Opinion
Civil Action No. DKC 2003-0449
March 9, 2004
MEMORANDUM OPINION
Presently pending and ready for resolution in this breach of contract and tort case are the motions (1) by Defendant iTelehealth, Inc. for partial summary judgment and (2) by Plaintiff Glynn Interactive, Inc. to seal the exhibits in its opposition to Defendant's partial summary judgment motion. The issues have been fully briefed and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the reasons that follow, the court will grant in part the motion for partial summary judgment and will deny the motion to seal.
I. Background
A. Factual Background
The following are facts either uncontroverted or viewed in the light most favorable to Plaintiff Glynn Interactive, Inc. On May 7, 2002, Plaintiff and Defendant iTelehealth, Inc. entered into a Prime/Subcontractor Teaming Agreement (Teaming Agreement) to submit a proposal in response to a grant solicitation issued by the National Institutes of Mental Health (NIMH). Under the Teaming Agreement, Defendant was designated as the prime contractor responsible for preparing and submitting the proposal to NIMH, while Plaintiff was designated as the subcontractor to assist Defendant in the work.
Defendant submitted the proposal for the grant to NIMH, which subsequently accepted the proposal. Defendant entered into a contract with NIMH on September 26, 2002. During October and November 2002, Plaintiff and Defendant attempted to negotiate a subcontract in order to perform the web design work under the NIMH contract awarded to Defendant, but these efforts failed. On November 17, 2002, Defendant notified Plaintiff by certified mail to cease all performance of work in connection with the NIMH contract. Following the failure to execute a subcontract, Defendant then hired another web designer to replace Plaintiff.
B. Procedural Background
On January 15, 2003, Plaintiff filed a complaint in the Circuit Court for Montgomery County, alleging: (1) breach of contract, (2) unjust enrichment, (3) account stated, (4) copyright infringement, and (5) misappropriation of trade secrets. Defendant subsequently removed the case to this court. On July 24, 2003, Defendant moved for partial summary judgment, pursuant to Fed.R.Civ.P. 56(b), on all claims except unjust enrichment.
II. Standard of Review
It is well established that a motion for summary judgment will be granted only if there exists no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). In other words, if there clearly exist factual issues "that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party," then summary judgment is inappropriate. Anderson, 477 U.S. at 250; see also Pulliam Inv. Co. v. Cameo Properties, 810 F.2d 1282, 1286 (4th Cir. 1987); Morrison v. Nissan Motor Co., 601 F.2d 139, 141 (4th Cir. 1987). The moving party bears the burden of showing that there is no genuine issue as to any material fact and that he is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c); Catawba Indian Tribe of South Carolina v. State of S.C., 978 F.2d 1334, 1339 (4th Cir. 1992), cert. denied, 507 U.S. 972 (1993).
When ruling on a motion for summary judgment, the court must construe the facts alleged in the light most favorable to the party opposing the motion. See U.S. v. Diebold, 369 U.S. 654, 655 (1962); Gill v. Rollins Protective Servs. Co., 773 F.2d 592, 595 (4th Cir. 1985). A party who bears the burden of proof on a particular claim must factually support each element of his or her claim. "[A] complete failure of proof concerning an essential element . . . necessarily renders all other facts immaterial." Celotex Corp., 477 U.S. at 323. Thus, on those issues on which the nonmoving party will have the burden of proof, it is his or her responsibility to confront the motion for summary judgment with an affidavit or other similar evidence in order to show the existence of a genuine issue for trial. See Andersen, 477 U.S. at 256; Celotex Corp., 477 U.S. at 324. However, "[a] mere scintilla of evidence in support of the nonmovant's position will not defeat a motion for summary judgment." Detrick v. Panalpina, Inc., 108 F.3d 529, 536 (4th Cir.), cert. denied sub nom., Gold v. Panalpina, Inc., 522 U.S. 810 (1997). There must be "sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable, or is not significantly probative, summary judgment may be granted." Anderson, 477 U.S. at 249-50 (citations omitted).
