Flying Pigs, LLC v. Rraj Franchising, LLC

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 13-2135
FLYING PIGS, LLC,
Plaintiff – Appellant,
v.
RRAJ FRANCHISING, LLC,
Defendant – Appellee.
Appeal from the United States District Court for the Eastern
District of North Carolina, at Greenville. Terrence W. Boyle,
District Judge. (4:13-cv-00010-BO)
Argued: April 11, 2014 Decided: July 1, 2014
Before KING, GREGORY, and THACKER, Circuit Judges.
Vacated and remanded by published opinion. Judge King wrote the
opinion, in which Judge Gregory and Judge Thacker joined.
ARGUED: Ernest Bradley Evans, WARD & SMITH, PA, Greenville,
North Carolina, for Appellant. Gavin James Reardon, ROSSABI
BLACK SLAUGHTER, PA, Greensboro, North Carolina, for Appellee.
ON BRIEF: Norman J. Leonard, II, WARD & SMITH, PA, Asheville,
North Carolina, for Appellant. Amiel J. Rossabi, ROSSABI BLACK
SLAUGHTER, PA, Greensboro, North Carolina, for Appellee.

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KING, Circuit Judge:
In late 2012, a North Carolina business called Flying Pigs,
LLC, sued a North Carolina entity called RRAJ Franchising, LLC,
in the Superior Court of Lenoir County, North Carolina, alleging
a claim under North Carolina law. RRAJ removed that lawsuit to
the Eastern District of North Carolina, asserting federal
question jurisdiction pursuant to 28 U.S.C. § 1331. The
district court denied Flying Pigs’s motion to remand to Lenoir
County for lack of federal jurisdiction, and then granted RRAJ’s
Rule 12(b)(6) motion to dismiss the complaint with prejudice.
See Flying Pigs, LLC v. RRAJ Franchising, LLC, No. 4:13-cv-10
(E.D.N.C. Aug. 22, 2013), ECF No. 22 (the “Dismissal Order”).
As explained below, we vacate the Dismissal Order and remand for
the Flying Pigs lawsuit to be returned to Lenoir County.
I.
Flying Pigs initiated this action in an effort to enforce,
by foreclosure and judicial sale, an equitable lien against
certain trademarks and associated goodwill now owned by RRAJ
Franchising. The equitable lien was the result of a 2010
lawsuit in the Superior Court of Guilford County, North
Carolina, where Flying Pigs pursued and was awarded more than

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$500,000 for rental payments owed by its delinquent commercial
tenant, Chelda, Inc.1
Chelda, which is headquartered in Greensboro, the county
seat of Guilford County, owned Ham’s Restaurants, Inc. Ham’s
operated a number of eponymously named family eateries in North
Carolina and Virginia. In 1999, Chelda and Ham’s executed a
twenty-year lease with Flying Pigs to house a Ham’s Restaurant
in Kinston, the county seat of Lenoir County. By 2008, however,
Chelda and Ham’s were in financial turmoil and, by June 2009,
ceased making their monthly rental payments to Flying Pigs. On
October 9, 2009, Flying Pigs notified Chelda and Ham’s that they
were in breach of the lease, and on October 21, 2009, Flying
Pigs entered the Kinston restaurant to secure the premises. The
next day, Ham’s (but not Chelda) filed for Chapter 11 bankruptcy
in the Eastern District of North Carolina. Exercising its right
under the bankruptcy code, see 11 U.S.C. § 365(a), Ham’s
rejected its Kinston lease with Flying Pigs, leaving Flying Pigs
to pursue recourse solely from Chelda.
1 The litigation culminating in this appeal involves
proceedings in myriad North Carolina state and federal courts.
Two of the state lawsuits originated in Guilford County, and the
third in Lenoir County. One of the Guilford County suits was
removed to the Middle District of North Carolina, and the case
at bar, as we have noted, was removed from Lenoir County to the
Eastern District of North Carolina. Ham’s bankruptcy
proceedings were likewise administered in the Eastern District.

