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Case 1:05-cv-01196-JCC-BRP Document 16 Filed 12/08/05 Page 1 of 15 PageID# 1
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`
`
`IN THE UNITED STATES DISTRICT COURT FOR THE
`EASTERN DISTRICT OF VIRGINIA
`Alexandria Division
`PHOENIX RENOVATION CORP.,
`)
`d/b/a Phoenix Construction,
`)
`Inc. and Plumbing Express
`Plaintiff,
`v.
`PETER RODRIGUEZ, et al.
`)
`Defendants.
`M E M O R A N D U M O P I N I O N
`This matter comes before the Court on Defendants’
`Motion to Dismiss pursuant to Rules 12(b)(1) and 12(b)(6) of the
`Federal Rules of Civil Procedure. For the following reasons, the
`Court will grant Defendants’ Motion in part and deny it in part.
`I. Background
`Plaintiff, Phoenix Renovation Corporation (“Phoenix”),
`is a plumbing company that specializes in the niche market of
`polybutylene pipe replacement (“PB replacement”). The individual
`defendants, Radek Koci and Peter Rodriguez, are former
`subcontractors of Phoenix who performed PB replacement services.
`According to the allegations of Phoenix’s complaint, Koci and
`Rodriguez terminated their subcontractor relationships with
`Phoenix at approximately the same time and formed a limited
`liability company, named Atlantic Re-Plumbing, LLC (“Atlantic”),
`which is also a defendant in this action. Prior to doing so,
`Koci and Rodriguez solicited several employees and subcontractors
`
`))
`
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`1:05cv1196(JCC)
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`

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`Case 1:05-cv-01196-JCC-BRP Document 16 Filed 12/08/05 Page 2 of 15 PageID# 2
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`of Phoenix to terminate their relationships with Phoenix and join
`their to-be-formed venture. In some instances, their
`solicitations were successful.
`After forming Atlantic, Koci and Rodriguez competed
`with Phoenix in the PB replacement market and used substantial
`portions of Phoenix’s business methods and other proprietary
`information. Among other things, Atlantic began to utilize
`Phoenix’s 2002 Interior Repipe Agreement as its consumer
`contract. Phoenix’s Interior Repipe Agreement was a document
`containing original content, and on August 4, 2005, Phoenix
`applied to register the document with the United States Copyright
`Office. This action followed. Phoenix has claimed that
`Defendants’ use of the Interior Repipe Agreement constituted a
`copyright infringement and that the other alleged acts of Koci
`and Rodriguez amounted to breaches of their subcontractor
`agreements with Phoenix, tortious interference with Phoenix’s
`contracts and business expectancies, and civil conspiracy.
`Phoenix has also asserted an unfair competition claim against
`Atlantic. On November 14, 2005, Defendants filed this Motion,
`which is currently before the Court.
`II. Standard of Review
`A Rule 12(b)(6) motion to dismiss tests the legal
`sufficiency of the complaint, see Randall v. United States, 30
`F.3d 518, 522 (4th Cir. 1994), and should be denied unless “it
`
`-2-
`
`

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`appears beyond doubt that the plaintiff can prove no set of facts
`in support of his claim which would entitle him to relief.” De
`Sole v. United States, 947 F.2d 1169, 1177 (4th Cir. 1991)
`(citations omitted); see also Conley v. Gibson, 355 U.S. 41, 45-
`46 (1957). In passing on a motion to dismiss, “the material
`allegations of the complaint are taken as admitted.” Jenkins v.
`McKeithen, 395 U.S. 411, 421 (1969) (citations omitted).
`Moreover, “the complaint is to be liberally construed in favor of
`plaintiff.” Id. In addition, a motion to dismiss must be
`assessed in light of Rule 8’s liberal pleading standards, which
`require only “a short and plain statement of the claim showing
`that the pleader is entitled to relief.” Fed. R. Civ. P. 8.
`Pursuant to Rule 12(b)(1), a claim may be dismissed for
`lack of subject matter jurisdiction. Fed. R. Civ. P. 12(b)(1).
`Where subject matter jurisdiction is challenged, the factual
`allegations are assumed true. See Virginia v. United States, 926
`F. Supp. 537, 540 (E.D. Va. 1995). If, however, “the motion
`challenges the actual existence of the Court’s subject matter
`jurisdiction, . . . the Court may ‘look beyond the jurisdictional
`allegations of the complaint and view whatever evidence has been
`submitted on the issue to determine whether in fact subject
`matter jurisdiction exists.’” Id. (citing Capitol Leasing Co. v.
