Mai Larsen Designs v. Want2scrap, LLC

          ORDER ON MOTION FOR JUDGMENT ON THE PLEADINGS AND MOTIONS FOR SUMMARY JUDGMENT

          ELIZABETH S. ("BETSY") CHESTNEY UNITED STATES MAGISTRATE JUDGE.

         Before the Court in the above-styled cause of action are the following four dispositive motions: Defendants Wants2Scrap, LLC and Michele Parrish's Motion for Judgment on the Pleadings Pursuant to Fed.R.Civ.P. 12(c) [#58], Defendants Wants2Scrap, LLC and Michele Parrish's Motion for Summary Judgment [#61], Plaintiff and Counter-Defendants' Motion for Partial Summary Judgment or Alternatively to Exclude Evidence [#62], and Defendants Wants2Scrap, LLC and Michele Parrish's Supplemental Motion for Summary Judgment [#96]. In reviewing these motions, the Court has also considered the numerous responses and replies on file pertaining to the motions [#59, #66, #72, #80, #83, #86, #88, #89, #94, #95, #97, #98, #99]. The undersigned has authority to enter this Order as all parties have consented to the jurisdiction of a United States Magistrate Judge [#17, #18]. See 28 U.S.C. § 636(c)(1). For the reasons set forth below, the Court will (1) grant Defendants' Supplemental Motion for Summary and dismiss Plaintiff's copyright claim for failure to obtain a copyright registration prior to filing suit; (2) order Defendants to show cause as to why their counterclaims for a declaratory judgment of non-infringement and claims of copyright infringement and breach of contract should not be dismissed sua sponte along with Plaintiff's copyright claim; (3) grant in part Defendants' motion for judgment on the pleadings and dismiss Plaintiff's conversion claim as preempted by the Copyright Act; (4) grant in part Defendants' motion for summary judgment on Plaintiff's fraud and Texas Free Enterprise and Antitrust Act claims; and (5) hold in abeyance Plaintiff's and Counter-Defendants' motion for partial summary judgment while the Court considers whether to dismiss Defendants' counterclaims sua sponte after receiving Defendants' show cause response.

         I. Procedural Background

         The procedural history of this case begins on October 24, 2017 in the Northern District of Indiana, where Defendant Want2Scrap, LLC filed suit seeking a declaration of non-infringement of copyright and asserting claims of breach of contract, copyright infringement, and other torts against Mabel Larsen and the two unincorporated entities through which she conducts business-Mai Larsen Designs and Creative Scrap Designs. The following day, Mai Larsen Designs filed this action against Want2Scrap and its owner Michele Parrish, asserting claims of copyright infringement, fraud, and theft by conversion in this district. (Orig. Compl. [#1].) The Indiana court transferred the Indiana case to this division, where it was assigned the cause No. 5:18-CV-321-OLG. Following the transfer, the Court consolidated the Texas and Indiana cases and designated cause No. 5:17-CV-1084-OLG as the lead case. (Consolidation Order [#14].)

         Plaintiff Mai Larsen Designs subsequently filed her First Amended Complaint [#15] in the lead case; the parties consented to the jurisdiction of a United States Magistrate Judge; and the consolidated action was transfered to the undersigned's docket on May 22, 2018 [#19]. The undersigned thereafter realigned the parties post-consolidation, designating Mai Larsen Designs as Plaintiff (hereinafter “Larsen”), ^[1] Want2Scrap and Michele Parrish as Defendants/Counter-Plaintiffs (hereinafter “Defendants”), and Mabel Larsen, Creative Scrap Designs, and Mai Larsen Designs (“the Larsen Parties”) as Counter-Defendants [#31].

