establishing 14 | the three-element Effects Test to determine whether an 15 | implied license exists
How later courts described this case
- establishing 14 | the three-element Effects Test to determine whether an 15 | implied license exists
- “Discovery items . . . are not proper 9 {| subjects for judicial notice because they are not ‘self- 10 | authenticating’ and thus cannot be verified.”
- “Discovery 10 items . . . are not proper subjects for judicial notice 11 because they are not ‘self-authenticating’ and thus 12 cannot be verified.”
- holding that because plaintiffs had three 20 opportunities to plead their case, it was not 21 unreasonable for the district court to conclude that it 22 would be pointless to provide another chance to amend
Written by the judges who cited it.
The opinion
Case 8:22-cv-00459-RSWL-JDE Document Filed 11/17/22 Pagelof25 Page ID #:493
1 ‘QO!
8 UNITED STATES DISTRICT COURT
9 CENTRAL DISTRICT OF CALIFORNIA
10
11
12 | NKLOSURES, INC., CV 22-00459-RSWL-JDEx
13 Plaintiff, DISMISS (41) TO
14 Vv.
be AVALON LODGING LLC, et
16] al.,
17 Defendants.
3 | _
19 Plaintiff nKlosure, Inc. (“Plaintiff”) brought this
20 | Action against Defendants Avalon Lodging, LLC
21 (“Defendant Avalon”); Bipin Morari (“Defendant Morari”);
22 | Best Western International, Inc.; W&W Land Design
23 | Consultants, Inc.; Winston Liu, P.E.; and Tom Lau, AIA
24 (collectively, “Defendants”) alleging copyright
25 | infringement, breach of contract, and unfair business
26 | practices. Currently before the Court is Defendants
27 | Avalon and Morari’s Motion to Dismiss [41] (“Motion”).
28 | Having reviewed all papers submitted pertaining to this
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 2 of 25 Page ID #:494
1 Motion, the Court NOW FINDS AND RULES AS FOLLOWS: the
2 Court GRANTS in part and DENIES in part Defendants’
3 Motion.
4 I. BACKGROUND
5 A. Factual Background
6 Plaintiff’s First Amended Complaint (“FAC”) alleges
7 as follows:
8 On or about May 25, 2014, Plaintiff, a licensed
9 architectural firm, contracted with Mr. Thakor Patel to
10 provide architectural design services for a new
11 Los Angeles hotel. First Am. Compl. (“FAC”) ¶ 12, ECF
12 No. 39. The contract (the “Agreement”) indicated that
13 Plaintiff was the sole author, owner, and copyright
14 holder of the architectural drawings and plans (the
15 “Drawings”) and that once the Planning Department
16 approved the Drawings, Mr. Patel would retain Plaintiff
17 as the architect for the hotel’s construction. Id.
18 Moreover, the Drawings were stamped with language
19 providing that they could not be copied or transmitted
20 without Plaintiff’s express written permission. Id.
21 ¶ 13.
22 After the Drawings were approved, Plaintiff learned
23 in June 2015 that Mr. Patel was selling the hotel
24 project to Defendant Avalon. Id. ¶ 14. In response,
25 Plaintiff’s principal, Mr. Nikhil Kamat (“Mr. Kamat”),
26 reached out to Defendant Avalon’s principal and managing
27 agent, Defendant Morari, to notify him that the Planning
28 Department had approved the Drawings and Plaintiff could
2
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 3 of 25 Page ID #:495
1 continue work on the project. Id. ¶¶ 5, 15. Defendant
2 Morari then asked for a proposal for Plaintiff’s work.
3 Id. ¶ 15. Mr. Kamat made it clear that Plaintiff would
4 only disclose the Drawings in its proposal on the
5 condition that Defendant Avalon could not use the
6 Drawings for the hotel unless Defendant Avalon paid
7 Plaintiff for them and hired Plaintiff as the project
8 architect. Id.
9 Three weeks later, Mr. Kamat sent Defendant Morari
10 an e-mail containing Plaintiff’s proposal. Id. ¶ 17.
11 In the e-mail, Mr. Kamat indicated that Plaintiff was
12 the sole owner, author, and copyright holder of the
13 Drawings created for the hotel, and that upon execution
14 of a contract, Plaintiff would grant Defendant Avalon a
15 license to use the Drawings in the hotel’s construction.
16 Id. In two subsequent phone calls, Defendant Morari
17 told Mr. Kamat that he would review the proposal and get
18 back to him. Id. ¶ 18. Defendant Morari understood
19 that if he decided to use the Drawings, Defendant Avalon
20 would have to pay for them and use Plaintiff as the
21 architect on the project. Id. Thereafter, Defendant
22 Morari went silent and cut off all contact with Mr.
23 Kamat. Id.
24 Several weeks later, Mr. Kamat sent an e-mail to
25 follow up on the proposal, but Defendant Morari did not
26 respond nor contact Plaintiff again. Id. ¶ 19.
27 Mr. Kamat therefore inferred that Defendant Morari was
28 not interested in using the Drawings for the hotel. Id.
