-4-
preventing defendants from competing within the exclusive
territories of plaintiff’s members.

Defendants now move to dismiss the first amended complaint.
They contend that the GOA is not the real party in interest and
that we lack diversity jurisdiction, and that the individual
franchisees are necessary and indispensable parties and cannot he
joined.

DISCUSSION

When considering a Rule 12(b) (1) motion to dismiss for lack of
subject matter jurisdiction, a district court accepts as true all
well-pled factual allegations and draws reasonable inferences from
the allegations in favor of the plaintiff. See Capitol Leasing Co.
v. FDIC, 999 F.2d 188, 191 (7th Cir, 1993). The court may also
look beyond the allegations of the complaint and consider
affidavits and other documentary evidence to determine whether
subject matter jurisdiction exists. See id.

This case does not involve a federal question, so jurisdiction
is proper only if there is complete diversity among the parties,
which means that no defendant may be a citizen of the same state as
any plaintiff. See Strawbridge v. Curtiss, 7 U.S. (3 Cranch) 267
(1806); Indiana Gas Co. Inc. v. Home Ins ., 141 F.3d 314, 318
(7th Cir. 1998) (noting that complete diversity is essential in
cases brought under 28 U.S.C, § 1332). As noted supra, the GOA is

a citizen of Kansas and of Georgia. Defendants Gingiss, The



~7-
crux of the complaint is that defendants have breached the
Franchise Agreements. The GOA is not a party to the Franchise
Agreements; rather, its members, the franchisees, are, Thus, like
the association in NAR, it is clear that the GOA is suing on behalf
of its members. While the GOA characterizes the harm as being
inflicted upon itself rather than the franchisees (by way of fewer
members, and therefore reduced dues and participation), the
complaint fails to identify any right that the GOA itself possesses
that is allegedly being violated.

The GOA argues that it has negotiated directly with the
defendants with respect to modification of the terms of the
Franchise Agreement as well as with respect to the issues that gave
rise to this case. The GOA also points out that it consults with
defendants regarding advertising programs and also operates in
specific ways to intercede with defendants on behalf of
franchisees. All of these facts may be true, but they are not
relevant to the question before us: is the GOA seeking to enforce
a right that it possesses? The answer is no. The GOA is not a
party to the contracts it seeks to enforce. The fact that it has
contracted directly with defendants in other agreements is
irrelevant because it is not seeking to enforce the terms of those
agreements. The GOA’s members--the franchisees--are the real
parties in interest to this controversy, and it is their

citizenship that controls for diversity jurisdiction purposes,



-3-
(First Amended Complaint, @ 14.) As a result, many Gingiss
franchise stores “have already left the Gingiss franchise system
due to competition from stores owned or controlled by defendants,”
and there is a threat of more stores “leaving the system,”
resulting in reduced membership dues to the GOA and fewer members
to participate in its activities. (Id., 9 27.)* The GOA also
seeks an accounting to determine whether Gingiss and the other
defendants have complied with their alleged obligation to
contribute to the National Advertising Fund established for the
benefit of Gingiss’s franchisees.

In the first amended complaint, plaintiff seeks a declaratory
judgment that Gingiss, “regardless of the corporate structure
embraced by said defendant, cannot compete with any GOA member
within their [sic] exclusive four (4) mile radius, either directly
or indirectly” (Count I, @ 66) and that the other defendants are
bound by the terms of the Franchise Agreement, in particular by the
exclusivity provision (Count ITI). Plaintiff also seeks an
accounting of Gingiss’s contributions to the National Advertising
Fund (Count III) and attorneys’ fees against all defendants (Count

Iv). In Count V, plaintiff requests a permanent injunction

2 The First Amended Complaint does not elaborate on the meaning of the
phrase “leave the system,” but plaintiff's memorandum in opposition to
defendants’ motion explains that Gingiss bought out a number cf independent
franchisees. (Opposition at 11-12.)


-5-
Gingiss Group, Inc., and Gingiss Formalwear, Inc, are organized
under the laws of Delaware and have principal places of business in
Illinois; therefore, those defendants are citizens of Delaware and
of Illinois. Defendant Gryphon Investors, Inc. is a California
citizen, and defendant GII Acquisition, Inc. is an Illinois
citizen.?

