Opinion
No. CV-21-01789-PHX-ROS
2022-10-18
WOLF DESIGNS LLC, Plaintiff, v. FIVE 18 DESIGNS LLC, et al., Defendants.
Alexandra Mijares Nash, Gregory W. Seibt, Rutila Seibt & Nash PLLC, Scottsdale, AZ, Kiri Tamar Semerdjian, Koeller Nebeker Carlson & Haluck LLP, Phoenix, AZ, Heather Sapp, Phoenix, AZ, for Plaintiff. Bert Daniel Millett, Ralph Anthony Caliendo, Orangewood Law Group PLC, Mesa, AZ, for Defendants.
Alexandra Mijares Nash, Gregory W. Seibt, Rutila Seibt & Nash PLLC, Scottsdale, AZ, Kiri Tamar Semerdjian, Koeller Nebeker Carlson & Haluck LLP, Phoenix, AZ, Heather Sapp, Phoenix, AZ, for Plaintiff. Bert Daniel Millett, Ralph Anthony Caliendo, Orangewood Law Group PLC, Mesa, AZ, for Defendants.
ORDER
Roslyn O. Silver, Senior United States District Judge
Plaintiff Wolf Designs LLC ("Wolf" or "Plaintiff") designs and installs "vehicle wraps," i.e. large vinyl graphics or decals applied to car bodies. Defendant Garrett Maxwell owns Defendant Five 18 Designs LLC ("Five 18") (collectively "Defendants"). Five 18 is a direct competitor of Wolf. This suit involves Five 18 and Maxwell allegedly copying Wolf's copyrighted designs and stealing Wolf's customers. Five 18 and Maxwell seek Partial Judgment on the Pleadings (Doc. 45) under various theories, including that the statute of limitations bars some claims and that other claims are not supported by adequate factual allegations or recognized legal theories. For the reasons below, the motion will be granted in part and denied in part.
BACKGROUND
I. Factual Background
Both Plaintiff and Defendants design and install vehicle wraps. (Verified Complaint, Doc. 1 at ¶¶ 9, 11) ("VC"). The complaint asserts five claims related to alleged copyright infringement, where three of Plaintiff's customers allegedly opted to hire Defendants to install vehicle wraps featuring designs Plaintiff had created and copyrighted.
A. Nash Copyrights
i. Facts
In March 2020, Plaintiff's customer, Nash Powersports ("Nash") commissioned Plaintiff to design and install a custom wrap for a 5th wheel toy-hauler trailer used to haul off-road vehicles. (Id. at ¶ 19). Plaintiff created a custom graphic design and installed it. (Id. at ¶ 21).
After that, Nash "indicat[ed] its desire to commission [Plaintiff] to create and install wrap designs on a Nash truck and a box trailer, utilizing the same theme as the wrap previously created, designed and installed on the 5th wheel trailer." (Id.) Plaintiff sent Nash estimates for both the truck wrap and the box trailer wrap on April 5, 2021. (Id. at ¶ 22). Nash did not pursue the truck wrap. With respect to the box trailer, Nash signed and executed the estimate, and paid the deposit on April 9, 2021. (Id. at ¶ 23-24). Plaintiff sent Nash a mockup of the box trailer design, which included Plaintiff's logo and copyright notice. (Id. at ¶ 25; Doc. 1-3 at 17 (VC Ex. L)). Plaintiff installed the wrap onto a Nash box trailer. (VC at ¶ 26; Doc. 1-3 at 14-15 (VC Ex. L)). Plaintiff published photographs of the design and completed installation work it did for Nash on its website. (VC at ¶ 28).
At some point after this project, Plaintiff alleges Nash commissioned Defendants to copy Plaintiff's design and install a vehicle wrap on Nash's truck using Plaintiff's protected work. (Id. at ¶ 30). Defendants installed the wrap and Plaintiff first became aware of this infringement in or around May 2021. (Id. at ¶ 31). Defendant Maxwell posted photographs of the completed truck project on his personal Instagram account. (Id.; Doc. 1-3 at 20-21 (VC Ex. M)). In May of 2021, Plaintiff asked Defendants to stop its misappropriation of Plaintiff's copyright protected designs, but Defendants did not respond. (VC at ¶ 42).
ii. Copyright Information
Shortly after Plaintiff's interactions with Defendants regarding the Nash truck wrap, Plaintiff received a copyright registration for a group of unpublished works it created for Nash. That registration, issued on June 15, 2021 ("Nash Group Copyright") (Doc. 1-2 at 4 (VC Ex. B)), includes seven designs:
1. Toy Hauler LD1933Additionally, Plaintiff alleges that following the publication or installation of these designs, Plaintiff registered additional individual copyright registrations for all seven designs. As relevant, Plaintiff registered the Toy Hauler LD1933 (Registration No. VA 2-262-207), which was first published April 2, 2020 and registered on August 4, 2021. (Doc. 1-3 at 7 (VC Ex. J)). Plaintiff additionally registered the 24 x 7 Box trailer LD-3227 (Registration No. VA 2-272-042), first published on April 9, 2021 and registered October 15, 2021. (Doc. 1-3 at 3 (VC Ex. I)).
2. 2020 Teryx KRX 1000 LD-1470
3. McLaughlin Sam X3 Max LD-0177
4. Hancock, Eric XP4
5. 2021 Can Am Max LD-3080
6. 2021 Door kit LD-3079
7. 24 x 7 Box trailer LD-3227
The verified complaint alleges the date of first publication was April 2, 2021 (Doc. 1 at ¶ 18), but the registration certificate attached as an exhibit to the verified complaint includes a first publication date of April 2, 2020 (Doc. 1-3 at 7 (Comp. Ex. J)). The Court assumes the verified complaint has a typographical error.
