IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF NORTH CAROLINA
`CHARLOTTE DIVISION
`3:21CV633-GCM
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`JACQUELINE S. MCFEE,
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`Plaintiff,
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`vs.
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`CAROLINA PAD, LLC,
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`Defendant.
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`______________________________)
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`ORDER
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`This matter is before the Court upon Defendant’s Motion to Dismiss. The motion is fully
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`briefed and ripe for disposition.
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`I.
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`FACTUAL BACKGROUND
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`This is an action for copyright infringement. From 2001 through 2015, Jacqueline McFee
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`was the lead designer at CPP International, LLC (“CPP”). (Compl. ¶ 8). Prior to that time, CPP
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`had no creative department, and manufactured basic notepads, stationery, and office supplies. Id
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`at ¶¶ 8-9. After McFee arrived, she established a creative department and began designing
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`unique notebooks and other items that dramatically increased CPP’s financial success, and
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`caused CPP to become well known in the stationery and office supply field. Id. at ¶¶ 11-12.
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`Ms. McFee had an employment agreement (the “Agreement”) with CPP whereby McFee
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`retained her intellectual property rights in the designs and work product she created for CPP. Id.
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`at ¶ 13. As part of the Agreement, CPP was required to affirmatively transfer the intellectual
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`property rights in all designs created by McFee once they were no longer used by CPP for a
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`prescribed period of time. Id. at ¶ 16.
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`Case 3:21-cv-00633-GCM Document 30 Filed 06/16/22 Page 1 of 9
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`When McFee departed from the CPP, she sought to obtain copyright ownership of
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`her designs based on this Agreement. Id. at ¶¶ 15-16. A dispute arose between McFee and
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`CPP and CPP refused to assign the copyrights to her. Id.
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`McFee filed a lawsuit against CPP in this court in 2016 raising federal law claims
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`of: (i) false advertising in violation of 15 U.S.C. § 1125(a) and (ii) copyright
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`infringement in violation of 17 U.S.C. § 501; as well as state law claims of: (iii) unfair
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`competition, (iv) unfair and deceptive trade practices in violation of North Carolina
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`General Statutes § 75-1.1, and (v) breach of contract. McFee v. CPP Int’l, No. 3:16-CV-
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`165-RJC-DCK, 2016 WL 8257667, at *2 (W.D.N.C. Nov. 17, 2016), report and
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`recommendation adopted, Mcfee v. CPP Int’l, No. 3:16CV00165-RJC-DCK, 2017 WL
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`628306 (W.D.N.C. Feb. 15, 2017) (McFee I). In that case, McFee alleged that all rights
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`in her designs reverted to her upon the occurrence of what the Agreement referred to as
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`End of Sale status, which McFee further alleged had been reached. CPP moved to dismiss
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`and the court dismissed Plaintiff’s federal law claims with prejudice, holding that laintiff
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`failed to state a claim because she did not have ownership of the disputed designs—
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`including the related copyright and trademark rights.1 The court found that the plain
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`language of the Agreement required CPP to affirmatively assign ownership to McFee
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`when End of Sale status was reached, and until this was done, McFee did not possess
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`copyright or trademark ownership. 2 The Court determined that it lacked jurisdiction to
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`hear the dispute, and suggested that the state claims be raised in state court.
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`1 Having dismissed Ms. McFee’s federal claims, the court declined to exercise jurisdiction over her state law claims
`and dismissed them without prejudice to be refiled in state court.
`2 The court explained:
`Although [CPP International] may be in breach of the Employment Agreement by
`failing to assign intellectual property ownership to Plaintiff, Defendant nonetheless
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`Thereafter, McFee filed a state court action in Mecklenburg County Superior Court
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`entitled Jacqueline S. McFee v. CPP International, Mecklenburg County Case No. 17-
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`CVS-1981 (“McFee II”), asserting claims for breach of contract, fraud, constructive fraud,
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`unfair competition, unfair and deceptive trade practices, and breach of fiduciary duty.
