Opinion
CIVIL ACTION NO. 1:22-cv-64-AT
2022-05-04
Ray Scott FUSS, Plaintiff, v. Frederick M. BENSCH, et al., Defendants.
ATTORNEYS FOR PLAINTIFF: Blaine Alexander Norris, John Robert Autry, Blaine A. Norris, PC d/b/a Norris Law, Athens, GA, Gregory Scott Smith, Matthew Hoots, Smith Tempel Blaha LLC, Athens, GA. ATTORNEYS FOR DEFENDANTS: Amanda Hyland, Brent M. Radcliff, Todd Edward Jones, Taylor English Duma LLP, Atlanta, GA.
ATTORNEYS FOR PLAINTIFF: Blaine Alexander Norris, John Robert Autry, Blaine A. Norris, PC d/b/a Norris Law, Athens, GA, Gregory Scott Smith, Matthew Hoots, Smith Tempel Blaha LLC, Athens, GA.
ATTORNEYS FOR DEFENDANTS: Amanda Hyland, Brent M. Radcliff, Todd Edward Jones, Taylor English Duma LLP, Atlanta, GA.
ORDER
AMY TOTENBERG, UNITED STATES DISTRICT JUDGE
This matter is before the Court on Plaintiff's Motion to Remand to State Court for Lack of Subject Matter Jurisdiction [Doc. 16]. For the reasons set forth below, Plaintiff's Motion is DENIED .
I. Background
Plaintiff initiated this action in the Superior Court of Fulton County on September 17, 2021. (Compl., Doc. 1-7.) The case stems from the sale of SweetWater Brewing Company ("SweetWater") to Aphria Inc. in November 2020 for the price of $366 million. (Id. at 3.) The transaction granted Aphria the exclusive rights to all of SweetWater's intellectual property, including the logo that Plaintiff had designed for the brand in 1996 in exchange for $500. (See id. ¶¶ 16–24, 81–83.)
Though Plaintiff alleges that the sale took place in November 2020, it appears that the deal did not officially close until December 2 of that year. (See Pl.’s Mot., Doc. 16-1 at 6) (citing Complaint for Declaratory Judgment ¶ 22, SweetWater Brewing Co., LLC v. Fuss , No. 22-cv-24 (N.D. Ga. Jan. 4, 2022)).
In the Complaint, Plaintiff claims that his agreement to let Defendants use the logo ("the IP") to build SweetWater's brand was subject to an implicit understanding that in the event that the business was sold he would be entitled to a share of the proceeds based on his ownership in the IP. (Id. ¶ 25.) Plaintiff further alleges that Defendants entered into negotiations with Aphria for the sale of SweetWater between December 2019 and November 2020, which culminated in the sale of the business, and that Defendants wrongfully concealed the sale from Plaintiff, transferred the IP without his approval, and denied him any share in the proceeds from the $366 million transaction. (See generally id. ¶¶ 47–78.) Plaintiff also emphasizes that $92 million of this transaction was allocated solely for the right to use the intellectual property in connection with the SweetWater brand, including the logo that Plaintiff designed and allegedly still owns. (Id. ¶¶ 89–98.)
The Complaint includes seven Counts in total: Conversion of Intangible Property (Count I); Fraud, Deceit, Fraudulent Concealment, Intentional Misrepresentation (Count II); Breach of Contract/Quantum Meruit (Count III); Unjust Enrichment (Count IV); Constructive Trust/Equitable Lien/Equitable or Legal Accounting (Count V); Punitive Damages (Count VI); and Attorney Fees and Litigation Expenses (Count VII). (Id. ¶¶ 102–83.) Plaintiff named SweetWater co-founder Frederick M. Bensch and numerous SweetWater-affiliated entities as Defendants in the Complaint; however, he did not name Aphria or any of its affiliated entities that purchased the business as Defendants.
Defendants removed the Complaint to federal court on January 7, 2021 on the ground that at least some of Plaintiffs’ state law claims were preempted by the Federal Copyright Act. (Notice of Removal, Doc. 1 ¶¶ 16–20.) In addition, SweetWater, Bensch, Aphria, and Aphria's parent company, Tilray, Inc., separately filed a case in federal court seeking a declaratory judgment that they had not violated Plaintiff's copyright rights. See Complaint for Declaratory Judgment, SweetWater Brewing Co., LLC v. Fuss , No. 22-cv-24 (N.D. Ga. Jan. 4, 2022). Then, on January 13, 2022, Defendants filed a Motion to Dismiss the removed state court Complaint. (Doc. 2.)
