH S. SCHULENBURG, et al., Defendants.


          Benita Y. Pearson United States District Judge

         Pending is Defendants' Motion to Dismiss, Stay, or in the Alternative, to Transfer Venue. ECF No. 23. Plaintiff filed a response in opposition. ECF No. 30. Defendants replied. ECF No. 36. The Court heard oral argument. The Court has been advised, having reviewed the record, including the parties' briefs and applicable law. For the reasons stated below, the motion (ECF No. 23) is denied.

         I. Background

         This action arises out of a franchise relationship between Plaintiff Handel's Enterprises, Inc. (“Handel's”) and Defendants Kenneth S. Schulenburg, Juliana Ortiz, and Moonlight101, Inc. (collectively “Defendants”). ECF No. 1. Handel's was founded in 1945 and is a franchisor in the ice cream industry with forty-one locations in nine states, including company-owned and franchise locations. Id. at PageID#: 6, ¶ 21.

         On October 14, 2015, Defendant Schulenburg met with Handel's in Ohio to discuss the possibility of purchasing a Handel's franchise in the San Diego, California area. Id. at PageID#: 7, ¶¶ 24-26. During the meeting, Handel's provided Defendant Schulenburg with certain franchise disclosures, including a proposed Franchise Disclosure Document (“FDD”) that was registered with the California Department of Business Oversight with an effective date of April 13, 2015. Id. at ¶ 25. The FDD contains a Unit Franchise Agreement (the “Franchise Agreement”) that governs the terms of the parties' franchisor-franchisee relationship. Id. Defendant Schulenburg signed the FDD at the October 14, 2015 meeting. Id. at ¶ 26.

         Under the Franchise Agreement, Defendant Schulenburg was assigned a three-mile radius surrounding the Lofts at Moonlight Beach in Encintas, California, and was also awarded the option to open a second franchise location in the Gaslamp Quarter of downtown San Diego. Id. at PageID#: 8, ¶ 29. On or about January 22, 2016, Handel's and Defendant Schulenburg executed the Franchise Agreement, commenced a five year initial term, and opened the Encinitas Franchise. Id. at ¶ 30. Defendant Schulenburg attended a two-week Handel's training in Ohio, at which Handel's provided Schulenburg with confidential information pertaining to its operations. Id. at ¶ 32.

         In mid-2017, Defendant Schulenburg began to discuss the development of his second Handel's location in San Diego, California, and chose a location at 425 Market Street, San Diego, California, which is in an area known as the Gaslamp Quarter (the “Gaslamp location”). Id. at PageID#: 21, ¶ 87. Handel's did not approve the development of a Handel's franchise at this location. Id. at ¶ 89. In December 2017, Defendant Schulenburg refused to provide Handel's with both a copy of the final lease for the Gaslamp location and the franchisee fee. Id. at PageID#: 22, ¶¶ 92-93. On December 15, 2017, Handel's sent Defendants a notice of breach, informing Defendants of their failure to provide the executed lease to Handel's and to pay the required franchise fee, as required under the Franchise Agreement. ECF No. 30 at PageID#: 1040. Handel's subsequently engaged Defendants in discussions to resolve matters concerning their failure to pay the franchise fee and to execute all other duties under the Franchise Agreement. ECF No. 1 at PageID#: 12-13.

         On January 30, 2018, Defendants filed an action in California state court (the “California action”). ECF No. 30 at PageID#: 1041. Under the California action, Defendants sought relief from Handel's alleged violation of California franchise law-Handel's allegedly presented and had Defendant Schulenburg sign an unauthorized FDD that was not yet approved by the California Department of Business Oversight. ECF No. 23-6. The state action was removed to the United States District Court for the Southern District of California, No. 3:18-CV-00513 GPC WVG.[1] Id.

         On March 5, 2018, Handel's filed the present action against Defendants. ECF No.1. The Verified Complaint asserts claims for federal trademark infringement, federal trademark dilution, federal false designation of origin, unfair competition, breach of contract, misappropriation of trade secrets, fraud, fraudulent concealment, conversion, declaratory judgment, and tortious interference. ECF No. 1.

         On March 27, 2018, Defendants filed the instant motion to dismiss Handel's suit for lack of subject matter jurisdiction and improper venue, or, alternatively, stay, or transfer the case to the Southern District of California. ECF No. 23. After notice to the parties, the Court held a hearing on the motion to dismiss, stay, or transfer venue, on May 9, 2018. ECF No. 19. Having been advised by a review of the record, applicable law, and oral advocacy, including the presentation of evidence, the Court hereby denies the motion (ECF No. 23).

         II. Law and Analysis

         A. Motions to Dismiss

         1. Lack of Subject Matter Jurisdiction

         Pursuant to Fed.R.Civ.P. 12(b)(1), Defendants moves to dismiss the action for lack of subject matter jurisdiction.

         “When the defendant challenges subject matter jurisdiction through a motion to dismiss, the plaintiff bears the burden of establishing jurisdiction.” Hedgepeth v. Tenn., 215 F.3d 608, 611 (6th Cir. 2000). “[W]here a defendant argues that the plaintiff has not alleged sufficient facts in her complaint to create subject matter jurisdiction, the trial court takes the allegations in the complaint as true.” Nichols v. Muskingum Coll., 318 F.3d 674, 677 (6th Cir.2003).

         The Verified Complaint asserts that the Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1331 and 1332. ECF No. 1 at PageID#: 4, ¶¶ 14-15. § 1331 grants the Court jurisdiction over all claims arising under federal law. § 1332 grants the Court jurisdiction over all claims in which the matter in controversy exceeds $75, 000 and is between citizens of different states.

         In the present action, there is no dispute that the Verified Complaint asserts claims arising under federal law-“15 U.S.C. § 1121 and 28 U.S.C. § 1338(a) (trademarks), 28 U.S.C. § 1338(b) (unfair competition when joined with a substantial and related claim under the Trademark Laws of the United States, 15 U.S.C. § 1051 et seq.), and 28 U.S.C. § 2201(a) (Declaratory Judgment Act).” Id. at ¶ 15. Moreover, there is no dispute that the required diversity of citizenship exists in this matter-Handel's is incorporated in Ohio with its principal place of business in Ohio, Defendants Schulenburg and Ortiz are citizens of California, and Defendant Moonlight101, Inc. is incorporated in California, with its principal place of business in California-and, that the amount in controversy exceeds $75, 000.00. Id. at ¶ 14.

         Accordingly, the Court has subject matter jurisdiction over all claims against Defendants. The Court therefore denies Defendants' motion to dismiss for lack of subject matter jurisdiction.

         2. Improper Venue

         Next, Defendants challenge the propriety of venue in the Northern District of Ohio. ECF No. 23-1 at PageID#: 555. The Franchise Agreement at issue in this case contains a forum selection clause designating Ohio as a proper forum for the adjudication of disputes:

         19.03 Disp ...

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