Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 1 of 7 Page ID #:701
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`UNITED STATES DISTRICT COURT
`CENTRAL DISTRICT OF CALIFORNIA
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`Case No. 2:12-cv-03539-ODW(JCGx)
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`ORDER DENYING DEFENDANTS’
`MOTION TO DISMISS AND MOTION
`TO STAY [20]
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`MRC II DISTRIBUTION COMPANY
`L.P.; and OAKTREE
`ENTERTAINMENT, INC.,
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`Plaintiffs,
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`v.
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`LAURA ARCHER DICK COELHO;
`ISOLDE FREYA DICK HACKETT;
`CHRISTOPHER KENNETH DICK; and
`DOES 1–10, inclusive,
`
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`Defendants.
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`Defendants’ Motion to Dismiss under Federal Rule of Civil Procedure 12(b)(1)
`and Motion for Stay are pending before the Court.1 (ECF No. 20.)
`I.
`BACKGROUND
`This case arises from a contract between Plaintiffs’ predecessor in interest,
`Gorge Nolfi, and the Philip K. Dick Testamentary Trust (represented by Defendants),
`regarding the licensed use of Philip K. Dick’s Adjustment Team short story. (Compl.
`¶¶ 17, 19.) The parties formed a contract on May 23, 2001, where Defendants granted
`Nolfi an 18-month option to acquire the rights to Adjustment Team for use in film and
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`1 Having carefully considered the papers filed in support of and in opposition to this Motion, the
`Court deems the matter appropriate for decision without oral argument. Fed. R. Civ. P. 78; L.R. 7-
`15.
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`Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 2 of 7 Page ID #:702
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`other media in exchange for an initial monetary advance. (Id. ¶ 17.) Nolfi and
`Defendants subsequently extended the option’s expiration date. (Id. ¶ 18.) On June
`19, 2009, after acquiring the option from Nolfi, Plaintiffs exercised the option and
`paid the balance of the option-purchase price. (Id. ¶ 21.) To date, Plaintiffs have paid
`$1,612,500 to Defendants for rights to Adjustment Team. (Id.) In March of 2011,
`Plaintiffs released the motion picture Adjustment Bureau, starring Matt Damon and
`Emily Blunt, based on Philip K. Dick’s Adjustment Team. (Id. ¶¶ 2, 22.)
`Plaintiffs contend they later discovered that Defendants falsely represented that:
`they owned all rights to Adjustment Team; and Adjustment Team remained
`copyrighted and had not entered the public domain in the U.S. or elsewhere. (Id.
`¶¶ 20, 23.) Plaintiffs argue that the U.S. Copyright for Adjustment Team expired in
`1982 and was not renewed. (Id. ¶ 24.) This caused Adjustment Team to fall into the
`public domain, not just in the U.S., but in other jurisdictions abroad. (Id. ¶¶ 24–26.)
`Defendants previously brought suit against Plaintiffs in this Court, seeking a
`determination of copyright validity and contract-related damages. Plaintiffs brought a
`motion there to dismiss the contract claims. The Court granted Plaintiffs’ motion, and
`kept the copyright claim, but declined to exercise supplemental jurisdiction over the
`contract claims. Coelho v. MRC II Distribution Co, L.P., No. 2:11-cv-8913-
`ODW(JCGx), slip op. at 6 (C.D. Cal. Feb. 8, 2012). Defendants then voluntarily
`dismissed that case without prejudice, and filed an action in state court against
`Plaintiffs, once against seeking contract-related damages. (Mot. 1.)
`Plaintiffs then brought this action for declaratory relief, asking the Court to
`decide whether Adjustment Team entered the public domain, and if so, to declare that
`it is not copyrighted. (Opp’n 2.)
`II. LEGAL STANDARD
`Federal courts are courts of limited jurisdiction and “have only the power that is
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`authorized by Article III of the Constitution and the statutes enacted by Congress
`pursuant thereto.” Couch v. Telescope, Inc., 611 F.3d 629, 632 (9th Cir. 2010)
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`Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 3 of 7 Page ID #:703
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`(quoting Bender v. Williamsport Area Sch. Dist., 475 U.S. 534, 541 (1986)). A case
`arises under federal law if the complaint “establishes either that federal law creates the
`cause of action or that the plaintiff’s right to relief necessarily depends on resolution
`of a substantial question of federal law.” Empire Healthchoice Assurance, Inc. v.
`McVeigh, 547 U.S. 677, 690 (2006).
`A Rule 12(b)(1) motion for lack of subject-matter jurisdiction may be brought
`as either a facial or factual attack. Wolfe v. Strankman, 392 F.3d 358, 362 (9th Cir.
`2004). In a facial attack, the challenger asserts that the allegations contained in a
`complaint are insufficient on their face to invoke federal jurisdiction. Id. But, in a
`factual attack, the challenger disputes the truth of the allegations that, by themselves,
`would otherwise invoke federal jurisdiction. Id.