`FDIC, 999 F.2d 188, 191 (7th Cir. 1993); Adams v. Bain, 697 F.2d
`1213, 1219 (4th Cir. 1982); Ocean Breeze Festival Park, Inc. v.
`
`-3-
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`

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`Reich, 853 F. Supp. 906, 911 (E.D. Va. 1994)). The burden of
`proving subject matter jurisdiction is on the plaintiff. McNutt
`v. General Motors Acceptance Corp., 298 U.S. 178, 189 (1936).
`In passing on a motion to dismiss, “the material allegations of
`the complaint are taken as admitted.” Jenkins v. McKeithen, 395
`U.S. 411, 421 (1969)(citations omitted). Moreover, “the
`complaint is to be liberally construed in favor of plaintiff.”
`Id.
`
`III. Analysis
`A. Copyright Infringement
`Defendants argue that Phoenix’s complaint is
`insufficient to state a claim for copyright infringement. As
`Defendants point out, no action for copyright infringement may be
`brought until the copyright is preregistered or registered with
`the United States Copyright Office. See 17 U.S.C. § 411(a). See
`also Xoom, Inc. v. Imageline, Inc., 323 F.3d 279, 283 (4th Cir.
`2003) (“Copyright registration is a jurisdictional prerequisite
`to bringing an action for infringement under the Copyright
`Act.”). Phoenix’s complaint alleged only that it had applied to
`register the 2002 Interior Repipe Agreement. The question is
`therefore whether a work is considered “registered” for purposes
`
`-4-
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`of bringing an infringement action when the owner of the work has
`only applied for registration. 1
`Defendants cite several decisions from other
`jurisdictions holding that a mere application for copyright
`registration is insufficient to constitute the registration
`prerequisite for an infringement action. See, e.g. Mays and
`Assocs., Inc. v. Euler, 370 F. Supp. 2d 362, 368-370 (D. Md.
`2005) (holding that receipt of a certificate of copyright
`registration or denial of the same is a jurisdictional
`prerequisite to filing suit); Westport Historical Soc’y v. Lee,
`43 U.S.P.Q.2d 1858, 1860 (D. Kan. 1997) (dismissing a complaint
`and proposed amendment to the complaint alleging that the
`claimant filed a copyright registration application). As
`Defendants recognize, this Court has already rejected the Mays
`interpretation. See Datatel, Inc. v. Rose & Tuck, LLC, No. 05-
`495, 2005 WL 1668020, at *9 (E.D. Va. June 17, 2005).
`It is the Court’s opinion that the Mays interpretation
`is at odds with the applicable statutory scheme. The statute
`governing registration and issuance of registration certificates
`states that “[t]he effective date of a copyright registration is
`the day on which an application, deposit, and fee, which are
`
`Since the filing of this action, the Copyright Office has issued
`1
`Phoenix a certificate of registration for the Interior Repipe Agreement. In
`response to Defendants’ Motion, Phoenix has offered to amend its complaint to
`reflect this fact. Given the Court’s resolution of this issue, set forth
`below, an amendment to Phoenix’s complaint will be unnecessary.
`-5-
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`later determined . . . to be acceptable for registration, have
`all been received in the Copyright Office.” 17 U.S.C. § 410(d).
`While it is unclear whether § 410(d) dictates that registration
`is complete upon application or merely provides for backdating of
`registration certificates, § 408(a) provides further evidence of
`congressional intent. This provision states that “the owner of
`copyright or of any exclusive right in the work may obtain
`registration of the copyright claim by delivering to the
`Copyright Office the deposit specified by this section, together
`with the application and fee specified by sections 409 and 708.”
`17 U.S.C. § 408(a) (emphasis added).
`This Court has previously interpreted Section 408(a) to
`mean that a registration occurs at the time a work’s owner
`deposits a proper application with the Copyright Office:
`Copyright laws make a distinction between copyright
`registration and receiving from the Copyright Office a
`certificate of registration. Under the copyright laws,
`copyright registration is presumed to have occurred
`from the moment the owner of the copyrightable material
`delivers his application and filing fee to the
`Copyright Office. 17 U.S.C. § 408(a). For this
`reason, it has been sensibly held by the Fifth Circuit
`that, “[i]n order to bring suit for copyright
`infringement, it is not necessary to prove possession
`of a registration certificate. One need only prove
`payment of the required fee, deposit of the work in
`question, and receipt by the Copyright Office of a
`registration application.” Apple Barrel Prods., Inc.
