LG2, LLC v. American Dairy Queen Corporation

Background

LG2, LLC, a Texas limited liability company, acquired an agreement giving it the exclusive right to use the Dairy Queen name and trademark in a specified Oklahoma territory. LG2 intended to relocate the restaurant to property about 1.5 miles from its existing location. American Dairy Queen Corporation told LG2 that it would not allow the restaurant to open at the new property unless LG2 entered a new franchise agreement and/or reduced its menu.

LG2 asserted three claims: breach of contract and breach of the implied covenant of good faith and fair dealing; violation of the Minnesota Franchise Act; and a request for a declaratory judgment. American Dairy Queen moved to transfer the case to the Eastern District of Texas or, alternatively, to dismiss Count II under Federal Rule of Civil Procedure 12(b)(6), which permits dismissal for failure to state a legally sufficient claim.

Transfer of Venue

The court denied the motion to transfer. Under 28 U.S.C. § 1404(a), a court may transfer a case to another district where it could have been brought if transfer would serve the convenience of the parties and witnesses and the interests of justice. The court assumed, without deciding, that the case could properly have been filed in the Eastern District of Texas, then evaluated the remaining factors.

The convenience-of-the-parties factor favored transfer because LG2’s owners lived in Texas and two of the four relevant American Dairy Queen employees lived there. The convenience-of-the-witnesses factor was neutral because each side identified an important nonparty witness who was outside the subpoena power of the other side’s preferred forum. The court found that several interests-of-justice factors either weighed against transfer or were neutral, including LG2’s choice of forum, comparative litigation costs, and the benefit of having a Minnesota court address potentially novel Minnesota-law issues. Because American Dairy Queen did not show that the factors strongly favored transfer, the court denied the motion to transfer venue.

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 was drafted, approved, and communicated from American Dairy Queen’s Minnesota offices. The court concluded that those actions concerned American Dairy Queen’s consent to the assignment from the prior franchise owner to LG2, rather than a sale or offer to sell a franchise under the Act.

The court also relied on the Act’s treatment of franchise sales that are not effected by or through a franchisor and its clarification that a sale is not effected by or through a franchisor merely because the franchisor may approve or disapprove a different franchisee. The court therefore held that the Minnesota Franchise Act did not apply to LG2’s claims in this action and granted the motion to dismiss Count II. The order did not dismiss the other counts.

Deadline to Answer and Disposition

The court granted American Dairy Queen’s request to stay its deadline to answer the remaining allegations while the partial dismissal motion was pending, reasoning that requiring a partial answer would create piecemeal litigation. The order required American Dairy Queen to answer LG2’s complaint within 14 days of January 12, 2023. Judge Wilhelmina M. Wright denied the motion to transfer, granted the motion to dismiss Count II, and entered the 14-day answer deadline.