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`(Compl., Ex. A at p. 2). On March 14, 2019, while McFee II was pending, CPP sold assets
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`to a company called Bay Sales. (Compl. ¶ 18). On February 12, 2020, the state court entered
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`a default judgment against CPP on Plaintiff’s state law claims and assigned all McFee’s
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`intellectual property—including copyright rights—back to her from CPP. Id. The relevant
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`excerpts of the final judgments state:
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`II. DEFINITIONS
`As used in this Final Judgment:
`. . . .
`B. “McFee Intellectual Property” means all names and designs identified in
`Appendix A, and includes all trademarks, copyrights, and trade names, all
`patterns and schemes underlying, all models, samples and pre-production
`mock-ups, and all other intellectual intellectual [sic] property otherwise
`incorporated, including all variants thereof.
`. . . .
`V. ASSIGNMENT
`All right, title, and interest, in and to the McFee Intellectual Property,
`together with the goodwill associated with the McFee Intellectual Property,
`to the extent it was used or owned by Defendant [CPP], is hereby assigned
`and transferred to Plaintiff Jacqueline McFee, for Plaintiff Jacqueline
`McFee’s own use and enjoyment, and for the use of Plaintiff Jacqueline
`McFee’s successors, assigns, or other legal representatives, together with
`all income, royalties or payments due or payable as of the date of this Final
`Judgment, including without limitation all claims for damages by reason of
`future infringement or other unauthorized use of the McFee Intellectual
`Property, with the right to sue for and collect the same for Plaintiff
`Jacqueline McFee’s own use and enjoyment and for the use and enjoyment
`of her successors, assigns, or other legal representatives.
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`needed to affirmatively assign any such ownership. Absent that assignment, Plaintiff
`does not have ownership of the intellectual property rights and fails to state a claim
`for false advertising or copyright infringement.
`McFee I, 2017 WL 628306, at *3.
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`(Compl. Ex. A at pp. 2, 4).
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`After re-acquiring the rights to her designs, McFee alleges that she discovered that a
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`company calling itself Carolina Pad, LLC (“Carolina Pad”) is selling notebooks and office
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`supplies in violation of McFee’s intellectual property rights. (Compl. ¶¶ 23-29). The new
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`products featured on the Carolina Pad website use designs that are substantially similar to those
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`of McFee’s, thus infringing on McFee’s copyrights. Id. McFee specifically identified Carolina
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`Pad’s Panache, Day Trip, One Hip Chick, and Summer Breeze lines as those that McFee
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`contends infringe her copyrights, and specifically identifies her Black and White floral, In The
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`Navy stripe, Kaleidoscope floral, Hot Chocolate stripe, Pattern Play polka dot, Pattern Play
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`stripe, Malibu polka dot, Malibu stripe, and Malibu paisley designs as those that have been
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`infringed. (Compl. ¶¶ 30, 37). Furthermore, the address listed for Carolina Pad on the website is
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`the same address as Bay Sales, while the Carolina Pad website also features a chronology that
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`claims that it is the successor to CPP, was “founded in Charlotte, NC,” that “Carolina Pad was
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`back.” Id. at 27. The website describes how McFee’s “Studio C became the new brand for CP’s
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`fashion line in 2009.” Id.
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`Plaintiff filed the instant Complaint in November of 2021 alleging one claim of copyright
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`infringement against Carolina Pad. In her Complaint, Plaintiff now alleges that Carolina Pad
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`infringed Plaintiff’s copyrights by re-selling various products it purchased in the sale of CPP’s
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`inventory. Defendant Carolina Pad moves to dismiss pursuant to Rules 12(b)(1) and (6) of the
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`Federal Rules of Civil Procedure.
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`II.
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`DISCUSSION
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`A. Legal Standards
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`Defendant challenges Plaintiff’s standing to bring this claim. “As standing ‘is a
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`fundamental component of a court’s subject-matter jurisdiction,’ a defendant may properly
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`challenge a plaintiff’s standing by way of a motion to dismiss for lack of subject matter
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`jurisdiction pursuant to Rule 12(b)(1) of the Federal Rules of Civil Procedure.” Tingley v. Beazer
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`Homes Corp., 3:07-cv-176, 2008 WL 1902108, *2 (W.D.N.C. April 25, 2008) (citation omitted).