Plaintiff alleges five other Nash copyrights were included in the Nash Group Copyright, but they appear irrelevant to the pending claims.
B. Pyrtle Copyright
Plaintiff contracted with Kevin Pyrtle to design and install a vehicle wrap on Pyrtle's recreational vehicle known as a "utility terrain vehicle" or "UTV." (VC at ¶ 34). The mockup for this project includes Plaintiff's logo. (Doc. 1-3 at 23 (VC Ex. N)). Plaintiff installed the wrap on Pyrtle's UTV in 2017. (VC at ¶ 34). Plaintiff's design was first published on September 15, 2016 and received copyright registration on July 30, 2021 (Registration No. VA 2-261-469). (Doc. 1-2 at 8 (VC Ex. C)). Plaintiff alleges it published a photograph of Pyrtle's design on its website, which contained a copyright notice and the statement "All Rights Reserved." (VC at ¶ 36; Doc. 1-2 at 2 (VC Ex. A)).
On February 6, 2018, Plaintiff alleges it became aware Defendants misappropriated Plaintiff's copyright protected design that had been applied to Pyrtle's UTV. (VC at ¶ 38). On that date, Defendant Five 18 posted a photograph on its Instagram account of a "UTV wrap that is in all material respects visually identical to that of [Plaintiff's] copyright protected Pyrtle design." (VC at ¶ 39; Doc. 1-3 at 25 (VC Ex. O)). Plaintiff alleges the photograph of the Pyrtle design on its website was published at the time Defendants posted its photograph on Instagram, and that Defendants knew the design was not of its own creation despite representing it as such on its Instagram post. (VC at ¶ 41).
C. Simon Med Prius
Lastly, Plaintiff alleges Defendants used one of Plaintiff's copyright protected designs on a Toyota Prius. Plaintiff's mockups for this wrap include its logo. (Doc. 1-3 at 27 (VC Ex. P)). Plaintiff's design was first published on February 1, 2015, and it was registered with the USPTO on September 10, 2021 (Registration No. VA 2-266-798). (Doc. 1-3 at 11 (VC Ex. K)). Defendants allegedly used Plaintiff's design and Defendant Maxwell posted photographs of the completed vehicle wrap on his personal Instagram page. (Doc. 1-3 at 29-33 (VC Ex. Q)).
II. Procedural Background
Plaintiff filed the present suit on October 22, 2021. Plaintiff asserts five claims. In Count I, Plaintiff asserts Defendant's actions constituted copyright infringement. In Count II, Plaintiff asserts a violation of the Lanham Act, 15 U.S.C. § 1125(a), because Defendant's actions have caused and will continue to cause confusion to the public as to the true source of the designs. In Count III, Plaintiff asserts tortious interference with business relations with respect to all three clients (Nash, Pyrtle, and Simon Med). In Count IV, Plaintiff asserts unfair competition. In Count V, Plaintiff asserts a claim for piercing the corporate veil ("alter ego"). Defendants answered the complaint, denying many of the allegations and asserting a number of affirmative defenses. (Doc. 16).
The Court granted a stipulated preliminary injunction in March 2022 (Doc. 38) barring Defendants from reproducing, preparing, distributing, or displaying the vehicle wraps included in Exhibits A-I of the stipulation for preliminary injunction (Doc. 36) (the same copyright registrations included in the Verified Complaint). Defendants filed this Motion for Judgment on the Pleadings thereafter. (Doc. 45).
ANALYSIS
I. Standard for Judgment on the Pleadings
A motion for judgment on the pleadings is "functionally identical" to a motion to dismiss for failure to state a claim. Gregg v. Hawaii, Dep't of Pub. Safety, 870 F.3d 883, 887 (9th Cir. 2017). Therefore, the inquiry is "whether the complaint at issue contains sufficient factual matter, accepted as true, to state a claim [to] relief that is plausible on its face." Harris v. Cty. of Orange, 682 F.3d 1126, 1131 (9th Cir. 2012). A claim qualifies as "plausible" only when it does more than establish "a sheer possibility that a defendant acted unlawfully." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). It is not enough for a complaint to "plead facts that are merely consistent with a defendant's liability." Id. The facts must be such that a court, "draw[ing] on its judicial experience and common sense," can conclude "the defendant is liable for the misconduct alleged." Id. at 678, 129 S.Ct. 1937. "A judgment on the pleadings is properly granted when, taking all the allegations in the non-moving party's pleadings as true, the moving party is entitled to judgment as a matter of law." Ventress v. Japan Airlines, 603 F.3d 676, 681 (9th Cir. 2010) (citations omitted).
Plaintiff argues motion for judgment on the pleadings cannot be granted because Defendants' answer denies numerous allegations in the complaint. But Defendants correctly point out denials asserted in an answer do not create a dispute of material fact such that the Court must deny a Rule 12(c) motion for judgment on the pleadings. Rather, the Court must accept as true all of Plaintiff's allegations and may simply ignore Defendants' denials. See Hoeft v. Tucson Unified School Dist., 967 F.2d 1298, 1301 n.2 (9th Cir. 1992) (stating court must accept complaint's allegations and "treat[ ] as false those allegations in the answer that contradict the plaintiffs' allegations").
"Courts have discretion in appropriate cases to grant a Rule 12(c) motion with leave to amend, or to simply grant dismissal of the action instead of entry of judgment." Special District Risk Management Auth. v. Munich Reins. Am., Inc., 562 F. Supp. 3d 989, 994 (E.D. Cal. 2021). And the Ninth Circuit has long held "a district court should grant leave to amend even if no request to amend the pleading was made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Lacey v. Maricopa Cnty., 693 F.3d 896, 926 (9th Cir. 2012) (en banc) (quotation marks and citation omitted).