III. Analysis
A. Breach of Contract
The Teaming Agreement appears to serve as the basis for this claim. Plaintiff claims that Defendant's decisions not to pay it the purported amount due and to hire another subcontractor after negotiations stalled constitute a breach of contract. Defendant, on the other hand, contends that the Teaming Agreement was merely a letter of intent to form a subcontract if and when Defendant received the NIMH grant.
Count I, entitled breach of contract, seeks $500,000 in damages and asserts that "Glynn entered into an agreement with iTelehealth, whereby defendant agreed to pay Glynn for services rendered, including labor and materials furnished, on various endeavors, and iTelehealth agreed to use Glynn as subcontractor on those and other endeavors." Paper 1 at f 13. The only written contract attached to the complaint is the Teaming Agreement.
The language of the Teaming Agreement makes clear, in numerous provisions, that the document is not contractually binding beyond the proposal submission phase and contemplates future negotiations between the parties. For instance, the Teaming Agreement states that Plaintiff and Defendant will enter into a subcontract "subject to mutual agreement on prices and other terms and conditions." Paper 27, Ex. 4 at ¶ 2.1. Another paragraph provides that the Teaming Agreement shall terminate upon, inter alia, the "[i]nability of the Parties negotiating in good faith to reach agreement on the terms of a subcontract in accordance with this Agreement." Paper 27, Ex. 4 at ¶ 3.1.d.
Finally, the Teaming Agreement is explicit that in the event it should be terminated, "either party shall be free to pursue its individual technical approach in association with the successful contractor or a third party for work which is the subject of this Agreement." Paper 27, Ex. 4 at ¶ 5.3.
Courts generally do not regard letters of intent, such as the portion of the Teaming Agreement at issue here, as binding contracts and thus do not enforce them "because traditionally, the purpose and function of a preliminary letter of intent has been to merely provide the initial framework from which the parties might later negotiate a final binding agreement." Burbach Broad. Co. of Delaware v. Elkins Radio Corp., 278 F.3d 401, 406 (4th Cir. 2002). For a letter of intent to bind the parties, "it must expressly indicate the parties' intention to be bound by the document." Abt Assoc., Inc. v. JHPIEGO Corp., 104 F. Supp.2d 523, 532 (D.Md. 2000), aff'd, 9 Fed.Appx. 172 (4th Cir. 2001) (unpublished disposition). Plaintiff cannot, and does not, point to any such indication of intent in the Teaming Agreement.
In support of its position, Plaintiff asserts that "the term "letter of intent' does not even appear in the document." Paper 30 at 20. Although perhaps helpful signals of the parties' intentions, "[l]abels such as "letter of intent' or "commitment letter' are not necessarily controlling." Burbach Broad., 278 F.3d at 406.
Moreover, the Teaming Agreement contains a host of open terms to the subcontract, most notably the amount Defendant was to pay Plaintiff for the services to be rendered. See Paramount Brokers, Inc. v. Digital River, Inc., 126 F. Supp.2d 939, 947 (D.Md. 2000) (no binding contract where express condition of letter of intent "was that the parties' understanding was "subject to reaching an agreement . . . in regards to pricing and commissions'"); Phoenix Mut. Life Ins. Co. v. Shady Grove Plaza Ltd. P'ship, 734 F. Supp. 1181, 1187 (D.Md. 1990), aff'd, 937 F.2d 603 (4th Cir. 1991) (Table). That the parties could not agree on the terms and conditions of the subcontract during their negotiations after Defendant's receipt of the NIMH grant "is significant evidence that there was no prior binding contractual relationship between them." Abt Assoc., 104 F. Supp.2d at 532.
Plaintiff mistakenly relies on a Third Circuit case, ATACS Corp. v. Trans World Communications, Inc., 155 F.3d 659 (3d Cir. 1998), in its argument that Defendant should be bound by the Teaming Agreement. Although the ATACS court noted that courts generally permit a breach of contract action based solely on a teaming agreement, it cautioned that the party relying on the teaming agreement, as Plaintiff here, must overcome "two major obstacles: (1) the intent of the parties to enter into a binding contractual relationship; and (2) the existence of sufficiently objective criteria to enforce." Id. at 666 (noting that parties often "may reach an understanding to team, but fail to execute a subcontract as anticipated in the teaming agreement").