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`A plaintiff who is not the owner of a copyright does not have standing to bring an infringement
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`claim. 17 U.S.C. § 501(b); see also Kevin Chelko Photography, Inc. v. JF Restaurants, LLC,
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`3:13-cv-00060-GCM, 2017 WL 240087, *1 (W.D.N.C. Jan. 19, 2017) (Mullen, J.) (dismissing a
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`copyright infringement claim where the plaintiff did not own the copyrights at issue and lacked
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`standing to sue).
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`A motion to dismiss for lack of subject matter jurisdiction may be presented in two ways:
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`(1) “the defendant may contend that the ‘complaint simply fails to allege facts upon which
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`subject matter jurisdiction can be based’” or (2) “the defendant may assert that the jurisdictional
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`allegations in the complaint are not true.” Tingley, 2008 WL 1902108 at *2 (citing Adams v.
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`Bain, 697 F.2d 1213, 1219 (4th Cir. 1982)).
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`To survive a Rule 12(b)(6) motion to dismiss, a complaint must include factual
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`allegations which are “enough to raise a right to relief above the speculative level.” Bell Atlantic
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`Corp v. Twombly, 550 U.S. 544, 555 (2007). A claim must contain “sufficient factual matter,
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`accepted as true, to ‘state a claim for relief that is plausible on its face.’” Ashcroft v. Iqbal, 556
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`U.S. 662, 678, (2009) (quoting Twombly, 550 U.S. at 570).
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`In evaluating a motion to dismiss, the court “accepts all well-pled facts as true and
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`construes these facts in the light most favorable to the plaintiff” but does not consider “legal
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`conclusions, elements of a cause of action, and bare assertions devoid of further factual
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`enhancement[,] . . . unwarranted inferences, unreasonable conclusions, or arguments.” Nemet
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`Chevrolet, Ltd. v. Consumeraffiars.com, Inc., 591 F.3d 250, 255 (4th Cir. 2009).
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`B. Analysis
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`Defendant first argues that dismissal is appropriate because Plaintiff does not own the
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`copyrights at issue and therefore does not have standing to bring this lawsuit. In support of its
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`argument, Defendant cites the ruling in McFee I explicitly finding that absent an assignment
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`from CPP, “Plaintiff does not have ownership of the intellectual property rights and fails to state
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`a claim for false advertising or copyright infringement.” McFee I, at *3.
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` McFee responds that Carolina Pad ignores the subsequent final judgment issued by the
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`state court assigning all rights to her. While the McFee I court did rule that McFee did not have
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`ownership of the designs at that time, the court’s order did not preclude McFee from ever
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`attaining ownership. The court implied that McFee could obtain ownership if she prevailed in her
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`breach of contract claim in state court, which she ultimately did.
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` Defendant contends that the state court judgment does not help the Plaintiff because the
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`state court lacked jurisdiction to confer copyright ownership. Defendant points out that the
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`federal courts are vested with exclusive jurisdiction over copyright claims. See 17 U.S.C. §
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`301(a). Consequently, the Fourth Circuit has long held that the doctrine of complete preemption
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`applies in copyright cases. Rosciszewski v. Arete Assocs., Inc., 1 F.3d 225, 232 (4th Cir. 1993).
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`Plaintiff counters3 that the state court action was a breach of contract case, not a
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`copyright case,4 hence, preemption is not applicable. In her state court action, McFee alleged that
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`“[b]y failing to assign all right, title, and interest in the End of Sale Designs to McFee, and by
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`continuing to use those designs or certain intellectual property rights associated with those
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`designs, CPP has knowingly and intentionally breached the terms of the 2008 Employment
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`Agreement.” (Doc. No. 29-1, at ¶ 31). As part of her requested relief, McFee sought the
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`reassignment of all right, title and interest in the End of Sale Designs and any other designs
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`covered by the 2008 Employment Agreement from CPP International to her, in accordance with
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`the terms of that agreement. Id. Prayer for Relief (c) and (d). Thus, the state court award was the
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`result of a request for relief reassigning to McFee that to which she was entitled under the
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`Agreement. As such, it was no different from an award under any other breach of contract action.