3
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 4 of 25 Page ID #:496
1 On or about June 22, 2020, Mr. Kamat saw an
2 advertisement for the sale of a hotel that had since
3 been constructed on the property and recognized the
4 design as his own. Id. ¶ 21. He also learned that
5 Defendant Avalon had hired Defendant W&W Land Design
6 Consultant, Inc. (“W&W”) for the next stage of project
7 development and that Defendants had used Plaintiff’s
8 preliminary schematic design and drawings in the hotel’s
9 construction. Id. Sometime thereafter, Plaintiff
10 learned that the Drawings were included in a Power Point
11 presentation (the “Presentation”) marketing the
12 property. Id. ¶ 20.
13 On January 13, 2022, Plaintiff filed a copyright
14 application for the Drawings and the United States
15 Copyright Office granted Copyright Registration
16 Certificate No. VA 2-282-647 for the Drawings five days
17 later. Id. ¶¶ 24-25.
18 B. Procedural Background
19 Defendants filed the instant Motion [42] on September
20 8, 2022. Plaintiff opposed [48] the Motion on October
21 4, 2022. Defendants replied [49] on October 7, 2022.
22 II. DISCUSSION
23 A. Legal Standard
24 Federal Rule of Civil Procedure 12(b)(6) allows a
25 party to move for dismissal of one or more claims if the
26 pleading fails to state a claim upon which relief can be
27 granted. Fed. R. Civ. P. 12(b)(6). A complaint must
28 “contain sufficient factual matter, accepted as true, to
4
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 5 of 25 Page ID #:497
1 state a claim to relief that is plausible on its face.”
2 Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quotation
3 omitted). Dismissal is warranted for a “lack of a
4 cognizable legal theory or the absence of sufficient
5 facts alleged under a cognizable legal theory.”
6 Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699
7 (9th Cir. 1988) (citation omitted).
8 In ruling on a Rule 12(b)(6) motion, a court may
9 generally consider only allegations contained in the
10 pleadings, exhibits attached to the complaint, and
11 matters properly subject to judicial notice. Swartz v.
12 KPMG LLP, 476 F.3d 756, 763 (9th Cir. 2007). A court
13 must presume all factual allegations of the complaint to
14 be true and draw all reasonable inferences in favor of
15 the non-moving party. Klarfeld v. United States, 944
16 F.2d 583, 585 (9th Cir. 1991). The question is not
17 whether the plaintiff will ultimately prevail, but
18 whether the plaintiff is entitled to present evidence to
19 support its claims. Jackson v. Birmingham Bd. of Educ.,
20 544 U.S. 167, 184 (2005) (quoting Scheuer v. Rhodes,
21 416 U.S. 232, 236 (1974)). While a complaint need not
22 contain detailed factual allegations, a plaintiff must
23 provide more than “labels and conclusions” or “a
24 formulaic recitation of the elements of a cause of
25 action.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555
26 (2007). However, “a well-pleaded complaint may proceed
27 even if it strikes a savvy judge that actual proof of
28 those facts is improbable, and ‘that a recovery is very
5
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 6 of 25 Page ID #:498
1 remote and unlikely.’” Id. at 556 (quoting Scheuer v.
2 Rhodes, 416 U.S. 232, 236 (1974)).
3 B. Analysis
4 1. Judicial Notice
5 Before turning to the merits of Defendants’ Motion,
6 the Court should first address Defendants’ request for
7 judicial notice. A court may take judicial notice of an
8 adjudicative fact that is “not subject to reasonable
9 dispute because it: (1) is generally known within the
10 trial court’s territorial jurisdiction; or (2) can be
11 accurately and readily determined from sources whose
12 accuracy cannot reasonably be questioned.” Fed. R.
13 Evid. 201(b). Matters of public record may be
14 judicially noticed, but disputed facts contained therein
15 may not. Khoja v. Orexigen Therapeutics, Inc., 899 F.3d
16 988, 999 (9th Cir. 2018). “[A]ccuracy is only part of
17 the inquiry under Rule 201(b).” Id. “A court must also
18 consider—and identify—which fact or facts it is noticing
19 from” the documents. Id.
20 Here, Defendants filed a request seeking judicial
21 notice of the following twelve documents1: (A) the
22 May 25, 2014 Agreement (the “Agreement”) between
23 Plaintiff and Mr. Patel; (B) Plaintiff’s initial state-
24 court complaint in Case No. 20BBCV00441 (the “State
25 Case”); (C) The Los Angeles Superior Court (“LASC”)
26
1 The documents are attached to the Request for Judicial
27
Notice as exhibits and are referred to here by their exhibit
28 letter.
6
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 7 of 25 Page ID #:499
1 September 3, 2021 Order in the State Case;
2 (D) Plaintiff’s first-amended complaint in the State
3 Case; (E) The LASC December 16, 2021 Order in the State
4 Case; (F) Plaintiff’s second-amended complaint, in the
5 State case; (G) the demurrer and request for judicial
6 notice Defendants filed in the State Case; (H) the
7 LASC’s March 23, 2022 tentative ruling on Defendants’
8 demurrer; (I) Plaintiff’s voluntary dismissal of the
9 State Case; (J) Plaintiff’s responses to Defendants’
10 Special Interrogatory No. 49, Request for Admission No.
11 32, and Form Interrogatory 17.1; (K) Plaintiff’s
12 supplemental responses to Defendants’ Request for
13 Admission Nos. 40-41; (L) The Presentation Plaintiff
14 referred to in the FAC. See generally Req. for Judicial
15 Notice (“RJN”), ECF No. 42; RJN, Exs. A-L, ECF Nos. 42-1
16 through 42-12.