`v. Beard, 730 F.2d 384, 386-87 (5th Cir. 1984) (citing
`2 Nimmer on Copyright § 7.16[B][1]); see also Eltra
`Corp. v. Ringer, 579 F.2d 294, 296 n.4 (4th Cir. 1978)
`(securing registration is no longer prerequisite to an
`infringement suit). Were the law otherwise, the owner
`of a copyright would be left in legal limbo while the
`-6-
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`

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`Copyright Office considers whether he qualifies for a
`certificate of registration.
`Secure Serv. Tech., Inc. v. Time & Space Processing, Inc., 722 F.
`Supp. 1354, 1364 (E.D. Va. 1989). Expanding on this Court’s
`“legal limbo” concern, the Middle District of North Carolina
`explained that “[t]he process of processing and evaluating a
`copyright application could be a lengthy one, during which time
`an infringing use may continue unchallenged if the owner is not
`allowed to begin suit.” Iconbazaar, L.L.C. v. America Online,
`Inc., 308 F. Supp. 2d 630, 634 (M.D.N.C. 2004) (footnote
`omitted). Defendants argue that this policy concern is
`outweighed by the judicial interest in deferring to the Copyright
`Office’s expertise in reviewing an application before hearing an
`infringement action. See Mays, 370 F. Supp. 2d at 369. As the
`Iconbazaar Court noted, however, judicial abstention would fail
`to serve this purpose, as the owner may bring an infringement
`suit even after the Copyright Office denies his or her
`application. See 17 U.S.C. § 411(a); Iconbazaar, 308 F. Supp. 2d
`at 634.
`
`Thus, under this Court’s view, a complaint alleging
`that the copyright holder properly applied for registration with
`the Copyright Office is sufficient to satisfy the precondition to
`an infringement action. In light of Rule 8’s liberal pleading
`standards, Phoenix’s complaint alleging that it applied to
`register the 2002 Interior Repipe Agreement is sufficient to meet
`-7-
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`this requirement. Accordingly, the Court will deny Defendants’
`Motion to dismiss the copyright infringement claim.
`B. Supplemental Jurisdiction Over the State Law Claims
`Defendants also seek dismissal of Phoenix’s eight state
`law claims. Specifically, Defendants contend that the exercise
`of pendent jurisdiction over the state law claims is
`inappropriate. This Court has supplemental jurisdiction “over
`all other claims that are so related to claims in the action
`within [the Court’s] original jurisdiction that they form part of
`the same case or controversy under Article III of the United
`States Constitution.” 28 U.S.C. § 1367(a). The Supreme Court
`has held that “[t]he state and federal claims must derive from a
`common nucleus of operative fact.” United Mine Workers v. Gibbs,
`383 U.S. 715, 725 (1966).
`This Court clearly has original jurisdiction over
`Phoenix’s copyright infringement claim as a claim arising under
`the federal copyright laws. See 28 U.S.C. § 1331. Defendants
`argue that Phoenix’s state law claims derive from separate facts
`than the federal claim and that for this reason, the Court lacks
`pendent jurisdiction. The Court disagrees. Based on the
`allegations and arguments before the Court thus far, it appears
`that the alleged copyright infringement is intertwined with the
`state law claims. Underlying each of Phoenix’s state law claims
`is a basic allegation that Defendants employed a business
`
`-8-
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`strategy of stealing Phoenix’s plans, methods, and employees. To
`prove the copyright infringement claim, Phoenix must necessarily
`put on evidence that Defendants used Phoenix’s Interior Repipe
`Agreement, and so this claim will also require proof of such
`conduct. The Court will thus conclude that the state law claims
`and the infringement claim derive from a common nucleus of fact.
`The Court may nevertheless decline to exercise
`supplemental jurisdiction if:
`(1) the claim raises a novel or complex issue of State
`law,
`(2) the claim substantially predominates over the claim
`or claims over which the district court has original
`jurisdiction,
`. . .
`(4) in exceptional circumstances, there are other
`compelling reasons for declining jurisdiction.
