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TeamLogic Inc. v. Meredith Group It LLC

United States District Court, N.D. Texas, Dallas Division

May 8, 2017

TEAMLOGIC, INC., Plaintiff,



         By order filed January 31, 2017, this matter has been transferred for the conduct of all further proceedings and the entry of judgment. (doc. 46.) Before the Court is Defendants Meredith IT, LLC and Karen Meredith's Motion to Dismiss, filed September 29, 2016 (doc. 11). Based on the relevant filings and applicable law, the motion is DENIED.

         I. BACKGROUND

         On September 2, 2016, TeamLogic, Inc. (Plaintiff) filed suit against several defendants for alleged misappropriation of trade secrets and intellectual property, conversion, trademark infringement, conspiracy, violation of the Texas Theft Liability Act, interference with business relationships, unfair competition, unjust enrichment, and breach of contract. (doc. 1 at 1-13.)[1] It seeks injunctive relief, statutory damages and penalties, exemplary damages, and attorneys' fees. (Id. at 13-14.)

         Plaintiff is a California corporation with its principle place of business in Orange County, California. (Id. at 2.) Through franchises, it provides outsourced managed information technology (IT) services for thousands of small-to-medium-sized businesses. (Id. at 3.) It also owns several registered servicemarks, including “TeamLogic” and “TLIT, ” and domain names, including, that are used to identify email addresses and sites for the franchisees. (Id. at 4.) Franchisees are permitted to use Plaintiff's property, including operating systems, compilations of information, customer names and contract information, business strategies, product structure, customer utilization data, pricing, marketing materials, tradenames, trade secrets, and trademarks. (Id. at 3-4.) They “explicitly acknowledge that all of this property and the fruits of its use remain owned by [Plaintiff].” (Id. at 4.)

         On July 18, 2006, Plaintiff entered into a ten-year franchise agreement (the Agreement) with Meredith Group IT, LLC (MIT), [2] a Texas limited liability company with its principle place of business in Irving, Texas. (doc. 1 at 4.) Karen Meredith (Karen) is MIT's principal. (Id. at 5.) As a franchisee, MIT utilized Plaintiff's systems and materials in providing outsourced IT services to customers in the North Texas area. (Id.) Karen's son, Matt Meredith (Matt), handled marketing, and Jon Miller (Miller) was employed as a technician. (Id. at 6.) As part of his employment, Miller had access to Plaintiff's proprietary and trade secrets, including customer contact, data, and pricing information. (Id.) Zachary King (King) was also employed by MIT. (Id. at 3, 5.)

         Sometime in 2015, Karen decided not to renew MIT's franchisee agreement with Plaintiff, but she did not immediately inform it of her decision. (Id. at 4.) In August 2015, Matt formed Greenbean IT, LLC (Greenbean) with the knowledge of both Miller and Karen. (Id. a t 5 .) M a t t a l s o registered the domain name, with knowledge that “TLIT” was an acronym for Plaintiff. (Id.) Plaintiff claims that this was done to make it easier to divert its customers to the new company upon expiration of the Agreement, instead of having them transitioned to another Texas-based franchisee. (Id.) MIT also asked to be released from the required use of the AutoTask system, which Plaintiff used to track its franchisees. (Id.)

         Plaintiff contends that although Karen had decided not to extent MIT's franchise agreement, she “led [it] to believe that she was considering renewal” so that it would “not take steps to prepare to transition [MIT's] customers to another franchisee and so that the customers could be diverted instead to [Greenbean].” (Id. at 4.) Karen also did not send out the required notices to customers and suppliers about the transition to another franchisee at the expiration of the Agreement. (Id. at 7.) Additionally, Miller forwarded customer lists to King and diverted incoming emails to Greenbean. (Id. at 6.) Miller and Matt also assisted in designing and setting up Greenbean's website for managed IT services, which had the same color scheme and taxonomy as Plaintiff's branded materials. (Id.) They also allegedly used Plaintiff's property, including customer lists, to move MIT's customers to Greenbean while Karen “looked the other w a y . ” (Id.) MIT and Plaintiff's franchise relationship ended on July 18, 2016. (Id. at 4.)[3]

         On September 29, 2016, Karen and MIT (Defendants) filed a motion to dismiss. (docs. 11-13.) Plaintiff responded, and Defendants filed a reply. (docs. 25-27, 31-32.) The motion is now ripe for determination.

         II. RULE 12(b)(1) MOTION

         Defendants first move to dismiss Plaintiff's claims under Federal Rule of Civil Procedure 12(b)(1) for lack of subject-matter jurisdiction. (doc. 12 at 9-10.)

         “Federal courts are courts of limited jurisdiction. They possess only that power authorized by Constitution and statute, which is not to be expanded by judicial decree.” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted). They “must presume that a suit lies outside this limited jurisdiction, and the burden of establishing federal jurisdiction rests on the party seeking the federal forum.” Howery v. Allstate Ins. Co., 243 F.3d 912, 916 (5th Cir. 2001).