Plaintiff's complaint does not allege a breach of the Teaming Agreement by bad faith negotiations concerning the terms of a subcontract. Rather, Plaintiff claims that the Teaming Agreement itself constitutes a binding contract. Plaintiff's mere assertion, without more, that there exists "a factual dispute as to what the parties intended in entering into the Teaming Agreement" is not sufficient to withstand summary judgment. Paper 30 at 20. Indeed, the explicit, unequivocal language of the Teaming Agreement eliminates any dispute here; a breach of contract action cannot lie based on the parties' failure to agree on a mutually satisfactory subcontract. The only agreement here, the Teaming Agreement, contained no binding terms governing the work performed by Plaintiff after the bid proposal phase and while the parties attempted to negotiate the subcontract. Accordingly, Defendant's motion for summary judgment on the breach of contract claim will be granted.
B. Account Stated
Under Maryland law, "[a]n account stated is an agreement between the parties who have had previous transactions of a monetary character that all the items of the account representing such transactions, and the balance struck, are correct, together with a promise, express or implied, for the payment of such a balance." Radio Parts Co. v. Lowry, 125 B.R. 932, 944 (D.Md. 1991) (quoting Wathen v. Pearce, 175 Md. 651, 661, 3 A.2d 486, 491 (1939)). An "indispensable ingredient" of an account stated is "an assent on the part of the person sought to be charged that the balance struck is the true measure of his indebtedness to the plaintiff." Wathen, 3 A.2d at 491. Absent such assent, "there can be no account stated." Radio Parts, 125 B.R. at 944.
Plaintiff bases its account stated claim on multiple invoices for purported work it performed in connection with the NIMH grant, claiming that Defendant is liable for a balance of $248,894.04 as a result of its delay in responding to "the stated balance within a reasonable time." Paper 2 at f 29. Plaintiff does not offer any evidence to support its allegation. In fact, upon failure to execute a subcontract, Defendant offered to pay half of the first invoice of $6,898 to help "reach an equitable conclusion" between the parties. Paper 27, Ex. 12. This compromise offer demonstrates that Defendant never agreed to pay the total of the invoices, so as to hold it liable for an account stated. Accordingly, Defendant's motion for summary judgment on the account stated claim will be granted.
Plaintiff contends that the settlement offer is inadmissible under Fed.R.Evid. 408. However, Rule 408 permits introduction of such evidence in order to "negativ[e] a contention of undue delay." Fed.R.Evid. 408. Thus, Defendant may proffer this evidence to contravene Plaintiff's argument that the two-month lapse between delivery of the invoice and settlement offer is sufficient to establish an account stated. See Bituminous Constr., Inc. v. Rucker Enter., Inc., 816 F.2d 965, 968 (4th Cir. 1987) (exclusion of evidence under Rule 408 required "only if the evidence is offered to prove either liability for or invalidity of a claim or its amount").
C. Copyright Infringement
Plaintiff alleges that Defendant infringed on the copyright for its web design mock-ups constructed for the anticipated subcontracting relationship between the parties. In Count IV, Plaintiff states that it "has complied in all respects with the Copyright Act of 1976" and seeks injunctive relief, statutory damages up to $150,000.00, other damages, attorney's fees and costs. The Copyright Act requires the registration of a copyright before filing an action for copyright infringement. See 17 U.S.C. § 411 (a); Xoom, Inc. v. Imagineline, Inc., 323 F.3d 279, 283 (4th Cir.) ("Copyright registration is a jurisdictional prerequisite to bringing an action for infringement under the Copyright Act"), cert. denied, 124 S.Ct. 303 (2003). A certificate of copyright registration is "prima facie evidence of the validity of the copyright and [of] the facts stated in the certificate." Serv. Training, Inc. v. Data Gen. Corp., 963 F.2d 680, 688 (4th Cir. 1992) (quoting 17 U.S.C. § 410 (c)). See also Lowery Reports, Inc. v. Legg Mason, Inc., 271 F. Supp.2d 737, 744 (D.Md. 2003) ("As proof of ownership, [plaintiff] submits the certificates of copyright registration for all of the Reports at issue").