         The Court denied Defendants' motion to dismiss Plaintiff's First Amended Complaint [#28], and Larsen filed a Second Amended Complaint on December 12, 2018 [#41], again asserting claims of copyright infringement (Count I), fraud (Count II), fraud in the inducement (Count III), theft by deception and conversion (Count IV), and conspiracy and unfair competition in violation of the Texas Free Enterprise and Antitrust Act (Counts V and VI). Larsen's Second Amended Complaint alleges that Mai Larsen Designs is a designer of chipboard embellishment and craft designs for use in homemade scrapbooks that are original works that may be copyrighted under federal law. (Second Am. Compl. [#41] at ¶ 4.) Larsen accuses Defendants of infringing its copyrights by: selling her designs on Want2Scrap's website, at trade shows, and directly to retailers; failing to compensate Larsen for her designs as promised in an oral agreement between the parties; and harassing Larsen on social media to prevent her from competing with Want2Scrap in the sale of scrapbook designs and chipboard products. (Id. at ¶¶ 4-9.)

         In response, Defendants filed Counterclaims on December 26, 2018 [#42], seeking a declaratory judgment of non-infringement of copyright against the Larsen Parties (Count I); alleging a claim of breach of contract against Larsen (Count II); and asserting claims against the Larsen Parties for copyright infringement (Count III), tortious interference with business relations (Count IV), unfair competition (Count V), inducing copyright infringement (Count VI), and defamation (Count VII). Defendants allege that Want2Scrap and Larsen entered into a copyright license agreement whereby Want2Scrap was granted an exclusive license to Larsen's artwork that allowed Defendants to use all of the works at issue in this lawsuit. (Counterclaim [#42] at ¶ 73.) Defendants contend that Want2Scrap fullfilled all of its obligations under the copyright license agreement, but Larsen breached her contractual duties by advertising, selling, or distributing works substantially similar to the licensed works without Want2Scrap's permission. (Id. at ¶¶ 137-38.) Defendants further allege that the Larsen Parties made false and misleading statements about Want2Scrap to its prospective customers and publicized false statements harmful to the interests of Want2Scrap. (Id. at ¶¶ 148, 163.)

         Defendants filed a motion for judgment on the pleadings pursuant to Rule 12(c) on March 7, 2019 [#58], arguing that Larsen's fraud, conversion, and unfair competition claims are all preempted by the Copyright Act and must be dismissed. Defendants thereafter filed a motion for summary judgment on March 14, 2019 [#61], arguing that Larsen's copyright claims fail as a matter of law because the parties' copyright license agreement operates as a complete defense to copyright infringement; there is no evidence of any oral agreement to compensate Larsen for its designs; and Larsen fails to allege an antitrust injury under the Texas Free Enterprise and Antitrust Act. The Larsen Parties filed a Motion for Partial Summary Judgment on the same day [#62], arguing that the identified copyright license agreement is unenforceable and seeking summary judgment on all of Defendants' counterclaims that are based on the agreement (the request for declaratory judgment and claims for breach of contract, copyright infringement, and inducing copyright infringement) or, alternatively, seeking an order excluding the agreement from evidence admitted at trial.

         The Court held a pretrial status conference in this case on April 24, 2019, at which it heard argument on these three dispositive motions. At the close of the hearing, Defendants' counsel alerted the Court to a recent Supreme Court decision, Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, __U.S.__, 139 S.Ct. 81 (2019), which interprets the Copyright Act's statutory preconditions to filing a civil suit under the Act. The Court ordered briefing on the impacts, if any, of Fourth Estate on the instant case. In response, Defendants filed their supplemental motion for summary judgment [#96] on May 2, 2019, which argues that Larsen's copyright claims must be dismissed for failure to obtain registered copyrights prior to instituting this lawsuit. All four dispositive motions are ripe for the Court's resolution.

         II. Legal Standards

         A. Judgment on the Pleadings

         Rule 12(c) of the Federal Rules of Civil Procedure provides: “After the pleadings are closed-but early enough not to delay trial-a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). The standard for dismissal under Rule 12(c) is the same as that for dismissal for failure to state a claim under Rule 12(b)(6). Johnson v. Johnson, 385 F.3d 503, 529 (5th Cir. 1999).