         A Rule 12(b)(1) motion “may be raised by a party, or by a court on its own initiative, at any stage in the litigation, even after trial and the entry of judgment.” Arbaugh v. Y & H Corp., 546 U.S. 500, 506 (2006). A court must dismiss the action if it determines that it lacks jurisdiction over the subject matter. Fed.R.Civ.P. 12(h)(3); Stockman v. Fed. Election Comm'n, 138 F.3d 144, 151 (5th Cir. 1998). “When a Rule 12(b)(1) motion is filed in conjunction with other Rule 12 motions, the court should consider the Rule 12(b)(1) jurisdictional attack before addressing any attack on the merits.” Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001) (per curiam). A dismissal under Rule 12(b)(1) “is not a determination of the merits, ” and it “does not prevent the plaintiff from pursuing a claim in a court that does have proper jurisdiction.” Id. Accordingly, considering Rule 12(b)(1) motions first “prevents a court without jurisdiction from prematurely dismissing a case with prejudice.” Id.

         A district court may dismiss for lack of subject-matter jurisdiction based on (1) the complaint alone; (2) the complaint supplemented by undisputed facts in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts. Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981) (en banc). A motion to dismiss based on the complaint alone presents a “facial attack” that requires the court to merely decide whether the allegations in the complaint, which are presumed to be true, sufficiently state a basis for subject-matter jurisdiction. See Paterson v. Weinberger, 644 F.2d 521, 523 (5th Cir. 1998). If sufficient, those allegations alone provide jurisdiction. Id. Facial attacks are usually made early in the proceedings. Id. “A facial attack requires the court merely to decide if the plaintiff has correctly alleged a basis for subject matter jurisdiction” by examining the allegations in the complaint, which are presumed to be true. Rodriguez v. Tex. Comm'n on the Arts, 992 F.Supp. 876, 878 (N.D. Tex. 1998) (citations omitted). If the defendant supports the motion with evidence, however, then the attack is “factual” and “no presumptive truthfulness attaches to plaintiff's allegations, and the existence of disputed material facts will not preclude the trial court from evaluating for itself the merits of jurisdictional claims.” Williamson, 645 F.2d at 413. A factual attack may occur at any stage of the proceedings. Menchaca v. Chrysler Credit Corp., 613 F.2d 507, 511 (5th Cir. 1980). Regardless of the nature of attack, the party asserting federal jurisdiction continually carries the burden of proof to show it exists. Ramming, 281 F.3d at 161.

         Although Defendants submitted an appendix with their motion to dismiss and reply (docs. 13, 32), they rely solely on Plaintiff's complaint to support their Rule 12(b)(1) motion to dismiss (doc. 12 at 9-10). Accordingly, their motion presents a facial attack that does not require the resolution of factual matters outside the pleadings. See Williamson, 645 F.2d at 412-13.

         A. Diversity Jurisdiction

         Plaintiff's complaint primarily alleges subject-matter jurisdiction based on diversity of citizenship. (doc. 1 at 1.)

         Diversity jurisdiction is proper only when complete diversity exists between the parties and “the matter in controversy exceeds the sum or value of $75, 000, exclusive of interest and costs.” 28 U.S.C. § 1332(a). “Complete diversity” means that a plaintiff may not share citizenship with any defendant. Whalen v. Carter, 954 F.2d 1087, 1094 (5th Cir. 1992). A party asserting diversity jurisdiction must “distinctly and affirmatively” allege the citizenship of the parties. Getty Oil Corp. v. Ins. Co. of N. Am., 841 F.2d 1254, 1259 (5th Cir. 1988) (emphasis in original) (citing McGovern v. Am. Airlines, Inc., 511 F.2d 803, 805 (5th Cir. 1991)). It is a well-established legal principle that “[c]itizenship and residence are not synonymous.” Parker v. Overman, 59 U.S. 137, 141 (1855) (internal quotation marks omitted). “For diversity purposes, citizenship means domicile; mere residence in the State is not sufficient.” Mas v. Perry, 489 F.2d 1396, 1399 (5th Cir. 1974); accord Preston v. Tenet Healthsystem Mem'l Med. Ctr., Inc., 485 F.3d 793, 799 (5th Cir. 2007). “Domicile requires residence in [a] state and an intent to remain in the state.” Preston, 485 F.3d at 798 (emphasis added) (citing Miss. Band of Choctaw Indians v. Holyfield, 490 U.S. 30, 48 (1989)); see Coury v. Prot, 85 F.3d 244, 250 (5th Cir. 1996) (holding that “change in domicile typically requires only the concurrence of: (1) physical presence at the new location and (2) an intention to remain there indefinitely . . . or, as some courts articulate it, the absence of any intention to go elsewhere”).