Thus, at first glance, there is complete diversity of
citizenship among plaintiff and defendants. Defendants argue,
however, that the real party in interest is not the GOA, but the
franchisees because it is their contractual rights at issue.’ The
general rule is that, for diversity purposes, the relevant
citizenship is that of a corporation rather than its shareholders.
However, a corollary of that rule is that the citizenship of the
real party in interest is determinative when deciding whether we

have diversity jurisdiction. See CCC Info. Servs. Inc. v.

American Salvage Pool Ass'n, 230 F.3d 342, 346 (7th Cir. 2000)

According to defendants, complete diversity is destroyed because
some franchisees are citizens of Illinois and others are citizens

of California.

¥ When a corporation is party to a suit, it takes both the citizenship

of the state in which it is incorporated and the state where it has its principal
place of business, See 28 U.S.C. § 1332(c) (1).

4’ Rule 17 of the Federal Rules of Civil Procedure provides that “[e]very
action shall be prosecuted in the name of the real party in interest.” Fed. R,
Civ. P. 17(a). The xule’s purpose is to ensure that the party attempting to
enforce a right in court is the person who possesses the right under the
substantive law, See 6A Charles Alan Wright et al., Federal Practice and
Procedure § 1543 (2d ed. 1990).



~B-

The GOA does not controvert, nor does it attempt to
controvert, defendants’ evidence (the Declaration of Gingiss’s CEO,
Michael J. Corrao) that some of Gingiss’s franchisees who are
members of the GOA are citizens of Jllinois, and others are
citizens of California. Because each defendant is a citizen of
either Illinois or California, complete diversity is destroyed, and
this court is without subject matter jurisdiction.*

CONCLUSION

Defendants’ motions to dismiss the first amended complaint are

granted. This action is dismissed for lack of subject matter

jurisdiction.

DATE: September 8, 2003

John/F./Grady, United States District fudge

¥ Having decided that we lack subject matter jurisdiction, we need not
address defendants’ alternative argument that the complaint must be dismissed
because the franchisees are necessary and indispensable parties under Rule 19.



ie Order For (0647)

.. KL United States District Court, Northern District of [llinois
| ame of Assigned Judge Jolm F. Grady Sitting Judge if Other
2 or Magistrate Judge than Assigned Judge
CASE NUMBER 02 C7318 DATE 9/8/2003
CASE Gingiss Owners Assoc. vs. The Gingiss Corp. et al
TITLE

Tin the following box (a) indicate the party filing the motion, e.y., plaintift, defendant, 3rd purty plaintiff, and (b) state briefly the nature
‘of the motion being presented. |

MOTION;

“DOCKET ENTRY:

Oo Filed motion of [ use Jisting in “Motion” box above.}

Oo Brief in support of motion due
Oo Answer brief to motion duc___. Reply lo answer briefdue____
o Ruling/learingon eset for | at
Q Status heariny|held/continued toj [set for/re-set for] on __eset for | aat_
QO Pretrial conference[held/continued to] [set for/re-set for]on set for at __
o Trial|sct for/re-set for}on at.
Oo [Bench/Jury trial] |Hearing] held/continucd to__at _
im This case is dismissed [with/without] prejudice and without costs[by/agreement/pursuant 10]
OFRCP4(m) Local Rule 41.1 OFRCP41(a)(1) 0 FRCP4](a)(2).
B [Other docket entry] Defendants’ motions to dismiss the first amended complaint [13-1] are

granted, ‘This action is dismissed for lack of subject matter jurisdiction. ENTER MEMORANDUM
OPINION.

a [For further detail see order attached to the original minute order.)

Document
Number.

No notices required, wvised in open cuucl,

No notices required

Notices mailed by judge's staff.

