Case 2:12-cv-01156-MMD-PAL Document 23 Filed 04/23/13 Page 1 of 7
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`UNITED STATES DISTRICT COURT
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`DISTRICT OF NEVADA
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`* * *
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`Case No. 2:12-cv-00815-MMD-PAL
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`[Consolidated with Case. No.
`2:12-cv-1156-MMD-PAL]
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`ORDER
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`(Motion for Judgment on the Pleadings or
`Motion for Summary Judgment
` – dkt. no. 29)
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`NASHROLLAH GASHTILI, an individual,
`and INTEGRATED DYNAMICS
`SOLUTIONS, INC., a California
`Corporation,
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`Plaintiffs,
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`v.
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`JB CARTER PROPERTIES II, LLC, a
`Nevada limited liability company, et al.,
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`Defendants.
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`I.
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`SUMMARY
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`Before the Court is Consolidated Defendants Nasrollah Gashtili and Integrated
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`Dynamics Solutions, Inc.’s (“Counter Defendants”) Motion for Judgment on the
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`Pleadings or Alternatively Motion for Summary Judgment. (Dkt. no. 29.)
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`The background facts of this case are recounted in significant detail in the Court’s
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`prior Order. (Dkt. no. 42.) The Court previously dismissed all of IDS’ state law claims
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`and dismissed Gashtili as a plaintiff from this lawsuit. (See dkt. no. 42.) It also denied
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`LLC’s Motion for Preliminary Injunction, holding that LLC was not likely to succeed on
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`the merits of its copyright infringement claim against IDS, Gashtili, and INC. (See id.)
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`Gashtili and IDS, in their capacity as Counter Defendants, now bring a Motion for
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`Judgment on the Pleadings or Alternatively Motion for Summary Judgment, arguing that
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`the Court should dismiss all of Carter/LLC’s claims against them. (Dkt. no. 29.)
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`Case 2:12-cv-01156-MMD-PAL Document 23 Filed 04/23/13 Page 2 of 7
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`II.
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`LEGAL STANDARD
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`The Court construes the Motion as a Motion for Judgment on the Pleadings, and
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`as such does not consider documents attached to Counter Defendants’ Motion. See
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`Lonberg v. Freddie Mac, 776 F. Supp. 2d 1202, 1206 (D. Or. 2011) (“Generally, a court
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`may not consider any material beyond the pleadings in ruling on a Rule 12(b)(6) motion
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`to dismiss. There are three exceptions to this rule: 1) a court may consider documents
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`properly submitted as part of the complaint on a motion to dismiss; 2) if documents are
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`not physically attached to the complaint, incorporation by reference is proper if the
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`document's authenticity . . . is not contested and the plaintiff’s complaint necessarily
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`relies on them; and 3) a court may take judicial notice of matters of public record.”)
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`(citations and quotation marks omitted)).
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`A Fed. R. Civ. P. 12(c) motion for judgment on the pleadings utilizes the same
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`standard as a Fed. R. Civ. P. 12(b)(6) motion to dismiss for failure to state a claim upon
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`which relief can be granted in that it may only be granted when it is clear to the Court
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`that “no relief could be granted under any set of facts that could be proven consistent
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`with the allegations.” McGlinchy v. Shull Chem. Co., 845 F.2d 802, 810 (9th Cir. 1988)
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`(citations omitted). Dismissal under Rule 12(b)(6) may be based on either the lack of a
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`cognizable legal theory or absence of sufficient facts alleged under a cognizable legal
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`theory. Balistreri v. Pacifica Police Dep’t, 901 F.2d 696, 699 (9th Cir. 1990).
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`A plaintiff’s complaint must allege facts to state a claim for relief that is plausible
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`on its face. See Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009). A claim has “facial
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`plausibility” when the party seeking relief “pleads factual content that allows the court to
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`draw the reasonable inference that the defendant is liable for the misconduct alleged.”
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`Id. Although the Court must accept as true the well-pled facts in a complaint, conclusory
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`allegations of law and unwarranted inferences will not defeat an otherwise proper Rule
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`12(b)(6) motion. Sprewell v. Golden State Warriors, 266 F.3d 979, 988 (9th Cir. 2001).
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`“[A] plaintiff’s obligation to provide the ‘grounds’ of his ‘entitle[ment] to relief’ requires
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`more than labels and conclusions, and a formulaic recitation of the elements of a cause
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`Case 2:12-cv-01156-MMD-PAL Document 23 Filed 04/23/13 Page 3 of 7
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`of action will not do. Factual allegations must be enough to raise a right to relief above
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`the speculative level.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citations
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`and footnote omitted).
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`III.
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`DISCUSSION
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`A. Whether Carter had the Authority to Bring Suit
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`Counter Defendants assert that Carter improperly brought suit on behalf of LLC,
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`and, accordingly, LLC has no standing in this lawsuit. The Court agrees.
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`As an initial matter, it is hornbook law that an individual member of an LLC has
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`“no interest in specific LLC property, and only has standing to bring a derivative action[.]”