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To that end, Flying Pigs sued Chelda on March 12, 2010, in
the Superior Court of Guilford County. On July 6, 2010, Flying
Pigs obtained a default judgment against Chelda in excess of
$567,000. The lion’s share of the judgment was attributed to
Chelda’s obligations through the remaining term of the Kinston
lease, less any rents received in mitigation. In order to
effectuate at least partial satisfaction of the default
judgment, Flying Pigs sought an equitable lien against two
federally registered trademarks, and their associated goodwill,
which had been registered by Chelda but used exclusively by
Ham’s (the “intellectual property”). On July 30, 2010, the
Guilford County court granted Flying Pigs’s request in that
regard, imposing an equitable lien on — and authorizing the
judicial sale of — the intellectual property. That very day,
Flying Pigs registered a notice of its equitable lien with the
United States Patent and Trademark Office (“PTO”).
Meanwhile, the Ham’s bankruptcy proceedings moved forward.
A Greensboro entity called RCR Marketing, LLC, bid $360,000 in
the Chapter 11 proceedings for
all of [Ham’s] assets, property and rights, tangible
and intangible, including without limitation . . .
equipment, furniture, fixtures . . . goodwill,
trademarks, licenses (including but not limited to any
rights and/or licenses to the name ‘Ham’s Restaurant’
and all related trademarks) and all other intellectual
property.

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J.A. 119. The assets of Ham’s were to be sold in “as is”
condition, “without any warranties, express or implied,
including without limitation any warranties concerning title,
merchantability, or fitness.” Id. On August 3, 2010, the
bankruptcy court approved the sale of Ham’s assets to RCR,
converting the Chapter 11 matter to a Chapter 7 liquidation
proceeding. Consistent with the bankruptcy court’s order, the
parties scheduled the bankruptcy sale for closing on August 19,
2010.
On the morning of the bankruptcy sale’s closing, however,
the Bank of North Carolina (“BNC”) filed suit in Guilford County
against RCR and Chelda. Throughout the Ham’s bankruptcy
proceedings, BNC had asserted that it held a perfected security
interest in Chelda’s personal property, including its equipment
and trademarks, and that Chelda — rather than Ham’s — was the
actual owner of a substantial portion of the assets RCR
purported to have purchased from the bankruptcy estate.2 Thus,
BNC’s Guilford County lawsuit sought to prevent RCR’s imminent
2 BNC’s alleged security interest in Chelda’s property
derived from a $3.5 million dollar commercial loan Chelda
obtained in 2004 and refinanced through BNC in 2006. The
promissory note appurtenant to the 2006 loan was secured by a
lien on certain of Chelda’s assets, including most of the
machinery and equipment used at the Ham’s restaurants. The
intellectual property was not specifically included within BNC’s
lien.

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and allegedly unauthorized appropriation of Chelda’s property,
including the intellectual property. That same morning, the
Guilford County court awarded a temporary restraining order
(“TRO”) enjoining RCR and Chelda’s use of the equipment and the
intellectual property. Nonetheless, on the Bankruptcy Trustee’s
advice and insistence, the closing of the bankruptcy sale of
Ham’s assets to RCR proceeded as scheduled.3
On August 27, 2010, RCR removed BNC’s Guilford County suit
to the Middle District of North Carolina. By March 11, 2011,
BNC, Chelda, and RCR had agreed to compromise and settle all
their claims and disputes, pursuant to which the district court
entered an order dismissing the BNC lawsuit with prejudice.
Although the terms of the compromise and settlement are not of
record here, it led to the following events: (1) on March 16,
2011, the PTO recorded an assignment of the intellectual
property from Chelda to RCR, effective March 3, 2011; (2) then,
on June 15, 2011, BNC released its security interest in the
intellectual property; and (3) finally, on September 19, 2011,
RCR assigned the intellectual property to its sister entity,
defendant-appellee RRAJ Franchising, LLC.
3 The Bankruptcy Trustee took the position that the Guilford
County TRO contravened the automatic stay imposed by federal
law, see 11 U.S.C. § 362, and was void ab initio. See J.A. 116.

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Thereafter, on December 12, 2012, Flying Pigs filed the
complaint underlying this appeal against RRAJ Franchising in the
Superior Court of Lenoir County, seeking to foreclose on its
equitable lien against the intellectual property, to subject
that property to a judicial sale, and to enjoin RRAJ from any
further use thereof in connection with operations of the Ham’s
restaurants. On January 17, 2013, RRAJ removed the Lenoir
County case to the Eastern District of North Carolina,
characterizing the complaint therein as a “dispute over two
trademarks held and registered pursuant to the Federal Lanham
Act.” J.A. 7.
On February 25, 2013, RRAJ Franchising moved in the
district court to dismiss the Flying Pigs complaint on the
ground that the settlement of BNC’s Guilford County lawsuit — to
which Flying Pigs was not a party — nonetheless barred the
foreclosure action under the principles of res judicata. The
next day, Flying Pigs moved to remand the Lenoir County lawsuit
to state court, asserting a lack of federal jurisdiction. On
August 14, 2013, the district court conducted a hearing on the
respective motions. On August 22, 2013, the court entered its
Dismissal Order, denying the remand requested by Flying Pigs and
granting RRAJ’s Rule 12(b)(6) motion to dismiss on the basis of
res judicata. On September 13, 2013, Flying Pigs filed a timely

