Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 1 of 12
`
`WO
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF ARIZONA
`
`Societe Civile Succession Richard Guino,
`Plaintiff,
`
`No. CV 06-01540-PHX-NVW
`ORDER
`
`))))))))))))))
`
`vs.
`
`International Foundation for Anticancer
`Drug Discovery, and Arizona corporation;
`Deborah Lindquist; Marcia Karen Horn,
`Defendants.
`
`Pending before the court are Plaintiff's Amended Complaint (Doc. # 12), Defendants'
`Motion to Dismiss (Doc. # 13), Plaintiff's Response (Doc. # 15), Defendants' Reply (Doc.
`# 16), Plaintiff's Motion for Rehearing and Consideration of Supplemental Memorandum of
`Points and Authorities (Doc. # 24), and Defendants' Opposition to Plaintiff's Motion for
`Rehearing and Response to Questions Raised During Oral Argument (Doc. # 28).
`I.
`Background
`Plaintiff Societe Civile Succession Richard Guino (“Societe”) is a French trust formed
`to preserve the rights of the Guino family in a set of bronze sculptures created in the early
`1900s by Richard Guino and Pierre-Auguste Renoir. Defendants are the International
`Foundation for Anticancer Drug Discovery (“International Foundation”), an Arizona
`corporation; Marcia Karen Horn (“Horn”), an Arizona resident and the President and Chief
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 2 of 12
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`Executive Officer of International Foundation; and Arizona resident Deborah Lindquist
`(“Lindquist”).
`In October 2003, International Foundation held a “Jewels of the Sea” ball to raise
`money for its anti-cancer programs. International Foundation permitted Beseder, Inc., a local
`art gallery, to display and sell several replicas of the Guino-Renoir sculptures at the event.
`Lindquist, who was in attendance, purchased a replica of a work entitled “La Laveuse.”
`Plaintiff alleges that it obtained a valid copyright for “La Laveuse” on June 11, 1984,
`and holds the exclusive right to control the production of replicas. On this basis, it argues
`that International Foundation's unauthorized display and sale of the work in 2003 constitutes
`both contributory and vicarious copyright infringement under the Copyright Act. Plaintiff
`further alleges vicarious infringement against Defendant Horn on the theory that she had the
`right and ability to supervise International Foundation's sale of “La Laveuse” and received
`direct financial benefit from that transaction (Count II). Plaintiff seeks as remedies actual
`damages, lost profits, statutory damages, attorneys' fees, and the impoundment of the
`infringing sculpture (Count III). Defendants move to dismiss under Federal Rule of Civil
`Procedure 12(b)(1), arguing that the court lacks subject matter jurisdiction under 17 U.S.C.
`§ 411. Defendants also move to dismiss under Federal Rule of Civil Procedure 12(b)(6) for
`failure to state a claim. This order will address the Motion under Rule 12(b)(1), and under
`Rule 12(b)(6) on Counts I and II. Count III will be addressed in a separate order.
`II.
`Standard of Review
`Federal Rule of Civil Procedure 12(b)(1) authorizes a party to seek dismissal of an
`action for lack of subject matter jurisdiction. “When subject matter jurisdiction is challenged
`under Federal Rule of Civil Procedure 12(b)(1), the plaintiff has the burden of proving
`jurisdiction in order to survive the motion.” Tosco Corp. v. Communities for a Better Env't,
`236 F.3d 495, 499 (9th Cir. 2001) (citations omitted). “A plaintiff suing in a federal court
`must show in his pleading, affirmatively and distinctly, the existence of whatever is essential
`to federal jurisdiction, and, if he does not do so, the court, on having the defect called to its
`attention or on discovering the same, must dismiss the case, unless the defect can be
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 3 of 12
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`corrected by amendment.” Id. (citations and internal quotations omitted). The court is not
`limited to the pleadings and may properly consider extrinsic evidence. Ass'n of Med.
`Colleges v. United States, 217 F.3d 770, 778 (9th Cir. 2000).