The Court scheduled a Teleconference the next day to discuss case management with the parties in the interest of efficiently proceeding with both the removed state court action and the federal declaratory judgment action. In that Teleconference, Plaintiff's counsel informed the Court that Plaintiff intended to file a motion to remand the removed state court Complaint back to state court on the ground that none of Plaintiff's claims were preempted by the Copyright Act. Based on that information, the Court elected to stay Defendants’ Motion to Dismiss pending the resolution of Plaintiff's forthcoming Motion to Remand. See Jan. 14, 2022 Docket Order. The Court also advised the parties that it would endeavor to resolve Plaintiff's Motion to Remand by May 13, 2022. Id. Plaintiff subsequently filed his Motion to Remand on February 17, 2022. (Doc. 16.)
The Court also stayed the deadline for Plaintiff to respond to the complaint in the separate declaratory judgment action filed by SweetWater, Bensch, Aphria, and Tilray. See Docket Order, SweetWater Brewing Co., LLC v. Fuss , No. 22-cv-24 (N.D. Ga. Jan. 14, 2022).
II. Legal Standard
Under 17 U.S.C. § 301(a),"all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by [ 17 U.S.C. § 106 ] ... are governed exclusively by [the Copyright Act]." The statute provides an exception to the rule of federal preemption for "activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106." Id. § 301(b)(3). As the Eleventh Circuit has recognized, "[t]he result of this subsection is that the [Copyright] Act ‘preempts only those state law rights that may be abridged by an act which, in and of itself, would infringe one of the exclusive rights provided by federal copyright law.’ " Foley v. Luster , 249 F.3d 1281, 1285 (11th Cir. 2001) (internal quotation marks omitted) (quoting Computer Assocs. Int'l, Inc. v. Altai, Inc. , 982 F.2d 693, 716 (2d Cir. 1992) ).
"[T]his language sets up a two-part test for determining when a state-law claim is preempted[.]" Priority Payment Sys., LLC v. Signapay, Ltd. , 161 F. Supp. 3d 1285, 1289 (N.D. Ga. 2015). First, the Court must determine "whether the rights at issue fall within the ‘subject matter of copyright’ set forth in sections 102 and 103’ " of the Copyright Act. Id. (quoting Crow v. Wainwright , 720 F.2d 1224, 1225–26 (11th Cir. 1983) ). Second, it must determine "whether the rights at issue are ‘equivalent to’ the exclusive rights of section 106" of the Act. Id.
The Eleventh Circuit applies an "extra element" test to determine whether a plaintiff's state law claims are qualitatively different from violations of the bundle of copyright rights protected by 17 U.S.C. § 106. Foley , 249 F.3d at 1285 (citing Bateman v. Mnemonics, Inc. , 79 F.3d 1532, 1549 (11th Cir. 1996) ). Under this test, a plaintiff's state law claims are preempted if there is "no extra element" that would remove the plaintiff's claims "from the general scope of copyright." Lipscher v. LRP Publ'ns, Inc. , 266 F.3d 1305, 1312 (11th Cir. 2001). But the plaintiff's state law claims are not equivalent to the exclusive rights under section 106, and therefore are not preempted, when they involve an "extra element" that "changes the nature of the action so that it is qualitatively different from a copyright infringement claim." Foley , 249 F.3d at 1285 (emphasis in original) (quoting Altai , 982 F.2d at 716 ).
III. Discussion
As an initial matter, Plaintiff does not dispute that the IP falls within the subject matter of copyright for purposes of the first step, and the Court agrees with that conclusion. Under 17 U.S.C. § 102(a)(5), copyright protection extends to "works of authorship fixed in any tangible medium of expression," including "pictorial, graphic, and sculptural works." The logo that Plaintiffs designed for Defendants would surely qualify. As such, the first step of the Eleventh Circuit's two-part test is easily satisfied.