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`Not all cases involving disputed copyrights are limited to federal jurisdiction or arise
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`under federal copyright laws. A case does not “arise under” copyright law unless the complaint
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`(1) seeks a remedy expressly granted by the Copyright Act such as a suit for infringement, (2)
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`asserts a claim requiring construction of the Act, or (3) requires federal principles to control the
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`disposition of the claim. T. B. Harms Co. v. Eliscu, 339 F.2d 823, 828 (2d Cir. 1964). McFee II
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`simply does not fit under any of these categories.
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`The Defendant argues that even if Plaintiff could plead ownership of a valid copyright via
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`the February 12, 2020 state court default judgement, the first sale doctrine bars her copyright
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`infringement claim. The first sale doctrine gives the copyright owner the right to control the first
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`sale of the copyrighted material, and it protects a buyer who then re-sells the copyrighted
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`3 The Court directed Plaintiff to file a Surreply.
`4 In McFee I, both the magistrate and district judge recognized that the action was “[a]t its core, . . . a breach of
`contract action.” McFee I, Mem. and Recommendation of 11/17/16 at 10; Order of 2/15/17 at 7.
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`material. Hotaling v. Church of Jesus Christ of Latter-Day Saints, 118 F.3d 199 (4th Cir. 1997).
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`Defendant claims that on March 14, 2019, well before Plaintiff contends she obtained copyright
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`ownership, CPP underwent an Article 9 sale in which its inventory was sold. Bay Sales, LLC (an
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`affiliate of Carolina Pad) purchased some of that inventory. CPP was the copyright owner of the
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`inventory at the time of the Article 9 sale. Thus, the first sale doctrine protects Bay Sales, LLC
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`and Carolina Pad as alleged buyers of some of that inventory from any copyright infringement
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`claim arising from the re-sale of those products.
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`The court finds that there are significant questions of fact surrounding the alleged sale of
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`inventory by CPP, making the first sale doctrine an issue outside the scope of this motion to
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`dismiss.
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`Finally, Defendant argues that even if Plaintiff can prove ownership of the copyrights,
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`dismissal is appropriate because Plaintiff fails to plead sufficient factual allegations to state a
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`plausible claim. To state a claim for copyright infringement, a plaintiff must allege: (1)
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`ownership of a valid copyright, and (2) copying of the original elements of the work by the
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`defendant. Feist Publ’ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991). Defendant
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`claims that the Complaint herein only generically references designs created at CPP and
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`mentions Defendant’s “Panache, Day Trip, One Hip Chick and Summer Breeze lines.” (Compl.
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`at ¶ 37). It does not identify (i) what Defendant’s purportedly infringing “lines” or products are,
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`(ii) how those products copy any purported copyrights, (iii) how those products are substantially
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`similar to any purported copyrights. Without more, Defendant contends, Plaintiff has plausibly
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`failed to state a claim for copyright infringement.
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`In determining whether McFee’s claims are plausible this Court must consider McFee’s
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`Complaint in the light most favorable to McFee, and must accept as true all of McFee’s well-
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`pleaded factual allegations. See Randall v. U.S., 30 F.3d 518, 522 (4th Cir. 1994). Contrary to
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`Defendant’s argument, the Court finds that Plaintiff has sufficiently identified the designs that
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`she contends have been infringed, and has identified the Carolina Pad designs that she contends
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`are infringing. Taken as true and in the light most favorable to McFee, the allegations in the
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`Complaint are sufficient to state a claim for copyright infringement.
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`For the foregoing reasons,
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`IT IS THEREFORE ORDERED that Defendant’s Motion to Dismiss is hereby DENIED.
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`Signed: June 16, 2022
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