Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 1 of 30
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`AUSTIN DIVISION
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`r PR :0 P 2: 6
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`WORKSTEPS, INC.,
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`Plaintiff,
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`-vs-
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`Case No. A-14-CA-968-SS
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`ERGOSCIENCE,
`INC., DEBORAH E.
`LECHNER, & DOES (1-300),
`Defendants.
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`ORDER
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`BE IT REMEMBERED on the 7th day of January 2015, the Court held a hearing in the
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`above-styled cause, and the parties appeared by and through counsel. Before the Court are
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`Defendants ErgoScience, Inc. and Deborah E. Lechner's Motion to Dismiss [#8], Plaintiff
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`WorkSTEPS' Response [#19] thereto, Defendants' Reply (Defs.' MTD Reply) [#25] thereto,
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`Defendants' Supplement to Pending Motion to Dismiss/Motion for SummaryJudgment(Defs.' Mot.
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`Summ. J.) [#27], Plaintiffs Opposition Memorandum to Defendant's Motion for Summary
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`Judgment and Plaintiffs Cross-Motion for [Partial] Summary Judgment [#32-2] (sealed),
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`Defendants' Reply in Support of Motion to Dismiss/Motion for Summary Judgment and Response
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`to Plaintiffs Cross-Motion for Summary Judgment [#3 9], Plaintiffs Reply to Defendant's Motion
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`for Summary Judgment and Plaintiff's Cross-Motion for Summary Judgment [#42], and Plaintiff's
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`Motion to File Pleadings Under Seal [#32] (sealed).1 Having reviewed the documents, the arguments
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`Plaintiff's Motion to File Pleadings Under Seal [#32] is GRANTED.
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 2 of 30
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`of the parties at hearing, the file, and the governing law, the Court now enters the following opinion
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`and orders.
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`Background
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`This is an action for copyright infringement and breach of contract brought by Plaintiff
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`WorkSTEPS, Inc. against Defendants ErgoScience, Inc., Deborah Lechner, President of
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`ErgoScience, and Does 1-300, unknown alleged third-party infringers, for alleged willful,
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`contributory, and induced infringement in violation of a consent judgment and settlement agreement.
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`WorkSTEPS is a national provider of "functional employment testing," a type of testing designed
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`to evaluate the physical abilities ofjob applicants and new employees such that workers' jobs are
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`matched to their physical capabilities, decreasing the likelihood ofjob-related injuries. ErgoScience
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`is also a provider of functional employment testing and directly competes with WorkSTEPS.
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`WorkSTEPS holds a copyright in various materials related to its testing programs under
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`Copyright Registration Number TXu000942472. The two copyrighted documents at issue in this
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`case are WorkSTEPS' "Functional Capacity Evaluation," a twelve-page detailed form that guides
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`WorkSTEPS' providers through administration of WorkSTEPS' functional employment test and
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`provides space for recording the results as the test proceeds, and WorkSTEPS' "Medical History"
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`form, a questionnaire apparently given prior to administration of the Functional Capacity Evaluation
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`(together, the WorkSTEPS Materials). WorkSTEPS alleges ErgoScience's "Physical Agility Test"
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`and incorporated "Medical Issues" form infringe the WorkSTEPS Materials.
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`This is the second time WorkSTEPS has brought suit alleging ErgoScience has infringed its
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`copyright. Although the original dispute between the parties was dismissed by consent judgment
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`in July of2O 12, attorney error (and, evidently, a heaping helping of inability to compromise) brought
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 3 of 30
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`the action roaring back two years later. The mess the parties have made is now spread over two
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`cause numbers: this one, No. 1 :14-CV-968-SS, and the originally filed suit, WorkSTEPS, Inc. v.
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`Johnston etal., No. 1:10-CV-850-SS (W.D. Tex. 2010) (the Original Suit). A brief history is
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`outlined below.
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`A.
