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`IN THE UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF COLORADO
`LEWIS T. BABCOCK, JUDGE
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`Civil Action No. 08-cv-00435-LTB
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`BUILDER MT LLC,
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`Plaintiff,
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`v.
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`ZYBERTECH CONSTRUCTION SOFTWARE SERVICES, LTD, d/b/a HOMEFRONT, and
`DARYL SHENNER, individually,
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`Defendants.
`______________________________________________________________________________
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`ORDER
`______________________________________________________________________________
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`This intellectual property case is before me on Defendants, Zybertech Construction
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`Software Services, LTD (“Zybertech”), and Daryl Shenner’s Motion to Dismiss Plaintiff’s
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`Complaint [Docket # 10]; Plaintiff, Builder MT LLC’s, Response [Docket # 12]; and
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`Defendants’ Reply [Docket # 13]. Oral arguments would not materially assist the determination
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`of this motion. After consideration of the motion, the papers, and the case file, and for the
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`reasons stated below, I GRANT Defendants’ Motion to Dismiss [Docket # 10] and DISMISS
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`this case.
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`I. BACKGROUND
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`The following facts are alleged in the Complaint [Docket # 1]. Plaintiff is a software
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`developer that markets and sells software to the construction industry. Plaintiff entered into a
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`contractual agreement (the “Agreement”) with Zybertech—a Canadian company—under which
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`Zybertech agreed to sell Plaintiff’s products in Canada. Zybertech also agreed not to sell or
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`promote any competing software and not to copy Plaintiff’s software except for backup
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`purposes. Zybertech also agreed not to make Plaintiff’s software available to third parties except
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`as authorized by the Agreement or as consented to in writing by Plaintiff. Plaintiff alleges
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`Zybertech used Plaintiff’s software to design and develop its own competing software program.
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`Plaintiff filed the present Complaint on February 29, 2008, alleging five claims for relief:
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`(1) breach of contract; (2) breach of the implied covenant of good faith and fair dealing; (3)
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`promissory estoppel; (4) implied contract/unjust enrichment; and (5) conversion. Defendants
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`filed the present motion on April 22, 2008 [Docket # 10]. Defendants move to dismiss
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`Plaintiff’s claims for failure to state a claim upon which relief can be granted under FED. R. CIV.
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`P. 12(b)(6).
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`II. STANDARD OF REVIEW
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`Granting a motion to dismiss is a harsh remedy which must be exercised with caution to
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`protect the liberal rules of pleading and the interests of justice. See Cayman Exploration Corp.
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`v. United Gas Pipe Line Co., 873 F.2d 1357, 1359 (10th Cir. 1989). Thus, the Federal Rules of
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`Civil Procedure erect a powerful presumption against rejecting pleadings for failure to state a
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`claim. Id. Nonetheless, a claim “may be dismissed either because it asserts a legal theory not
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`cognizable as a matter of law or because the claim fails to allege sufficient facts to support a
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`cognizable legal claim.” Golan v. Ashcroft, 310 F. Supp. 2d 1215, 1217 (D. Colo. 2004).
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`When considering a motion to dismiss for failure to state a claim upon which relief can
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`be granted, a district court must accept as true all factual allegations in the complaint. See
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`Erickson v. Pardus, 127 S. Ct. 2197, 2200 (2007). While the factual allegations need not be
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`pleaded in great detail, they must be sufficiently precise to raise a right to relief above the
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`speculative level. See Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964–65, 1969 (2007)
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`2
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`(abrogating the rule of Conley v. Gibson, 355 U.S. 41, 44–45 (1957), that “a complaint should
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`not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can
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`prove no set of facts in support of his claim which would entitle him to relief”); Kay v. Bemis,
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`500 F.3d 1214, 1218 (10th Cir. 2007).
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`A district court should dismiss the complaint if the plaintiff fails to proffer “enough facts
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`to state a claim to relief that is plausible on its face.” See Twombly, supra, 127 S. Ct. at 1974;
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`see also Kay, supra, 500 F.3d at 1218. “Plausible” in this context refers “to the scope of the
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`allegations in a complaint: if they are so general that they encompass a wide swath of conduct,
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`much of it innocent, then the plaintiffs ‘have not nudged their claims across the line from
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`conceivable to plausible.’” See Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008)
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`(quoting Twombly, 127 S. Ct. at 1974). “Plausibility,” however, does not refer to the likelihood
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`that the allegations can be proven or even that the allegations are true. See Robbins, 519 F.3d at
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`1247.