17 a. Documents Subject to Judicial Notice
18 Exhibits B through I are court filings and records
19 in related proceedings and are thus properly subject to
20 judicial notice. See Reyn’s Pasta Bella, LLC v. Visa
21 USA, Inc., 442 F.3d 741, 746 n.6 (9th Cir. 2006) (taking
22 judicial notice of pleadings, memoranda, and other court
23 documents from related litigation). The Court takes
24 judicial notice of the existence of these proceedings,
25 their filing dates, Plaintiff’s claims, and the court’s
26 dispositions. See Limcaco v. Wynn,
27 No. 220CV11372RSWLMAAX, 2021 WL 5040368, at *5 (C.D.
28 Cal. Oct. 29, 2021). The Court should not, however,
7
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 8 of 25 Page ID #:500
1 take judicial notice of these documents for the truth of
2 the matters asserted therein. See Lee v. City of Los
3 Angeles, 250 F.3d 668, 690 (9th Cir. 2001); Garber v.
4 Heilman, No. CV 08-3585-DDP (RNB), 2009 WL 409957, at *1
5 (C.D. Cal. Feb. 18, 2009).
6 b. Documents Subject to Incorporation by
7 Reference
8 Under the judicially created incorporation by
9 reference doctrine, “[a] court may consider evidence on
10 which the complaint ‘necessarily relies’ if: (1) the
11 complaint refers to the document; (2) the document is
12 central to the plaintiff's claim; and (3) no party
13 questions the authenticity of the copy attached to the
14 12(b)(6) motion.” Marder v. Lopez, 450 F.3d 445, 448
15 (9th Cir. 2006).
16 Exhibit A is the Agreement between Plaintiff and
17 Mr. Patel. See RJN, Ex. A. Plaintiff’s FAC also
18 extensively referenced the Agreement. See FAC ¶¶ 12-13.
19 Plaintiff did not question Exhibit A’s authenticity in
20 its Opposition and instead asserted that the license it
21 granted to Mr. Patel in the Agreement did not transfer
22 to Defendants. See Opp’n 3:26-4:11. The Agreement is
23 therefore central to Plaintiff’s infringement claim, so
24 the Court may incorporate Exhibit A by reference into
25 its analysis of the current Motion.
26 Exhibit L is the Presentation allegedly used to
27 market the property that included the Drawings. See FAC
28 ¶ 20. Neither party questions Exhibit L’s authenticity,
8
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 9 of 25 Page ID #:501
1 and Plaintiff references the Presentation in its FAC.
2 See FAC ¶ 20. Absent direct evidence of copying, a
3 plaintiff asserting copyright infringement must prove
4 that a defendant had “access” to the underlying work.
5 See Three Boys Music Corp. v. Bolton, 212 F.3d 477, 481
6 (9th Cir. 2000). Thus, because Plaintiff alleges that
7 the Presentation provided Defendants with access to the
8 Drawings, the document is central to the infringement
9 claim. The Court may therefore also incorporate the
10 Presentation by reference into its analysis of the
11 current Motion.
12 Since the Court incorporates by reference
13 Exhibits A and L, judicial notice is not necessary. See
14 Rainville v. Anthem Um Servs., No. 18-cv-07099-RS, 2019
15 WL 13203765, at *2 n.2 (N.D. Cal. Feb. 12, 2019).
16 c. Documents Not Subject to Judicial Notice or
17 Incorporation by Reference
18 Exhibit J and Exhibit K purportedly contain
19 Plaintiff’s discovery responses in the related state
20 court proceedings, and Defendants rely on the responses
21 to undermine Plaintiff’s allegations. See RJN, Exs. J &
22 K; Defs.’ Mot. to Dismiss (“Mot.”). However, a court
23 may only judicially notice an adjudicative fact if it is
24 not subject to reasonable dispute because it: “(1) is
25 generally known within the trial court’s territorial
26 jurisdiction; or (2) can be accurately and readily
27 determined from sources whose accuracy cannot reasonably
28 be questioned.” Fed. R. Evid. 201(b). A document is
9
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 10o0f25 Page ID #:502
1] “self-authenticating” — and therefore deemed not subject
2] to reasonable dispute - if it requires no extrinsic
3 | evidence of genuineness to be admitted as evidence.
4] United States v. Alvirez, 831 F.3d 1115, 1123 (9th Cir.
5 | 2016). Discovery responses are not self-authenticating
6 | documents. See United Safeguard Distribs. Ass’n, Inc.