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`The Original Suit
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`In the Original Suit, WorkSTEPS claimed ErgoScience, Lechner, and Donna Johnston, an
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`ErgoScience employee not party to the present action, infringed WorkSTEPS' copyright by
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`incorporating portions of the WorkSTEPS Materials into ErgoScience's testing materials. After
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`completing discovery, the parties to the Original Suit informed the Court they had settled the case.
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`Under the parties' settlement agreement, the defendants agreed to pay WorkSTEPS $75,000 and to
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`cease using WorkSTEPS' copyrighted materials. Mot. Order Show Cause [#39-9] (sealed), Feeler
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`Deci., Ex. 3 (Settlement Agreement) at 3, Original Suit.2 On July26, 2012, the partiesjointlymoved
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`the Court for entry of a consent judgment against the defendants. Agreed Stipulation [#31] at 1-2,
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`Original Suit. On July 30, 2012, the Court entered the consent judgment as drafted by the parties.
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`Consent Judgment [#32] at 2, Original Suit.
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`As part of the Settlement Agreement, the parties negotiated a safe harbor which would permit
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`ErgoScience to use certain materials without threat of further litigation. See Mot. Order Show Cause
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`[#39-8] (sealed), Feeler Dccl., Ex. 2 (Safe Harbor) at 3, Original Suit. Unfortunately, a serious
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`miscommunication occurred during the negotiations. During WorkSTEPS' final review of the
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`proposed safe harbor, WorkSTEPS "redlined," or electronically crossed out, certain portions,
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`2 The parties have incorporated all briefing related to the show cause hearing in the Original Suit into their
`arguments on the present motion. See Pl.'s Resp. [#19] at 20-21 & n.104; Defs.' Mot. Summ. J. [#27] at 4 n.2. The
`Court will therefore consider and refer to those documents and arguments throughout this opinion.
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 4 of 30
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`indicating WorkSTEPS did not agree to inclusion of those portions in the final safe harbor. See
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`Defs.' Resp. Mot. Order Show Cause [#54] (sealed) at 1, Original Suit. WorkSTEPS then sent the
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`redlined version to ErgoScience via email. Counsel for ErgoScience printed and reviewed the safe
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`harborbut, apparently due to the configuration of certain printing settings in Adobe Acrobat
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`(counsel's PDF reader), WorkSTEPS' electronic redlines did not appear on the printed document.
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`Id. at 1-2. Believing WorkSTEPS had agreed to the proposed safe harbor without redlining
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`anything, counsel for ErgoScience confirmed the same to his clients, and "relyi[ng] on its lawyer's
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`confirmation that the 'safe harbor' materials had been fully approved by WorkSTEPS," ErgoScience
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`signed the Settlement Agreement and proceeded to use all of the proposed safe harbor materials in
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`its business, including those WorkSTEPS redlined. Id. at 2; see also Mot. Order Show Cause [#39-
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`16] (sealed), Feeler DecL, Ex. 10 (July 31, 2013 Letter) at 1-2, Original Suit (letter from Brandon
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`Browning, then-counsel for ErgoScience, to counsel for WorkSTEPS explaining the error).
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`WorkSTEPS eventually discovered ErgoScience' s use of the redlined materials, reigniting
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`the infringement dispute. To their credit, the parties attempted to resolve their issues without court
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`involvement, but were ultimately unsuccessful. See, e.g., July 31, 2013 Letter; Mot. Order Show
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`Cause [#39-17] (sealed), Feeler Dccl., Ex. 11, Original Suit (Sept. 27, 2013 Letter). Consequently,
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`on August 5, 2014, WorkSTEPS filed a motion for order to show cause in the Original Suit. See
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`Mot. Order Show Cause [#39] (sealed), Original Suit.
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`In its motion, WorkSTEPS argues
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`ErgoScience has committed willful infringement, should be held in contempt of the Consent
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`Judgment, and is liable to WorkSTEPS for damages and attorney's fees.