`28 U.S.C. § 1367(c). Defendants argue that each of these three
`circumstances exist. First, they contend that Phoenix’s
`copyright infringement claim is insubstantial at best and that as
`such, the state law claims predominate over it. Defendants
`characterize Phoenix’s Interior Repipe Agreement as an
`unremarkable, boilerplate agreement that is unworthy of copyright
`protection. In response, Phoenix has presented a copy of its
`copyright registration certificate for the Interior Repipe
`Agreement. The certificate of registration constitutes prima
`facie evidence of the validity of the copyright, see 17 U.S.C. §
`410, and demonstrates, for purposes of this Motion, the
`substantiality of Phoenix’s infringement claim.
`
`-9-
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`Defendants also argue that proceedings have already
`occurred in the state courts which would complicate any
`determination by this Court of Phoenix’s state law claims. In
`August of 2003, Phoenix filed a bill of complaint in the Circuit
`Court of the City of Alexandria alleging, inter alia, breach of
`contract, tortious interference, and civil conspiracy claims
`under Virginia law. At the outset of the state litigation,
`Phoenix sought a temporary injunction, which the Circuit Court
`denied. Defendants claim that this denial will complicate this
`2
`Court’s adjudication of the state law claims by creating res
`judicata issues. Of course, Virginia law will only afford a
`judgment preclusive effect in subsequent litigation if it amounts
`to a final judgment on the merits of a claim. See, e.g. State
`Water Control Bd. v. Smithfield Foods, Inc., 542 S.E.2d 766, 769
`(Va. 2001). The denial of a temporary injunction is not a final
`judgment on the merits and indeed is not to be given preclusive
`effect under Virginia law. See News-Register Co., Inc. v.
`Rockingham Pub. Co., Inc., 86 S.E. 874, 875 (Va. 1915).
`Next, Defendants argue that the state law claims will
`require different proof than the infringement claim and that
`judicial economy thus requires separate proceedings in federal
`and state court. Convenience and fairness to parties and
`
` On August 10, 2005, the Circuit Court granted Phoenix’s motion for a
`2
`nonsuit. Thereafter, Phoenix filed the instant action in this Court, alleging
`similar claims.
`
`-10-
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`

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`considerations of judicial economy are valid concerns in
`determining whether supplemental jurisdiction is appropriate.
`See Shanaghan v. Cahill, 58 F.3d 106, 110 (4th Cir. 1995). In
`this case, both factors favor the exercise of supplemental
`jurisdiction.
`As stated above, the infringement claim derives from
`common facts as the state law claims. Phoenix must necessarily
`prove use of the Interior Repipe Agreement to prove a copyright
`infringement, and the witnesses who testify regarding the use of
`this document will also have knowledge of the alleged conduct
`that forms the basis of the state law claims. Moreover, if
`successful on the infringement claim, Phoenix will be entitled to
`Defendants’ profits that are attributable to the infringement.
`See 17 U.S.C. § 504(b). This will require proof of Defendants’
`gross revenue, deductible expenses, and profits attributable to
`factors besides the copyrighted work. Id. This evidence will
`3
`likely also be relevant to some of the state law claims.
`Convenience and fairness to the parties and judicial economy are
`factors that each militate in favor of allowing the infringement
`
`In their reply, Defendants point out that they sell services, not the
`3
`copyrighted form allegedly used. In this regard, they argue that evidence of
`their revenues and expenses would be irrelevant to the infringement claim and
`thus not a basis for exercising pendent jurisdiction. The Court disagrees.
`The fact that Defendants do not actually sell the copyrighted form at issue or
`use it as a point of sale would not prevent Phoenix from claiming Defendants’
`profits garnered as a result of the alleged infringement. Suffice it to say
`for purposes of this Motion that any preparation or licensing expenses that
`Defendants avoided by using Phoenix’s copyrighted form would likely be
`considered in calculating profits. Defendants’ revenue and other expenses
`would thus be relevant.
`
`-11-
`
`

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`claim and the state law claims to be heard in the same
`proceeding.
`Finally, Defendants argue that Counts VII and IX of
`Phoenix’s complaint implicate a novel issue of Virginia law.