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`48 A.L.R.6th 1 (2009) (citing Ismart Int’l Ltd. v. I-Docsecure, LLC, C-04-03114 RMW,
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`2005 WL 588607, at *7 (N.D. Cal. Feb. 14, 2005)).
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`Moreover, the parties agree that LLC does not have a valid operating agreement
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`(see dkt. nos. 29 at 5; 34 at 18; see also dkt. no. 29 at 14, ¶ 6), and as such, Nevada’s
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`statutory framework for limited liability companies applies to this case.
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`NRS § 86.291 holds that:
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`Except as otherwise provided in this section or in the articles of
`organization or operating agreement, management of a limited-liability
`company is vested in its members in proportion to their contribution to its
`capital, as adjusted from time to time to reflect properly any additional
`contributions or withdrawals by the members.
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`Desiring to sue Counter Defendants, Carter had two options: (1) obtain approval
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`for this lawsuit from LLC’s members based on their proportional interest; or (2) bring a
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`derivative lawsuit on behalf of the corporation. See Rivers v. Wachovia Corp., 665 F.3d
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`610, 615 (4th Cir. 2011) (noting that derivative lawsuits allow shareholders to “assert the
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`rights which the corporation has” when corporate management fails to bring suit.)
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`(quoting Meyer v. Fleming, 327 U.S. 161, 167 (1946)).
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`///
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`///
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`///
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`First, the Complaint establishes that Carter/JB is not a majority member of LLC
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`because it states that JB only owns 44% of LLC.1 (Case no. 2:12-cv-01156-MMD-PAL,
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`dkt. no. 1 at ¶ 29.) Therefore, Carter had to obtain the approval for filing this lawsuit
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`from other members so that a majority interest in LLC agreed to file suit. But the
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`Complaint does not allege that Carter obtained such approval. (See id.)
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`Second, the Complaint does not allege that this suit was properly brought as a
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`derivative action. Under N.R.S. § 483, a non-majority member may bring a derivative
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`action on behalf of an LLC if managers or members with the authority to do so have
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`refused to bring the action, or if an effort to cause the other members and/or managers
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`to bring the action would not likely succeed. The Complaint does not allege that either
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`occurred here. In fact, the Complaint is completely devoid of any allegations regarding
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`the derivative nature of this lawsuit. In opposition, Carter cites to “derivative allegations”
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`contained in his 2009 state court case. (Dkt. no. 31-1 at ¶¶ 19-23.) Yet those allegations
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`concern an entirely different lawsuit, and cannot be construed as part of Carter’s
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`Complaint in this action.
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`Carter’s Complaint fails to plead facts sufficient to demonstrate that LLC’s
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`management brought this lawsuit on behalf of the corporation or that Carter satisfied the
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`prerequisites for bringing this lawsuit as a derivative action. Accordingly, the Complaint
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`must be dismissed.
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`B.
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`Amendment
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`Should the Court grant Counter Defendants’ Motion, Carter requests leave to
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`amend his Complaint.
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`Although leave to amend a complaint is liberally granted under Fed. R. Civ. P. 15,
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`“leave to amend need not be granted if the proposed amended complaint would subject
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`to dismissal.” Bellanger v. Health Plan of Nev., Inc., 814 F. Supp. 914, 916 (D. Nev.
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`1Carter’s Complaint is dkt. no. 1 in Case No. 2:12-cv-01156-MMD-PAL. All
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`references to the docket are to the lead case, 2:12-cv-00815-MMD-PAL, unless
`otherwise noted.
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`1992) (citing United Union of Roofers, Waterproofers, and Allied Trades No. 40 v.
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`Insurance Corp. of Am., 919 F.2d 1398 (9th Cir.1990); see also Johnson v. Am. Airlines,
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`834 F.2d 721 (9th Cir. 1987) (stating that “courts have discretion to deny leave to amend
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`a complaint for ‘futility’, and futility includes the inevitability of a claim’s defeat on
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`summary judgment.”)
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`The parties disagree regarding whether or not Carter should be allowed to file an
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`Amended Complaint. Counter Defendants point to the Brown Declaration and other
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`evidence not considered by this Court on the Motion for Judgment on the Pleadings to
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`argue that amendment would be futile, because Carter cannot demonstrate that he has
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`standing to bring this suit. However, as the documents pointed to by Counter Defendants
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`were not considered by the Court on the Motion for Judgment on the Pleadings, this
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`argument is not persuasive. Despite this, for the reasons below, the Court agrees with
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`Counter Defendants that granting leave to amend would be futile.
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`1.
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`Copyright Infringement and Declaratory Relief Claims
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`Counter Defendants also argue that amendment is futile because the Court has
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`determined that Carter is unlikely to succeed on the merits of his claims. The Court
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`determined that LLC was unlikely to succeed on its copyright infringement claims
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`because (1) the parties agreed that no written copyright transfer document existed
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`transferring the at-issue copyright to LLC; and (2) there was no evidence that the at-
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`issue copyrights were created as a work-for-hire for LLC. (Dkt. no. 42 at 11; see also dkt.
