Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 1 of 12
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
`LEWIS T. BABCOCK, JUDGE
`
`Civil Action No. 08-cv-00435-LTB
`
`BUILDER MT LLC,
`
`Plaintiff,
`
`v.
`
`ZYBERTECH CONSTRUCTION SOFTWARE SERVICES, LTD, d/b/a HOMEFRONT, and
`DARYL SHENNER, individually,
`
`Defendants.
`______________________________________________________________________________
`
`ORDER
`______________________________________________________________________________
`
`This intellectual property case is before me on Defendants, Zybertech Construction
`
`Software Services, LTD (“Zybertech”), and Daryl Shenner’s Motion to Dismiss Plaintiff’s
`
`Complaint [Docket # 10]; Plaintiff, Builder MT LLC’s, Response [Docket # 12]; and
`
`Defendants’ Reply [Docket # 13]. Oral arguments would not materially assist the determination
`
`of this motion. After consideration of the motion, the papers, and the case file, and for the
`
`reasons stated below, I GRANT Defendants’ Motion to Dismiss [Docket # 10] and DISMISS
`
`this case.
`
`I. BACKGROUND
`
`The following facts are alleged in the Complaint [Docket # 1]. Plaintiff is a software
`
`developer that markets and sells software to the construction industry. Plaintiff entered into a
`
`contractual agreement (the “Agreement”) with Zybertech—a Canadian company—under which
`
`Zybertech agreed to sell Plaintiff’s products in Canada. Zybertech also agreed not to sell or
`
`promote any competing software and not to copy Plaintiff’s software except for backup
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 2 of 12
`
`purposes. Zybertech also agreed not to make Plaintiff’s software available to third parties except
`
`as authorized by the Agreement or as consented to in writing by Plaintiff. Plaintiff alleges
`
`Zybertech used Plaintiff’s software to design and develop its own competing software program.
`
`Plaintiff filed the present Complaint on February 29, 2008, alleging five claims for relief:
`
`(1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3)
`
`promissory estoppel; (4) implied contract/unjust enrichment; and (5) conversion. Defendants
`
`filed the present motion on April 22, 2008 [Docket # 10]. Defendants move to dismiss
`
`Plaintiff’s claims for failure to state a claim upon which relief can be granted under FED. R. CIV.
`
`P. 12(b)(6).
`
`II. STANDARD OF REVIEW
`
`Granting a motion to dismiss is a harsh remedy which must be exercised with caution to
`
`protect the liberal rules of pleading and the interests of justice. See Cayman Exploration Corp.
`
`v. United Gas Pipe Line Co., 873 F.2d 1357, 1359 (10th Cir. 1989). Thus, the Federal Rules of
`
`Civil Procedure erect a powerful presumption against rejecting pleadings for failure to state a
`
`claim. Id. Nonetheless, a claim “may be dismissed either because it asserts a legal theory not
`
`cognizable as a matter of law or because the claim fails to allege sufficient facts to support a
`
`cognizable legal claim.” Golan v. Ashcroft, 310 F. Supp. 2d 1215, 1217 (D. Colo. 2004).
`
`When considering a motion to dismiss for failure to state a claim upon which relief can
`
`be granted, a district court must accept as true all factual allegations in the complaint. See
`
`Erickson v. Pardus, 127 S. Ct. 2197, 2200 (2007). While the factual allegations need not be
`
`pleaded in great detail, they must be sufficiently precise to raise a right to relief above the
`
`speculative level. See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964–65, 1969 (2007)
`
`2
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 3 of 12
`
`(abrogating the rule of Conley v. Gibson, 355 U.S. 41, 44–45 (1957), that “a complaint should
`
`not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can
`
`prove no set of facts in support of his claim which would entitle him to relief”); Kay v. Bemis,
`
`500 F.3d 1214, 1218 (10th Cir. 2007).
`
`A district court should dismiss the complaint if the plaintiff fails to proffer “enough facts
`
`to state a claim to relief that is plausible on its face.” See Twombly, supra, 127 S. Ct. at 1974;
`
`see also Kay, supra, 500 F.3d at 1218. “Plausible” in this context refers “to the scope of the
`
`allegations in a complaint: if they are so general that they encompass a wide swath of conduct,
`
`much of it innocent, then the plaintiffs ‘have not nudged their claims across the line from
`
`conceivable to plausible.’” See Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)
`
`(quoting Twombly, 127 S. Ct. at 1974). “Plausibility,” however, does not refer to the likelihood
`
`that the allegations can be proven or even that the allegations are true. See Robbins, 519 F.3d at
`
`1247.