7 Jv. Safeguard Bus. Sys., Inc., 145 F. Supp. 3d 932, 942
8] (C.D. Cal. 2015) (“Discovery items . . . are not proper
9 {| subjects for judicial notice because they are not ‘self-
10 | authenticating’ and thus cannot be verified.”); Garber
11] sv. Heilman, No. CV 08-3585-DDP (RNB), 2009 WL 409957, at
1249 *1 (C.D. Cal. Feb. 18, 2009); Brown v. Allstate Ins.
13] Co., 17 F. Supp. 2d 1134, 1138 (S.D. Cal. 1998)
14 (refusing to judicially notice requests for admissions
15 | because “[t]he court proceeds with particular caution
16 J with respect to a request for judicial notice, when, as
17 J] here, it is urged so to resolve a fundamental,
18 | dispositive factual dispute”). Therefore, the Court
19 | should deny Defendants’ request for judicial notice for
20 | Exhibits J and K.
21 2. Copyright Act Claim
22 a. The Court Need Not Determine Whether
23 Defendants Possessed a License
24 A motion to dismiss challenges a complaint’s
25 | sufficiency, so it is generally inappropriate to raise
an affirmative defense in a 12(b) (6) motion. Scott v.
27 | Kuhlmann, 746 F.2d 1377, 13788 (9th Cir. 1984).
28 | Therefore, to survive a motion to dismiss, plaintiffs do
10
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 11 of 25 Page ID #:503
1 not need to plead “on the subject of affirmative
2 defenses.” Rivera v. Peri & Sons Farms, Inc., 735 F.3d
3 892, 902 (9th Cir. 2013). Rather, only when a
4 complaint’s allegations suffice to establish an
5 affirmative defense can a defendant properly raise the
6 defense in a 12(b)(6) motion. Id.; Sams v. Yahoo! Inc.,
7 713 F.3d 1175, 1179 (9th Cir. 2013). The existence of a
8 license is an affirmative defense to a copyright
9 infringement claim. Worldwide Church of God v.
10 Philadelphia Church of God, Inc., 227 F.3d 1110, 1114
11 (9th Cir. 2000).
12 Here, Defendants assert that the Agreement granted
13 them an express, or at least an implied, license to use
14 the Drawings. Mot. 11:21-24. However, Defendants were
15 not a party to the Agreement. See RJN, Ex. A. Instead,
16 they contend that Mr. Patel transferred the Agreement’s
17 license to a third-party, RSP, who in turn sold the
18 land, drawings, and license to them. Id. at 11:13-20.
19 But the Ninth Circuit has held that a licensee cannot
20 transfer a copyright license without authorization.
21 Harris v. Emus Recs. Corp., 734 F.2d 1329, 1334 (9th
22 Cir. 1984) (“A licensee, however, had no right to re-
23 sell or sublicense the rights acquired unless he has
24 been expressly authorized to do so.”) (quoting M. NIMMER,
25 NIMMER ON COPYRIGHT § 10.01[c][4] (1983)). The Court
26 should not consider the express license defense because
27 the FAC and Agreement provide no evidence that Plaintiff
28
11
Case 8:22-cv-00459-RSWL-JDE Document Filed 11/17/22 Page 12o0f25 Page ID #:504
1] authorized the license’s transfer. See generally FAC;
2] RUN, EX. A.
3 Alternatively, copyright owners can grant
4 | nonexclusive licenses by implication. Foad Consulting
5] Grp., Inc. v. Azzalino, 270 F.3d 821, 826 (9th Cir.
6 | 2001). However, “implied licenses” are, by their very
7 | nature, implied. Consequently, courts generally resolve
8 | questions concerning implied licensing at summary
9 | Judgment — and not on motions to dismiss — because they
10 | require factual inquiry and analysis. Erwin v. Sestero,
11 J No. CV143890RSWLPJWX, 2014 WL 12591480, at *3 (C.D. Cal.
12 | Dec. 18, 2014); see, e.g., Effects Associates, Inc. v.
13 | Cohen, 908 F.2d 555, 559 (9th Cir. 1990) (establishing
14 | the three-element Effects Test to determine whether an
15 | implied license exists).
16 Here, the Court declines to determine whether
17 | Defendants possessed an implied license to use the
18 | Drawings because the affirmative defense is not apparent
19 | from the FAC’s allegations and the Agreement. See Sams,
20 □ 713 F.3d at 1179 (maintaining that to serve as a basis
21] for dismissal, affirmative defenses should be “apparent
22 | from the face of the complaint”). For example, the
23 | Effects Test’s third prong asks whether the licensor
24 | intended for the licensee to copy and distribute the
25 | work. See Asset Mktg. Sys., Inc. v. Gagnon, 542 F.3d
26] 748, 755 (9th Cir. 2008). Plaintiff explicitly alleged
274] that (1) the Agreement contained a clause restricting
28 | Mr. Patel’s right to copy or disseminate the Drawings
12
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 13 of 25 Page ID #:505
1 and (2) Plaintiff told Defendants that it was the “sole
2 owner, author, and copyright holder” of the Drawings and
3 would only grant them a license for their use “upon
4 execution of [a] contract.” FAC ¶¶ 13, 17. The
5 Agreement further provides, in pertinent part, that
6 “[Plaintiff] is, at all times, the author, owner and
7 copyright holder of all drawings . . . for this Project
8 [and] . . . [Plaintiff] grants the Owner a license to
9 use the [Drawings] for the limited purpose of this
10 Project only.” RJN, Ex. A at 5 (emphasis added). Thus,
11 the FAC’s allegations and incorporated Agreement do not
12 clearly establish an implied license, particularly
13 considering that the Agreement purported to limit the
14 license’s scope and transferability. See id.