The parties do however dispute whether the second step is satisfied with respect to a number of Plaintiff's state law claims -- specifically, Plaintiffs’ conversion, fraud, quantum meruit, and unjust enrichment claims in the first four Counts of the Complaint. In his Motion to Remand, Plaintiff argues that none of these claims are preempted because they do not involve allegations of "factual copying," but rather "wrongful behavior before, leading up to, and at the closing on December 2, 2020" — specifically, that Defendants "wrongfully converted" the IP and "fraudulently excluded Plaintiff from the sale of his own property." (Pl.’s Mot., Doc. 16-1 at 9.) Plaintiff therefore asserts that unlike claims involving factual copying, none of the claims that he specifically pled are "based on an act that would, of itself, violate an exclusive right under the Copyright Act." (Id. at 1.) In their opposition, Defendants argue that Plaintiffs’ disputed state law claims are still equivalent to federal copyright claims because they are based on allegations that Defendants wrongfully authorized the nonparty buyers to engage in factual copying, and that — at least on Plaintiff's theory — the alleged wrongful authorization would also violate the bundle of copyright rights protected by section 106.
Defendants do not argue that Counts Five through Seven of the Complaint are preempted by the Copyright Act.
In his reply, Plaintiff argues that applying federal preemption to claims involving the mere authorization of a third party to engage in factual copying — rather than only applying it to claims involving first-party factual copying — would improperly expand the scope of federal jurisdiction under the Copyright Act. But Plaintiff ignores that such conduct falls squarely within the scope of section 106, which expressly states that "the owner of copyright under this title has the exclusive rights to do and to authorize " a variety of conduct, including "[the] distribut[ion] [of] copies ... of the copyrighted work to the public by sale or other transfer of ownership." 17 U.S.C. § 106(a)(3) (emphasis added); see Altovise Davis & Boyar Invs. v. Barret , No. 3:08-cv-8, 2008 WL 11349744, at *3, 2008 U.S. Dist. LEXIS 139557, at *13 (N.D. Tex. Apr. 3, 2008) (noting that "[t]he Copyright Act specifically provides that ‘the owner of a copyright ... has the exclusive rights to do and to authorize any of the following ...’ " (quoting 17 U.S.C. § 106 )). Thus, if Plaintiff's theory were correct and Defendants improperly authorized a third party to engage in factual copying in violation of state law, that same conduct would also violate Plaintiff's copyright rights under section 106.
In short, the lack of any allegations that Defendants themselves engaged in factual copying is not a defense to preemption because Plaintiff has still alleged that Defendants violated his copyright rights by authorizing third parties to do the same. Having determined that Plaintiff's catchall defense to Defendants’ claim of preemption fails, the Court will now address whether each of Plaintiff's claims is preempted under the Eleventh Circuit's extra element test.
A. Conversion
As Plaintiff states in his motion, "Conversion is ‘an act of dominion over the personal property of another inconsistent with his rights.’ " (Pl.’s Mot. at 13) (quoting Bearoff v. Craton , 350 Ga.App. 826, 830 S.E.2d 362, 375 (2019) ). The crux of Plaintiff's conversion claim in this case is that Defendants transferred the IP to Aphria in a deal that caused him harm, (Compl. ¶ 124), and that, by doing so, Defendants wrongfully exercised dominion or control over the IP by treating it as their own, (id. ¶ 131).
Plaintiff specifically pleads his conversion claim as one of conversion of "[i]ntangible [p]roperty," which is significant because "[t]o the extent that there is no tangible embodiment, conversion of an intangible shades into a copyright-style cause of action and, thus, cannot survive." 1 Nimmer on Copyright § 1.15[I][2] (2022) (footnotes omitted). Nevertheless, Plaintiff claims that dominion and control are additional elements that are not required to state a copyright claim, meaning that his conversion claim should not be treated as preempted under the extra element test.