`
`“The determination of whether a complaint contains enough allegations of fact to state a
`
`claim to relief that is plausible on its face is dependent on the context of the claim raised.” Mink
`
`v. Knox, 566 F. Supp. 2d 1217, 1221 (D. Colo. 2008); see also Robbins, supra, 519 F.3d at 1248.
`
`The “mere metaphysical possibility that some plaintiff could prove some set of facts in support of
`
`the pleaded claims is insufficient; the complaint must give the court reason to believe that this
`
`plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red
`
`Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).
`
`Accordingly, “within the context of the claim alleged, the complaint must contain enough
`
`specific allegations of fact to show that if all the alleged facts—and only the alleged facts—are
`
`3
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 4 of 12
`
`believed to be true, the plaintiff has a claim for relief.” Knox, 566 F. Supp. 2d at 1222; see
`
`Twombly, supra, 127 S. Ct. at 1965; Robbins, 519 F.3d at 1247–48;
`
`III. ANALYSIS
`
`A federal court sitting in diversity applies the substantive law of the forum state. See
`
`Mincin v. Vail Holdings, Inc., 308 F.3d 1105, 1108 (10th Cir. 2002). The Colorado Supreme
`
`Court is the final authority on Colorado law. See Fid. Union Trust Co. v. Field, 311 U.S. 169,
`
`177–78 (1940). When I am called upon to interpret Colorado law, therefore, I must first look to
`
`rulings of the Colorado Supreme Court. Lovell v. State Farm Mut. Auto. Ins. Co., 466 F.3d 893,
`
`899 (10th Cir. 2006). If no applicable rulings exist, I must endeavor to predict how the Colorado
`
`Supreme Court would rule. Id. In such circumstances, I must follow any intermediate state
`
`court decision unless other authority demonstrates the Colorado Supreme Court would decide
`
`otherwise. Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir. 1984). The policies
`
`underlying the applicable legal doctrines, the doctrinal trends indicated by these policies, and the
`
`decisions of other courts may also inform my analysis. Id. at 1574–75.
`
`A. Breach of Contract
`
`In its First Claim for Relief, Plaintiff alleges: Zybertech has utilized Plaintiff’s software
`
`to formulate its own competing software; Zybertech is competing directly against Plaintiff in
`
`violation of the Agreement; Zybertech is acting as a competitor against Plaintiff; Zybertech has
`
`breached a contract with Plaintiff; and Plaintiff has suffered damages as a result of the breach.
`
`Defendants argue Plaintiff fails to allege “that Plaintiff either performed its obligations under the
`
`purported contract with Zybertech, or that Plaintiff was excused from doing so” and that such an
`
`allegation is a necessary element in a breach of contract claim under Colorado law. I agree.
`
`4
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 5 of 12
`
`“It has long been the law in Colorado that a party attempting to recover on a claim for
`
`breach of contract must prove the following elements: (1) the existence of a contract; (2)
`
`performance by the plaintiff or some justification for nonperformance; (3) failure to perform the
`
`contract by the defendant; and (4) resulting damages to the plaintiff.” Western Distrib. Co. v.
`
`Diodosio, 841 P.2d 1053, 1058 (Colo. 1992). Failure to allege each of these elements is grounds
`
`for dismissal for failure to state a claim. See Hemmann Mgmt. Servs. v. Mediacell, Inc., 176 P.3d
`
`856, 858–59 (Colo. Ct. App. 2007). Accordingly, within the context of the claim alleged,
`
`Plaintiff fails to allege sufficient facts to show that if all the alleged facts—and only the alleged
`
`facts—are believed to be true, Plaintiff has a claim for relief. See Twombly, supra, 127 S. Ct. at
`
`1965; Robbins, 519 F.3d at 1247–48. Plaintiff’s breach of contract claim is therefore dismissed.
