Christopher Phelps & Associates, LLC v. Galloway

Decision Date05 July 2007
Docket NumberNo. 05-2266.,05-2266.
Citation492 F.3d 532
PartiesCHRISTOPHER PHELPS & ASSOCIATES, LLC, Plaintiff-Appellant, v. R. Wayne GALLOWAY, Defendant-Appellee, v. Simonini Builders, Incorporated, Third Party Defendant. Donald A. Gardner Architects, Incorporated; Donald A. Gardner, Incorporated; Frank Betz Associates, Incorporated, Amici Supporting Appellant.
CourtU.S. Court of Appeals — Fourth Circuit

Albert P. Allan, Summa, Allan & Additon, P.A., Charlotte, North Carolina, for Appellant. Matthew J. Ladenheim, Kathryn A. Gromlovits, Adams & Evans, P.A., Charlotte, North Carolina, for Appellee. Wallace K. Lightsey, Frank S. Holleman, III, Troy A. Tessier, Wyche, Burgess, Freeman & Parham,

P.A., Greenville, South Carolina, for Amici Supporting Appellant.

Before NIEMEYER, MOTZ, and TRAXLER, Circuit Judges.

Affirmed in part, vacated in part, and remanded by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MOTZ and Judge TRAXLER joined.

OPINION

NIEMEYER, Circuit Judge:

After R. Wayne Galloway began construction of his retirement home on Lake Wylie, near Charlotte, North Carolina, using architectural plans designed and copyrighted by Christopher Phelps & Associates, LLC ("Phelps & Associates"), without permission, Phelps & Associates commenced this action against Galloway for copyright infringement. Phelps & Associates sought damages, disgorgement of profits, and injunctive relief. A jury found that Galloway infringed Phelps & Associates' copyright and awarded it $20,000 in damages, the fee that Phelps & Associates traditionally charged for such plans. The jury also found that Galloway had realized no profits to disgorge. The district court thereafter declined to enter an injunction, finding that the jury verdict had made Phelps & Associates "whole," and entered judgment in favor of Phelps & Associates for $20,000. From that judgment, Phelps & Associates appeals, requesting a new trial on damages and the entry of an injunction prohibiting the future lease or sale of the infringing house and mandating the destruction or return of the infringing plans.

We agree with Phelps & Associates that the district court erred during the damages phase of trial in instructing the jury that Phelps & Associates' copyright was a derivative work. As we explain herein, Phelps & Associates held a copyright in the entire work manifested in Galloway's house. We conclude, however, that the error was harmless. We also reject Phelps & Associates' challenges to evidentiary rulings. Accordingly, we affirm the judgment incorporating the jury's verdict.

We agree with Galloway's contention that the court in the circumstances presented here did not abuse its discretion in refusing to enter a permanent injunction, as requested by Phelps & Associates, prohibiting Galloway from ever leasing or selling the house. Such an injunction would be overly broad and would unduly restrain the alienation of real property. Other injunctive relief, however, might be available in applying the general principles of equity, as required by eBay Inc. v. MercExchange, L.L.C., ___ U.S. ___, 126 S.Ct. 1837, 164 L.Ed.2d 641 (2006), which was decided after the district court's order denying relief in this case. Accordingly, we vacate portions of the district court's order denying injunctive relief and remand for the limited purpose of reconsidering other equitable relief, such as an order requiring Galloway to destroy the infringing plans or return them to Phelps & Associates.