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`The Court held a show cause hearing in the Original Suit on September 5, 2014. During the
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`hearing, the Court heard testimony concerning the alleged infringement from Larry Feeler, CEO of
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 5 of 30
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`WorkSTEPS and author of the materials at issue, and ordered the parties to submit supplemental
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`briefing on the question whether the issue of infringement, in the context of a contempt proceeding,
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`should be tried to a jury or the bench. In that briefing, WorkSTEPS indicated because "the law is
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`unsettled as to what relief a complainant in a contempt proceeding may recover[,]" it would file a
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`new lawsuit and seek to consolidate the two cases to preserve its rights. Pl.'s Brief Responsive to
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`Court's Sept. 5, 2014 Order [#58] at 4, Original Suit. WorkSTEPS has not sought consolidation of
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`the Original Suit and the present action.
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`B.
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`The Present Action
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`On October 24, 2014, WorkSTEPS filed its complaint in the present action. The complaint
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`alleges the facts as recounted above, tracing the history of the Original Suit and the redline mix-up
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`that brought the parties back to court. See Compi. [#1] ¶ 23-42. The complaint alleges Lechner
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`and ErgoScience willfully distributed materials which infringe WorkSTEPS' copyright and actively
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`induced their network of third-party providers to infringe by instructing those providers to reproduce
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`and distribute the infringing materials. Id. ¶J 43-50. As previously noted, WorkSTEPS brings
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`causes of action for: (1) willful, contributory, and induced infringement by Lechner, ErgoScience,
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`and Does 1-300, the unidentified third-party providers to whom ErgoScience distributed its
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`materials; (2) breach of contract against Lechner and ErgoScience for alleged violation of the
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`Settlement Agreement; and (3) collateral estoppel, claiming the Original Suit "resolved, in favor of
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`WorkSTEPS, the issue of that [sic] Reg. No. TXu000942472 is valid and enforceable and that
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`Lechner and ErgoScience's works infringed WorkSTEPS' copyrights." Id. ¶J 5 1-69.
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`Defendants filed their motion to dismiss on November 19, 2014. See Mot. Dismiss [#8].
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`Given the evidence outside the pleadings submitted with Defendants' motion, at hearing on January
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 6 of 30
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`7, 2015, the Court informed the parties it would construe the motion to dismiss as a motion for
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`summary judgment and permit the parties to supplement the record with additional evidence and
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`argument. Hr'g Tr. [#28] at 20:22-25. Following Defendants' submission of a supplement, see
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`Defs.' Mot. Summ. J. [#27], WorkSTEPS responded and cross-moved for partial summaly judgment
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`on the issue of liability for copyright infringement. See Pl.'s Opp. & Cross-Mot. Summ. J. [#32-2]
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`(sealed) at 1.
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`Analysis
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`I.
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`A.
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`Legal Standard
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`Converted Motion to Dismiss
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`Under Federal Rule of Civil Procedure 12(d), a Rule 12(b)(6) motion to dismiss may be
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`converted into a Rule 56 motion for summary judgment if matters beyond the pleadings are
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`presented to and considered by the court. FED. R. Civ. P. 12(d); Exxon Corp. v. Md. Cas. Co., 599
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`F.2d 659, 661 (5th Cir. 1979). Prior to conversion, all parties must be given notice and a reasonable
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`opportunity to present all material pertinent to the motion. Id.; Smith 's Estate v. Tarrant Cnty. Hosp.
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`Dist., 691 F.2d 207, 208 (5th Cir. 1982).
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`B.
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`Summary Judgment
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`Summary judgment shall be rendered when the pleadings, the discovery and disclosure
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`materials on file, and any affidavits show that there is no genuine dispute as to any material fact and
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`that the moving party is entitled to judgment as a matter of law. FED. R. Civ. P. 56(a); Celotex Corp.
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`v. Catrett, 477 U.S. 317, 323-25 (1986); Washburn v. Harvey, 504 F.3d 505, 508 (5th Cir. 2007).
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`A dispute regarding a material fact is "genuine" if the evidence is such that a reasonable jury could
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`return a verdict in favor of the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242,248
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 7 of 30
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`(1986). When ruling on a motion for summary judgment, the court is required to view all inferences
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`drawn from the factual record in the light most favorable to the nonmoving party. Matsushita Elec.
