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Decided: July 1, 2014

The Fourth Circuit vacated the district court’s dismissal order and remanded the case to state court for failure to state a federal question sufficient for removal and federal jurisdiction. See 28 U.S.C. §§ 1331, 1441(a).

Flying Pigs, LLC (“Flying Pigs”) commenced this action to enforce an equitable lien against trademarks and associated goodwill, which RRAJ Franchising, LLC (“RRAJ”) now owns. In 2010, Flying Pigs was awarded a default judgment of $567,000 for rental payments owed by Chelda, Inc. (“Chelda”), its delinquent commercial tenant. Chelda and Ham’s Restaurants, Inc. (“Ham’s”) executed a twenty-year lease with Flying Pigs, but Ham’s filed for Chapter 11 bankruptcy. Thus, Flying Pigs may only recover from Chelda. In attempt to satisfy this judgment, Flying Pigs sought and was awarded an equitable lien against two federally registered trademarks, and their associated goodwill. Flying Pigs registered notice of the lien with the United States Patent and Trademark Office (“PTO”). Chelda registered the trademarks, but Ham’s used them exclusively. The bankruptcy court approved the sale of Ham’s assets to RCR, but the Bank of North Carolina (“BNC”) filed suit against RCR and Chelda on the morning of the sale’s closing. BNC claimed to hold a perfected security interest in Chelda’s personal property, and asserted that Chelda was the actual owner of a large number of the assets that RCR allegedly purchased in the bankruptcy proceeding. The bankruptcy court proceeded with the sale to RCR, and eventually BNC, Chelda, and RCR settled their claims. In light of the settlement, the PTO recorded an assignment of the intellectual property from Chelda to RCR; BNC released its security interest in the intellectual property; and RCR assigned the intellectual property to RRAJ, its sister entity

Flying Pigs originally filed in state court, in Lenoir County, for foreclosure of its equitable lien against the intellectual property through a judicial sale, and to enjoin RRAJ from any further use of the intellectual property while operating Ham’s restaurants. RRAJ removed the case to federal court claiming that a dispute over the Federal Lanham Act was embedded within the complaint. RRAJ then moved for dismissal by claiming that the lawsuit with BNC, which was settled and Flying Pigs was not a party to, prevented the foreclosure action through principles of res judicata. Flying Pigs moved to remand the suit to state court for lack of federal jurisdiction. The district court denied the remand and granted RRAJ’s motion to dismiss on the basis of res judicata. Flying Pigs appealed.

The Fourth Circuit stated that for removal to be proper a district court must have original jurisdiction. 28 U.S.C. § 1331. Here, the Court noted that the dispute arose under an action created by state law, and therefore reasoned that the action must implicate a “significant” federal issue. See Grable & Sons Metal Prod., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308, 312 (2005). The Court reemphasized its prior statement that “a plaintiff’s right to relief for a given claim necessarily depends on a question of federal law only when every legal theory supporting the claim requires the resolution of a federal issue.” See Dixon v. Coburg Dairy, Inc., 369 F.3d 811, 816 (4th Cir. 2004) (en banc). The Court concluded that this dispute was merely a foreclosure action, which does not implicate a significant federal issue or meet the requirements of Grable. Thus, the Court noted that under principles of comity it is bound to respect the state court lawsuit and remand the case.

Full Opinion

Samantha R. Wilder