15 In sum, although the Agreement granted Mr. Patel an
16 express license to use the Drawings, the Court need not,
17 on a motion to dismiss, determine whether he transferred
18 (or legally could transfer) the license to Defendants
19 when they purchased the hotel project. Additionally,
20 the Court should refrain from determining whether
21 Defendants possess an implied license because the FAC’s
22 allegations and the Agreement do not obviously establish
23 the defense. See Gomez v. Quicken Loans, Inc., 629 F.
24 App’x 799, 801 (9th Cir. 2015) (“An affirmative defense
25 cannot serve as a basis for dismissal unless it is
26 obvious on the face of the complaint.”).
27 ///
28 ///
13
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 14 of 25 Page ID #:506
1 b. The Court Tolls the Statute of
2 Limitations
3 Under the Copyright Act, a plaintiff must commence
4 an infringement action within three years of the claim
5 accruing. 17 U.S.C. § 507(b). The Ninth Circuit has
6 adopted “the discovery rule,” which holds that a claim
7 “accrues” when the copyright holder “has knowledge of a
8 violation or is chargeable with such knowledge.” Roley
9 v. New World Pictures, Ltd., 19 F.3d 479, 481 (9th Cir.
10 1994). In other words, the three-year clock begins when
11 a plaintiff discovers the infringement, so long as the
12 plaintiff’s prior unawareness of the infringement was
13 reasonable under the circumstances. Polar Bear Prods.,
14 Inc. v. Timex Corp., 384 F.3d 700, 706 (9th Cir. 2004);
15 see also Starz Ent., LLC v. MGM Domestic Television
16 Distrib., LLC, 39 F.4th 1236, 1246 (9th Cir. 2022)
17 ([B]ecause the discovery rule is an exception to the
18 general incident of injury rule, . . . the three-year
19 limitations period begins only when the copyright holder
20 knows or should have known of the infringing act.”).
21 Ultimately, “precisely when a claim accrues is a
22 question of fact.” Starz Ent., LLC v. MGM Domestic
23 Television Distrib., LLC, No. CV 20-4085-DMG (KSX), 2021
24 WL 566500 (C.D. Cal. Jan. 5, 2021), motion to certify
25 appeal granted, No. CV 20-4085-DMG (KSX), 2021 WL 945237
26 (C.D. Cal. Feb. 22, 2021), and aff’d, 39 F.4th 1236 (9th
27 Cir. 2022) (holding the parties should pursue discovery
28 to determine whether the pleadings accurately reflected
14
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1] when a claim accrued). Because factual issues cannot be
2 4] resolved at the pleadings stage, a court should only
3 | find a copyright claim time-barred on a motion to
4] dismiss if no reasonable finder of fact could conclude
5 | that a copyright plaintiff’s lack of knowledge of
6 | infringement prior to its alleged discovery was
7 | reasonable under the circumstances. Mavrix Photo, Inc.
8 FT v. Rant Media Network, LLC, No. CV197270DMGAFMX, 2020 WL
9 7 8028098, at *3 (C.D. Cal. Nov. 2, 2020).
10 In its Motion, Defendants contend that Plaintiff
11] “could have easily checked the records of the City of
12] L.A. and learned that Defendant Avalon’s new architects
13 | had submitted plans from scratch for the new 5-story
14 | hotel by August of 2015.”*% Mot. 28:9-12. Indeed,
15 J constructive knowledge can trigger the statute of
16] Limitations, and “suspicion” of infringement “place[s]
17 | upon [the plaintiff] a duty to investigate further into
18 | possible infringements of [its] copyrights.” Wood v.
19 | Santa Barbara Chamber of Commerce, Inc., 7/05 F.2d 1515,
207 1521 (9th Cir. 1983); Oracle Am., Inc. v. Hewlett
21] Packard Enter. Co., 971 F.3d 1042, 1047 (9th Cir. 2020).
22] “[A] plaintiff is deemed to have had constructive
23
24 2 Defendants assert that Plaintiff reasonably should have
recognized infringement from “scratch-made” architectural plans
25 | for a hotel with a different number of stories than the one
Plaintiff had designed. Mot. 28:9-12. Defendants cannot have it
26 | both ways; either Defendants’ hotel design infringed on the
27 Drawings — and thus Plaintiff should have recognized the hotel as
its own design — or Defendants generated an entirely independent
299 | design.
15
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1] knowledge if it had enough information to warrant an
2] investigation which, if reasonably diligent, would have
3 | led to discovery of the [claim].” Pincay v. Andrews,
4] 238 F.3d 1106, 1110 (9th Cir. 2001).