II. Count 1 (Copyright)
Plaintiff's first claim alleges copyright infringement based on the three set of facts described above. Plaintiff included a copyright symbol and the statement "All Rights Reserved" on its website, and registered copyrights for each of its designs. Plaintiff argues "Defendants therefore knew that the designs were not ones of [their] 'own creation' as misrepresented on [the] Instagram post." (VC at ¶ 53). Plaintiff seeks statutory damages under 17 U.S.C. § 504, actual damages under the same, and attorneys' fees and costs under 17 U.S.C. § 505.
A. Statute of Limitations
Defendants argue this Count is partially time barred with respect to the Pyrtle copyright. (Doc. 45 at 4-5). Plaintiff alleges in his Complaint he became aware of the Pyrtle infringement on February 6, 2018 (VC at ¶ 38), at which point the three-year statute of limitations began. See Roley v. New World Pictures, Ltd., 19 F.3d 479, 481 (9th Cir. 1994) (copyright claim's three-year statute of limitations begins to run when plaintiff discovers the infringement). Since Plaintiff did not file his complaint until October 22, 2021, Defendants argue this portion of Count I should be dismissed. Plaintiff argues, on the other hand, that the Complaint did not "allege specific counts of copyright infringement for each copyright," but instead pleaded facts sufficient to establish a "single count" of infringement. (Doc. 51 at 5).
Plaintiff's response is difficult to understand. Based on the facts alleged in the complaint, Defendants infringed Plaintiff's copyrights on three separate dates, involving three separate vehicle wraps. Plaintiff apparently believes this does not constitute three distinct instances of infringement, but that is obviously incorrect. In other words, presumably Plaintiff would like to collect actual or statutory damages for each of the three instances of infringement. Therefore, the three instances of infringement contained in this count must be viewed separately. That Plaintiff chose to combine all those instances under a "single count" in his complaint does not change the distinct nature of each instance.
In general, a court will not consider a motion for judgment on the pleadings that seeks only to dismiss a portion of a cause of action. See Erhart v. BofI Holding, Inc., 387 F. Supp. 3d 1046, 1062-63 (S.D. Cal. 2019) (noting courts consider "partial motions for judgment on the pleadings when the motion resolves at least an entire cause of action"); Kenall Mfg. Co. v. Cooper Lighting, LLC, 354 F. Supp. 3d 877, 893-98 (N.D. Ill. 2018) (comparing language of Rule 12(c) and Rule 56 to hold that Rule 12(c) does not permit judgment with respect to liability portion of claim alone); Living on the Edge, LLC v. Lee, No. 14-CV-5982-MWF, 2015 WL 12661917, at *4 (C.D. Cal. Aug. 25, 2015) (declining to grant partial judgment on the pleadings for statute of limitations issue that related only to part of a claim); United States v. Real Property and Improvements Located at 2366 San Pablo Ave., Berkeley, California, No 13-CV-02027-JST, 2013 WL 6774082, at *1 (N.D. Cal. Dec. 23, 2013) ("the Court is aware of no case in which a court has granted partial judgment on the pleadings with respect to less than a full cause of action"). But that authority deals with situations different from the present.
The hesitation for courts to allow judgment on the pleadings regarding only portions of a claim applies where the claim at issue is, in fact, a single claim. For example, in Erhart v. BofI Holding, Inc., the court was addressing the viability of various "whistleblower retaliation claims" under federal laws dealing with company finances. 387 F. Supp. 3d at 1062-63. The defendants sought judgment on the pleadings on the basis that particular underlying facts were not sufficient to support the retaliation claims. Id. at 1062. The court had previously rejected a request that it "delineate between exactly which . . . factual allegations are actionable and which of those are not." Id. at 1062. When defendants renewed their request, the court rejected the renewed request because it saw "little value, if any, in . . . scrutinizing the partial sufficiency" of the whistleblower claims. Id. at 1063. Of particular relevance is that there is no indication the plaintiff was pursuing distinct claims based on each factual allegation.
Here, Plaintiff chose to allege a single claim for copyright infringement but that claim consists of three entirely independent instances of alleged infringement. It is undisputed the complaint alleges sufficient facts, accepted as true, to support a copyright infringement claim at least with respect to the Nash copyrights. But the complaint also alleges Defendants committed infringement regarding the Pyrtle copyright and, most importantly, that Plaintiff knew of that infringement more than three years prior to filing suit. In these circumstances, it will promote "efficiency and economy" to dismiss the portion of the copyright infringement claim to the extent it is based on time-barred conduct. 5C Fed. Prac. & Proc. Civ. § 1369 (3d ed.) (noting district courts allowing partial motions for judgment on the pleadings promotes "efficiency and economy"). Notably, Plaintiff does not make any effort to establish the infringement regarding the Pyrtle copyright is timely under the statute of limitations. Therefore, it would be futile to allow that portion of Plaintiff's infringement claim to proceed.
B. Request for Statutory Damages and Attorneys' Fees
Defendants additionally ask for this Court to deny Plaintiff's request for statutory damages and attorneys' fees under Count I and issue an order that such damages are not available. Defendants argue that pursuant to the copyright statute itself, "no award of statutory damages or of attorney's fees, as provided by sections 504 and 505, shall be made for . . . any infringement of copyright commenced after first publication of the work and before the effective date of its registration, unless such registration is made within three months after the first publication of the work." 17 U.S.C. § 412. Because Plaintiff did not register any of the copyrights mentioned in the complaint within three months of publication, and because the alleged infringements of the copyrights predate the effective dates of registration, Defendants argue Plaintiff cannot recover statutory damages and attorneys' fees as a matter of law. Plaintiff argues the Nash Group Copyright, registered on June 15, 2021, saves at least one of the copyrights from Defendant's argument (the Nash Powersports 24 x 7 Box Trailer was first published on April 9, 2021, and registered as part of the Nash Group Copyright on June 15, 2021). Defendants respond that the group copyright registration should be disregarded, because the paperwork submitted to acquire that group copyright erroneously stated all of the copyrights were unpublished, when, in fact, they had all already been published.