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`“The determination of whether a complaint contains enough allegations of fact to state a
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`claim to relief that is plausible on its face is dependent on the context of the claim raised.” Mink
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`v. Knox, 566 F. Supp. 2d 1217, 1221 (D. Colo. 2008); see also Robbins, supra, 519 F.3d at 1248.
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`The “mere metaphysical possibility that some plaintiff could prove some set of facts in support of
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`the pleaded claims is insufficient; the complaint must give the court reason to believe that this
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`plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red
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`Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th Cir. 2007) (emphasis in original).
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`Accordingly, “within the context of the claim alleged, the complaint must contain enough
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`specific allegations of fact to show that if all the alleged facts—and only the alleged facts—are
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`3
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`believed to be true, the plaintiff has a claim for relief.” Knox, 566 F. Supp. 2d at 1222; see
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`Twombly, supra, 127 S. Ct. at 1965; Robbins, 519 F.3d at 1247–48;
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`III. ANALYSIS
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`A federal court sitting in diversity applies the substantive law of the forum state. See
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`Mincin v. Vail Holdings, Inc., 308 F.3d 1105, 1108 (10th Cir. 2002). The Colorado Supreme
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`Court is the final authority on Colorado law. See Fid. Union Trust Co. v. Field, 311 U.S. 169,
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`177–78 (1940). When I am called upon to interpret Colorado law, therefore, I must first look to
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`rulings of the Colorado Supreme Court. Lovell v. State Farm Mut. Auto. Ins. Co., 466 F.3d 893,
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`899 (10th Cir. 2006). If no applicable rulings exist, I must endeavor to predict how the Colorado
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`Supreme Court would rule. Id. In such circumstances, I must follow any intermediate state
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`court decision unless other authority demonstrates the Colorado Supreme Court would decide
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`otherwise. Daitom, Inc. v. Pennwalt Corp., 741 F.2d 1569, 1574 (10th Cir. 1984). The policies
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`underlying the applicable legal doctrines, the doctrinal trends indicated by these policies, and the
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`decisions of other courts may also inform my analysis. Id. at 1574–75.
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`A. Breach of Contract
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`In its First Claim for Relief, Plaintiff alleges: Zybertech has utilized Plaintiff’s software
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`to formulate its own competing software; Zybertech is competing directly against Plaintiff in
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`violation of the Agreement; Zybertech is acting as a competitor against Plaintiff; Zybertech has
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`breached a contract with Plaintiff; and Plaintiff has suffered damages as a result of the breach.
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`Defendants argue Plaintiff fails to allege “that Plaintiff either performed its obligations under the
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`purported contract with Zybertech, or that Plaintiff was excused from doing so” and that such an
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`allegation is a necessary element in a breach of contract claim under Colorado law. I agree.
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`4
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`“It has long been the law in Colorado that a party attempting to recover on a claim for
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`breach of contract must prove the following elements: (1) the existence of a contract; (2)
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`performance by the plaintiff or some justification for nonperformance; (3) failure to perform the
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`contract by the defendant; and (4) resulting damages to the plaintiff.” Western Distrib. Co. v.
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`Diodosio, 841 P.2d 1053, 1058 (Colo. 1992). Failure to allege each of these elements is grounds
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`for dismissal for failure to state a claim. See Hemmann Mgmt. Servs. v. Mediacell, Inc., 176 P.3d
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`856, 858–59 (Colo. Ct. App. 2007). Accordingly, within the context of the claim alleged,
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`Plaintiff fails to allege sufficient facts to show that if all the alleged facts—and only the alleged
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`facts—are believed to be true, Plaintiff has a claim for relief. See Twombly, supra, 127 S. Ct. at
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`1965; Robbins, 519 F.3d at 1247–48. Plaintiff’s breach of contract claim is therefore dismissed.