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`Indus. Co. v. Zenith Radio, 475 U.S. 574, 587 (1986); Washburn, 504 F.3d at 508. Further, a court
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`"may not make credibility determinations or weigh the evidence" in ruling on a motion for summary
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`judgment. Reeves v. Sanderson Plumbing Prods., Inc., 530 U.S. 133, 150 (2000); Anderson, 477
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`U.S. at 254-55.
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`Once the moving party has made an initial showing that there is no evidence to support the
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`nonmoving party's case, the party opposing the motion must come forward with competent summary
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`judgment evidence of the existence of a genuine fact issue. Matsushita, 475 U.S. at 586. Mere
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`conclusory allegations are not competent summary judgment evidence, and thus are insufficient to
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`defeat a motion for summaryjudgment. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343
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`(5th Cir. 2007). Unsubstantiated assertions, improbable inferences, and unsupported speculation are
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`not competent summary judgment evidence. Id. The party opposing summary judgment is required
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`to identify specific evidence in the record and to articulate the precise maimer in which that evidence
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`supports his claim. Adams v. Travelers Indem. Co. of Conn., 465 F.3d 156, 164 (5th Cir. 2006).
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`Rule 56 does not impose a duty on the court to "sift through the record in search of evidence" to
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`support the nonmovant's opposition to the motion for summary judgment. Id.
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`"Only disputes over facts that might affect the outcome of the suit under the governing laws
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`will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248. Disputed fact
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`issues that are "irrelevant and unnecessary" will not be considered by a court in ruling on a summary
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`judgment motion. Id. If the nonmoving party fails to make a showing sufficient to establish the
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 8 of 30
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`existence of an element essential to its case and on which it will bear the burden of proof at trial,
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`summary judgment must be granted. Celotex, 477 U.S. at 322-23.
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`II.
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`Application
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`The long procedural history of this case and the high degree of enmity between the parties
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`have together created a whopper of a problem. Nearly five years after the dispute between
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`WorkSTEPS and ErgoScience began, theyhave managed to reach agreement on precisely zero issues
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`of consequence, and their inability to compromise is evidenced by the tangle of issues and looming
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`tower of acerbic paper presently before the Court.
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`The parties' arguments raise three preliminary questions: first, whether Defendants are
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`collaterally estopped by the consent judgment in the Original Suit from contesting copyright
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`infringement; second, whether ErgoScience' s use of the redlined material was a material breach of
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`the Settlement Agreement, enabling WorkSTEPS to sue ErgoScience for use of the safe harbor
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`material that WorkSTEPS did not redline (the non-redlined material); and third, whether
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`WorkSTEPS waived its ability to contend ErgoScience's use of the non-redlined material infringes
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`WorkSTEPS' copyright. As set forth below, the Court first finds the consent judgment in the
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`Original Suit has no collateral-estoppel effect. Second, while neither party raised the issue, the Court
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`finds the Settlement Agreement is not a binding, enforceable contract, as there was no mutual assent
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`concerning the safe harbor, and in the alternative, finds ErgoScience materially breached the
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`Settlement Agreement. Finally, the Court finds WorkSTEPS did not waive its ability to contend
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`the non-redlined material infringes its copyright.
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`Turning to the question of copyright infringement, the Court finds WorkSTEPS holds a valid
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`copyright as a matter of law, but determines there are genuine issues of material fact precluding
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 9 of 30
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`summary judgment on the issue of substantial similarity. Finally, the Court finds ErgoScience is
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`entitled to summary judgment on WorkSTEPS' breach-of-contract claim, as there was no
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`enforceable Settlement Agreement to be breached; in the alternative, the Court concludes
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`WorkSTEPS' breach-of-contract claim is preempted by the Copyright Act. This case will therefore
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`proceed to trial on the issue of substantial similarity between the parties' works.
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`A.
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`The Consent Judgment Has No Collateral-Estoppel Effect
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`Count Three ofWorkSTEPS' complaint alleges offensive collateral estoppel. According to
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`WorkSTEPS, the Original Suit "resolved, in favor of WorkSTEPS, the issue of that [sic] Reg. No.