Plaintiff has not produced a certificate of copyright registration for any of the alleged copyrighted works in this action, so as to demonstrate ownership of a valid copyright. Instead, Laura Glynn, president of Plaintiff, states in a declaration that Plaintiff has filed "the necessary registration" for the copyright. Paper 30, Ex. A at ¶ 18. While some courts have held that submission of registration materials suffices to maintain a copyright infringement claim, others require either the issuance of a registration or an official refusal to do so. See Strategy Source, Inc. v. Lee, 203 F. Supp.2d 1, 2 (D.D.C. 2002) (collecting cases). Plaintiff does not allege that the Copyright Office has issued a certificate of registration. Indeed, the record here is unclear as to exactly what Plaintiff has done with regard to registering its purported copyright.
Even if Plaintiff submitted sufficient evidence of copyright registration, it still would be precluded from recovering the statutory damages and attorney's fees that it seeks. The Copyright Act bars the award of statutory damages and attorney's fees where the alleged infringement of the copyright on an unpublished work "commenced before the effective date of its registration." 17 U.S.C. § 412(1). See also Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 517 n. 2 (4th Cir. 2003) (plaintiff "not entitled to pursue statutory damages because the infringement was of an unpublished work and preceded copyright registration," citing § 412(1)); Berlyn, Inc. v. The Gazette Newspapers, Inc., 157 F. Supp.2d 609, 623-24 (D.Md. 2001). In this case, Plaintiff admits that it filed for copyright registration only after commencement of this litigation — and thus, necessarily, after any alleged infringement by Defendant. See Paper 30, Ex. A at ¶ 18.
Laura Glynn also states in the declaration that Plaintiff discovered its failure to register a copyright "after this Motion was filed." Paper 30, Ex. A at f 18. The court will presume that the "Motion" referred to by Ms. Glynn is the Plaintiff's opposition to Defendant's partial summary judgment motion, to which Plaintiff attached the declaration and filed on August 11, 2003. Thus, Plaintiff theoretically would not have a valid copyright infringement claim, at the earliest, until after that date. This acknowledgment by Plaintiff contravenes its assertion in the complaint that it had fully complied with the Copyright Act at the time it filed suit.
Defendant has indicated that it will not be making use of Plaintiff's designs in connection with the NIMH grant, as it already has executed an agreement with another subcontractor, and in fact "offer[ed] to sign any paperwork to that effect." Paper 27, Ex. 12.
For the reasons articulated, supra, Plaintiff cannot seek statutory damages or attorney's fees. Accordingly, Defendant's motion for summary judgment on the copyright infringement claim will be granted in part. If Plaintiff indeed has any evidence of actual damages (assuming proper registration), it may pursue its claim of copyright infringement in that vein. The court will direct Plaintiff to provide an update on the copyright registration process at the status conference, discussed infra.
D. Misappropriation of Trade Secrets
Plaintiff alleges that Defendant misappropriated its web design mock-ups, as trade secrets, in violation of the Maryland Uniform Trade Secrets Act (MUTSA), Md.Com. Law II Code Ann. §§ 11-1201 et seq. As an initial matter, Plaintiff bears the burden "of producing some evidence that these items met the definition of a trade secret." Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 661 (4th Cir.) (emphasis in original), cert. denied, 510 U.S. 965 (1993). To do so, Plaintiff must "describe the subject matter of its alleged trade secrets in sufficient detail to establish each element of a trade secret." Id. (plaintiff "had to do more than merely allege that it had a secret"). Plaintiff's claim, without more, that "[t]he trade secrets involved include the type of expertise and information provided by Glynn to iTelehealth" lacks such sufficient detail. Paper 30 at 26. Again, Plaintiff's claim devoid of particularity, along with the equally bald assertion that "there are factual disputes on this issue," is not enough to save Plaintiff's trade secret claim from summary judgment.