Though at first blush it may appear that dominion and control are additional elements, as another Judge in this district has pointed out, "not just any extra element will do." Archer v. Holmes , No. 1:17-cv-2051, 2018 WL 534475, at *3, 2018 U.S. Dist. LEXIS 10961, at *5 (N.D. Ga. Jan. 23, 2018). "Rather, only that extra element which ‘changes the nature of the action so that it is qualitatively different from a copyright infringement claim’ will serve to prevent preemption." Id. at *3, 2018 WL 534475 at *5–*6 (emphasis in original) (quoting Bateman , 79 F.3d at 1549 ). In this case, the basis for Plaintiff's conversion claim is that Defendants exercised dominion and control over the IP , and that by doing so Defendants acted in a manner inconsistent with Plaintiff's rights — namely, Plaintiff's copyright rights under section 106. In other words, Plaintiff's conversion claim is equivalent to a claim of copyright infringement and is therefore preempted. See Mi9 Retail, Inc. v. Home Depot, Inc. , No. 1:20-cv-525, 2020 WL 8087924, at *8–9, 2020 U.S. Dist. LEXIS 247397, at *26 (N.D. Ga. Dec. 7, 2020) (holding that plaintiff's conversion claim was preempted because "the rights Plaintiff seeks to protect with its conversion claim are equivalent to those afforded by § 106"); White v. Alcon Film Fund, LLC , No. 1:13-cv-1163, 2013 WL 12067479, at *3, 2013 U.S. Dist. LEXIS 191527, at *8 (N.D. Ga. Aug. 13, 2013) (holding that "to the extent that White's claim for conversion is based on Defendants’ use of copyrighted material from his book to make the film, i.e., Defendants’ copying of elements in making an unauthorized derivative work, that claim is encompassed by the protections afforded by the Copyright Act and thus is preempted").
The fact that at least one of Plaintiff's claims is preempted would be sufficient to deny Plaintiff's Motion to Remand standing on its own. However, the Court recognizes that Plaintiff has requested an opportunity to amend the Complaint to eliminate any preempted claims, and that absent guidance from the Court as to which of Plaintiff's remaining claims are actually preempted, the parties would likely find themselves right back where they started — faced with yet another dispute about which of Plaintiff's claims are in fact preempted. On the current record, it is apparent that the parties dispute whether Plaintiff's fraud, quantum meruit, and unjust enrichment claims are preempted, and that they would still dispute these issues absent a ruling from the Court. Moreover, if Plaintiff were to simply eliminate his conversion claim through an amended complaint, the Court would likely be faced with yet another notice of removal and motion to remand, along with yet another round of briefing as to whether these same three disputed claims are preempted. Engaging in this additional exercise would further delay the resolution of the case; not to mention, it would be a waste of the parties’ resources and an undue burden on the Court. For all of these reasons, in the interest of judicial efficiency, the Court will now address whether the three remaining disputed claims are preempted.
B. Fraud
The underlying rationale for Plaintiff's fraud claim is that Defendants fraudulently concealed the planned sale of SweetWater from Plaintiff and failed to negotiate with him in good faith. (Compl. ¶ 140) As a component of this claim, Plaintiff alleges that Bensch misled him into believing that he would receive a share of the proceeds from the sale based on his ownership of the IP, and that Bensch purposefully failed to disclose Defendants’ hostile claim of ownership in the IP until after the deal had already been completed. (Id. )
In his Motion to Remand, Plaintiff argues that, as an element of his fraud claim, he would have to prove that Defendants committed a false representation, which is not an element of copyright infringement, and that this additional element renders his fraud claim qualitatively different from a copyright infringement claim. As Plaintiff points out, the court in Archer v. Holmes , No. 1:17-cv-2051, 2018 WL 534475, 2018 U.S. Dist. LEXIS 10961 (N.D. Ga. Jan. 23, 2018) found that the plaintiff's fraud claim in that case was not preempted on the ground that it required the plaintiff to prove that there was a "false representation of a material fact." Id. at *3, 2018 U.S. Dist. LEXIS 10961 at *6. The court observed that the existence of a false representation was "not only a required element, but in truth the ‘gravamen’ of a fraud Claim." Id. And, more importantly, the court concluded that the requirement that the plaintiff prove that the defendants made a false representation "adds the extra element that qualitatively distinguishes [the plaintiff's] fraud claim from copyright infringement." Id. The same is true in this case. Although, as Defendants note, Plaintiff's fraud claim centers upon "a dispute over the right to use copyrighted works and the terms of such use," (Defs.’ Opp'n, Doc. 17 at 18), that does not change the fact that Plaintiff must prove an additional element to establish his fraud claim that is not required to establish copyright infringement. Accordingly, Plaintiff's fraud claim qualitatively differs from a copyright infringement claim and is not preempted.