Natified counsel by telephune,

Docketing to mail notices

Mail AO 450 form. 4ynod son.erd ‘on

Copy to judge/magistrate judge

duckstnny, deputy initiate

oan 2Wa

courtroum 'ok tld Of disco ta tied noice
KAM deputy’ ; 7 kant
initial aaa
. RTT a aietiiend recived in

dential Cterk’s Office ming deputy iis



-6-
Defendants assert that the Seventh Circuit’s ruling in

National Association of Realtors v. National Real Estate

Association, Inc., 894 F.2d 937 (7th Cir. 1990) (“NAR”), controls
this case. In NAR, a not-for-profit corporation that constituted
a national association of real estate agents sued a rival
association for fraud, negligent misrepresentation, and violations
of state law. 894 F.2d at 938-39. The plaintiff purported to
bring the suit on behalf of both itself and its members, The
district court determined that plaintiff's members were the real
parties in interest, so that when their citizenship was considered,
the requirement of complete diversity was not satisfied. on
appeal, the Seventh Circuit held that when a wrong is felt by
members of a corporate association, the members are the real
parties in interest, and their citizenship controls for diversity
purposes. See id. at 939-40, Otherwise, the court explained,
aggrieved parties could avoid the limits of diversity jurisdiction
by finding some out-of-state organization to which they belonged to
sue on their behalf. See id. at 939-42 (“If [the association’s
members] have been victimized by [torts], all committed by a
citizen of the same state as they, they cannot maintain a federal
diversity suit by the facile expedient of suing through their trade
association.”).

We agree with defendants that NAR applies here. Although GOA

does not bring a claim that is labeled “breach of contract,” the



°

4
ha

3

8.031-JCD September 8, 2003

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

peony

SEP 1 4 2003

GINGISS OWNERS ASSOCIATION, INC.,
Plaintiff,

No. 02 C 7318

ve

INTERNATIONAL, INC., GRYPHON
INVESTORS, INC., GII ACQUISITION,
INC., and GINGISS FORMALWEAR,

)
)
)
)
)
)
THE GINGISS GROUP, INC., GINGISS  )
)
)
)
INC., )

)

)

Defendants.

MEMORANDUM OPINION

Before the court are defendants’ motions to dismiss the
complaint pursuant to Federal Rules of Civil Procedure 12 (b) (1) and
12(b) (7). For the reasons stated below, the motion is granted
because we do not have subject matter jurisdiction.

BACKGROUND

This is a diversity case brought by the Gingiss Owners
Association, Inc. (the “GOA”), a trade association comprised of
more than 47 individual owners of Gingiss Formalwear franchises
operating approximately 168 retail stores in the United States.
The GOA is a Kansas corporation with a principal place of business
in Georgia. The first of the GOA’s stated purposes in its Articles

of Incorporation is “[t]o consider and deal by all lawful means

with common problems involved in the franchisee operations of the

oy



-2-

Gingiss Formalwear franchise operations and to secure cooperative
action in advancing common purposes of the shareholders of the
Corporation.” (First Amended Complaint, Ex. A, Articles of
Incorporation, at 3.)

Each of the franchisees who are members of the GOA has
executed a Standard Franchise Agreement (the “Franchise Agreement”)
with defendant Gingiss International, Inc. (“Gingiss”). Section 3
of the Franchise Agreement provides as follows:

{[Gingiss] agrees that, during the term of the Franchise

and FRANCHISEE’s compliance with this Agreement,

{Gingiss] will not own or operate or grant a franchise

for the operation of an establishment offering the rental

and sale of formalwear to the public, whether operated as

a GINGISS FORMALWEAR CENTER store or under any other

tradename, located within a radius of four (4) miles of

the then location of the STORE,

(Memorandum in Support of Motion to Dismiss, Ex. B, Ex. 1, Standard
Franchise Agreement, @ 3A.)* According to the GOA, Gingiss has
“endeavored to evade this obligation to its franchisees via a
series of corporate restructurings which has effectively resulted
in GINGISS’ ability to compete within the exclusive territory of

its franchisees, albeit indirectly via defendants THE GINGISS

GROUP, GRYPHON and other related entities of said defendants.”

¥ Plaintiff did not attach a copy of the Franchise Agreement to the Firs
Amended Complaint, but defendants attached a copy to the motion to dismis
Documents that defendants attach to a motion to dismiss are considered part of
the pleadings if they are referred to in the plaintiff's complaint and are
central to its claim, See Venture Assocs. Corp, v. Zenith Data Sys. Corp., 987

t

F.2d 429, 431-32 (7th Cir. 1993). The GOA refers to the Franchise Agreement in
the complaint, and it is central to its claims. Therefore, we can consider that
document without converting defendants’ motion into a motion for summary
judgment.