         A corporation is a citizen of the state in which it was incorporated and the state in which it has its principal place of business. Tewari De-Ox Sys., Inc. v. Mountain States/Rosen, LLC, 757 F.3d 481, 483 (5th Cir. 2014); 28 U.S.C. § 1332(c)(1) (“[A] corporation shall be deemed to be a citizen of every State and foreign state by which it has been incorporated and of the State or foreign state where it has its principal place of business.”). Additionally, “[t]he citizenship of a limited partnership is based upon the citizenship of each of its partners.” Harvey v. Grey Wolf Drilling Co., 542 F.3d 1077, 1079 (5th Cir. 2008) (citing Carden v. Arkoma Assocs., 494 U.S. 185, 195-96 (1990) (holding that the citizenship of an unincorporated entity or association, such as a partnership, is based upon the citizenship of each of its members)). Likewise, the citizenship of a limited liability company “is determined by the citizenship of all of its members.” Id. at 1080. “These rules are straightforward, and the law demands strict adherence to them.” Getty Oil Corp., 841 F.2d at 1259 (noting the “importance of clear, distinct, and precise affirmative jurisdictional allegations”).

         “[T]he basis upon which jurisdiction depends must be alleged affirmatively and distinctly and cannot be established argumentatively or by mere inference.” Illinois Cent. Gulf R. Co. v. Pargas, Inc., 706 F.2d 633, 636 & n.2 (5th Cir. 1983) (citation and internal quotation marks omitted). As noted by the Fifth Circuit:

“The burden of proving that complete diversity exists rests upon the party who seeks to invoke the court's diversity jurisdiction.” Getty Oil, 841 F.2d at 1259; see McGovern v. American Airlines, Inc., 511 F.2d 653, 654 (5th Cir. 1975) (“The burden is on a plaintiff to allege and invoke jurisdiction.”). “When jurisdiction depends on citizenship, citizenship should be ‘distinctly and affirmatively alleged.'” McGovern, 511 F.2d at 654 (quoting 2A Moore's Federal Practice ¶ 8.10, at 1662); see also Powell v. Abney, 83 F.R.D. 482, 487 (S.D. Tex. 1979) (“In invoking diversity jurisdiction, the plaintiff's complaint must specifically allege each party's citizenship and these allegations must show that the plaintiff and defendant are citizens of different states.”). Failure adequately to allege the basis for diversity jurisdiction mandates dismissal. Patterson v. Patterson, 808 F.2d 357, 357 (5th Cir. 1986); McGovern, 511 F.2d at 654.

Stafford v. Mobil Oil Corp., 945 F.2d 803, 804-05 (5th Cir. 1991) (emphasis added).

         Here, Plaintiff's complaint alleges that it is a California corporation with its principle place of business in Orange County, California; MIT was a Texas limited liability company with its principal place of business in Irving, Texas; and Greenbean is a Texas limited liability company with its principal place of business in Grapevine, Texas. (doc. 1 at 2-3) It also alleges Miller, Matt, and Karen are “resident[s] of Texas, ” but does not distinctly and affirmatively allege the citizenship of each individual. (See id.) (emphasis added); see also Parker, 59 U.S. at 141 (noting that citizenship and residency are not synonymous). As explained by the Fifth Circuit, “[i]t is important to distinguish between citizenship and residency, because a ‘citizen of one state may reside for a term of years in another state, of which he is not a citizen; for, citizenship is clearly not co-extensive with inhabitancy.'” Simon v. Taylor, 455 F. App'x 444, 446 n.2 (5th Cir. 2011) (per curiam) (quoting Bingham v. Cabot, 3 U.S. 382, 383 (1798)).

         As noted, Plaintiff's obligation to distinctly and affirmatively allege the citizenship of the parties “cannot be established argumentatively or by mere inference, ” and “strict adherence” to the jurisdictional rules is required. Getty Oil, 841 F.2d at 1259 (citing Illinois Cent. Gulf R. Co., 706 F.2d at 636 & n.2). Because Plaintiff has failed to distinctly and affirmatively allege the citizenship of the individual defendants, it has failed to show that diversity jurisdiction exists over this action.[4]

         B. Federal Question Jurisdiction

         Plaintiff's complaint also alleges federal question jurisdiction under the Lanham Act. (doc. 1 at 1.)

         Federal question jurisdiction exists in all civil actions arising under the Constitution, laws, or treaties of the United States. 28 U.S.C. § 1331. It exists only when a federal question is presented on the face of the plaintiff's well-pleaded complaint. Aetna Health Inc. v. Davila, 542 U.S. 200, 207 (2004); Caterpillar, Inc. v. Williams, 482 U.S. 386, 392 (1987). A federal question is presented when “a well-pleaded complaint establishes either that federal law creates the cause of action or that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.” Singh v. Duane Morris LLP, 538 F.3d 334, 337-38 (5th Cir. 2008). To determine whether resolution of a substantial question of federal law is necessary, courts must determine whether “(1) resolving a federal issue is necessary to resolution ...

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