`
`B. Breach of the Implied Covenant of Good Faith and Fair Dealing
`
`In its Second Claim for Relief, Plaintiff alleges: Zybertech violated the implied covenant
`
`of good faith and fair dealing inherent in the Agreement and, as a direct result of that violation,
`
`Plaintiff suffered damages. Defendants argue Plaintiff fails to allege Defendants had
`
`“discretionary authority to determine certain terms of the contract” and that such an allegation is
`
`a necessary element in a “breach of the implied covenant of good faith and fair dealing” claim
`
`under Colorado law. Defendants also argue Plaintiff “merely pleads the conclusory allegation
`
`that ‘Zybertech has violated the implied covenant of good faith and fair dealing implicit in the
`
`Agreement.’ Such a conclusory allegation is insufficient to save Plaintiff’s claim from
`
`dismissal.” Finally, Defendants argue Plaintiff’s implied covenant of good faith and fair dealing
`
`claim is subsumed in Plaintiff’s breach of contract claim and—because Plaintiff’s breach of
`
`contract claim is dismissed—must be dismissed. As I agree with Defendants on the first two
`
`5
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 6 of 12
`
`points, I do not reach the third.
`
`“Colorado, like the majority of jurisdictions, recognizes that every contract contains an
`
`implied duty of good faith and fair dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo.
`
`1995). The duty arises “when one party has discretionary authority to determine certain terms of
`
`the contract, such as quantity, price, or time. The duty may be relied upon only when the manner
`
`of performance under a specific contract term allows for discretion on the part of either party.”
`
`Id. As Plaintiff fails to allege “a specific contract term allow[ing] for discretion on the part of
`
`either party,” Plaintiff fails to allege sufficient facts to show that if all the alleged facts—and
`
`only the alleged facts—are believed to be true, Plaintiff has a claim for relief. See Twombly,
`
`supra, 127 S. Ct. at 1965; Robbins, 519 F.3d at 1247–48.
`
`Plaintiff’s statement, “Zybertech has violated the implied covenant of good faith and fair
`
`dealing implicit in the Agreement,” is not a statement of fact which must be assumed true for
`
`purposes of this motion, but is instead a legal conclusion. See Smith v. Plati, 258 F.3d 1167,
`
`1174 (10th Cir. 2001). It is well-established in this Circuit that “conclusory allegations without
`
`supporting factual averments are insufficient to state a claim on which relief can be based.” Hall
`
`v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991); see Erikson v. Pawnee County Bd. of
`
`Comm’rs, 263 F.3d 1151, 1154–55 (10th Cir. 2001). Without specific factual allegations
`
`supporting this conclusion, Plaintiff has no claim for relief. See Twombly, supra, 127 S. Ct. at
`
`1965; Robbins, 519 F.3d at 1247–48. Accordingly, Plaintiff’s breach of the implied covenant of
`
`good faith and fair dealing claim is likewise dismissed.
`
`6
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 7 of 12
`
`C. Promissory Estoppel
`
`In its Third Claim for Relief, Plaintiff alleges simply: “Zybertech is estopped to deny its
`
`obligations and promises under the Agreement.” Under Colorado law, “the elements of a claim
`
`for promissory estoppel are: (1) a promise which the promisor should reasonably expect to
`
`induce action or forbearance of a definite and substantial character on the part of the promisee;
`
`(2) action or forbearance induced by that promise; and (3) the existence of circumstances such
`
`that injustice can be avoided only by enforcement of the promise.” Nelson v. Elway, 908 P.2d
`
`102, 110 (Colo. 1995). Plaintiff fails to allege sufficient facts to show that if all the alleged
`
`facts—and only the alleged facts—are believed to be true, even one of these elements are met.
`
`See Twombly, supra, 127 S. Ct. at 1965; Robbins, 519 F.3d at 1247–48. Accordingly, Plaintiff’s
`
`promissory estoppel claim is dismissed.
`
`D. Implied Contract/Unjust Enrichment
`
`In its Fourth Claim for Relief, Plaintiff alleges: Zybertech’s use and copying of Plaintiff’s
`
`software constitutes breach of implied contract and unjust enrichment; Zybertech used Plaintiff’s
`
`software to develop its own program and sold that program to Zybertech’s customers; and, as a
`
`result, Plaintiff has suffered damages. Defendants argue Plaintiff’s unjust enrichment and
`
`implied contract claim should be dismissed because the conduct in question is allegedly covered
`
`by an express contract, and because Plaintiff’s claims are preempted by the Copyright Act.