`Under Federal Rule of Civil Procedure 12(b)(6), a motion to dismiss should not be
`granted “unless it appears beyond doubt that the plaintiff can prove no set of facts in support
`of his claims which would entitle him to relief.” Barnett v. Centoni, 31 F.3d 813, 816 (9th
`Cir. 1994) (citations and internal quotation marks omitted). When analyzing a complaint for
`failure to state a claim, all factual allegations are taken as true and construed in the light most
`favorable to the nonmoving party. Iolab Corp. v. Seaboard Sur. Co., 15 F.3d 1500, 1504
`(9th Cir. 1994). All reasonable inferences are to be drawn in favor of the plaintiff. Jacobsen
`v. Hughes Aircraft, 105 F.3d 1288, 1296 (9th Cir. 1997). “If a complaint is accompanied by
`attached documents, the court is not limited by the allegations contained in the complaint.
`These documents are part of the complaint and may be considered in determining whether
`the plaintiff can prove any set of facts in support of the claim.” Durning v. First Boston
`Corp., 815 F.2d 1265, 1267 (9th Cir. 1987).
`When the complaint is dismissed for failure to state a claim, “leave to amend should
`be granted unless the court determines that the allegation of other facts consistent with the
`challenged pleading could not possibly cure the deficiency.” Schreiber Distrib. Co. v. Serv-
`Well Furniture Co., 806 F.2d 1393, 1401 (9th Cir. 1986) (citations omitted). Leave to amend
`is properly denied “where the amendment would be futile.” DeSoto v. Yellow Freight Sys.,
`957 F.2d 655, 658 (9th Cir. 1992) (citations omitted).
`III. Analysis
`A.
`Subject Matter Jurisdiction
`The court first addresses Defendants' argument that, under 17 U.S.C. § 411, Societe's
`fraudulent copyright registration precludes subject matter jurisdiction over the instant action.
`Whether an action arises under federal copyright law, and hence confers subject matter
`jurisdiction, is determined “by reference to the well-pleaded complaint rule.” Vestron, Inc.
`v. Home Box Office Inc., 839 F.2d 1380, 1381 (9th Cir. 1988). Jurisdiction exists over a
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 4 of 12
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`copyright infringement claim “if and only if the complaint is for a remedy expressly granted
`by the [Copyright] Act . . . or asserts a claim requiring construction of the Act . . . or, at the
`very least and perhaps more doubtfully, presents a case where a distinctive policy of the Act
`requires that federal principles control the disposition of the claim.” Id.
`Applying Vestron, the court finds that subject matter jurisdiction exists. The
`Amended Complaint seeks the impoundment of the allegedly infringing sculpture, Doc. # 12
`at ¶ 20; attorney's fees, id. at ¶ 22; and statutory damages, id. at ¶ A. All of these remedies
`are “expressly granted” by the Copyright Act. See 17 U.S.C. §§ 503(a), 504(c), and 505.
`The meaning and construction of the Act, moreover, will largely determine whether the
`activity alleged in Counts I and II constitutes actionable infringement. On its face, Plaintiff's
`Amended Complaint clearly raises questions of federal law which the court has jurisdiction
`to adjudicate.
`The allegedly fraudulent basis for Plaintiff's copyright registration does not destroy
`jurisdiction. “Proper registration is a condition precedent to a suit, as required under 17
`U.S.C. § 411(a), but the arguable failure to satisfy a condition precedent does not affect the
`court's subject matter jurisdiction.” Batesville Servs., Inc. v. Funeral Depot, Inc., 2004 U.S.
`Dist. LEXIS 24336, at *6-7 (S.D. Ind. Nov. 10, 2004). A contrary approach would operate
`in tension with provisions in the Copyright Act that permit a plaintiff to sue even in the
`absence of valid copyright registration. See, e.g., 17 U.S.C. § 411(a) (permitting a copyright
`applicant to sue for infringement even when her application has been refused); 17 U.S.C. §
`411(b) (permitting plaintiffs to institute infringement actions even before they have secured
`copyright); see also Shady Records, Inc. v. Source Enters., Inc., 2004 U.S. Dist. LEXIS
`26143, at *26 (S.D.N.Y. Dec. 30, 2004) (“[Defendants] have cited no authority suggesting
`that the validity of [a] copyright registration[] must first be determined before the Court can
`exercise its jurisdiction over the infringement suit, and in fact, any such argument would run
`counter to the statutory scheme, which permits even rejected registration applications to
`confer standing to sue.”).