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`TXu000942472 is valid and enforceable and that Lechner and ErgoScience's works infringed
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`WorkSTEP S' copyrights." Comp!. [#1] ¶ 66. According to WorkSTEPS, the "issue of infringement
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`was fully litigated and resolved .
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`.
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`. through Lechner and ErgoScience's .
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`.
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`. joint motion with
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`WorkSTEPS for a Consent Judgment and permanent injunction[,]" and that alleged "determination"
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`of infringement "was the primary part of the Consent Judgment entered by the Court." Id. ¶J 67-68.
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`Thus, in WorkSTEPS' view, "[a]s a proximate result of the Consent Judgment, and Defendants
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`Lechner and ErgoScience's motion for entry of the same, Lechner and ErgoScience are collaterally
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`estopped" from contesting the issues of validity, copyrightability, and infringement ofWorkSTEPS'
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`copyright. Id. ¶ 69.
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`ErgoScience brushes aside WorkSTEPS' estoppel argument concerning validity of its
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`copyright and copyrightability, stating even if ErgoScience was to concede validity and
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`copyrightability, ErgoScience would still win on absence of substantial similarity. Defs.' MTD
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`Reply [#25] at 10-11. Further, ErgoScience argues the Original Suit has no collateral-estoppel effect
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`concerning infringement because the Original Suit involved a different set of allegedly infringing
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`I,'
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 10 of 30
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`ErgoScience materials, Mot. Dismiss [#8] at 21. According to ErgoScience, because WorkSTEPS'
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`claims in the present action are based on the ErgoScience materials as revised during settlement
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`negotiations, the two infringement issues are not identical, the identical issue was not "actually
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`litigated," see Stripling v. Jordan Prod. Co., 234 F.3d 863, 868 (5th Cir. 2000), and consequently,
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`collateral estoppel cannot apply. Id.
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`Both parties' arguments miss the mark, primarily because they completely fail to
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`acknowledge the difference between a typical judgment and a consent judgment. A consent
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`judgment ordinarily does not give rise to collateral estoppel, or issue preclusion, "because the issues
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`underlying the judgment are neither actually litigated nor necessary and essential to the judgment."
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`Hughesv. Santa Fe Int'l Corp., 847 F.2d 239, 241 (SthCir. 1988);see also Kaspar Wire Works, Inc.
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`v. Leco Eng'g & Mach., Inc., 575 F.2d 530, 539 (5th Cir. 1978) ("The parties' proposal does not
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`reflect the considered judgment of a judicial officer: it has been forged by them alone as an
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`adjustment of conflicting claims and is not a tempered determination of fact and law[.]");
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`RESTATEMENT (SECOND) OF JUDGMENTS § 27 cmt. e ("In the case of a judgment entered by
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`confession, consent, or default, none of the issues is actually litigated. Therefore, the rule of [issue
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`preclusion] does not apply with respect to any issue in a subsequent action."). Thus, WorkSTEPS'
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`contention that validity, copyrightability, and infringement were actually litigated in the Original Suit
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`is incorrect. The Court did not "determine" any issue on the merits when it entered the Consent
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`Judgment; notably, no briefing on the merits of the Original Suit was even filed with the Court prior
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`to the parties' settlement.
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`Further, while a consent judgment maybe given collateral-estoppel effect if the parties to the
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`settlement manifest such intention, Arizona v. California, 530 U.S. 392, 414 (2000); Hughes, 847
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 11 of 30
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`F.2d at 241, the Court finds no such manifestation of intent in this case. The Consent Judgment
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`reads in full:
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`This matter comes before the Court on the application of the parties in the [Original
`Suit] for entry of judgment and an order of dismissal with prejudice pursuant to
`Federal Rule of Civil Procedure 41(a)(l), the parties having advised the Court that
`they have reached a settlement.
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`It is therefore ORDERED that:
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`Defendants are jointly and severally liable as stated in the Settlement
`A.