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`B. Breach of the Implied Covenant of Good Faith and Fair Dealing
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`In its Second Claim for Relief, Plaintiff alleges: Zybertech violated the implied covenant
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`of good faith and fair dealing inherent in the Agreement and, as a direct result of that violation,
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`Plaintiff suffered damages. Defendants argue Plaintiff fails to allege Defendants had
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`“discretionary authority to determine certain terms of the contract” and that such an allegation is
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`a necessary element in a “breach of the implied covenant of good faith and fair dealing” claim
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`under Colorado law. Defendants also argue Plaintiff “merely pleads the conclusory allegation
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`that ‘Zybertech has violated the implied covenant of good faith and fair dealing implicit in the
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`Agreement.’ Such a conclusory allegation is insufficient to save Plaintiff’s claim from
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`dismissal.” Finally, Defendants argue Plaintiff’s implied covenant of good faith and fair dealing
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`claim is subsumed in Plaintiff’s breach of contract claim and—because Plaintiff’s breach of
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`contract claim is dismissed—must be dismissed. As I agree with Defendants on the first two
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`points, I do not reach the third.
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`“Colorado, like the majority of jurisdictions, recognizes that every contract contains an
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`implied duty of good faith and fair dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo.
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`1995). The duty arises “when one party has discretionary authority to determine certain terms of
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`the contract, such as quantity, price, or time. The duty may be relied upon only when the manner
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`of performance under a specific contract term allows for discretion on the part of either party.”
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`Id. As Plaintiff fails to allege “a specific contract term allow[ing] for discretion on the part of
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`either party,” Plaintiff fails to allege sufficient facts to show that if all the alleged facts—and
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`only the alleged facts—are believed to be true, Plaintiff has a claim for relief. See Twombly,
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`supra, 127 S. Ct. at 1965; Robbins, 519 F.3d at 1247–48.
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`Plaintiff’s statement, “Zybertech has violated the implied covenant of good faith and fair
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`dealing implicit in the Agreement,” is not a statement of fact which must be assumed true for
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`purposes of this motion, but is instead a legal conclusion. See Smith v. Plati, 258 F.3d 1167,
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`1174 (10th Cir. 2001). It is well-established in this Circuit that “conclusory allegations without
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`supporting factual averments are insufficient to state a claim on which relief can be based.” Hall
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`v. Bellmon, 935 F.2d 1106, 1110 (10th Cir. 1991); see Erikson v. Pawnee County Bd. of
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`Comm’rs, 263 F.3d 1151, 1154–55 (10th Cir. 2001). Without specific factual allegations
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`supporting this conclusion, Plaintiff has no claim for relief. See Twombly, supra, 127 S. Ct. at
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`1965; Robbins, 519 F.3d at 1247–48. Accordingly, Plaintiff’s breach of the implied covenant of
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`good faith and fair dealing claim is likewise dismissed.
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`6
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`C. Promissory Estoppel
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`In its Third Claim for Relief, Plaintiff alleges simply: “Zybertech is estopped to deny its
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`obligations and promises under the Agreement.” Under Colorado law, “the elements of a claim
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`for promissory estoppel are: (1) a promise which the promisor should reasonably expect to
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`induce action or forbearance of a definite and substantial character on the part of the promisee;
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`(2) action or forbearance induced by that promise; and (3) the existence of circumstances such
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`that injustice can be avoided only by enforcement of the promise.” Nelson v. Elway, 908 P.2d
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`102, 110 (Colo. 1995). Plaintiff fails to allege sufficient facts to show that if all the alleged
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`facts—and only the alleged facts—are believed to be true, even one of these elements are met.
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`See Twombly, supra, 127 S. Ct. at 1965; Robbins, 519 F.3d at 1247–48. Accordingly, Plaintiff’s
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`promissory estoppel claim is dismissed.
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`D. Implied Contract/Unjust Enrichment
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`In its Fourth Claim for Relief, Plaintiff alleges: Zybertech’s use and copying of Plaintiff’s
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`software constitutes breach of implied contract and unjust enrichment; Zybertech used Plaintiff’s
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`software to develop its own program and sold that program to Zybertech’s customers; and, as a
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`result, Plaintiff has suffered damages. Defendants argue Plaintiff’s unjust enrichment and
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`implied contract claim should be dismissed because the conduct in question is allegedly covered
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`by an express contract, and because Plaintiff’s claims are preempted by the Copyright Act.