A threshold issue is whether such a partial dismissal is available. Some courts decline to grant a motion for judgment on the pleadings to preclude statutory damages because Rule 12(c) does not authorize judgment on parts of claims, but others treat the availability of relief differently. Compare Munro v. Fairchild Tropical Botanic Garden, Inc., No. 20-cv-20079, 2021 WL 894380, at *2 (S.D. Fla. March 3, 2021) (denying partial judgment on the pleadings as to statutory damages and attorneys' fees because Rule 12(c) does not allow partial judgment for a portion of a plaintiff's claim) with Karzo v. Matador Records, Inc., No. 21-cv-667, 2022 WL 4237452, at *5 (M.D.N.C. Sept. 14, 2022) (granting motion for partial judgment on the pleadings and barring plaintiff from seeking statutory damages and attorneys' fees under copyright statute). Because the Ninth Circuit has held a rule 12(c) motion for judgment on the pleadings is "functionally identical" to a Rule 12(b)(6) motion to dismiss for failure to state a claim, Gregg, 870 F.3d at 887, and because a court can undoubtedly dismiss a claim for relief under Rule 12(b)(6), see, e.g., Zito v. Steeplechase Films, Inc., 267 F. Supp. 2d 1022, 1026 (N.D. Cal. 2003) (barring plaintiff from seeking statutory damages and attorneys' fees for copyright infringement claim by partially granting motion to dismiss), the Court will address the merits of Defendants' motion with respect to statutory damages.
According to the verified complaint and attached exhibits, the alleged infringement of the Nash copyrights took place around May 2021; Plaintiff registered those copyrights individually in August and October 2021. VC at ¶ 31. However, as Plaintiff argues, the Nash Group Copyright was registered on June 15, 2021—within three months of the alleged infringement. Plaintiff registered the Simon Med Prius copyright on September 10, 2021 and does not allege a date of infringement.
An initial question is whether the Nash Group Copyright registration filed pursuant to 37 C.F.R. § 202.4(c) suffices to open the door to statutory damages for infringement alleged with respect to a copyright in the group. The copyright statute requires registration as a prerequisite to civil infringement actions, 17 U.S.C. § 411(a), and to be entitled to statutory damages, 17 U.S.C. § 412. The regulations define a "registration" as "a registration of a claim in the original or the renewed and extended term of copyright." 17 U.S.C. § 101. The Copyright statute authorizes the Register of Copyrights to "specify by regulation the administrative classes into which works are to be placed." 17 U.S.C. § 408(c). The regulations authorizing group copyright registration for unpublished works were enacted pursuant to that authority. 37 C.F.R. § 202.4(c). The statute specifies: "This administrative classification of works has no significance with respect to the subject matter of copyright or the exclusive rights provided by this title." 17 U.S.C. § 408(c). Thus, based on the relatively little briefing provided by the parties, the statute and regulations appear to establish a group registration under 37 C.F.R. § 202.4(c) suffices to render the group registration effective for the purposes of assessing statutory damages.
The group registration Plaintiff acquired here under 37 C.F.R. § 202.4(c) was only recently authorized by regulation. 84 Fed. Reg. 3693, 3693-98 (Feb. 13, 2019). Accordingly, little case law addresses this exact question. The Court notes, however, that courts facing a similar question under different parts of the statute reached a similar outcome. See Alaska Stock, LLC v. Houghton Mifflin Harcourt Pub. Co., 747 F.3d 673, 682 (9th Cir. 2014) (holding group registration under different statutory provision sufficed to register "both the collection as a whole and the individual images"); Sohm v. Scholastic Inc., 959 F.3d 39, 53 (2d Cir. 2020) (agreeing with the Ninth Circuit that group registration under § 409(2) sufficed to register each of the photographs included).
Defendants' argument that the group registration was improperly filed and thus invalid also fails at this stage of litigation. "A certificate of registration satisfies the requirements of [§ 411] [the mandatory prerequisite to filing an infringement suit] and [§] 412 [the provision authorizing statutory damages], regardless of whether the certificate contains any inaccurate information, unless (a) the inaccurate information was included on the application for copyright registration with knowledge that it was inaccurate; and (b) the inaccuracy of the information, if known, would have caused the Register of Copyrights to refuse registration." 17 U.S.C. § 411(b)(1).
Whether or not the group registration is valid is not a question of law that can be disposed of at this point. Accepting all allegations in the complaint as true, Plaintiff has alleged enough to survive a motion for judgment on the pleadings on the issue of statutory damages and attorneys' fees. Plaintiff is not barred from seeking statutory damages and attorneys' fees for his copyright infringement claim at this stage.
III. Count 2 (Lanham Act)
Plaintiff's second claim alleges the Defendants violated the Lanham Act by replicating and publishing Plaintiff's designs while holding themselves out as the creators of the designs, confusing the public and consumers. The verified complaint does not specify which section of the Lanham Act this claim arises under, but merely alleges violation of 15 U.S.C. § 1125(a).