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 5 of 12
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`Defendants' contention that fraudulent registration precludes federal jurisdiction also
`overlooks 17 U.S.C. § 411(a)'s separate references to the “institution” of an infringement
`action and a court's “jurisdiction” to hear such an action. Id. While improper registration
`may preclude a lawsuit in the sense that it deprives a plaintiff of a meritorious claim, it has
`no logical effect on federal jurisdiction, since, regardless of the merits of the plaintiff's claim,
`that claim may still “arise under” the subject matter of the Copyright Act. Defendants'
`contrary position conflates the meaning of two separately employed terms and ignores the
`rule of statutory construction that different words appearing in the same statute
`presumptively have different meanings. See Boise Cascade Corp. v. EPA, 942 F.2d 1427,
`1432 (9th Cir. 1991).
`The cases cited by Defendants fail to support their position. Urantia Foundation v.
`Maaherra, 114 F.3d 955, 963 (9th Cir. 1997), and Express, LLC v. Fetish Group, Inc., 424
`F. Supp. 2d 1211, 1222 (C.D. Cal. 2006), merely explain that defective registration precludes
`successful infringement actions. Neither case holds or even implies that valid registration
`is a prerequisite to subject matter jurisdiction, or that the court's subject matter jurisdiction
`hinges on a plaintiff's individual ability to bring suit.
` Morgan, Inc. v. White Rock Distilleries, Inc., 230 F. Supp. 2d 104 (D. Me. 2002),
`Jefferson Airplane v. Berkeley Sys., Inc., 886 F. Supp. 713 (N.D. Cal. 1994), and Foraste v.
`Brown University, 248 F. Supp. 2d 71 (D.R.I. 2003), are similarly unhelpful. In Morgan, the
`court dismissed the plaintiff's infringement action because he never actually alleged a valid
`copyright registration in his own complaint. Id. at 109. Plaintiff, by contrast, has alleged
`valid registration. See Doc. # 12 at ¶¶ 8-10. In Jefferson Airplane, the court lacked
`jurisdiction solely because the plaintiff failed altogether to register its disputed work, not
`because a submitted registration was allegedly fraudulent or otherwise invalid. Unlike the
`plaintiff in Jefferson Airplane, Plaintiff Societe has submitted an application for registration
`that expressly describes the disputed work. See Doc. # 12 at Exhibit 1. Finally, in Foraste,
`the court stated that registration is a “condition precedent and a jurisdictional prerequisite,”
`248 F. Supp. 2d at 76, but it ultimately concluded that registration occurs “on the day the
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 6 of 12
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`Copyright Office receives all of the necessary application materials,” id. at 77. Under this
`approach, registration of Plaintiff's copyright has already occurred for jurisdictional purposes
`because Plaintiff submitted all of the requisite materials, see Doc. # 12 at Exhibit 1, and
`Foraste does not make jurisdiction contingent upon the ultimate validity of the application,
`see 248 F. Supp. 2d at 77 n.10 (concurring with the view that a pending application for
`registration is sufficient to confer federal jurisdiction).
`Subject matter jurisdiction therefore exists. Defendants' Motion to Dismiss under
`Rule 12(b)(1) will be denied.
`B.
`Sufficiency of Plaintiff's Claims Under Rule 12(b)(6)
`Defendants argue that the Amended Complaint should be dismissed under Federal
`Rule of Civil Procedure 12(b)(6) because it fails to allege sufficient facts in support of
`Plaintiff's claims for contributory and vicarious copyright infringement.
`On a motion to dismiss under Rule 12(b)(6), the court “must apply the notice pleading
`requirements of [Federal Rule of Civil Procedure] 8(a)(2).” Gionorio v. Gomez, 322 F. Supp.