C. Quantum Meruit
The Court next considers Plaintiff's quantum meruit claim. According to Plaintiff, the basis for this claim is that the parties had an implied agreement that Plaintiff would be entitled to a share of the proceeds in the event that SweetWater was sold, and that he would be included in the negotiations for any such sale. (Compl. ¶ 150.)
To establish this claim, Plaintiff argues that he would have to prove the following elements: "(i) provision of valuable goods or services, (ii) request or knowing acceptance by the receiving party; (iii) receipt of the goods or services without payment would be unjust; and (iv) the provider expected to receive compensation. (Pl.’s Mot. at 19–20) (citing Griner v. Foskey , 158 Ga.App. 769, 282 S.E.2d 150, 152 (1981), and One Bluff Drive v. K.A.P., Inc. , 330 Ga.App. 45, 766 S.E.2d 508, 512 (2014) ). In addition, Plaintiff argues, "[f]ederal courts have determined that the implied promise to pay ... serves as the ‘extra element’ " necessary to avoid preemption. (Id. at 20) (citing Phillies v. Harrison , No. 19-cv-7239, 2021 WL 5936523, at *1, *29, 2021 U.S. Dist. LEXIS 243554, at *1, *109 (S.D.N.Y. Aug. 10, 2021), and Baglama v. MWV Consumer & Off. Prods. , No. 3:13-cv-276, 2014 WL 5768577 at *1, *3–4, 2014 U.S. Dist. LEXIS 156648, *1, *10 (S.D. Ohio Nov. 5, 2014) ). As a consequence, Plaintiff contends that his quantum meruit claim should not be preempted.
In response, Defendants rely on the court's decision in Archer where it noted that implied-in-fact contract claims are not necessarily preempted, and that Plaintiff would still have to show that Defendants violated "rights separate from those he held as a copyright owner." 2018 WL 534475, at *4, 2018 U.S. Dist. LEXIS 10961, at *8. Defendants argue that Plaintiff has failed to satisfy that requirement because the implied promise at issue is based upon "rights he holds as a copyright holder," i.e. , the right to authorize factual copying by the buyers. (Defs.’ Opp'n at 19) (emphasis omitted). For that reason, Defendants aver that the implied promise at issue is simply "a promise to do that which copyright law already requires," which is insufficient to satisfy the extra element requirement to avoid preemption. (Id. at 20) (quoting Archer , 2018 WL 534475, at *4, 2018 U.S. Dist. LEXIS 10961, at *9 ).
If the promise at issue were simply a promise not to infringe Plaintiff's copyright rights then Defendants would be correct that Plaintiff's quantum meruit claim would be preempted. But the implied promise at issue in Plaintiff's quantum meruit claim is not the promise not to infringe Plaintiff's copyright rights; it is the promise to give him a share of the proceeds in the event of a sale. Put differently, the alleged promise to pay Plaintiff in the event of a sale was a separate promise from the promise not to authorize a third party to engage in factual copying. A claim that Defendants broke the latter of these two promises would be the equivalent to a copyright infringement claim. But in order to establish his quantum meruit claim, Plaintiff would also have to establish that Defendants broke the former promise — the implied promise to include Plaintiff in the sale of the business. That is, to establish a quantum meruit claim, Plaintiff would have to prove an additional element above and beyond the elements required to establish copyright infringement. As a consequence, Plaintiff's quantum meruit claim is qualitatively different from a copyright infringement claim and is not preempted.
D. Unjust Enrichment
That leaves Plaintiff's unjust enrichment claim. As Plaintiff notes, "[u]nder Georgia law an unjust enrichment claim requires (1) that there be no enforceable legal contract between the plaintiff and defendant, and (2) that the plaintiff shows there has been a benefit conferred on defendant which would result in an unjust enrichment of defendant unless plaintiff is compensated." (Pl.’s Mot. at 22–23) (emphasis in original) (citing Zampatti v. Tradebank Int'l Franchising Corp. , 235 Ga.App. 333, 508 S.E.2d 750 (1998), and Smith v. Huckeba , 232 Ga.App. 374, 501 S.E.2d 877 (1998) ). In support of this claim, Plaintiff argues, "given that only Plaintiff, as owner of [the IP], had the actual right to sell, assign, and authorize use of same to others, to prevent the Defendants’ unjust gain and provide a remedy for this outrageous conduct, the remedy of unjust enrichment should apply to the facts in this case as a remedy for a claim and right implied in law." (Compl. ¶ 168.) And in his Motion to Remand, Plaintiffs contends that the element requiring that Defendants’ enrichment be "unjust" under the circumstances constitutes an additional element sufficient to prevent preemption.