Defendants argue, and Plaintiff concedes (Doc. 51 at 8), there is no liability under the "passing off" provision of the Lanham Act, 15 U.S.C. § 1125(a)(1)(A). The parties cite Dastar Corp v. Twentieth Century Fox Film Corp., 539 U.S. 23, 123 S.Ct. 2041, 156 L.Ed.2d 18 (2003), in which Dastar took portions of film previously created by the defendant and repurposed them into his own video product. The Supreme Court held that under § 1125(a)(1)(A), the "origin of goods" phrase "refers to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods." Id. at 37, 123 S.Ct. 2041. The Court held Dastar was the "origin" of the video products, so no liability under § 1125(a)(1)(A) attached to him. Id. at 38, 123 S.Ct. 2041. The Court further clarified the difference between copyright and Lanham Act liability by stating if the defendants had renewed their expired copyright registration for the videos, "it would have had an easy claim of copyright infringement." Id. Here, Defendants argue, and Plaintiff concede, that because there is no confusion as to who produced the Defendants' vehicle wrap, there is no liability under this provision of the Lanham Act. Because Plaintiff concedes this provision does not apply to his claim, the Court will not address it further.
Plaintiff argues, however, a second provision of the Lanham Act applies to his claim: § 1125(a)(1)(B) creates liability for "misrepresent[ing] the nature, characteristics, qualities, or geographic origin of his or her or another person's goods, services, or commercial activities" "in commercial advertising or promotion." 15 U.S.C. § 1125(a)(1)(B). Plaintiff argues the Supreme Court left this option open in dicta in Dastar. 539 U.S. at 38, 123 S.Ct. 2041 (if "producer of a video that substantially copied [an underlying work] were, in advertising or promotion, to give purchasers the impression that the video was quite different from that series," there might be a cause of action for "misrepresentation" under § 1125(a)(1)(B)).
The elements of a misrepresentation claim under § 1125(a)(1)(B) are: "(1) a false statement of fact by the defendant in a commercial advertisement about its own or another's product, (2) the statement actually deceived or has the tendency to deceive a substantial segment of its audience, (3) the deception is material, in that it is likely to influence the purchasing decision, (4) the defendant caused its false statement to enter interstate commerce, and (5) the plaintiff has been or is likely to be injured as a result of the false statement." OptoLum, Inc. v. Cree, Inc., 244 F. Supp. 3d 1005, 1010 (D. Ariz. 2017) (citing Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1139 (9th Cir. 1997)).
Plaintiff argues the Defendants' Instagram post was commercial speech, and the claim on the post that the vehicle wrap was "only available from Five 18 Designs" was made for the purpose of influencing a consumer to purchase Defendants' goods and misrepresented that the design was not also available to purchase from Plaintiff. However, as Defendant argues, the phrase "only available from Five 18 Designs" was attached as a caption to a different post made the following day, not to the image of the allegedly infringing vehicle wrap. (Doc. 1-3 at 25 (Ex. O)). Thus, Plaintiff has not alleged the requisite "false statement of fact" in a "commercial advertisement."
Lastly, Defendants ask for an award of attorneys' fees pursuant to 15 U.S.C. § 1117(a) (authorizing an award of reasonable attorney fees to prevailing party "in exceptional cases"). That request is premature. Defendants may, if appropriate, apply for an award of fees after entry of final judgment.
Thus, Count 2 will be dismissed with leave to amend. Should Plaintiff amend the complaint, it must specifically allege what particular commercial speech made by the Defendants constituted a false statement such that Defendants might be liable under the Lanham Act.
IV. Count 3 (Tortious Interference)
Plaintiff's third claim alleges tortious interference with business relationships. Plaintiff alleges he had contracts with Nash, Kevin Pyrtle, and Simon Med (VC at ¶ 65), and that Defendants knowingly interfered in those business relationships by replicating and installing Plaintiff's copyrighted work for them.
Defendants first argue Plaintiff's tortious interference claim is time barred with respect to Kevin Pyrtle, because there is a two-year statute of limitations for tortious interference in Arizona. Ariz. Rev. Stat. § 12-542; Gordon Grado M.D., Inc. v. Phoenix Cancer and Blood Disorder Treatment Inst. PLLC, 603 F. Supp. 3d 799, 816-18 (D. Ariz. May 16, 2022). Plaintiff does not respond to this argument. The cause of action "accrues when the plaintiff knew or reasonably should have known of the intentional interference with the plaintiff's business expectancy," and the plaintiff realized it was damaged. Gordon Grado M.D., Inc., 603 F.Supp.3d at 817. Plaintiff here alleges it became aware of the alleged infringement of the Pyrtle copyright on or around February 6, 2018. (VC at ¶ 38). As discussed above, the allegations with respect to the three customers are readily divisible; to the extent contracts or business expectancies exist to support a tortious interference claim, they would be particular to each individual customer. Thus, to the extent Plaintiff's tortious interference claim is based on Kevin Pyrtle's business, Defendant's motion for judgment on the pleadings is granted.
Next, Defendants argue the tortious interference claim should be dismissed because it is preempted by federal copyright law. The Copyright Act preempts state law claims when state laws "confer rights equivalent to the exclusive rights of copyright under 17 U.S.C. § 106 (i.e., reproduction, distribution, public display, public performance, and creation of derivative works." MDY Indus., LLC v. Blizzard Entertainment, Inc., 629 F.3d 928, 957 (9th Cir. 2010) (citing 17 U.S.C. § 301(a)). The Copyright Act does not preempt state law claims with respect to "activities violating legal or equitable rights that are not equivalent to any of the exclusive rights [of copyright]." Id. (quoting 17 U.S.C. § 301(b)(3)). When the state law claim "includes an 'extra element' that makes the right asserted qualitatively different from those protected under the Copyright Act, the state law claim is not preempted by the Copyright Act." Altera Corp. v. Clear Logic, Inc., 424 F.3d 1079, 1089 (9th Cir. 2005).