`2d 153, 159 (D.P.R. 2004); see also Segal Co. v. Amazon.com, 280 F. Supp. 2d 1229, 1232
`(W.D. Wash. 2003). Rule 8(a)(2) requires that a complaint contain “a short and plain
`statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2).
`Complaints are construed liberally in deciding whether Rule 8(a)(2) has been satisfied. See
`Fed. R. Civ. P. 8(f); Yamaguchi v. United States, 109 F.3d 1475, 1480 (9th Cir. 1997). Thus,
`there is no requirement that the plaintiff plead facts establishing a prima facie case. See id.
`at 1481 (“Our system of notice pleading 'does not require a claimant to set out in detail the
`facts upon which he bases his claim.'”) (quoting Conley v. Gibson, 355 U.S. 41, 47 (1957)).
`Whether the factual allegations in the complaint are sufficient hinges instead on whether they
`provide the defendant with “fair notice of what the plaintiff's claim is and the grounds upon
`which it rests.” Conley, 355 U.S. at 47.
`Castillo v. Norton, 219 F.R.D. 155 (D. Ariz. 2003), illustrates how the Rule is to be
`applied. In that case, a federal employee brought suit against the Department of the Interior
`for unlawful discrimination under Title VII. The defendant moved to dismiss for failure to
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 7 of 12
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`satisfy the pleading requirements of Rule 8(a)(2). The court, however, denied the defendant's
`motion. While recognizing that the plaintiff put forth only “general” allegations of
`discrimination and failed to allege who, when, and where the discrimination occurred, id. at
`158, the court found that the complaint clearly stated the cause of action and was therefore
`sufficient under Rule 8(a), id. at 163-64. Crucial to the court's holding was the fact that the
`complaint provided sufficient information for the defendant to “answer the charges and
`initiate a defense.” Id. at 164.
`The court now assesses Counts I and II in light of these principles.
`1.
`Count I: Contributory Infringement
`Contributory copyright infringement occurs when “[o]ne who, with knowledge of [an]
`infringing activity, induces, causes or materially contributes to the infringing conduct of
`another.” Ellison v. Robertson, 357 F.3d 1072, 1078 (9th Cir. 2004). The first requirement
`of knowledge is satisfied when the defendant has either “actual knowledge” or “reason to
`know” of direct infringement. Id. The second requirement of material contribution may be
`satisfied by a defendant's “provision of site and facilities for infringement followed by a
`failure to stop specific instances of infringement once knowledge of those infringements is
`acquired.” MGM Studios, Inc. v. Grokster Ltd., 380 F.3d 1154, 1163 (9th Cir. 2004), vacated
`on other grounds, 125 S. Ct. 2764 (2005).
`The Amended Complaint's allegation of contributory copyright infringement by
`International Foundation does not survive the Motion to Dismiss. Count I identifies the
`cause of action and applies each element of that cause of action to International Foundation's
`conduct. To satisfy the requirement of knowledge, Plaintiff alleges that “International
`Foundation knew or should have known that displaying, selling, and related activities would
`infringe the rights of the holder of the copyrights to the Renoir-Guino sculptures.” Doc. #12
`at ¶ 12. To satisfy the requirement of material contribution, Plaintiff alleges that
`“International Foundation materially contributed to the infringement of [Plaintiff's]
`copyrights by permitting the display and sale of several infringing replicas of the Guino-
`Renoir sculptures at its 'Jewels of the Sea' Ball in October of 2003.” Doc. # 12 at ¶ 12.
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 8 of 12
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`However, at oral argument, Plaintiff explained that, despite the conclusory language
`of the Amended Complaint, Count I is not based on an allegation that International
`Foundation had actual knowledge of Beseder, Inc.'s direct infringement. Rather, Count I
`relies exclusively on the allegation that International Foundation should have known of the
`direct infringement. The basis for this allegation, Plaintiff further explained, is the media
`coverage about Plaintiff's separate lawsuit against Beseder, Inc.
`As Plaintiff frames the allegations, Count I fails to state a claim upon which relief may
`be granted. No case has held that the knowledge requirement for contributory liability may
`be satisfied by the mere existence of public information about a possible direct infringement.