`
`While it is true that a party may not recover on both an implied contract or unjust enrichment
`
`claim and an express contract claim covering the same subject matter, “Colorado law permits a
`
`party to advance multiple theories of recovery, even if the party will not be permitted to recover
`
`under each of those theories.” See Hemmann, supra, 176 P.3d at 860 (citing City & County of
`
`7
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 8 of 12
`
`Denver v. Dist. Ct., 939 P.2d 1353, 1359 n.5 (Colo. 1997)); Interbank Invs., LLC v. Eagle River
`
`Water & Sanitation, 77 P.3d 814, 816 (Colo. Ct. App. 2003). Accordingly, Plaintiff’s allegation
`
`of an express contract does not preclude its implied contract and unjust enrichment claim. I turn
`
`next to Defendants’ preemption argument as it relates to an unjust enrichment claim and an
`
`implied contract claim.
`
`1. Unjust enrichment
`
`“Section 301 of the Copyright Act preempts enforcement of any state cause of action
`
`which is equivalent in substance to a federal copyright infringement claim.” Harolds Stores, Inc.
`
`v. Dillard Dept. Stores, Inc., 82 F.3d 1533, 1542 (10th Cir. 1996) (citing 17 U.S.C. § 301). In
`
`determining whether the state cause of action is equivalent in substance to a copyright action, I
`
`ask whether: “(1) the work is within the scope of the subject matter of copyright as specified in
`
`17 U.S.C. § 102 and 103; and (2) the rights granted under state law are equivalent to any
`
`exclusive rights within the scope of federal copyright as set out in 17 U.S.C. § 106.” Gates
`
`Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 847 (10th Cir. 1993). Although Plaintiff
`
`argues it never registered its software under the Copyright Act, preemption applies whenever the
`
`subjected work “falls within the subject matter of copyright,” even when the specific work is not
`
`copyrighted. See Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir. 1985). It cannot reasonably be
`
`disputed “that computer programs, like the one at issue here, are within the subject matter of a
`
`copyright.” Rosciszewski v. Arete Assocs., Inc., 1 F.3d 225, 229 (4th Cir. 1993).
`
`Section 106 grants the copyright owner the exclusive rights to: (1) reproduce the
`
`copyrighted work; (2) prepare derivative works; (3) distribute copies of the work; (4) perform
`
`the work publicly; and (5) display the work publicly. Gates Rubber Co., supra, 9 F.3d at 847. If
`
`8
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 9 of 12
`
`the state cause of action requires an extra element beyond these five exclusive rights, “then the
`
`state cause of action is qualitatively different from, and not subsumed within, a copyright
`
`infringement claim and federal law will not preempt the state action.” Id.
`
`Unjust enrichment “is an equitable doctrine that permits recovery when a plaintiff shows
`
`‘(1) that a benefit was conferred on the defendant by the plaintiff, (2) that the benefit was
`
`appreciated by the defendant, and (3) that the benefit was accepted by the defendant under such
`
`circumstances that it would be inequitable for it to be retained without payment.’” Ninth Dist.
`
`Prod. Credit Ass’n v. Ed Duggan, Inc., 821 P.2d 788, 794–95 (Colo. 1991) (quoting Cablevision
`
`of Breckenridge v. Tannhauser Condo. Ass’n, 649 P.2d 1093, 1096–97 (Colo. 1982)). The
`
`elements of a copyright infringement claim are: “(1) ownership of a valid copyright, and (2)
`
`copying of constituent elements of the work that are original.” Feist Publ’ns, Inc. v. Rural Tel.
`
`Serv. Co., 499 U.S. 340, 361 (1991). It is not necessary in a copyright infringement claim to
`
`show the infringing party received any benefit from the copying, let alone a benefit that it would
`
`be inequitable for the infringing party to retain without payment. Plaintiff’s unjust enrichment
`
`claim therefore requires proof of an extra element beyond those required for a copyright
`
`infringement claim.
`
`All courts considering the issue, however—including the Tenth Circuit—have held the
`
`“enrichment” element of an unjust enrichment claim is not sufficiently distinct from the
`
`underlying copying to make an unjust enrichment claim qualitatively different from a copyright
`
`infringement claim. See, e.g., Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 306
`
`(2d Cir. 2004); Ehat v. Tanner, supra, 780 F.2d at 877–78; MDM Group Assocs., Inc. v.
`
`ResortQuest Int’l, Inc., No. 06-cv-01518, 2007 WL 2909408, at *9 (D. Colo. Oct. 1, 2007).