The Ninth Circuit has previously held a "tortious interference claim under Arizona law is not preempted by the Copyright Act." MDY Indus. LLC, 629 F.3d at 957. That court reasoned that "because contractual rights are not equivalent to the exclusive rights of copyright, the Copyright Act's preemption clause usually does not affect private contracts." Id. Other Circuits have held the same. See id. (citing Fourth, Fifth, and Eighth Circuit cases). With respect to the facts at issue in this case, the copyright claim addresses the alleged infringement of the registered design; the tortious interference claim addresses the Defendants' alleged interference with Plaintiff's ongoing contractual relationships with Nash, Pyrtle, and Simon Med. Thus, the tortious interference claim is not preempted by the Copyright Act.
With respect to the merits of the tortious interference claim, Defendants further argue the claim should be dismissed in its entirety. Tortious interference can be premised on either an existing contractual relationship or a business expectancy. A business expectancy is one that "in all probability would have been completed" had Defendants not interfered. ReBath LLC v. HD Solutions LLC, No. CV-19-04873-PHX-JJT, 2020 WL 4514934, at *3 (D. Ariz. Jan. 24, 2020). Defendants argue under either interference with contract or interference with business expectancy Plaintiff has failed to allege any contract or expectancy that has been breached, or that any such breach was caused by the Defendants. Plaintiff does not specifically respond to this contention. (Doc. 51 at 10-11).
Tortious interference with contract or business expectancy has five elements under Arizona law: (1) the existence of a valid contractual relationship or business expectancy; (2) defendant's knowledge of the relationship or expectancy; (3) defendant's intentional interference in inducing or causing the breach; (4) defendant's interference must be improper; and (5) resulting damages. Health Indus. Bus. Commc'ns Council Inc. v. Animal Health Inst., 481 F. Supp. 3d 941, 958 (D. Ariz. 2020) (quoting MDY Indus. LLC, 629 F.3d at 955); ThermoLife Int'l, LLC v. Gaspari Nutrition, Inc., 871 F. Supp. 2d 905, 912 (D. Ariz. 2012). The business expectancy alleged must be more than a "speculative hope." ThermoLife Int'l, 871 F. Supp. 2d at 912. The plaintiff "must also prove the defendant acted with improper motive or improper means." Directory Ass'ts, Inc. v. Does 1-10, No. MC 11-00096-PHX-FJM, 2011 WL 5335562, at *3 (D. Ariz. Nov. 4, 2011).
Here, Plaintiff alleged Nash commissioned Plaintiff to install wrap designs on a truck and the box trailer, and Plaintiff sent Nash estimates for both. (VC at ¶ 21-22). Nash "signed and executed the estimate for the box trailer wrap." (VC at ¶ 23). After completing the wrap on the box trailer, Plaintiff alleges Nash "sent [Plaintiff's] copyrighted work to Defendants and commissioned Defendants, instead of [Plaintiff], to copy, produce, and install a vehicle wrap on Nash's truck." (VC at ¶ 30). Plaintiff alleges Defendants must have seen the copyright information and Plaintiff's logo on either its website (where it had published its designs), or on the mockups Plaintiff created for Nash (and Pyrtle and Simon Med, respectively) with its designs. (VC at ¶ 28-29, 67, 71). Thus, Plaintiff argues, Defendants were on notice of the "business relationship" between Plaintiff and Plaintiff's clients. (VC at ¶ 71).
These allegations are not enough. Plaintiff alleges there was a contract between it and Nash, Pyrtle, and Simon Med respectively, and that each client had an "existing business relationship" with Plaintiff. (VC at ¶ 65). It is unclear from the face of the complaint whether any alleged contract was specific to each individual project—i.e., a contract to create a wrap for the box trailer—or a more general agreement to do business together. A plausible claim would, at the very least, identify the exact contract or expectancy at issue. But even assuming there were a valid contract or expectancy of some sort, there are insufficient allegations that Defendants' interference was improper. See ReBath LLC, 2020 WL 4514934, at *3. Accepting the allegations in the complaint as true, Plaintiff alleges Nash sought estimates for both the truck and the box trailer, but only moved forward with the box trailer wrap. (VC at ¶ 21-24). Plaintiff both alleges that Nash "sent" the designs to Defendants (VC at ¶ 30) and that Defendants "offer[ed] to, and in fact replicat[ed] and install[ed]" the copyrighted design (VC at ¶ 70). Even if the offer to create a truck wrap came from Defendants, that alone is not enough to allege a claim for tortious interference with business relations. See ReBath LLC, 2020 WL 4514934, at *4 ("negotiating with a third party to induce it to discontinue business with a competitor—without more—is neither dishonest nor unfair, but instead an attendant consequence of the system of free enterprise and commercial competition."). Cf. Sybersound Records, Inc. v. UAV Corp., 517 F.3d 1137, 1151 (9th Cir. 2008) (holding under California law that plaintiff's allegation it had "been harmed because its ongoing business and economic relationships with Customers have been disrupted" was not enough to survive motion to dismiss).
Taking Plaintiff's allegations as true, if Defendant did see the copyright registration and Plaintiff's logo on either the website, the mockups, or both, and nevertheless used those designs as the basis for its own vehicle wraps it created for Nash, Pyrtle, and Simon Med, that supports a copyright claim, not a claim for tortious interference with business expectancy. Count 3 will be dismissed with leave to amend. Should Plaintiff choose to amend, however, it must provide significantly more factual detail regarding the contracts or expectancies at issue as well as the exact improper conduct that occurred.