`Rather, where it has been found that the defendant “should have known” of a direct
`infringement, it has been because the defendant disregarded known evidence of an obvious
`direct infringement. In Ellison, for example, the defendant internet service provider “should
`have known” of a direct infringement occurring on its server because (1) it failed to update
`an email address previously used by customers to notify it of such infringements, and (2) a
`subscriber telephoned the defendant to report the existence of unauthorized copies of works
`on its server. See 357 F.3d at 1077.
`Plaintiff's allegations, as clarified at oral argument, fall far short of the circumstances
`that justified liability in Ellison. Media coverage concerning an obscure copyright lawsuit
`in which International Foundation was not a party provides no basis for concluding that the
`Foundation should have known about a direct infringement. At the time of the ball in
`October 2003, it was not clear that Beseder, Inc. was directly liable, and the Foundation had
`no reason to assume Beseder's liability simply because Plaintiff had initiated an action
`against that company. Moreover, Defendant is an organization focused on advancing anti-
`cancer programs; it has little reason to follow news concerning copyright litigation. Count
`I will be dismissed. Plaintiff will be granted leave to amend and, if possible, allege facts in
`support of its claim.
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 9 of 12
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`Count II: Vicarious Infringement
`2.
`A defendant is vicariously liable for copyright infringement “if he [1] enjoys a direct
`financial benefit from another's infringing activity and [2] 'has the right and ability to
`supervise' the infringing activity.” Ellison, 357 F.3d at 1076 (quoting A&M Records v.
`Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001)). “The essential aspect of the 'direct
`financial benefit' inquiry is whether there is a causal relationship between the infringing
`activity and any financial benefit a defendant reaps, regardless of how substantial the benefit
`is in proportion to a defendant's overall profits.” Id. at 1079.
`Even under the lenient test articulated in Ellison, Count II of the Amended Complaint
`does not contain sufficient allegations to survive the Motion to Dismiss with respect to either
`Defendant International Foundation or Defendant Horn. Plaintiff clearly avers that Horn and
`International Foundation both enjoyed a direct financial benefit as a result of the sale of “at
`least one bronze replica on display at the 'Jewels of the Sea' Ball in October 2003.” See Doc.
`#12 at ¶¶ 14-15. Count II nevertheless fails in two respects.
`First, Count II does not sufficiently allege that Defendants had the right and ability
`to supervise the activity of Beseder, Inc., the allegedly directly infringing entity. The
`Amended Complaint never mentions anything about the supervisory authority of
`International Foundation. Moreover, while Plaintiff alleges that Horn had the ability to
`“supervise International Foundation's activities,” Doc. # 12 at ¶ 14, the right to supervision
`necessary to sustain a claim of vicarious infringement must exist between the vicariously
`infringing defendant and the direct infringer, not between two defendants that are at best
`secondarily liable. See Grokster Ltd., 380 F.3d at 1164 (explaining that the “right and ability
`to supervise” describes the relationship “between the defendant and the direct infringer”).
`Because Plaintiff never alleges that International Foundation is directly liable for copyright
`infringement, Horn's ability to supervise International Foundation cannot support a claim of
`vicarious infringement against her.
`Second, Count II fails because Plaintiff's allegation of direct financial benefit to Horn
`as a result of the infringing sale is no more than a bare legal conclusion. “[C]onclusory
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`allegations of law and unwarranted inferences are insufficient to defeat a motion to dismiss.”
`Epstein v. Washington Energy Co., 83 F.3d 1136, 1140 (9th Cir. 1996). Financial benefit is
`defined broadly in the context of vicarious infringement, see Fonovisa, Inc. v. Cherry
`Auction, Inc., 76 F.3d 259, 263 (9th Cir. 1996) (explaining that financial benefit may exist
`where infringing activity “enhances the attractiveness” of a defendant's venue to third
`parties), but Plaintiff's claim against Horn is both unsupported by a single factual allegation
`and on its face contrary to the allegation that “International Foundation received
`compensation” for the infringing sale, Doc. # 12 at ¶ 15. Plaintiff even conceded at oral
`argument that the direct infringement did not affect Horn's income or otherwise confer upon
`her a cognizable financial benefit.
