LG2, LLC v. American Dairy Queen Corporation

Background

LG2, LLC, a Texas limited liability company owned by Jordan Giles and Terry Giles, acquired an Oklahoma Dairy Queen franchise agreement. The agreement originated in 1961 and granted the exclusive right to use the Dairy Queen trademark and name in Johnson County, Oklahoma. After the restaurant’s relocation, American Dairy Queen Corporation told LG2 that it could not open at the new property unless it signed a new franchise agreement and/or reduced its menu.

LG2 brought three claims: breach of contract and the implied covenant of good faith and fair dealing, violation of the Minnesota Franchise Act, and declaratory judgment. American Dairy Queen moved to transfer the case to the Eastern District of Texas. Alternatively, it moved under Federal Rule of Civil Procedure 12(b)(6), which allows dismissal for failure to state a legally sufficient claim, of LG2’s Minnesota Franchise Act claim.

Motion to Transfer

The court assumed, without deciding, that the case could properly have been filed in the Eastern District of Texas. It then evaluated whether transfer would be more convenient for the parties and witnesses and would serve the interests of justice. American Dairy Queen had the burden to show that those factors strongly favored transfer.

The court found that convenience for the parties favored Texas because LG2’s owners lived there and two relevant American Dairy Queen employees lived there. The convenience-of-witnesses factor was neutral because each side identified a potentially important nonparty witness who was outside the other forum’s subpoena power. The interests-of-justice factors were mostly neutral or weighed against transfer. In particular, LG2’s choice of Minnesota received some, though reduced, deference; transferring the case would largely shift costs rather than reduce them; and Minnesota had an advantage in deciding novel Minnesota-law questions. The court denied the motion to transfer.

Minnesota Franchise Act Claim

The court granted American Dairy Queen’s motion to dismiss Count II. LG2 argued that the Minnesota Franchise Act applied because the franchise assignment documents were drafted, signed, approved, and communicated from American Dairy Queen’s Minnesota offices. The court held that LG2 had not shown that those actions amounted to a statutory “sale” or “offer to sell” a franchise.

The court reasoned that American Dairy Queen’s consent to the assignment from C & K Cannon Enterprises, LLC, to LG2 concerned approval of an assignment rather than a direct sale or offer to sell by the franchisor. The court therefore concluded that the Minnesota Franchise Act did not apply to LG2’s claims in this action. The opinion does not state that the dismissal was with or without prejudice.

Answer Deadline and Disposition

Because American Dairy Queen moved to dismiss only one count, the court granted its request to stay the deadline to answer the remaining allegations and avoid piecemeal responses. The order required American Dairy Queen to answer LG2’s complaint within 14 days of January 12, 2023.

The court therefore: (1) denied American Dairy Queen’s motion to transfer; (2) granted its motion to dismiss Count II; and (3) required it to answer the complaint within 14 days.