Harris Custom Builders, Inc. v. Hoffmeyer, 97-3055.

Citation140 F.3d 728
Decision Date09 April 1998
Docket NumberNo. 97-3055.,97-3055.
PartiesHARRIS CUSTOM BUILDERS, INC., Plaintiff-Appellant, v. Richard HOFFMEYER, Defendant-Appellee.
CourtUnited States Courts of Appeals. United States Court of Appeals (7th Circuit)

James P. Hanrath (argued), Waukegan, IL, for Plaintiff-Appellant.

Joseph A. Grear (argued), Rolf O. Stadheim, Stadheim & Grear, Chicago, IL, for Defendant-Appellee.

Before CUMMINGS, MANION, and EVANS, Circuit Judges.

TERENCE T. EVANS, Circuit Judge.

The district court granted Robert Hoffmeyer, the prevailing defendant in this copyright case, $228,918 in attorney fees. Harris Custom Builders appeals.

This courtthis panel of the court in particular — is on close speaking terms with the merits of the somewhat unusual copyright claim arising here under the 1976 Copyright Act, the Act as it existed prior to its amendment by the Berne Convention Implementation Act. In reversing the district court's grant of summary judgment for Harris and ordering judgment for Hoffmeyer, we recognized the principle that if an underlying work is copyrighted, it retains its protections when it is published in a derivative work. However, we also determined that if the underlying work is copyrighted only because it has never been published, and if the owner of the underlying work is itself the entity which publishes it, without notice, in the derivative work, the underlying work loses its copyright protection. We were not the first court to come to that conclusion, but we were, nevertheless, aware of the difficulty of the issue. See Harris Custom Builders, Inc. v. Hoffmeyer, 92 F.3d 517 (7th Cir.), cert. denied, ___ U.S. ____, 117 S.Ct. 956, 136 L.Ed.2d 842 (1997).

When the case returned to the district court, Hoffmeyer, in his new role as the prevailing party, moved for attorney fees, pursuant to 17 U.S.C. § 505. The district court granted fees, as it had discretion to do. The problem, however, is that, with limited exceptions, we cannot tell how that discretion was exercised,1 so we must, reluctantly, send the case back to the district court for a do-over.

During the time this case has been pending,2 the Supreme Court resolved a split in the circuits regarding what a prevailing defendant must show to obtain fees under § 505. The Court determined that an "evenhanded" approach is appropriate. No distinction is to be made in the award of fees between prevailing plaintiffs and prevailing defendants. This means that in order to obtain fees, a prevailing defendant need not show that the case was brought in bad faith or that it was frivolous, as was the case in this circuit before the Supreme Court spoke. See Video Views, Inc. v. Studio 21, Ltd., 925 F.2d 1010 (7th Cir.1991). However, although the Supreme Court declined to follow our approach, it also declined to adopt the British rule, which would have meant that the prevailing party would receive fees as a matter of course. Rather, whether to grant fees is left to the judge's discretion:

Prevailing plaintiffs and prevailing defendants are to be treated alike, but attorney's fees are to be awarded to prevailing parties only as a matter of the court's discretion.

Fogerty v. Fantasy, Inc., 510 U.S. 517, 534, 114 S.Ct. 1023, 1033, 127 L.Ed.2d 455 (1994).

The Supreme Court did not precisely articulate what should guide a district judge's exercise of that discretion. It did, however, cite Lieb v. Topstone Industries, Inc., 788 F.2d 151, 156 (3rd Cir.1986), with approval in a footnote, for a nonexclusive list of factors which could be considered. They include "frivolousness, motivation, objective unreasonableness (both in the factual and in the legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." 510 U.S. at 534 n. 19, 114 S.Ct. at 1033 n. 19.

In the present case, what the district court relied on was that the award was for work done on the copyright claims only, not on any of Hoffmeyer's counterclaims, and that the court itself had prolonged the litigation by making an incorrect decision on Harris' summary judgment motion.

The court's conclusion that fees could be awarded only for the copyright claim, which is the one on which Hoffmeyer prevailed, is correct. However, its conclusion that fees were appropriate, in effect, to make up for the court's erroneous ruling is not. How the court ruled, simply put, is not a proper concern. A party who propounds a reasonable claim should not be penalized, whether or not the judge buys the claim or whether the judge's decision is upheld or reversed on appeal. Conversely, a party who propounds an unreasonable or frivolous claim can be penalized regardless of how the district court rules. Harris' claim involved a confusing issue of law which in this circuit was unsettled, and we do not think the position it advanced could be considered unreasonable. The fact that the district court here decided one way and we decided another should not, by itself, affect the fee award to Hoffmeyer.

Harris urges other reasons why Hoffmeyer is not entitled to fees. One is that Hoffmeyer failed to mitigate his fees because he failed to accept a settlement offer. We have previously touched on the relevance of settlement offers to the analysis of § 505 fees. In Budget Cinema, Inc. v. Watertower Associates, 81 F.3d 729 (7th Cir.1996), we considered whether the fact that a prevailing defendant — Watertower — offered Budget $15,000 to settle the case was a basis, first for...

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