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Befco Manufacturing Co. v. IST Industries, Inc.

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

July 7, 2014

Befco Manufacturing Company, Plaintiff,
v.
IST Industries, Inc., and James Broad Defendants.

MEMORANDUM OPINION AND ORDER

ELAINE E. BUCKLO, District Judge.

In this action, plaintiff asserts claims of unfair competition and false designation of origin under the Lanham Act; misappropriation of trade secrets under the Illinois Trade Secrets Act; and common law breach of fiduciary duty. Defendants moved for abstention and a stay of these proceedings under Colorado River Water Conservation Dist. v. U.S., 424 U.S. 800 (1976), arguing that they are parallel to an ongoing case plaintiff filed in Illinois state court in October of 2011. In the course of analyzing the motion to stay, I became concerned that I may lack subject matter jurisdiction pursuant to International Armor & Limousine Co. v. Moloney Coachbuilders, Inc., 272 F.3d 912 (7th Cir. 2001) and directed the parties to brief the issue. Not surprisingly, their submissions reveal a disagreement over whether jurisdiction is proper. Having considered their respective arguments and reviewed the case law from this circuit and others, I conclude that jurisdiction is lacking and dismiss the case for the reasons explained below.

I.

Plaintiff's complaint alleges that on July 7, 2010, it entered into an Asset Purchase Agreement (the "Agreement") pursuant to which it acquired all of the assets of a company called Midwest Imperial Steel Fabricators, LLC, ("MISF"), including all of that company's intellectual property. Plaintiff claims that per the Agreement, it bought a "family of trade names, trademarks and domain names that utilized the designation Imperial.'" Cmplt. at ¶¶ 9-10. This includes the designations Midwest Imperial, Imperial Steel Tank, logos featuring a crown, and the Internet domain name www.midwestimperial.com. Cmplt. at ¶¶ 10-11. Plaintiff refers to this intellectual property collectively as the "Imperial Designations." Id. at ¶ 11.

The complaint attaches the Agreement, which identifies plaintiff, as Buyer, and Phillip Firrek, assignee for the benefit of MISF's creditors, as Seller. Cmplt., Exh. A, at 1. In support of its ownership allegations, plaintiff points to section A of the Agreement, captioned "ASSETS TO BE SOLD, " which recites:

A. The Seller will sell substantially all of the assets of MISF in a single lot "AS IS WHERE IS" basis and without express or implied warranties. The assets of MISF include the assets of IST Industries, Inc., d/b/a/ Imperial Steel Tank. The assets to be sold shall include:
...
(iii) The right to unlimited use of all corporate trade and assumed names, telephone numbers and fax numbers, all internet domain names, any and all intellectual property of Seller, and the right to use Seller's logo, to both MISF and IST Industries, Inc., d/b/a/Imperial Steel Tank.

Cmplt., Exh. A, at 2.

The complaint goes on to allege that immediately after the Agreement took effect, defendants "began doing business as IST and began using identical and confusingly similar trade names to [plaintiff]'s Imperial Designations, " including on the website www.imperialsteeltank.com, which was nearly identical to plaintiff's site. Id. ¶¶ 13-14. Plaintiff claims that this conduct violates the Lanham Act and seeks actual and treble damages, plus interest, as well as exemplary and punitive damages, attorneys' fees, and costs.

In support of their motion for abstention and a stay, defendants argued that plaintiff's federal claim presents substantially the same issues as plaintiff's state action. Defendants attached plaintiff's amended complaint in the state case, dated October 17, 2012, as well as defendants' respective answers and affirmative defenses to plaintiff's claims in that action. The amended complaint includes allegations that the Agreement transferred to plaintiff "substantially all of the assets of MISF in a single lot [which] shall include the assets of IST Industries, Inc., d/b/a Imperial Steel Tank, " and specifically including "any and all intellectual property of Seller, and the right to use Seller's logo, to both MISF and IST Industries, Inc., d/b/a Imperial Steel Tank." The amended complaint goes on to allege that defendants (and others) breached the Agreement by "continu[ing] to operate internet domain names owned by Plaintiff, including www.imperialsteeltank.com." Def.'s Mem., Exh. 1 at ¶¶ 26, 27, 81. See also id. at ¶¶ 76-78. (DN 6-1). Defendants' answers and affirmative defenses admit that the Agreement purports, on its face, to transfer ownership of IST's assets to plaintiff. Defendants allege, however, that MISF and IST were distinct corporate entities at the time of the Agreement, and that the Seller, as assignee of MISF's assets for the benefit of MISF's creditors, was not authorized to sell ISP's assets. Def.'s Mem., Exhs. 2, 3 (DN 6-2, 6-3). Defendants also assert that plaintiff's post-sale conduct waived its breach of contract claim.

In their motion to stay, defendants argued that the state court pleadings reveal that the "focal point of both cases is the Agreement for the sale of Midwest's assets and whether the Agreement operated to transfer ownership of Imperial Steel's assets." Def.'s Mem., 6. Similarly, in their supplemental brief addressing jurisdiction, defendants argue that "[t]he real issue here is a determination of what property was transferred pursuant to the Agreement." Def.'s Supp. Mem., 5.

Plaintiff, for its part, insists that its trademark claims are not derivative of its contract claim, and that Int'l Armor does not control. In plaintiff's view, the trademark rights asserted in this action flow from plaintiff's undisputed ownership of the Midwest Imperial trademark and crown logo, not from its contested ownership of the accused Imperial Steel trademark and crown logo. Accordingly, plaintiff reasons, resolution of the contract dispute will ...


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