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LONG JOHN SILVER'S, INC. v. ARCHITECTURAL ENGG. PR

August 5, 1981

LONG JOHN SILVER'S, INC., and Jerrico, Inc., Plaintiffs,
v.
ARCHITECTURAL ENGINEERING PRODUCTS CO., INC., ta/dba Perma-Shake, Berridge Manufacturing Co., Defendants; KORAD, INC., and Atlanta Venetian Blind, Inc., ta/dba Permaclad, Defendants and Third-Party Plaintiffs, v. ROHM AND HAAS COMPANY, Plasteel, Inc., and Enamel Products Company, Third-Party Defendants



The opinion of the court was delivered by: DIAMOND

There are two motions presently before the court, a motion to dismiss filed by the defendant Berridge on the ground that this court lacks subject matter jurisdiction because certain assignments of claims were collusive for the purpose of "manufacturing" jurisdiction within the meaning of 28 U.S.C. § 1359 and a motion for partial summary judgment filed by Korad on the theory that under the principles of successor liability it cannot be held accountable for any products sold during the time that its predecessor RH owned and sold the Korad film. For the reasons set forth below, we will deny the motion to dismiss and grant substantially all of the motion for partial summary judgment.

 I. THE MOTION TO DISMISS

 The following facts submitted by plaintiffs in an affidavit are undisputed:

 
1. LJS operates and franchises over 1,000 Long John Silver's Seafood Shoppes throughout the United States. A LJS franchisee operates its Long John Silver's Seafood Shoppe(s) pursuant to a written franchise agreement (the "Agreement") executed by the franchisee and LJS ....
 
2. Pursuant to the Agreement, LJS: (a) trains certain of the employees of the franchisee; (b) periodically consults with the franchisee relative to the franchised operation; (c) originates, determines and controls all advertising; (d) approves all building plans and specifications and inspects the premises of the franchisee to determine the quality of operation and compliance with the Agreement (emphasis added) ; and (e) may at its option terminate the Agreement if the franchisee is deemed in default.
 
3. Pursuant to the Agreement, LJS franchisees are required, inter alia, to: (a) build LJS shoppes in strict compliance with LJS specifications; (b) conform to LJS operating standards and procedures; and (c) renovate and refurbish the shoppes to conform to LJS's then current public image.
 
4. Subsequent to 1973, LJS specified KORAD-coated blue roofs for use on LJS franchisee and company shoppes. LJS is the owner of Federal Service Mark Registration No. 959,078 covering shoppe structure and its distinctive appearance. Affidavits under 15 U.S.C. 1058(a) and 1065 have been filed in connection with the service mark registration and the service mark registration is now outstanding, validly subsisting and uncancelled, and is incontestable under 15 U.S.C. section 1065. LJS adopted the distinctive building design, including the blue roofs which form a major feature thereof, as a company symbol. The shoppe design is used extensively in LJS' advertising campaign as an identifying characteristic to promote its public image.
 
5. Defendant Berridge Manufacturing, Co. ("Berridge") on its own initiative, approached LJS concerning the use of Berridge's KORAD-coated roof systems on both franchisee and company operated LJS shoppes. LJS, on its own behalf and on behalf of its franchisees, negotiated the terms and conditions of these sales with Berridge, including the express and oral written representations and warranties. On the basis of Berridge's representations and warranties, LJS agreed to name Berridge as an approved supplier. Subsequent to 1975, Berridge was specified in LJS Building specifications as one of three approved suppliers of KORAD-coated roofs.

 Plaintiffs allege that beginning in 1977 a substantial number of the roofs sold by Berridge and the other two suppliers, Perma-Shake and Permaclad, began to deteriorate and exhibit defects such as fading, chipping, peeling, rusting, and flaking of the Korad coating. The uncontested portion of plaintiffs' affidavit continues.

 
6. When the KORAD roof failures began to appear, the franchisees looked to LJS to assist them in notifying the suppliers, including Berridge, of the defective roofs. As the number of failures grew, LJS on behalf of itself and its franchisees negotiated with the suppliers, including Berridge, to resolve the matter.
 
7. By December 1978, having received no satisfactory response to its demands, LJS made a determination to institute this action on its behalf and on behalf of those franchisees who executed an assignment and release. The assignment and release provided, inter alia, that: (a) the franchisee releases and discharges LJS from any claims it may have against it in connection with KORAD roofs; (b) the franchisee assigns its entire claim against Berridge to LJS; (c) LJS bears all legal expenses and controls the litigation; and (d) the franchisee must cooperate fully with LJS.

 As Berridge points out, the assignment also contained language to the effect that the franchisee "may share in the recovery, if any, which pertains to the shoppes."

 Plaintiffs either own each of the buildings in the instant suit where roof damage is alleged to have occurred or as a result of the aforesaid assignments are the assignees of the claim arising out of that damage. It is ...


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