V. Count 4 (Unfair Competition)
Plaintiff's fourth count alleges unfair competition. Plaintiff alleges he had contracts with Nash, Kevin Pyrtle, and Simon Med (VC at ¶ 65), and that Defendants knowingly interfered in those business relationships by replicating and installing Plaintiff's copyrighted work for them. (VC at ¶¶ 74-75). Plaintiff alleges Defendants interfered with Plaintiff's business expectancies through unfair competition "by copying [Plaintiff's] registered protected artwork, intellectual property, and other proprietary materials, and then in advertising it as Defendants' own 'custom design' work to consumers, causing confusion in the marketplace in such a manner such that a reasonable consumer would not be able to tell the designs apart." (VC at ¶ 78).
While there is no explicit statute of limitations for unfair competition in Arizona, courts typically apply the three-year limitations period set for claims of fraud. Angel's Gate, Inc. v. All-Star Grand Canyon Tours Inc., 2013 WL 12114580, at *5 (D. Ariz. Sept. 30, 2013) (citing Ranch Realty, Inc. v. DC Ranch Realty, LLC, 614 F. Supp. 2d 983, 989-90 (D. Ariz. 2007)). See also Ranch Realty, Inc., 614 F. Supp. 2d at 989-990 (noting that statute of limitations for unfair competition could either be two years, based on injury to property, or three years, based on fraud). Since, as discussed above, Plaintiff alleged becoming aware of the alleged Pyrtle infringement more than three years before filing suit, Defendants' motion is granted with respect to allegations concerning Kevin Pyrtle.
Defendants argue this claim is also preempted by copyright law. As discussed above, when a state law claim "includes an 'extra element' that makes the right asserted qualitatively different from those protected under the Copyright Act, the state law claim is not preempted by the Copyright Act." Altera Corp., 424 F.3d at 1089.
"In Arizona, the common law doctrine of unfair competition 'encompasses several tort theories, such as trademark infringement, false advertising, 'palming off,' and misappropriation.' " Health Indus. Bus. Commc'ns Council Inc., 481 F. Supp. 3d at 955 (quoting ACT Grp. Inc. v. Hamlin, No. CV-12-567-PHX-GMS, 2012 WL 2976724, at *6 (D. Ariz. July 20, 2012)). "[M]isappropriation claims based on copyright are preempted by federal copyright law." ACT Grp. Inc., 2012 WL 2976724, at *8. However, "the central tort in unfair competition at common law is known as 'palming off,' or 'passing off.' It consists in a false representation tending to induce buyers to believe that the defendant's product is that of the plaintiff." Fairway Constructors, Inc. v. Ahern, 193 Ariz. 122, 970 P.2d 954, 956 (Ariz. Ct. App. 1998) (quoting W. Page Keeton et al., Prosser and Keeton on the Law of Torts 130 at 1015 (5th ed. 1984)). "A properly stated 'palming off' claim is not preempted by federal law." Id. Defendants argue Plaintiff's claim of unfair competition is essentially "misappropriation," which would be preempted; Plaintiff argues its claim is based on Defendants "passing off" its vehicle wrap as one of Plaintiff's, causing confusion to consumers, which would not be preempted.
Even if the Court reads the complaint in the way Plaintiff apparently intended, thus avoiding preemption, Plaintiff did not allege enough facts to sustain a claim for unfair competition. "Palming off" or "passing off" consists of a "false representation tending to induce buyers to believe that the defendant's product is that of the plaintiff." Health Indus. Bus. Commc'ns Council Inc., 481 F. Supp. 3d at 956 (quoting ACT Grp. Inc., 2012 WL 2976724, at *6). "The typical 'palming off' case consists of 'an attempt to make the purchaser believe that the product of the subsequent entrant is that of his better known competitor.' " Id. (quoting ACT Grp. Inc., 2012 WL 2976724, at *6). Plaintiff alleged only that Defendants "cop[ied]" Plaintiff's "registered protected artwork," and then "advertis[ed] it as Defendants' own 'custom design' work to consumers, causing confusion in the marketplace." (VC at ¶ 78). That is not enough to plausibly establish Defendants wanted consumers to believe their vehicle wraps were actually Plaintiff's—it merely rephrases the copyright violation. Compare Health Indus. Bus. Commc'ns Council, Inc., 481 F. Supp. 3d at 957 (finding plaintiff alleged sufficient facts for an unfair competition claim based on allegations that defendant's website specifically mentioned plaintiff in an attempt to show its product was approved by plaintiff, and evidence of actual consumer confusion).
Count 4 will be dismissed with leave to amend. Should Plaintiff choose to amend the complaint, it must factually allege how Defendants advertised their vehicle wraps such that they intended to pass off their wraps as Plaintiff's.
VI. Count 5 (Alter Ego)
Count 5 alleges Defendant Five 18 failed to maintain an arms-length relationship with Defendant Maxwell, who, Plaintiff alleges, utilized Five 18 as his alter ego. (VC at ¶¶ 82-87). "The Arizona Supreme Court recently clarified that alter ego is not a standalone claim, but rather a derivative claim tied to some other substantive cause of action." Farmers Ins. Co. of Arizona v. DNS Auto Glass Shop LLC, No. CV-21-01390-PHX-DGC, 2022 WL 845191, at *2 (D. Ariz. March 22, 2022) (citing Specialty Cos. Grp., LLC v. Meritage Homes of Ariz., Inc., 251 Ariz. 365, 492 P.3d 308, 310 (2021)). Thus, the attempt to assert this as a standalone claim is contrary to Arizona law. Tresona Multimedia LLC v. Legg, 2015 WL 470228, at *11 (D. Ariz. Feb. 4, 2015) (dismissing separate claim for piercing the corporate veil because it is not a cause of action in and of itself). However, Plaintiff's complaint includes substantive claims for which alter ego may be an available theory to hold Defendant Maxwell derivatively liable. The Court will interpret Count 5 (alter ego) as a theory of liability rather than an independent cause of action, and will not dismiss the count merely because it is pled separately. See Farmers Ins. Co. of Ariz., 2022 WL 845191, at *3. Regardless, Plaintiff has not alleged facts sufficient to show there is a plausible basis for piercing the corporate veil.