Under MUTSA—
(e) "Trade secret" means information, including a formula, pattern, compilation, program, device, method, technique, or process, that:
(1) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and (2) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.
Md.Com. Law II Code Ann. § 11-1201(e).
Even assuming that it could prove the existence of a trade secret, Plaintiff still must show that Defendant misappropriated the secret information pursuant to MUTSA, by demonstrating that Defendant "used improper means to acquire from [Plaintiff] the information currently in [Defendant's] possession." DTM Research, L.L.C. v. ATT Corp., 245 F.3d 327, 333 (4th Cir. 2001) (citing §§ 11-1201(b), (c)). Plaintiff points to Defendant's alleged breach of contract based on the Teaming Agreement — a claim the court already has discussed and dismissed, supra — as evidence that Defendant engaged in "a clear abuse of confidence and impropriety." Paper 30 at 26. Moreover, the Teaming Agreement expressly provides that " [d]uring the preparation of the proposal, certain technical and other information deemed proprietary and confidential by the Parties may be disclosed to the other party." Paper 27, Ex. 4 at ¶ 4.1. Therefore, any alleged trade secret information obtained by Defendant while preparing the proposal was knowingly and voluntarily provided by Plaintiff. This evidence falls well short of that necessary to establish misappropriation. Accordingly, Defendant's motion for summary judgment on the misappropriation of trade secrets claim will be granted.
Under MUTSA—
(c) "Misappropriation" means the:
(1) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or
(2) Disclosure or use of a trade secret of another without express or implied consent by a person who:
(i) Used improper means to acquire knowledge of the trade secret; or
(ii) At the time of disclosure or use, knew or had reason to know that the person's knowledge of the trade secret was:
1. Derived from or through a person who had utilized improper means to acquire it;
2. Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or
3. Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or
(iii) Before a material change of the person's position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.
Md.Com. Law II Code Ann. § 11-1201(c).
IV. Plaintiff's Motion to Seal
Plaintiff has moved to seal the 40 exhibits it attached to its opposition to Defendant's partial summary judgment motion, on the principal ground that the many of the exhibits "reflect issues that involve trade secret, confidential, and proprietary information of the parties as well as copyrighted materials not for public dissemination." Paper 31 at ¶ 3. The court already has found that Plaintiff failed to establish that it possessed any trade secrets in this action. Moreover, these exhibits do not appear to contain any such confidential information — and Plaintiff points to none — that warrant placing them under seal. Cf. Padco. Advisors, Inc. v. Omdahl, 179 F. Supp.2d 600, 614-15 (D.Md. 2002) (granting parties' motions to seal where action was "based on enforcing a non-compete clause in an employment contract in order to protect these trade secrets"). Accordingly, Plaintiff's motion to seal will be denied.
Along with its motion for partial summary judgment, Defendant attached a notice that it was filing two supporting exhibits under seal. However, Defendant failed to file a motion to seal those exhibits, as required in the Stipulated Order Regarding Confidentiality of Discovery Material. See Paper 24 at f 2. Accordingly, these exhibits will be treated as unsealed. Indeed, none of the exhibits filed by Plaintiff or Defendant in this action are sealed.
V. Remaining Claims
Discovery is complete in this case and, as a result, Plaintiff's claim for unjust enrichment appears ready for trial. Additionally, in its answer, Defendant filed counterclaims for (1) breach of contract, (2) unjust enrichment, and (3) theft of trade secrets. To date, Plaintiff has not yet responded substantively to these counterclaims. The court will schedule a telephone conference between the parties to discuss the status of this particular matter, as well as that of Plaintiff's copyright infringement claim with regard to potential actual damages.
V. Conclusion
For the foregoing reasons, the court will grant in part Defendant's motion for partial summary judgment and will deny Plaintiff's motion to seal the exhibits in its opposition to Defendant's partial summary judgment motion. The court also will schedule a telephone conference between the parties to discuss the status of Defendant's counterclaims and any remaining copyright claim. A separate Order will follow.