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notice of appeal, and we possess jurisdiction pursuant to 28
U.S.C. § 1291.
II.
Flying Pigs maintains on appeal that the district court
erred in denying its motion to remand, asserting that its Lenoir
County complaint alleges a state law cause of action and does
not, on its face, present any federal question sufficient to
invoke federal jurisdiction.4 RRAJ Franchising, on the other
hand, contends that its removal of the Lenoir County case to
federal court was proper because an adjudication of Flying
Pigs’s complaint requires the application of federal trademark
law.5
Inasmuch as Flying Pigs and RRAJ Franchising are North
Carolina entities, the jurisdiction of the district court was
entirely dependent upon the existence of a federal question.
See 28 U.S.C. § 1441(a) (authorizing removal to district court
of any state court civil action “of which the district courts of
4 Flying Pigs also contends on appeal that the district
court erred in granting the dismissal sought by RRAJ
Franchising. In light of our jurisdictional ruling, we need not
reach or decide whether the court erred in that regard.
5 We review de novo a district court’s denial of a motion to
remand to state court. See Hoschar v. Appalachian Power Co.,
739 F.3d 163, 169 (4th Cir. 2014).

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the United States have original jurisdiction”); id. at § 1331
(providing for original jurisdiction in the district courts of
“all civil actions arising under the Constitution, laws, or
treaties of the United States”). In deference to federalism
concerns, we are obliged to “strictly construe” § 1441 and
ensure that any claim alleged to afford a basis for federal
jurisdiction indeed arises under federal law. See Pinney v.
Nokia, Inc., 402 F.3d 430, 441 (4th Cir. 2005) (concluding that
district court lacked “arising under” jurisdiction over state
tort claims potentially implicating federal regulations). In
this regard, the “well-pleaded complaint rule” demands that we
confine our inquiry to the “plaintiff’s statement of his own
claim . . . unaided by anything alleged in anticipation or
avoidance of defenses which it is thought the defendant may
interpose.” Christianson v. Colt Indus. Operating Corp. 486
U.S. 800, 809 (1988).
A civil action can “arise under” federal law in two ways.
Most commonly, “a case arises under federal law when federal law
creates the cause of action asserted.” Gunn v. Minton, 133 S.
Ct. 1059, 1064 (2013) (citing Am. Well Works Co. v. Layne &
Bowler Co., 241 U.S. 257, 260 (1916)). In this proceeding,
however, the effort of Flying Pigs to foreclose on the equitable
lien awarded by the Guilford County court is manifestly a cause
of action created by state law. See Fulp v. Fulp, 140 S.E.2d

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708, 711-13 (N.C. 1965) (describing circumstances from which
equitable lien can arise under North Carolina Law); Winborne v.
Guy, 22 S.E.2d 220, 223 (N.C. 1942) (explaining that, in North
Carolina, “[a] suit in equity to foreclose is the proper remedy”
to enforce an equitable lien). Thus, we must determine the
presence or absence of federal question jurisdiction under the
second, more narrow basis applicable only to a state-law cause
of action implicating a “significant” federal issue. See Grable
& Sons Metal Prod., Inc. v. Darue Eng’g & Mfg., 545 U.S. 308,
312 (2005) (citation omitted). In recent years, the Supreme
Court has brought greater clarity to what it describes as a
traditionally “unruly doctrine,” emphasizing its “slim
contours.” See Gunn, 133 S. Ct. at 1065. Among other
prerequisites for “significance,” the federal issue must have
been “necessarily raised” in the litigation. Id. (citing
Grable).
On appeal, RRAJ Franchising maintains that Flying Pigs’s
Lenoir County complaint necessarily raises a significant federal
issue because Flying Pigs cannot prevail in its foreclosure
action without resorting to the Lanham Act.6 In particular, RRAJ
6 The Lanham Act, codified in Title 15 of the United States
Code, contains most of the federal statutes concerning federal
trademark law. Among other matters, it governs trademark
registration, infringement, and dilution.