To establish an alter ego theory of liability, Plaintiff must allege: (1) there is unity of control and interest between Defendant Five 18 and Defendant Maxwell such that one is the "alter ego" of the other, and (2) observing the corporate form's privileges and protections would be unjust. Specialty Cos. Grp., 492 P.3d at 310; AT&T Co. v. Compagnie Bruxelles Lambert, 94 F.3d 586, 591 (9th Cir. 1996). "Relevant factors to consider in determining the existence of an alter ego relationship include 'payment of salaries and expenses' by the owner, an 'owners' making of interest-free loans to the corporation,' 'commingling of personal and corporate funds,' 'diversion of corporate property' for personal use, and the 'observance of formalities at corporate meetings,' among others." Solie v. Health Care@Home LLC, No. CV-19-05399-PHX-JJT, 2020 WL 1821257, at *4 (D. Ariz. April 10, 2020) (quoting Deutsche Credit Corp. v. Case Power & Equip. Co., 179 Ariz. 155, 876 P.2d 1190, 1195-96 (Ariz. Ct. App. 1994)). Defendants argue Plaintiff failed to plead facts sufficient to allege alter ego, because Plaintiff relied on boilerplate and conclusory allegations made "upon information and belief."
Defendants are correct. Neither the fact that Plaintiff alleged boilerplate recitations of the elements of alter ego, nor the fact that Plaintiff made allegations "upon information and belief" alone renders his allegations insufficient; however, Plaintiff failed to allege any additional facts to support those boilerplate claims. See Solie, 2020 WL 1821257, at *3 (boilerplate pleading of elements of alter ego survived motion to dismiss because they were accompanied by additional factual allegations, e.g., that defendants paid personal expenses from company funds, received improper payments from the company, co-mingled their personal funds with company funds, and failed to keep proper corporate payroll records for the company); Farmers Ins. Co. of Ariz., 2022 WL 845191, at *3 (same, where additional allegations included that defendant's company funds were used solely for benefit of individual defendant, that individual defendants directed the fraudulent scheme, and formed the company in order to perpetrate the fraud).
Here, Plaintiff's allegation that piercing the corporate veil would be permissible seems to be supported primarily by an allegation that Defendant Maxwell posted images of vehicle wraps completed by Five 18 on his private Instagram account. (VC at ¶¶ 31, 43; Doc. 1-3 at 20-21 (VC Ex. M)). Plaintiff's other allegations include: "Defendant Five 18 failed to maintain an arms-length relationship with its owner and only member, [Defendant] Maxwell" (VC at ¶ 82); "Maxwell utilized Five 18 as his alter ego, treating the assets of the company as his own" (VC at ¶ 83); "Maxwell utilized Five 18 as a sham entity meant only to shield himself in perpetrating fraud upon the public" (VC at ¶ 84); "the separate personalities of Maxwell and Five 18 do not exist" (VC at ¶ 85); and "observance of the corporate form of Five 18 would promote fraud and injustice by allowing Maxwell to evade personal liability for his actions using the company as a shield to perpetrate fraud upon consumers" (VC at ¶ 86). These allegations are conclusory, and Plaintiff has not adequately pleaded this theory of liability.
Count 5 will be dismissed with leave to amend, though not as a standalone claim. While many of the underlying facts relevant to establishing alter ego liability are within the exclusive control of Defendants, Plaintiff must allege sufficient supporting facts.
CONCLUSION
For the foregoing reasons, Defendants' motion for partial judgment on the pleadings will be granted in part and denied in part. Defendants' motion is denied with respect to Count 1, except that the portion of that claim alleging infringement of the Pyrtle copyright is dismissed. Defendants' motion is granted with respect to Counts 2, 3, 4, and 5, which are all dismissed with leave to amend. Should Plaintiff amend the complaint, it must specifically allege what particular commercial speech made by Defendants constituted a false statement such that Defendants are allegedly liable under the Lanham Act; provide significantly more factual detail regarding the contracts or expectancies at issue as well as the exact improper conduct that occurred; and factually allege how Defendants advertised their vehicle wraps such that they intended to pass off their wraps as Plaintiff's.
The current schedule provides the parties shall complete all discovery within sixty days of this ruling. (Doc. 63). Finally, the summary judgment deadline was set for fourteen days following the close of discovery. (Doc. 63). However, this Court holds an interim status conference prior to permitting the filing of summary judgment motions. Therefore, the Court will set an interim conference.
Accordingly,
IT IS ORDERED the Motion for Judgment on the Pleadings (Doc. 45) is GRANTED IN PART and DENIED IN PART.
IT IS FURTHER ORDERED no later than November 4, 2022 Plaintiff shall file an amended complaint or a statement that it will not amend.
IT IS FURTHER ORDERED all discovery shall be completed by December 19, 2022. An interim conference is set for January 12, 2023, at 10 a.m. The parties shall confer and file a joint status report no later than January 5, 2023. That status report shall indicate if either party plans to file a summary judgment motion. If a party plans to do so, the status report must provide a brief overview of the factual and legal basis for the planned motion. The opposing party must provide its response, explaining why the planned motion would be futile. Any dispositive motions will be due January 26, 2023.