`Agreement;
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`Defendants are immediately and permanently enjoined from infringing or
`B.
`using the copyrighted works registered by copyright registration number
`TXu000942474 and works derived therefrom;
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`Defendants shall return all of [the] WorkSTEPS Materials to WorkSTEPS;
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`C.
`and
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`D.
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`Plaintiffs claims are dismissed with prejudice.
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`Consent Judgment [#32] at 2, Original Suit. The Consent Judgment itself makes no mention of a
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`determination of validity, copyrightability, or infringement, let alone indicate an intent to be bound
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`in other proceedings.
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`Even were the Court to read "Defendants are jointly and severally liable as stated in the
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`Settlement Agreement" as a wholesale incorporation of the Settlement Agreement into the judgment,
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`the result would be the same. First, concerning infringement, because ErgoScience revised its testing
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`forms as the parties negotiated settlement in the Original Suit, the materials WorkSTEPS now claims
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`infringe its copyright are not the same materials that were at issue in the Original Suit. Thus, the
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`Court agrees with ErgoScience that any "determination" of infringement or stipulation thereto in the
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`Original Suit could have no collateral-estoppel effect as to the present question of ErgoScience' s
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 12 of 30
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`alleged infringement. See, e.g., C.I.R. v. Sunnen, 333 U.S. 591, 599-600 (1948) ("[Collateral
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`estoppel] must be confined to situations where the matter raised in the second suit is identical in all
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`respects with that decided in the first proceeding and where the controllingfacts and applicable legal
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`rules remain unchanged." (emphasis added)).
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`Second, concerning copyrightability and validity, the only language in the Settlement
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`Agreement concerning those points is contained in prefatory "whereas" clauses, rather than operative
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`portions of the Settlement Agreement: "WHEREAS, the WorkSTEPS Copyrighted Works is an
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`original work of authorship. WHEREAS, the WorkSTEPS Copyrighted Works contain materials
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`which are wholly original and which are copyrightable subject matter under the laws of the United
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`States." Settlement Agreement at 2. These recitals do not "clearly show[] that the parties intended
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`that the issue[s of validity and copyrightability] be foreclosed in other litigation." WRIGHT, MILLER
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`& COOPER, FED. PRAC. & PROC. § 4443. Accordingly, because collateral estoppel does not bar
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`Defendants from litigating validity, copyrightability, or infringement in this action, the Court grants
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`Defendants' motion for summary judgment on WorkSTEPS' offensive collateral estoppel claim.
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`B.
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`The Parties Failed to Form a Binding Contract
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`The parties' preliminary dispute as to ErgoScience's alleged material breach is predicated
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`on the assumption their Settlement Agreement is a binding, enforceable contract. The Court cannot
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`agree with the parties' implicit assumption, and finds the Settlement Agreement unenforceable for
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`lack of mutual assent. In the alternative, the Court addresses the parties' material breach and waiver
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`arguments, and finds ErgoScience materially breached the Settlement Agreement, permitting
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`WorkSTEPS to treat its waiver of the right to sue ErgoScience as rescinded. All roads thus lead to
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 13 of 30
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`Rome, as the practical outcome of both analyses is the same: WorkSTEPS may sue for
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`ErgoScience' s use of the non-redlined materials.
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`Parties form a binding contract when the following elements are present: (1) an offer, (2) an
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`acceptance in strict compliance with the terms of the offer, (3) a meeting of the minds, (4) each
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`party's consent to the terms, and (5) execution and delivery of the contract with the intent that it be
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`mutual and binding. Potcinske v. McDonald Prop. Invs., Ltd., 245 S.W.3d 526, 529-30 (Tex.
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`App.Houston [1st Dist.] 2007, no pet.) (citing Roman v. Roman, 193 S.W.3d 40, 50 (Tex.