`Counts VII and IX allege that Koci, Rodriguez, and Atlantic
`conspired among themselves and with others to injure Phoenix in
`its business. According to Defendants, Phoenix’s conspiracy
`claims implicate the Virginia intracorporate immunity doctrine,
`see, e.g. Fox v. Deese, 362 S.E.2d 699, 708 (1987), and the
`possibility of a “personal stake” exception to this doctrine,
`which the Virginia Supreme Court has not yet recognized. A
`cursory examination of Phoenix’s allegations reveals, however,
`that the conspiracy claims do not implicate the intracorporate
`immunity doctrine at all.
`The intracorporate immunity doctrine holds that a
`conspiracy between a corporation and agents of that corporation
`acting within the scope of their employment is a legal
`impossibility. See Griffith v. Electrolux Corp., 454 F. Supp.
`29, 32 (E.D. Va. 1978). Phoenix’s conspiracy count is primarily
`based on allegations that Koci and Rodriguez misappropriated
`Phoenix’s business plan and methods and solicited Phoenix’s
`employees. The majority of this alleged activity occurred while
`Koci and Rodriguez were in subcontractor relationships with
`Phoenix and cannot implicate the intracorporate conspiracy
`
`-12-
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`doctrine at all, as Koci and Rodriguez had not yet formed
`Atlantic. Phoenix also alleges that Koci and Rodriguez conspired
`with Scott Davis, a Phoenix employee at the time, to violate
`Davis’s covenant not to compete with Phoenix. Because this
`alleged conspiracy occurred while Davis was an employee of
`Phoenix, not Atlantic, it also does not implicate the
`intracorporate immunity doctrine. In sum, Defendants have
`presented no persuasive reason for this Court to decline to
`exercise supplemental jurisdiction.
`C. Unfair Competition
`Count VIII of Phoenix’s complaint alleges that Atlantic
`engaged in unfair competition by representing to the public that
`Phoenix’s experiences were Atlantic’s experiences, improperly
`interfering with Phoenix’s employment relationships, competing
`without proper licensure, and violating the contracts of Koci and
`Rodriguez. Virginia adheres to “a narrow, sharply defined common
`law definition of unfair competition.” Monoflo Int’l, Inc. v.
`Sahm, 726 F. Supp. 121 (E.D. Va. 1989). According to the
`Virginia Supreme Court, “[t]he essential element of unfair
`trading is deception, by means of which goods of one dealer are
`palmed off as those of another, whereby the buyer is deceived,
`and the seller receives the profit which, but for such deception,
`he would not have received.” Benj. T. Crump Co. v. J. L.
`Lindsay, Inc., 107 S.E. 679, 684 (Va. 1921).
`
`-13-
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`In its opposition to Defendants’ Motion, Phoenix has
`elaborated on its allegations, claiming that shortly after the
`formation of Atlantic, Defendants distributed marketing
`literature stating that Atlantic had performed three thousand PB
`replacement jobs. According to Phoenix, Koci and Rodriguez
`performed these jobs while working for Phoenix. Phoenix also
`alleges that Atlantic has falsely informed the public that it is
`properly licensed in several states. The net effect of this
`conduct, according to Phoenix, is that Atlantic has obtained
`patronage by representing to customers that it is no different
`than Phoenix, taking without expense the good will that Phoenix
`earned over time. Phoenix argues that due to the small nature of
`the PB replacement market, it is likely that Phoenix would have
`secured a substantial portion of Atlantic’s business but for
`Atlantic’s marketing practices.
`There is no allegation that Atlantic is attempting to
`deceive the buying public by holding itself out as Phoenix.
`While Defendants may have gained experience while working as
`subcontractors for Phoenix, an advertisement touting these
`experiences does not amount to deceptively palming off Atlantic’s
`service as that of Phoenix. Assuming Phoenix’s allegations to be
`true, Atlantic has engaged in deceptive marketing regarding its
`licensures, but again, these marketing practices contain nothing
`that could deceive consumers into believing that they were
`
`-14-
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`dealing with Phoenix. Phoenix has failed to allege the essential
`element of a Virginia cause of action for unfair competition. As
`such, Count VIII will be dismissed.
`IV. Conclusion
`For the foregoing reasons, the Court will grant
`Defendants’ Motion to Dismiss insofar as it seeks dismissal of
`Count VIII and deny the remainder of Defendants’ Motion. An
`appropriate Order shall issue.
`
`December 8, 2005
`Alexandria, Virginia
`
` ________________/s/_______________
`
`James C. Cacheris
` UNITED STATES DISTRICT COURT JUDGE
`
`-15-

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