`Further, in a Rule 12(b)(1) motion, the well-pleaded facts alleged in the
`complaint are taken as true. Orsay v. U.S. Dep’t of Justice, 289 F.3d 1125, 1127 (9th
`Cir. 2002). But the court is not restricted to the face of the pleadings—the court “may
`review any evidence, such as affidavits and testimony, to resolve factual disputes
`concerning the existence of jurisdiction.” McCarthy v. United States, 850 F.2d 558,
`560 (9th Cir. 1988).
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`III. DISCUSSION
`In a declaratory relief action, the Declaratory Judgment Act controls and
`provides that a federal court may declare the rights and other legal relations of any
`interested party seeking such declaration. 28 U.S.C. § 2201(a). But there must be an
`actual controversy:
`the question in each case is whether the facts alleged, under all the
`circumstances, show that there is a substantial controversy, between
`parties having adverse legal interests, of sufficient immediacy and reality
`to warrant the issuance of a declaratory judgment.
`MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118, 127 (2007). District courts
`regularly take jurisdiction over declaratory judgment actions where “if the declaratory
`judgment defendant brought a coercive action to enforce its rights, that suit would
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`Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 4 of 7 Page ID #:704
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`necessarily present a federal question.” Franchise Tax Bd. v. Constr. Laborers
`Vacation Trust, 463 U.S. 1, 19 (1983).
`And although the Declaratory Judgment Act confers jurisdiction to declare the
`rights and legal relations of any interested party, the court is not bound to hear the
`case; it has substantial discretion in exercising jurisdiction and may still dismiss the
`entire action. MedImmune, 549 U.S. at 136.
`In this case, Plaintiffs seek a judicial declaration that Adjustment Team is in the
`public domain; and to the extent it is copyrighted, to declare that copyright invalid.
`(Compl. ¶¶ 29–31.) An action arises under federal copyright laws if and only if: (1)
`the complaint is for a remedy expressly granted by the Copyright Act; (2) a party
`asserts a claim requiring construction of the Copyright Act; or (3) the case implicates
`a distinctive policy of the Copyright Act requiring that federal principles control the
`disposition of the claim. Vestron, Inc. v. Home Box Office, Inc., 839 F.2d 1380, 1381
`(9th Cir. 1988).
`The parties’ dispute over the validity of Adjustment Team’s copyright is not a
`hypothetical set of facts, but is rather a “definite and concrete” as well as a “real and
`substantial” claim for specific relief. MedImmune, 549 U.S. at 127. Previously, this
`Court noted that it has jurisdiction over this copyright issue:
`Both sides correctly argue that federal courts have original and exclusive
`jurisdiction in actions arising out of the federal Copyright Act. 28 U.S.C.
`§ 1338(a). Plaintiff’s peculiar declaratory cause of action requests the
`Court to determine whether Adjustment Team is or was in the public
`domain. Essentially, this is a limited request for a determination of
`validity of the copyright. Thus, the Court finds this cause of action is a
`federal question and the Court’s jurisdiction over this narrow issue is
`proper.
`Coelho v. MRC II Distribution Co, L.P., No. 2:11-cv-8913-ODW(JCGx), slip op. at 3
`(C.D. Cal. Feb. 8, 2012).
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`Defendants argue that the Court lacks jurisdiction because there is no case or
`controversy—Defendants do not threaten, and have never threatened, to sue Plaintiffs
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`Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 5 of 7 Page ID #:705
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`for copyright infringement. (Mot. 5.) Defendants also assert that this copyright
`question is narrow and should be decided by the state court, since it is the underlying
`contract dispute that dominates the litigation between the parties. (Mot. 6–7.)
`
`The Court disagrees. Although it may be true that Defendants do not now
`threaten Plaintiffs with copyright infringement, the validity of the Adjustment Team
`copyright remains an issue between the parties. And Plaintiffs have no guarantee that
`Defendants will not bring a copyright infringement suit against them in the near
`future.
`But Defendants also argue that the copyright issue has no bearing on the
`parties’ contract dispute because the contract terms are enforceable regardless of the
`validity of the copyright. (Mot. 8–9.) Plaintiffs, on the other hand, contend that the
`copyright continues to loom over the parties relationship, and may play a role in
`determining damages in the state court lawsuit.2 (Compl. ¶ 27; Opp’n 15.) Yet, even
`if the contract terms are enforceable regardless of the validity of the copyright, the fact
`that Plaintiffs challenge the validity of a licensed copyright is sufficient for
`declaratory relief.