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`no. 34 at 6, lines 6-7.) Rather, LLC asserted then, as it does now in its Opposition Brief,
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`that the cash access system software was commissioned by INC., not LLC. (See id.; dkt.
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`no. 34 at 3.) Therefore, even if the cash access system software was a work for hire, it
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`was done for INC., not LLC, and belongs to INC. absent a valid, written transfer, which
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`all parties agree does not exist here. (See dkt. no. 42 at 11.)
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`As stated in the Court’s Order regarding LLC’s Motion for Preliminary Injunction,
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`“the law couldn’t be clearer. . . [w]hile the copyright owner can sell or license his rights [in
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`the copyrighted work] to someone else, section 204 of the Copyright Act invalidates a
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`purported transfer of ownership unless it is in writing.” Effects Associates, Inc. v. Cohen,
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`908 F.2d 555, 556 (9th Cir. 1990); see also 17 U.S.C. § 204(a) (“A transfer of copyright
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`ownership, other than by operation of law, is not valid unless an instrument of
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`conveyance, or a note or memorandum of the transfer, is in writing and signed by the
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`owner of the rights conveyed or such owner's duly authorized agent.”). Without a written
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`transfer of ownership LLC does not own the at-issue copyright, and cannot bring suit for
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`copyright infringement. See Swirsky v. Carey, 376 F.3d 841, 844 (9th Cir. 2004); Sid &
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`Marty Krofft Television Prods., Inc. v. McDonald’s Corp., 562 F.2d 1157, 1162 (9th Cir.
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`1977); see also 17 U.S.C. § 106. In his Opposition Brief, Carter claims that LLC “also
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`paid IDS to develop the Copyright Asset,” but this assertion goes against the parties’
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`prior representations to the Court and Carter’s Complaint, and is impossible given the
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`undisputed timeline in this action. That is, IDS and/or Gashtili had already built and
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`developed the cash access system in 2006, before soliciting Carter/JB’s investment in
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`November 2007, and before LLC was ever formed (also in 2007). (See case no. 2:12-
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`cv-01156-MMD-PAL, dkt. no. 1 at ¶¶ 17-30.)
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`For this reason, the copyright infringement claim and related declaratory relief
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`cause of action in Carter’s Complaint are dismissed without leave to amend.
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`2.
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`Unfair Competition and Conversion Claims
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`a.
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`Unfair Competition
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`Carter’s state law unfair competition claim is preempted by federal copyright law.
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`“A state law cause of action is preempted by the Copyright Act if two elements are
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`present.” Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir. 1998). “First,
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`the rights that a plaintiff asserts under state law must be ‘rights that are equivalent’ to
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`those protected by the Copyright Act.” Id. (citing 17 U.S.C. § 301(a); 1 Nimmer, § 1.01[B]
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`at 1-11). “Second, the work involved must fall within the ‘subject matter’ of the Copyright
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`Act as set forth in 17 U.S.C. §§ 102 and 103.” Id. (citations omitted). The work involved
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`here has obtained copyright registration, and thus meets the second prong of the test.
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`Moreover, the Complaint states that the unfair competition claim is related to the
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`Case 2:12-cv-01156-MMD-PAL Document 23 Filed 04/23/13 Page 7 of 7
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`copyright infringement claim, and it is clear from the Complaint that Carter is attempting
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`to assert the same rights as under the copyright infringement claim. (See Case. no. 2:12-
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`cv-01156-MMD-PAL, dkt. no. 1 at ¶¶ 61-66.) In fact, the unfair competition claim seeks
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`remedies and damages under the Copyright Act (id. at ¶ 66). Thus, the unfair
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`competition is preempted by 17 U.S.C. § 301.
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`This cause of action is dismissed without leave to amend.
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`b.
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`Conversion
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`The conversion claim is also substantially related to the copyright claim, and
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`granting Carter leave to amend the Complaint to re-plead this cause of action would be
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`futile. The conversion claim is predicated on LLC being the owner of the casino cash
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`access software (see Case. no. 2:12-cv-01156-MMD-PAL, dkt. no. 1 at ¶ 68), but as
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`described herein and in the Court’s Order regarding the Motion for Preliminary Injunction
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`(dkt. no. 42), the Court has already determined that it is impossible for LLC to be the
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`owner. Therefore, this cause of action is dismissed without leave to amend.
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`IV.
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`CONCLUSION
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`IT IS HEREBY ORDERED that Counter Defendants’ Motion for Judgment (dkt.
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`no. 29) is GRANTED.
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`Carter’s Complaint
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`(Case. no. 2:12-cv-01156-MMD-PAL, dkt. no. 1)
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`is
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`DISMISSED WITH PREJUDICE. All counterclaims in this consolidated action are
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`HEREBY DISMISSED.
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`The Clerk of the Court is HEREBY ORDERED to terminate IDS, Gashtili, and
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`Fastran, Inc. as Defendants and/or Consolidated Defendants in this case.
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`MIRANDA M. DU
`UNITED STATES DISTRICT JUDGE
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`DATED THIS 23rd day of April 2013.
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