5 Here, however, Plaintiff alleged that Defendants
6 | failed to follow up on its proposal to execute a
7 | contract that would grant Defendants a license for the
8 | Drawings and make Plaintiff the lead architect for
9 | construction. FAC G7 15-19. On a motion to dismiss,
10 | the Court should not impose a duty to investigate upon a
11] plaintiff unless the complaint clearly evidences the
12 | plaintiff’s suspicion or constructive knowledge of
13 J] infringement. See Von Saher v. Norton Simon Museum of
14] Art at Pasadena, 592 F.3d 954, 969 (9th Cir. 2010) (“[A]
15 | complaint cannot be dismissed unless it appears beyond
16 | doubt that the plaintiff can prove no set of facts that
17 | would establish the timeliness of the claim.”). Unlike
18 J in Wood, where a plaintiff had filed a similar lawsuit
19 | many years prior, thus evidencing suspicion, the FAC
20 | here does not demonstrate that Plaintiff suspected
21 7 infringement before Mr. Kamat viewed the hotel
22 | advertisement in 2020. See Wood, 705 F.2d at 1521; FAC
237 2 21. Any evidence to the contrary can be revealed in
24 | discovery and would properly be considered on a motion
25 | for summary judgment.
26 Therefore, presuming the FAC’s factual allegations
27] as true, the Court should find that a reasonable fact
28 | finder could believe that Plaintiff first discovered the
16
Case 8:22-cv-00459-RSWL-JDE Document Filed 11/17/22 Page17of25 Page ID #:509
1] alleged infringement on or about June 22, 2020, and that
2] its prior unawareness was reasonable. Thus, the Court
3 | applies the discovery rule, tolls the statute of
4] limitations, and holds that Plaintiff timely filed its
5 | claim under the Copyright Act.
6 In summary, the Court need not determine on the
7 | current Motion whether Defendants’ license defense has
8] merit. The Court also applies the discovery rule and
tolls the statute of limitations, thus rendering the
10 J claim timely filed. The Court therefore DENIES
11] Defendants’ Motion to Dismiss the copyright infringement
12 | claim.
13 3. Breach of Contract Claim
14 a. Plaintiff’s Breach of Contract Claim Is Not
15 Preempted by the Copyright Act
16 The Copyright Act preempts a state law claim if the
17 | underlying work falls within the “subject matter” of the
18 | Act and the rights the plaintiff asserts under state law
19 | are equivalent to those protected by the Act. Kodadek
20 J v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir.
21471998). “For preemption purposes, ideas and concepts
22 4] that are fixed in a tangible medium fall within the
23 | scope of copyright.” Montz v. Pilgrim Films &
24] Television, Inc., 649 F.3d 975, 979 (9th Cir. 2011).
25 Here, Plaintiff alleged it provided Defendants a
26 | copy of the Drawings in its e-mail proposal, so the work
27 | at issue was fixed in a tangible medium. See FAC {7 18,
28 7 35. Therefore, the Drawings fall within the subject
17
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 18o0f25 Page ID#:510
1] matter afforded protection by the Copyright Act. See
24 Kodadek, 152 F.3d at 1212.
3 Next, “[t]o survive preemption, the state cause of
4] action must protect rights that are qualitatively
5 | different from the rights protected by copyright: the
6 | complaint must allege an ‘extra element’ that changes
7 | the nature of the action.” Grosso v. Miramax Film
8] Corp., 383 F.3d 965, 968 (9th Cir. 2004), opinion
9 | amended on denial of reh’g, 400 F.3d 658 (9th Cir.
10 2005). For a breach of contract claim, courts look to
11] the rights created by the contract and determine whether
12 ] they “differ from the prohibition of unauthorized
13 | reproduction, performance, distribution, or display of
14 | work protected under copyright law.” Rumble, Inc. v.
15 J] Daily Mail & Gen. Tr. PLC, No. CV 19-08420-CJC (EX),
16 § 2020 WL 2510652, at *3 (C.D. Cal. Feb. 12, 2020).
17 Here, no express contract exists, but Plaintiff
18 | alleged that its correspondence with Defendants created
19 J an implied-in-fact contract. See FAC 7 39. ™“[W]here an
20 | idea is furnished by one party to another, a contract
21] sometimes may be implied even in the absence of an
22 | express promise to pay.” Grosso, 383 F.3d at 967.
23 | “California law allows for recovery for the breach of an
24 | implied-in-fact contract when the recipient of a
25 | valuable idea accepts the information knowing that
26 | compensation is expected, and subsequently uses the idea
27 | without paying for it.” Landsberg v. Scrabble Crossword
28 | Game Players, Inc., 802 F.2d 1193, 1196 (9th Cir. 1986).
18
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 19 of 25 Page ID #:511
1 This implied promise to pay suffices as an “extra
2 element” for preemption purposes. Grosso, 383 F.3d
3 at 968.
4 Plaintiff alleged that Defendants knew it disclosed
5 the Drawings on the condition that Defendants could not
6 use them unless Defendants paid for them and hired
7 Plaintiff as the architect for construction. FAC ¶ 15.
8 Taken as true, this understanding constitutes an extra
9 element enabling the breach of contract claim to avoid
10 preemption under the Copyright Act. See Landsberg,
11 802 F.2d at 1196-97; see also Grosso, 383 F.3d at 968
12 (finding a plaintiff’s disclosure of his playscript to
13 defendants evidenced a bilateral expectation of
14 compensation which constituted an extra element for
15 preemption purposes).