         To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Although a complaint “does not need detailed factual allegations, ” the “allegations must be enough to raise a right to relief above the speculative level.” Twombly, 550 U.S. at 555. The allegations pleaded must show “more than a sheer possibility that a defendant has acted unlawfully.” Iqbal, 556 U.S. at 678.

         Furthermore, a court must accept “all well-pleaded facts as true, viewing them in the light most favorable to the plaintiff.” Martin K. Eby Const. Co. v. Dallas Area Rapid Transit, 369 F.3d 464, 467 (5th Cir. 2004). However, a court need not credit conclusory allegations or allegations that merely restate the legal elements of a claim. Chhim v. Univ. of Texas at Austin, 836 F.3d 467, 469 (5th Cir. 2016) (citing Iqbal, 556 U.S. at 678). In short, a claim should not be dismissed unless the court determines that it is beyond doubt that the plaintiff cannot prove a plausible set of facts that support the claim and would justify relief. Twombly, 550 U.S. at 570.

         B. Summary Judgment

         Summary judgment is appropriate under Rule 56 of the Federal Rules of Civil Procedure only “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Fed. R. Civ. P. 56(c). A dispute is genuine only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).

         The party moving for summary judgment bears the initial burden of “informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.” Catrett, 477 U.S. at 323. Once the movant carries its burden, the burden shifts to the nonmoving party to establish the existence of a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Wise v. E.I. Dupont de Nemours & Co., 58 F.3d 193, 195 (5th Cir. 1995). The non-movant must respond to the motion by setting forth particular facts indicating that there is a genuine issue for trial. Miss. River Basin Alliance v. Westphal, 230 F.3d 170, 174 (5th Cir. 2000). The parties may satisfy their respective burdens by tendering depositions, affidavits, and other competent evidence. Topalian v. Ehrman, 954 F.2d 1125, 1131 (5th Cir. 1992). The Court will view the summary judgment evidence in the light most favorable to the non-movant. Rosado v. Deters, 5 F.3d 119, 123 (5th Cir. 1993).

         “After the non-movant has been given the opportunity to raise a genuine factual issue, if no reasonable juror could find for the non-movant, summary judgment will be granted.” Westphal, 230 F.3d at 174. However, if the party moving for summary judgment fails to satisfy its initial burden of demonstrating the absence of a genuine issue of material fact, the motion must be denied, regardless of the nonmovant's response. Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc).

         III. Analysis

         The Court will grant Defendants' supplemental motion for summary judgment and dismiss Larsen's claim for copyright infringement for failure to obtain a copyright registration prior to filing this lawsuit. The Court will also (1) grant in part Defendants' motion for judgment on the pleadings and dismiss Larsen's conversion claim as preempted under the Copyright Act and (2) grant in part Defendants' motion for summary judgment as to Larsen's claims of fraud and claims under the Texas Free Enterprise and Antitrust Act. These rulings result in the dismissal of all of the claims asserted by Larsen in her Second Amended Complaint.

         As to Defendants' counterclaims, the Court will hold in abeyance Plaintiff's partial motion for summary judgment while the Court considers whether to dismiss Defendants' request for declaratory judgment of non-infringement and counterclaims of copyright infringement and breach of contract sua sponte along with Larsen's copyright infringement claim in light of the Supreme Court's decision in Fourth Estate.

         A. Defendants' Supplemental Motion for Summary Judgment [#96]

         Defendants seek dismissal of Larsen's claim of copyright infringement (Count I of the Second Amended Complaint) on the basis that Plaintiff failed to satisfy the statutory precondition to bringing suit under the Copyright Act as interpreted by the Supreme Court's recent decision in Fourth Estate Public Benefit Corp. v. Wall-Street.com, LLC, --U.S.--, 139 S.Ct. 881 (2019). The Court ...