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`App.Houston [1st Dist.] 2006, pet. denied)). A "meeting of the minds," or the parties' mutual
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`understanding and assent to the subject matter and essential terms of the contract, id. (citing
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`Weynandv. Weynand, 990 S.W.2d 843, 846 (Tex. App.Dallas 1999, pet. denied), is necessary to
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`form a binding contract. David J. Sacks, P.C. v. Haden, 266 S .W.3d 447, 450 (Tex. 2008). A term
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`is "essential" if it is "one that the parties reasonably regarded, at the time of contracting, as a vitally
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`important ingredient in their bargain." Neeley v. Bankers Trust Co. of Tex., 757 F.2d 621, 628 (5th
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`Cir. 1985) (applying Texas law). Stated differently, "[f]ailure to fulfill such a promise. .
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`. would
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`seriously frustrate the expectations of one or more of the parties as to what would constitute
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`sufficient performance of the contract as a whole." Id.
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`Here, the parties caimot credibly contend the safe harbor was anything other than "a vitally
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`important ingredient in their bargain"which, perhaps, is the reason neither party briefed or even
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`raised the issue of contract formation. As is evidenced by the continued existence of this litigation,
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`there is no question ErgoScience' s use of the redlined materials "seriously frustrated" WorkSTEPS'
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`expectations as to what constituted sufficient performance of the settlement agreement. Given
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`ErgoScience' s mistaken belief WorkSTEPS approved the proposed safe harbor without change, and
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 14 of 30
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`WorkSTEPS' mistaken belief ErgoScience saw and assented to the redlined safe harbor, the Court
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`finds WorkSTEPS and ErgoScience did not reach agreement on a material term of the Settlement
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`Agreement: what materials ErgoScience could safely use without threat of further accusations of
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`infringement from WorkSTEPS. Consequently, no contract was formed, and the Settlement
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`Agreement is unenforceable.
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`1.
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`Alternatively, ErgoScience materially breached the Settlement Agreement
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`In the alternative, the Court finds Ergo Science materially breached the Settlement Agreement
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`by using the redlined materials. Under the Settlement Agreement, ErgoScience agreed (1) to pay
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`WorkSTEPS $75,000.00, (2) "to be permanently enjoined from use of [WorkSTEPS' copyrighted
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`materials] and works derived therefrom," and (3) "to immediately cease and desist using all and any
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`parts of [WorkSTEPS' copyrighted materials] and works derived therefrom[.]" Settlement
`Agreement at 3 ¶J 1 3. In return, WorkSTEP S "expressly waive[d] any claim for copyright
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`infringement against Ergoscience based on Ergoscience' s reproduction or distribution of the
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`materials in the [safe harbor] exclusively." Id. at 4 ¶ 10. These promises were dependent promises
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`going to the heart of the Settlement Agreement. See D.E. W., Inc. v. Depco Forms, Inc., 827 S.W.2d
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`379, 382 (Tex. App.San Antonio 1992, no writ) ("A dependent promise is one which goes to the
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`entire consideration of a contract."). When ErgoScience used the redlined materials, it used a portion
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`of WorkSTEPS' copyrighted materials in breach of its promises. Although ErgoScience's breach
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`may have been inadvertent, it was nonetheless a breach, and it deprived WorkSTEPS of the most
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`important part of its bargain: an end to ErgoScience' s unauthorized use ofWorkSTEPS' copyrighted
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`materials.
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 15 of 30
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`Because ErgoScience materially breached by failing to perform as promised, WorkSTEPS
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`was permitted to suspend its own performance and treat its waiver of the right to sue as rescinded.
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`See Murray v. Crest Constr., Inc., 900 S.W.2d 342, 344 (Tex. 1995) (per curiam) ("When a claim
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`is released for a promised consideration that is not given, the claimant may treat the release as
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`rescinded and recover on the claim." (internal quotation omitted)); Miller v. Kennedy & Minshew,
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`Prof'l Corp., 142 S.W.3d 325, 341 n.38 (Tex. App.Fort Worth 2003, pet. denied) (citing Hanks
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`v. GAB Bus. Servs., Inc., 644 S.W.2d 707,708 (Tex. 1982)) ("Generally, a party's breach of mutually
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`dependent, reciprocal promises in a contract excuses performance by the other party.")
