LG2, LLC v. American Dairy Queen Corporation

Background

LG2, a Texas limited liability company owned by Jordan Giles and Terry Giles, held an agreement granting the exclusive right to use the Dairy Queen trademark and name within a territory in Oklahoma. American Dairy Queen Corporation (ADQ) is a Delaware corporation with its principal place of business in Bloomington, Minnesota. LG2 alleged that ADQ would not permit it to relocate a Dairy Queen restaurant unless LG2 entered a new franchise agreement or reduced its menu.

LG2’s complaint asserted three claims: breach of contract and the implied covenant of good faith and fair dealing; a violation of the Minnesota Franchise Act (MFA); and a request for a declaration concerning whether the legacy agreement could be terminated. The court had previously dismissed the MFA claim and denied ADQ’s request to transfer venue.

After the MFA claim was dismissed, LG2 moved for leave to file a first amended complaint. Magistrate Judge John F. Docherty denied that motion. He concluded that the motion was improperly brought as a motion to amend because its substance sought reconsideration of the earlier MFA ruling. He also concluded that amendment would be futile, meaning the proposed amended complaint still could not survive a motion to dismiss.

Review of the Motion’s Form

The district court reviewed the magistrate judge’s ruling on the motion’s form for clear error or a decision contrary to law. The court explained that the content of a motion, rather than its title, determines how the court handles it. It agreed that the proposed amendment did not present new facts that would revive the dismissed claim and that LG2 was effectively challenging the earlier legal ruling on MFA liability.

Because LG2 had not followed the local procedures for seeking reconsideration, the district court held that the magistrate judge properly denied the motion as improper.

Futility of the Proposed Amendment

The district court separately reviewed de novo the magistrate judge’s conclusion that the amendment would be futile. Under the MFA provisions discussed in the opinion, the relevant conduct had to involve a sale or offer to sell a franchise or an interest in a franchise.

The court had previously dismissed LG2’s MFA claim because it did not allege that ADQ sold or offered to sell the franchise. LG2 argued that incorporating ADQ’s Operations Manual would add more specific allegations about ADQ’s consent to the assignment from its Minnesota headquarters and about the assignment becoming effective when ADQ signed it.

The court held that these additional details still described ADQ’s consent to the assignment but did not allege that ADQ sold or offered to sell the franchise. The proposed amended complaint therefore would not withstand a motion to dismiss, making the amendment futile.

Disposition

The court affirmed the April 3, 2023 order of Magistrate Judge John F. Docherty denying LG2’s motion for leave to file a first amended complaint.