16 b. Plaintiff Pled Sufficient Facts to
17 Establish a Prima Facie Breach of Contract
18 Claim
19 Under California law, a plaintiff must plead the
20 same elements for a breach of an implied-in-fact
21 contract claim as for the breach of an express contract.
22 Marshall & Swift/Boeckh, LLC v. URS Corp., No.
23 CV0804375GAFSSX, 2009 WL 10668449, at *21 (C.D. Cal.
24 Aug. 26, 2009). Therefore, Plaintiff must plead
25 (1) that a valid contract existed; (2) Plaintiff’s
26 performance, or excused nonperformance, of the contract;
27 (3) Defendants’ breach; and (4) resulting damages. To
28 state a Desny claim for breach of an implied-in-fact
19
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1] contract,? a plaintiff must allege that the plaintiff
2 (1) prepared the work, (2) disclosed the work to the
3 | defendant for sale, and (3) did so under circumstances
4] from which it could be concluded that the defendant
5 | voluntarily accepted the disclosure knowing the
6 | conditions on which it was tendered and the reasonable
7} value of the work. Grosso, 383 F.3d at 967.
8 Here, Plaintiff alleges the following: (1) it
9 | created the Drawings; (2) Mr. Kamat disclosed the
10 | Drawings to Defendant Morari in its June 26, 2015,
11] proposal; and (3) Mr. Kamat told Defendant Morari over
12 | the phone and in his June 26, 2015 e-mail that if
13 | Defendant Avalon wanted to use the Drawings, it would
14 | have to pay for them and hire Plaintiff as the hotel
15 J architect. FAC @@ 12-13, 17-18. Plaintiff further
16 J alleges that on the phone calls, the two principals
17 | discussed what drawings would be provided. Id. Given
18 | Plaintiff’s allegations regarding the parties’ telephone
19 | communication and Mr. Kamat’s e-mail indicating that
20 | Plaintiff would only grant a license for the Drawings
21 3The Supreme Court of California originally created the
22 | concept of implied-in-fact contracts to protect film writers from
being deprived of the ideas they pitch to studio producers
23 without just compensation. See Desny v. Wilder, 299 P.2d 257
(Cal. 1956). Courts have since applied the concept to various
24 | types of intellectual property disclosure, including patent
technology, website designs, and toys. See, e.g., JBF Interlude
25 2009 Ltd. v. Quibi Holdings LLC, No. 220CV02250CASSKX, 2020 WL
6203555 (C.D. Cal. Oct. 19, 2020); Riggs v. MySpace, Inc., 444 F.
26 App’x 986 (9th Cir. 2011); Gunther-Wahl Prods., Inc. v. Mattel,
Inc., 128 Cal. Rptr. 2d 50 (2002). Therefore, the Court should
27 find that architectural design disclosure can also form an
implied-in-fact contract.
28
20
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1 use upon execution of a contract, the Court should find
2 that the FAC sufficiently alleged that Defendant Morari
3 understood the condition on which Plaintiff tendered the
4 Drawings. See id. ¶¶ 17-18; JBF, 2020 WL 6203555, at *6
5 (holding that a defendant’s interest in “purchasing”
6 disclosed technology sufficiently implied that he knew
7 he had to pay for it).
8 In sum, Plaintiff sufficiently alleged it formed an
9 implied-in-fact contract, it performed by delivering the
10 Drawings in the proposal, and Defendants breached the
11 implied-in-fact contract by using the Drawings without
12 compensating Plaintiff for their use. See FAC ¶¶ 17-19,
13 21, 23. Plaintiff also alleged Defendants’ breach
14 caused Plaintiff harm and damages in an amount to be
15 proved at trial. FAC ¶¶ 41-42. Therefore, Plaintiff
16 has sufficiently pled a prima facie breach of contract
17 case to survive a motion to dismiss.
18 c. Plaintiff’s Breach of Implied-in-Fact
19 Contract Claim Is Plausible on Its Face
20 In the Motion, Defendants asserted that Plaintiff’s
21 own statements prove that Plaintiff never provided the
22 Drawings to Defendant Avalon at all. Id. at 22:28-23:1.
23 Defendants relied on two purported excerpts from
24 Plaintiff’s discovery responses in the previous state
25 action to undermine the FAC.4 Id. 21:4-26. However,
26
4 Defendants’ first contention – that in its response to
27 Special Interrogatory No. 49, Plaintiff said it failed to take
steps to protect the Drawings because it “was unaware that
28 Defendants had possession of the [D]rawings” - appears in Exhibit
21
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 22 of 25 Page ID #:514
1 because the discovery responses in Exhibits J and K are
2 not properly subject to judicial notice, the Court
3 should not determine whether the statements therein
4 render Plaintiff’s breach of contract claim implausible.