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`While it is true that a party may not recover on both an implied contract or unjust enrichment
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`claim and an express contract claim covering the same subject matter, “Colorado law permits a
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`party to advance multiple theories of recovery, even if the party will not be permitted to recover
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`under each of those theories.” See Hemmann, supra, 176 P.3d at 860 (citing City & County of
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`Denver v. Dist. Ct., 939 P.2d 1353, 1359 n.5 (Colo. 1997)); Interbank Invs., LLC v. Eagle River
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`Water & Sanitation, 77 P.3d 814, 816 (Colo. Ct. App. 2003). Accordingly, Plaintiff’s allegation
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`of an express contract does not preclude its implied contract and unjust enrichment claim. I turn
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`next to Defendants’ preemption argument as it relates to an unjust enrichment claim and an
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`implied contract claim.
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`1. Unjust enrichment
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`“Section 301 of the Copyright Act preempts enforcement of any state cause of action
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`which is equivalent in substance to a federal copyright infringement claim.” Harolds Stores, Inc.
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`v. Dillard Dept. Stores, Inc., 82 F.3d 1533, 1542 (10th Cir. 1996) (citing 17 U.S.C. § 301). In
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`determining whether the state cause of action is equivalent in substance to a copyright action, I
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`ask whether: “(1) the work is within the scope of the subject matter of copyright as specified in
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`17 U.S.C. § 102 and 103; and (2) the rights granted under state law are equivalent to any
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`exclusive rights within the scope of federal copyright as set out in 17 U.S.C. § 106.” Gates
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`Rubber Co. v. Bando Chem. Indus., Ltd., 9 F.3d 823, 847 (10th Cir. 1993). Although Plaintiff
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`argues it never registered its software under the Copyright Act, preemption applies whenever the
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`subjected work “falls within the subject matter of copyright,” even when the specific work is not
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`copyrighted. See Ehat v. Tanner, 780 F.2d 876, 878 (10th Cir. 1985). It cannot reasonably be
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`disputed “that computer programs, like the one at issue here, are within the subject matter of a
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`copyright.” Rosciszewski v. Arete Assocs., Inc., 1 F.3d 225, 229 (4th Cir. 1993).
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`Section 106 grants the copyright owner the exclusive rights to: (1) reproduce the
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`copyrighted work; (2) prepare derivative works; (3) distribute copies of the work; (4) perform
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`the work publicly; and (5) display the work publicly. Gates Rubber Co., supra, 9 F.3d at 847. If
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`the state cause of action requires an extra element beyond these five exclusive rights, “then the
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`state cause of action is qualitatively different from, and not subsumed within, a copyright
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`infringement claim and federal law will not preempt the state action.” Id.
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`Unjust enrichment “is an equitable doctrine that permits recovery when a plaintiff shows
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`‘(1) that a benefit was conferred on the defendant by the plaintiff, (2) that the benefit was
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`appreciated by the defendant, and (3) that the benefit was accepted by the defendant under such
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`circumstances that it would be inequitable for it to be retained without payment.’” Ninth Dist.
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`Prod. Credit Ass’n v. Ed Duggan, Inc., 821 P.2d 788, 794–95 (Colo. 1991) (quoting Cablevision
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`of Breckenridge v. Tannhauser Condo. Ass’n, 649 P.2d 1093, 1096–97 (Colo. 1982)). The
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`elements of a copyright infringement claim are: “(1) ownership of a valid copyright, and (2)
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`copying of constituent elements of the work that are original.” Feist Publ’ns, Inc. v. Rural Tel.
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`Serv. Co., 499 U.S. 340, 361 (1991). It is not necessary in a copyright infringement claim to
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`show the infringing party received any benefit from the copying, let alone a benefit that it would
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`be inequitable for the infringing party to retain without payment. Plaintiff’s unjust enrichment
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`claim therefore requires proof of an extra element beyond those required for a copyright
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`infringement claim.
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`All courts considering the issue, however—including the Tenth Circuit—have held the
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`“enrichment” element of an unjust enrichment claim is not sufficiently distinct from the
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`underlying copying to make an unjust enrichment claim qualitatively different from a copyright
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`infringement claim. See, e.g., Briarpatch Ltd., L.P. v. Phoenix Pictures, Inc., 373 F.3d 296, 306
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`(2d Cir. 2004); Ehat v. Tanner, supra, 780 F.2d at 877–78; MDM Group Assocs., Inc. v.