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`Resisting this conclusion, ErgoScience argues WorkSTEPS treated the Settlement Agreement
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`as continuing following ErgoScience's breach. See Long Trusts v. GrfJIn, 222 S.W.3d 412, 415
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`(Tex. 2006) (per curiam) ("A party who elects to treat a contract as continuing deprives himself of
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`any excuse for ceasing performance on his own part." (internal quotation omitted)). While not
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`entirely clear from its briefing, it appears ErgoScience contends certain letters exchanged between
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`counsel in an attempt to resolve this dispute without Court intervention qualify as an election to treat
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`the Settlement Agreement as continuing. See Defs.' Reply & Resp. Pl.'s Mot. Summ. J. [#39] at 9
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`(referencing WorkSTEPS' alleged "ratification of the safe-harbor provision in 2014, after this
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`dispute arose"). The Court cannot agree. Participation in settlement negotiations related to a breach
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`of contract does not qualify as an election to treat the contract as continuing. See WILLISTON ON
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`CONTRACTS § 39.32 ("[W]hen the innocent party brings its complaints to the defaulting party's
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`attention, and continues the relationship only on the assurance of better future performance, she will
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`not be barred from asserting her rights under the contract[,] .
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`.
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`. and a waiver of the right to the
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`promised performance cannot be found."). This is good policy: were settlement negotiations
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 16 of 30
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`considered elections to continue a contract, parties would be severely disincentivized from
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`attempting to resolve their disagreements absent judicial intervention. Consequently, WorkSTEPS
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`is free to bring a cause of action for infringement based on ErgoScience's use of the non-redlined
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`materials.
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`C. WorkSTEPS Did Not Waive Its Right to Contend the Non-Redlined Material Infringes
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`Finally, the Court turns to the question whether WorkSTEPS has conceded the non-redlined
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`material does not infringe its copyright. ErgoScience argues WorkSTEPS has done so for four
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`reasons: (1) after this dispute arose, WorkSTEPS confirmed in writing that the non-redlined material
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`does not infringe; (2) during the show cause hearing in the Original Suit, Larry Feeler testified
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`WorkSTEPS had no objection to ErgoScience's use of the non-redlined material; (3) WorkSTEPS'
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`motion for contempt in the Original Suit, upon which this new action is based, did not bring claims
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`for infringement regarding any of the non-redlined material; and (4) in the Settlement Agreement
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`itself, WorkSTEPS unconditionally stipulated the non-redlined material does not infringe.
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`ErgoScience's first argument again refers to the letters exchanged by counsel during the
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`parties' failed attempt to settle this dispute. ErgoScience neither cites any legal authority nor even
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`articulates a legal theory that supports its position on this point. WorkSTEPS' statements during
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`settlement negotiations neither give rise to judicial estoppel nor are judicial admissions, and provide
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`no basis to find waiver. See Hopkins v. Cornerstone Am., 545 F.3d 338, 347 (5th Cir. 2008)
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`(invocation of judicial estoppel requires the court "have accepted the party's earlier position");
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`Giddens v. Cmty. Educ. Ctrs., Inc., 540 F. App'x 381, 390 n.3 (5th Cir. 2013) (unpublished) ("A
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`judicial admission is a formal concession in the pleadings or stipulations[.]")
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`Case 1:14-cv-00968-SS Document 43 Filed 04/20/15 Page 17 of 30
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`The Court is similarly unmoved by ErgoScience's claim Feeler's testimony during hearing
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`waived WorkSTEPS' right to bring an infringement claim based on ErgoScience's use of the non-
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`redlined materials. Feeler's testimony was, again, neither a basis for invocation ofjudicial estoppel
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`nor ajudicial admission. See Hopkins, 545 F.3d at 347; Giddens, 540 F. App'x at 390 n.3. Further,
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`counsel for WorkSTEPS did not have the opportunity to take Feeler's redirect testimony during
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`hearing. The Court declines to find waiver under these circumstances.
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`ErgoScience' s