`
`9
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 10 of 12
`
`Accordingly, Plaintiff’s unjust enrichment claim is preempted by the Copyright Act.
`
`2. Implied contract
`
`As Plaintiff accurately notes, the law is less clear on whether the “implied contract”
`
`claim is preempted. “For the purpose of the preemption analysis, there is a crucial difference
`
`between a claim based on quasi-contract, i.e., a contract implied in law, and a claim based upon a
`
`contract implied in fact. In the former, the action depends on nothing more than the
`
`unauthorized use of the work. Thus, an action based on a contract implied in law requires no
`
`extra element in addition to an act of reproduction, performance, distribution or display, whereas
`
`an action based on a contract implied in fact requires the extra element of a promise to pay for
`
`the use of the work which is implied from the conduct of the parties.” Wrench LLC v. Taco Bell
`
`Corp., 256 F.3d 446, 459 (6th Cir. 2001). Accordingly, when an implied contract claim
`
`“contains the essential element of expectation of compensation which is an element not
`
`envisioned by § 106,” there is no preemption. See id.; see also Grosso v. Miramax Film Corp.,
`
`383 F.3d 965, 968 (9th Cir. 2004) (holding an implied-in-fact contract claim “is not pre-empted
`
`by the Copyright Act, because it alleges an extra element that transforms the action from one
`
`arising under the ambit of the federal statute to one sounding in contract”).
`
`When determining whether Plaintiff has pled a implied-in-law contract claim that is
`
`preempted, or an implied-in-fact contract claim that is not pre-empted, the proper inquiry is to
`
`“compare the elements of the causes of action, not the facts pled to prove them.” See Harolds
`
`Stores, supra, 82 F.3d at 1543. The elements of the claim pled here do not include “the essential
`
`element of expectation of compensation.” See Wrench LLC, supra, 256 F.3d at 459; Ninth Dist.
`
`Prod. Credit Ass’n v. Ed Duggan, Inc., 821 P.2d 788, 800 (Colo. 1991). Accordingly, I conclude
`
`10
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 11 of 12
`
`Plaintiff’s Fourth Claim for Relief asserts a claim under an implied-in-law contract theory and is
`
`preempted by the Copyright Act. Plaintiff’s unjust enrichment and implied contract claim is
`
`dismissed.
`
`E. Conversion
`
`In its Fifth Claim for Relief, Plaintiff alleges: Defendants planned, orchestrated, and
`
`oversaw the use of Plaintiff’s software to create the competing program and Defendants conduct
`
`in so doing “constitutes conversion of BuilderMT’s intellectual property and confidential
`
`information.” Under Colorado law, the elements of a claim for conversion are “actual dominion
`
`over the property of another, a demand by the owner for return of the property, and refusal of the
`
`demand by the other party.” Internet Archive v. Shell, 505 F. Supp. 2d 755, 763 (D. Colo. 2007).
`
`“Predicates to a successful claim for conversion are the owner’s demand for the return of the
`
`property, and the controlling party’s refusal to return it.” Id. at 762. Retaining computer
`
`files—at least where, as here, what is retained is merely a copy of files that remain in the
`
`possession of the rightful title holder—is insufficient to show actual dominion of property
`
`sufficient to support a conversion claim. Id. at 763. Accordingly, Plaintiff’s conversion claim is
`
`dismissed.
`
`IV. LEAVE TO AMEND
`
`In its response brief [Docket # 12], Plaintiff seeks leave to amend its complaint to cure
`
`any defects. Such a request is not properly considered as a motion to amend. See Glenn v. First
`
`Nat’l Bank in Grand Junction, 868 F.2d 368, 370–71 (10th Cir. 1989).
`
`11
`
`

`
`Case 1:08-cv-00435-LTB Document 14 Filed 10/24/08 USDC Colorado Page 12 of 12
`
`V. CONCLUSION
`
`Each of the five Claims for Relief alleged by Plaintiff fails to state a claim for relief that
`
`is plausible on its face. Accordingly, Defendants’ Motion to Dismiss [Docket # 10] is
`
`GRANTED and this case is DISMISSED. Each party shall bear its own costs.
`
`Dated: October 24 , 2008.
`
`BY THE COURT:
`
` s/Lewis T. Babcock
`Lewis T. Babcock, Judge
`
`12