As an initial matter, unlike implied-in-fact contract claims, "quasi-contract claims — like unjust enrichment — are almost always preempted." Archer , 2018 WL 534475, at *4, 2018 U.S. Dist. LEXIS 10961, at *8. More specifically, "a state-law cause of action for unjust enrichment or quasi contract should be regarded as an ‘equivalent right’ and, hence, preempted insofar as it applies to copyright subject matter[.]"). 1 Nimmer on Copyright § 1.15[G] (emphasis in original) (footnotes omitted); see Archer , 2018 WL 534475, at *3 n.22, 2018 U.S. Dist. LEXIS 10961, at *7 n.22.
Relying on Microstrategy, Inc. v. Netsolve, Inc. , 368 F. Supp. 2d 533 (E.D. Va. 2005), Plaintiff argues that "[t]here can be no preemption when a plaintiff demonstrates that a defendant was unjustly enriched by ‘material beyond copyright protection.’ " (Pl.’s Mot. at 24) (quoting Microstrategy, Inc. , 368 F. Supp. 2d at 537 ). But here, just like in Microstrategy, Inc. , Plaintiff alleges that he "was harmed by the unauthorized use of" his copyrighted material, not that he was harmed by material beyond the protection of copyright. 368 F. Supp. 2d at 537.
For that reason, the Court finds this case distinguishable from two of the other cases cited by Plaintiff: Andrews v. Daughtry , No. 1:12-cv-441, 2013 WL 664564, 2013 U.S. Dist. LEXIS 24355 (M.D.N.C. Feb. 22, 2013), and Levine v. Landy , 832 F. Supp. 2d 176 (N.D.N.Y. 2011). In Andrews , the court found that the plaintiff's unjust enrichment claim was not preempted when "the gravamen of Plaintiffs’ claim" was that the defendants’ "fail[ed] to provide an accounting for his authorized use of the copyrighted works" at issue. 2013 WL 664564 at *13, 2013 U.S. Dist. LEXIS 24355, at *44 (emphasis added). Likewise, in Levine , the court found that the plaintiff's unjust enrichment claim was not preempted when the defendants’ "fail[ed] to remit payment to him" for the authorized use of copyrighted photographs — a situation the court found distinguishable from one in which "the use [of the copyrighted material] was unauthorized." 832 F. Supp. 2d at 188. Here, by comparison, the gravamen of Plaintiff's unjust enrichment claim is that Defendants improperly transferred Plaintiff's copyrighted IP — i.e. , a copyrighted subject matter — for their own personal benefit. In other words, Plaintiff alleges that Defendants were unjustly enriched by an un authorized use of the copyrighted subject matter rather than a failure to provide an appropriate accounting for an authorized one. That alleged unauthorized use of Plaintiff's IP is the equivalent to a copyright infringement claim, and Plaintiff's unjust enrichment claim is therefore preempted.
IV. Conclusion
For the reasons discussed above, the Court concludes that Plaintiff's conversion and unjust enrichment claims are preempted by the Copyright Act. As the Court may exercise supplemental jurisdiction over Plaintiff's remaining claims, Plaintiffs’ Motion to Remand to State Court for Lack of Subject Matter Jurisdiction [Doc. 16] is accordingly DENIED . However, in the event that Plaintiff wishes to eliminate his preempted claims, Plaintiff may file an Amended Complaint within 10 days of the date of this Order.
The Court notes that it already issued an order to that effect after the January 14, 2022 Teleconference. See Jan. 14, 2022 Docket order ("The Court grants Plaintiff leave to amend the Complaint within 10 days of the resolution of the forthcoming motion to remand.").
IT IS SO ORDERED this 4th day of May, 2022.