`In MedImmune, a licensee paid demanded royalties to a patent holder “under
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`protest and with a reservation of all of its rights,” for a patent allegedly covering the
`licensee’s top selling pharmaceutical product—a patent that the licensee believed to
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`2 In the Court’s previous order, it noted that Coelho’s (the present Defendants) Complaint pleaded
`that the present Plaintiffs “have profited enormously from these benefits, none of which has anything
`to do with copyright.” Coelho v. MRC II Distribution Co, L.P., No. 2:11-cv-8913-ODW(JCGx),
`Compl. ¶ 66 (C.D. Cal. Oct. 27, 2011). The Court declined to exercise supplemental jurisdiction
`over the contract claims, in part because of the dominance of the contract issues and the relative
`unimportance of the copyright validity issue. But here, the parties are reversed, and Plaintiffs plead
`that the validity of the copyright plays an important role in resolving the underlying contract dispute.
`The Court’s positions on the import of the copyright claim are inconsistent—but for good reason.
`This inconsistency stems from the rule that well-pleaded facts alleged in the complaint are taken as
`true. Orsay, 289 F.3d at 1127. Previously, Defendants were given the benefit of the doubt when
`they alleged in their Complaint that the copyright mattered not to the resolution of the contract
`dispute. But here, Plaintiffs are given the benefit of the doubt, because they allege that the validity
`of the copyright determines the pending state court contract action. (Compl. ¶ 27.)
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`Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 6 of 7 Page ID #:706
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`be invalid. MedImmune, 549 U.S. at 121. Though the licensee continued to pay
`royalties, it filed a declaratory suit against the patent holder for patent invalidity. Id.
`at 122. The Supreme Court held that the licensee’s payments did not preclude
`declaratory relief, and reiterated that a case or controversy exists “where payment of a
`claim is demanded as of right and where payment is made, but where the involuntary
`or coercive nature of the exaction preserves the right to recover the sums paid or to
`challenge the legality of the claim.” Id. at 131. A licensee is not required “to break or
`terminate its . . . license agreement before seeking a declaratory judgment in federal
`court that the underlying patent is invalid, unenforceable, or not infringed.” Id. at 137.
`Here, the parties dispute the amounts to be paid (or refunded) in the underlying
`contract for Adjustment Team; and that determination is linked to the validity of the
`copyright. This situation mirrors the one discussed in MedImmune—the licensees
`seek relief from payments owed or made to their licensors, who control the viability of
`the licensees’ products with (the licensees contend) invalid intellectual property.
`Thus, declaratory relief in this case is proper.
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`And since the Court finds that there is original jurisdiction under the
`Declaratory Judgment Act, Defendants’ argument that the state court should
`adjudicate the copyright question is moot. Although a state court may rule on
`questions arising under copyright law, what we have here is a copyright case,
`separately filed in a federal court. See Am. Harley Corp. v. Irvin Indus., Inc., 27
`N.Y.2d 168, 173–174 (1970). The fact that the same copyright question may arise in
`the state court action as an affirmative defense is irrelevant and in no way deprives
`this Court of jurisdiction.
`Further, if a state court was presented with a declaratory claim for copyright
`validity—as opposed to a mere defense or counterclaim—that state court would lack
`jurisdiction to decide that question. 28 U.S.C. § 1338(a) (“No State court shall have
`jurisdiction over any claim for relief arising under any Act of Congress relating to
`patents, plant variety protection, or copyrights.”). Defendants cite cases to support
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`Case 2:12-cv-03539-ODW-JCG Document 28 Filed 09/04/12 Page 7 of 7 Page ID #:707
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`their theory that state courts may hear contract disputes or arbitrations relating to
`copyrighted materials. See Saturday Evening Post Co. v. Rubmbleseat Press, Inc.,
`816 F.2d 1911 (7th Cir. 1987). Yet Defendants offer no support for the proposition
`that state courts have jurisdiction to adjudicate a declaratory claim for copyright
`invalidity. Instead, the Court finds that an action for declaratory judgment of
`copyright validity must be brought in federal court. 28 U.S.C. § 1338(a). And so
`Plaintiffs’ action for declaratory relief is proper before this Court.
`The Court also observes that in the previous case between the parties in this
`Court, Defendants took the position that the entire case—the copyright validity claim
`and the supplemental contract claims—should remain in this Court and not be
`dismissed. But now Defendants seek to dismiss this case. The Court declines to rule
`on this motion on judicial estoppel grounds, but notes Defendants’ inconsistent
`positions.
`Finally, the Court is unconvinced that a stay is proper under the circumstances.
`As discussed in the Court’s previous order, the Court finds that judicial economy is
`best served by adjudicating the copyright claim in this Court and the remaining
`contract claims in state court. The limited determination of validity can be quickly
`achieved on summary judgment, and is likely to be resolved before any determination
`in the state court case—so long as the parties do their part here.
`IV. CONCLUSION
`For the reasons discussed above, the Court DENIES Defendants’ Motion to
`Dismiss and Motion to Stay.
`IT IS SO ORDERED.
`September 4, 2012
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` ____________________________________
` OTIS D. WRIGHT, II
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` UNITED STATES DISTRICT JUDGE
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