`Plaintiff argues in its Brief of Supplemental Memorandum of Points and Authorities
`that a corporate officer's salary may constitute a “direct financial benefit” sufficient to trigger
`vicarious liability. However, the Amended Complaint does not even allege that Horn
`receives a salary from International Foundation. Moreover, even if Plaintiff were to allege
`such a benefit, none of the cited cases establish that an executive salary unaffected by a
`company's infringing activity can alone satisfy the requirement of direct financial benefit.
`In Meadowgreen Music Co. v. Voice in the Wilderness Broadcasting, Inc., 789 F. Supp. 823
`(E.D. Tex. 1992), for example, the company president received a salary from the directly
`infringing defendant and owned all of its outstanding stock. Id. at 826. It was only an
`aggregation of these assets that warranted a finding of direct financial benefit. Id. Likewise,
`in Symantec Corp. v. CD Micro, Inc., 286 F. Supp. 2d 1265 (D. Ore. 2003), the corporate officer
`was found vicariously liable, but only because he both received a salary and owned a
`majority of the infringing company's stock. Id. at 1275. It does not appear on the face of
`the Amended Complaint that Horn has received similar benefits.
`For these reasons, Count II will be dismissed with respect to both Defendant Horn and
`Defendant International Foundation. Plaintiff will be granted leave to amend.
`By separate order filed herewith, Count III for impoundment will be dismissed with
`prejudice for failure to state a claim upon which relief may be granted.
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 11 of 12
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`IV. Order to Show Cause
`The court takes judicial notice that in other proceedings on November 2, 2006, in Case
`No. CV 03-1310-PHX-MHM, Plaintiff obtained a verdict against Beseder, Inc., in the
`amount of $5,000.00 for copyright infringement in connection with the same reproduction
`and sale of “La Laveuse” that is the basis of this action against these Defendants. That
`verdict will be reduced to judgment and will be either (1) paid, (2) appealed, superseded,
`affirmed, and paid out of the supersedeas bond, or (3) appealed and reversed based on
`Beseder’s contention of invalidity of the copyright. In short, either the copyright will be
`found invalid or the adjudication of $5,000.00 liability against Beseder will be paid.
`It appears that the adjudication of damages against one of several persons allegedly
`jointly and severally liable for the same liability may preclude further proceedings to seek
`a higher damage adjudication or multiple recovery against other persons for the same
`damage. Therefore, if Plaintiff elects to file an amended complaint as permitted by this
`order, the court will call for briefing on why the amended complaint and this action should
`not be dismissed as precluded by the adjudication in Case No. CV 03-1310-PHX-MHM and
`the certainty that that judgment has been or will be paid by Beseder, if affirmed, or the
`copyright invalidated.
`IT IS THEREFORE ORDERED that Defendants' Motion to Dismiss (Doc. #13) is
`GRANTED.
`IT IS FURTHER ORDERED that Count III of Plaintiff’s complaint is dismissed with
`prejudice and that Counts I and II of Plaintiff’s complaint are dismissed with leave to amend
`by November 17, 2006. If Plaintiff elects not to file an amended complaint, this action will
`be dismissed with prejudice for failure to state a claim upon which relief can be granted.
`IT IS FURTHER ORDERED that, if Plaintiff files an amended complaint as permitted
`by this order, Plaintiff show cause by November 17, 2006, why the amended complaint and
`this action should not be dismissed as precluded by the adjudication in Case No. CV 03-
`1310-PHX-MHM. Defendants may file a response to Plaintiff’s memorandum, which may
`be joined with any other motion Defendants wish to file, by December 7, 2006.
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`Case 2:06-cv-01540-NVW Document 29 Filed 11/03/06 Page 12 of 12
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`IT IS FURTHER ORDERED that Plaintiff's Motion for Rehearing (Docs. # 22 and
`24) is DENIED.
`DATED this 3rd day of November 2006.
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