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`ResortQuest Int’l, Inc., No. 06-cv-01518, 2007 WL 2909408, at *9 (D. Colo. Oct. 1, 2007).
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`9
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`Accordingly, Plaintiff’s unjust enrichment claim is preempted by the Copyright Act.
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`2. Implied contract
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`As Plaintiff accurately notes, the law is less clear on whether the “implied contract”
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`claim is preempted. “For the purpose of the preemption analysis, there is a crucial difference
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`between a claim based on quasi-contract, i.e., a contract implied in law, and a claim based upon a
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`contract implied in fact. In the former, the action depends on nothing more than the
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`unauthorized use of the work. Thus, an action based on a contract implied in law requires no
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`extra element in addition to an act of reproduction, performance, distribution or display, whereas
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`an action based on a contract implied in fact requires the extra element of a promise to pay for
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`the use of the work which is implied from the conduct of the parties.” Wrench LLC v. Taco Bell
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`Corp., 256 F.3d 446, 459 (6th Cir. 2001). Accordingly, when an implied contract claim
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`“contains the essential element of expectation of compensation which is an element not
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`envisioned by § 106,” there is no preemption. See id.; see also Grosso v. Miramax Film Corp.,
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`383 F.3d 965, 968 (9th Cir. 2004) (holding an implied-in-fact contract claim “is not pre-empted
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`by the Copyright Act, because it alleges an extra element that transforms the action from one
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`arising under the ambit of the federal statute to one sounding in contract”).
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`When determining whether Plaintiff has pled a implied-in-law contract claim that is
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`preempted, or an implied-in-fact contract claim that is not pre-empted, the proper inquiry is to
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`“compare the elements of the causes of action, not the facts pled to prove them.” See Harolds
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`Stores, supra, 82 F.3d at 1543. The elements of the claim pled here do not include “the essential
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`element of expectation of compensation.” See Wrench LLC, supra, 256 F.3d at 459; Ninth Dist.
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`Prod. Credit Ass’n v. Ed Duggan, Inc., 821 P.2d 788, 800 (Colo. 1991). Accordingly, I conclude
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`Plaintiff’s Fourth Claim for Relief asserts a claim under an implied-in-law contract theory and is
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`preempted by the Copyright Act. Plaintiff’s unjust enrichment and implied contract claim is
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`dismissed.
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`E. Conversion
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`In its Fifth Claim for Relief, Plaintiff alleges: Defendants planned, orchestrated, and
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`oversaw the use of Plaintiff’s software to create the competing program and Defendants conduct
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`in so doing “constitutes conversion of BuilderMT’s intellectual property and confidential
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`information.” Under Colorado law, the elements of a claim for conversion are “actual dominion
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`over the property of another, a demand by the owner for return of the property, and refusal of the
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`demand by the other party.” Internet Archive v. Shell, 505 F. Supp. 2d 755, 763 (D. Colo. 2007).
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`“Predicates to a successful claim for conversion are the owner’s demand for the return of the
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`property, and the controlling party’s refusal to return it.” Id. at 762. Retaining computer
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`files—at least where, as here, what is retained is merely a copy of files that remain in the
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`possession of the rightful title holder—is insufficient to show actual dominion of property
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`sufficient to support a conversion claim. Id. at 763. Accordingly, Plaintiff’s conversion claim is
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`dismissed.
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`IV. LEAVE TO AMEND
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`In its response brief [Docket # 12], Plaintiff seeks leave to amend its complaint to cure
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`any defects. Such a request is not properly considered as a motion to amend. See Glenn v. First
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`Nat’l Bank in Grand Junction, 868 F.2d 368, 370–71 (10th Cir. 1989).
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`V. CONCLUSION
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`Each of the five Claims for Relief alleged by Plaintiff fails to state a claim for relief that
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`is plausible on its face. Accordingly, Defendants’ Motion to Dismiss [Docket # 10] is
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`GRANTED and this case is DISMISSED. Each party shall bear its own costs.
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`Dated: October 24 , 2008.
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`BY THE COURT:
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` s/Lewis T. Babcock
`Lewis T. Babcock, Judge
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`12