5 See Swartz, 476 F.3d at 763 (“In ruling on a 12(b)(6)
6 motion, a court may generally consider only allegations
7 contained in the pleadings, exhibits attached to the
8 complaint, and matters properly subject to judicial
9 notice.”); Safeguard, 145 F. Supp. 3d at 942 (“Discovery
10 items . . . are not proper subjects for judicial notice
11 because they are not ‘self-authenticating’ and thus
12 cannot be verified.”). Presuming all the factual
13 allegations in the FAC to be true – including that
14 Plaintiff e-mailed the Drawings to Defendant Morari –
15 Plaintiff has pled a breach of implied-in-fact contract
16 claim that is plausible on its face. Consequently, the
17 Court DENIES Defendants’ motion to dismiss Plaintiff’s
18 implied-in-fact contract claim.
19 4. The Court Dismisses Plaintiff’s Unfair
20 Competition Law Claim Without Leave to Amend
21 In its Opposition, Plaintiff requested that the
22 Court dismiss its unfair competition law (“UCL”) claim,
23 “subject to the unlikely scenario of [P]laintiff seeking
24 leave from the Court to reassert [the] claim.” Opp’n
25
J. Id. at 21:12-13. However, Defendants’ second example – that
26 in response to form interrogatory 17.1, Plaintiff claimed it “did
not know and could not have known that Defendants had obtained
27
[the Drawings]” – did not appear in the documents attached to the
28 Motion. See RJN, Ex J & K.
22
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1] 7:22-24. In its Reply, Defendants accepted the
2] concession. Reply 10:1. Therefore, the Court GRANTS
3 | Defendants’ motion to dismiss Plaintiff’s UCL claim.
4 Plaintiff requested that the Court dismiss the UCL
5 | claim with leave to amend. Opp’n 7:23. “Where a motion
6 | to dismiss is granted, a district court must decide
7 | whether to grant leave to amend.” Winebarger v.
8 | Pennsylvania Higher Educ. Assistance Agency, 411 F.
97 Supp. 3d 1070, 1082 (C.D. Cal. 2019). “The court should
10 | give leave [to amend] freely when justice so requires.”
11] Fed. R. Civ. P. 15(a) (2). In the Ninth Circuit, “Rule
12 7 15’s policy of favoring amendments to pleadings should
13 | be applied with ‘extreme liberality.’” United States v.
14 | Webb, 655 F.2d 977, 979 (9th Cir. 1981). Against this
15 | extremely liberal standard, the Court may consider “the
16 | presence of any of four factors: bad faith, undue delay,
17 | prejudice to the opposing party, and/or futility.”
18 | Owens v. Kaiser Found. Health Plan, Inc., 244 F.3d 708,
199 712 (9th Cir. 2001).
20 Here, leave to amend should be denied. Plaintiff
21 7 admits it cannot “identify any material relief uniquely
22 | available under the UCL that would justify extensive
23 | argument and litigation activity to carry forward this
24 | separate cause of action” and therefore it is “unlikely”
25] to reassert the UCL claim in the future. See Opp’n
26] 7:18-23. Given these statements and Plaintiff's
27 | previous amendment, it is clear that amendment would be
28 | futile.
23
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1 “The district court’s discretion to deny leave to
2 amend is particularly broad where plaintiff has
3 previously amended the complaint.” Allen v. City of
4 Beverly Hills, 911 F.2d 367, 373 (9th Cir. 1990). Here,
5 Plaintiff filed three state court complaints alleging
6 its unfair business practices claim, and it has already
7 amended its complaint in federal court once. See RJN,
8 Exs. B, D, F, ECF Nos. 42-2, 42-4. Thus, Plaintiff has
9 had multiple opportunities to refine its claim. Yet
10 Plaintiff concedes that despite its amendment, its claim
11 should not proceed and that is unlikely it can cure its
12 claim. Opp’n 7:23-24. Plaintiff’s statements ring
13 true. It is unlikely Plaintiff would reassert its UCL
14 claim, because amending Plaintiff’s claim would not make
15 available relief that is not already sought under
16 Plaintiff’s other claims. Therefore, the Court should
17 find that granting leave to amend would be futile. See
18 In re Vantive Corp. Sec. Litig., 283 F.3d 1079 (9th Cir.
19 2002) (holding that because plaintiffs had three
20 opportunities to plead their case, it was not
21 unreasonable for the district court to conclude that it
22 would be pointless to provide another chance to amend).
23 The Court therefore GRANTS Defendants’ Motion to Dismiss
24 the UCL claim without leave to amend.
25 ///
26 ///
27 ///
28 ///
24
Case 8:22-cv-00459-RSWL-JDE Document 51 Filed 11/17/22 Page 25 of 25 Page ID #:517
1 III. CONCLUSION
2 Based on the foregoing, the Court DENIES
3 Defendants’ Motion to Dismiss the copyright infringement
4 and breach of contract claims and GRANTS Defendants’
5 Motion to Dismiss the UCL claim without leave to amend.
6
7 IT IS SO ORDERED.
8
9 DATED: November 17, 2022 _ _ _ _ _ _ _ _/S_/ _R_O_N_A_L_D_ S_.W__. _LE_W________
HONORABLE RONALD S.W. LEW
10
Senior U.S. District Judge
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