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argues that Flying Pigs must rely on the Lanham Act to establish
that Chelda owned the intellectual property subject to the
equitable lien when it was imposed by the Guilford County court.7
We are constrained to reject that contention. The subject order
of July 30, 2010, relied on the court’s implicit finding (based
on the PTO registration) that Chelda then owned the intellectual
property. The Lenoir County lawsuit is nothing more than an
action to enforce that equitable lien — which has not been
appealed, modified, or challenged in any forum. It appears
entirely unnecessary, therefore, for Flying Pigs to again prove
its entitlement to the equitable lien it seeks to enforce in the
Lenoir County court.
Moreover, assuming that Flying Pigs were required to
reestablish Chelda’s ownership of the intellectual property in
order to make a prima facie case in the Lenoir County lawsuit,
we are yet unconvinced that a significant federal issue would be
necessarily raised. Our conclusion is supported by the settled
7 It appears that RRAJ would defend the Lenoir County
lawsuit by interposing the affirmative defense that Chelda
abandoned any beneficial ownership interest in the intellectual
property prior to the imposition of the equitable lien. It is
well established, however, that “‘a case may not be removed to
federal court on the basis of a federal defense . . . even if
the defense is anticipated in the plaintiff’s complaint, and
even if both parties admit that the defense is the only question
truly at issue in the case.’” See Pinney, 402 F.3d at 443
(quoting Franchise Tax Bd. of Cal. v. Constr. Laborer’s Vacation
Trust, 463 U.S. 1, 14 (1983)).

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proposition that “[t]rademark ownership is not acquired by
federal or state registration. Ownership rights flow only from
prior use[.]” 2 J. Thomas McCarthy, McCarthy On Trademarks and
Unfair Competition § 16:18 (4th ed. 2013) (collecting cases).
Registration of a trademark under the Lanham Act merely “helps
in this regard, as registration is prima facie evidence that the
registrant is the owner of the mark.” George & Co., LLC v.
Imagination Entm’t Ltd., 575 F.3d 383, 400 n.15 (4th Cir. 2009)
(citing 15 U.S.C. § 1057(b)). Thus, Flying Pigs could well
argue that Chelda owned the intellectual property simply by
virtue of its use. See, e.g., id. at 400 (trademark ownership
exists, regardless of registration, “so long as a person is the
first to use a particular mark to identify his goods in a given
market, and so long as that owner continues to make use of the
mark”). As we have recognized, “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). Accordingly,
the “necessarily raised” requirement for a “significant” federal
issue — formulated and explained by the Supreme Court in Grable
and Gunn — has not been satisfied.8
8 To serve as an adequate basis of federal question
(Continued)

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The disposition of this appeal is also consistent with our
circuit precedent concerning “arising under” federal
jurisdiction pursuant to 28 U.S.C. § 1331. In the
aforementioned Pinney case, the plaintiffs had filed tort claims
in state courts against numerous manufacturers of communications
equipment whose cell phones were alleged to emit unsafe levels
of radio frequency radiation. The lawsuits were removed to the
federal district court and consolidated, where the plaintiffs’
motion to remand was denied on the ground that the defendants
would interpose their compliance with federal standards and
argue that the claims were preempted. On consideration of the
plaintiffs’ appeal, Judge Michael carefully explained that,
under such circumstances, “‘[t]he most one can say is that a
question of federal law is lurking in the background,’ . . . but
that does not make the claims into ones arising under federal
law.” 402 F.3d at 446 (quoting Gully v. First Nat’l Bank, 299
U.S. 109, 117 (1936)).
jurisdiction, a federal issue implicated by a state law cause of
action must also be “actually disputed,” “substantial,” and
“capable of resolution in a federal court without disrupting the
federal-state balance” of power. See Gunn, 133 S. Ct. at 1065
(citing Grable). Inasmuch as the foreclosure proceeding in
Lenoir County does not necessarily raise the Lanham Act issue
identified by RRAJ Franchising, we need not address these three
other prerequisites.

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Similarly, in our earlier decision in Gibraltar, P.R., Inc.
v. Otoki Group, Inc., 104 F.3d 616 (4th Cir. 1997), we concluded
that a lawsuit contesting trademark ownership among joint
venture participants was properly dismissed for lack of a
sufficient federal question, admonishing that “[t]he Lanham Act
does not confer jurisdiction simply because the subject in
dispute is a trademark.” Id. at 619. Judge Wilkinson
recognized that the matter was “not a Lanham Act case; it [was]
a simple contract case. It pos[ed] not a question of
infringement, but a question of ownership.” Id. The same
result obtains here. Flying Pigs has not filed a complaint
arising under the Lanham Act; it has initiated a foreclosure
proceeding in Lenoir County to enforce an equitable lien under
North Carolina law, and we are bound to respect the state court
lawsuit as such. Under these circumstances, the remand motion
of Flying Pigs should have been granted and this proceeding
returned to the state court.
III.
Pursuant to the foregoing, we vacate the judgment of the
district court and remand for the return of this litigation to
the Superior Court of Lenoir County, which will conduct such
other and further proceedings as may be appropriate.
VACATED AND REMANDED

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