I

R. Wayne Galloway, in anticipation of retirement, planned to build his "dream home" on a lot that he owned on the North Carolina side of Lake Wylie, southwest of Charlotte, North Carolina. Displeased with the design work done by an architect whom he had hired, Galloway went with his son-in-law to view the designs of homes on Lake Norman, an expensive residential area about 30 miles north of Lake Wylie, where his son-in-law was working as an iron-work subcontractor. There, Galloway saw a French-country style house that he liked. His son-in-law approached the builder of the house, Simonini Builders, Inc., and asked the superintendent for a copy of the plans. The superintendent said that Galloway would have to speak with the owner, Mrs. Gina Bridgeford, because "she purchased the plans, they were actually drawn for her." Galloway contacted Mrs. Bridgeford, who gave Galloway her consent for use of the plans "as long as you don't build in our area." As to her authority to give consent, Mrs. Bridgeford testified at trial, "I felt with all we had paid, we owned the plans at that time." Galloway assured Mrs. Bridgeford that he would not build in the area, telling her that he planned to build on Lake Wylie about 30 miles away. With Mrs. Bridgeford's permission, the superintendent at Simonini Builders gave Galloway a copy of the plans for "The Bridgeford Residence." Each page of the plans included the copyright notice, in small print, of the designing architect as follows:

© 2000 Copyright — Christopher Phelps & Assoc., L.L.C. These plans are protected under the federal copyright laws. The original purchaser of this plan is authorized to construct one and only one home using this plan. Modifications or reuse of this plan is prohibited.

Galloway altered the plans only to cover the name and address of "The Bridgeford Residence" with the name and address of "The Galloway Residence," and then he copied them for constructing his house.

Phelps & Associates, which designed the Bridgeford Residence, is an architectural firm in Charlotte, North Carolina, that designs upscale custom houses. It created the design for the Bridgeford Residence as a variation of its earlier design — "The Bell and Brown Residence." Bell and Brown had commissioned and paid Phelps & Associates for the earlier design, but ultimately decided not to build the house. Phelps & Associates modified the Bell and Brown design somewhat for the Bridgefords by moving a dormer window, changing the front entry and reconfiguring part of the floor plan, and removing the basement. The Bridgefords paid Phelps & Associates $20,000 for The Bridgeford Residence design, and the Bridgefords built their house on Lake Norman in accordance with that design.

Acting as his own general contractor, Galloway began construction of his house in September 2001, using the Phelps & Associates plans for the Bridgeford Residence. During the course of construction, some of the subcontractors checked back with Phelps & Associates for clarification, particularly with respect to the windows. Phelps & Associates did not then know that the construction was being pursued without permission. Galloway's framing contractor, who had been asked to do some work for Galloway's brother-in-law using pirated Phelps & Associates plans, surmised that Galloway did not have permission to use the plans and approached Galloway to warn him that he could "get in trouble constructing a copyright plan." Galloway "shrugged his shoulders and said something to the effect: `They've got to find me, catch me first."'

Through rumors from subcontractors, Phelps & Associates learned in early 2003 that Galloway was constructing a house using its designs. After confirming that fact, Phelps & Associates sent Galloway a cease and desist letter in July 2003. Upon receipt of the letter, Galloway stopped construction on his house, which was then over half completed. Thereafter, in August 2003, Phelps & Associates registered its plans for The Bridgeford Residence with the Copyright Office and then commenced this action against Galloway for copyright infringement.

In its suit, Phelps & Associates sought compensatory damages, disgorgement of Galloway's profits (claimed as the difference between the value of Galloway's house and his provable expenses in constructing it), and injunctive relief. With respect to compensatory damages, Christopher Phelps, the principal of Phelps & Associates, testified at trial that if Galloway had come to him and asked Phelps & Associates to design "a house like the Bridgeford house," Phelps & Associates would have charged Galloway $20,000 — the same fee that it had charged Mrs. Bridgeford. Christopher Phelps made clear, however, that he would not have sold Galloway the actual Bridgeford Residence design, but something different, as Phelps & Associates prided itself on designing "custom homes." With respect to Galloway's profits, Phelps & Associates presented expert testimony that Galloway's house would be worth $1.1 million when completed. With this estimated value, Galloway would have realized over $200,000 in profits if he were to sell the completed house.

Galloway testified at trial that he would have made no profit in the house had he sold it — he had spent more on the house than it was worth. He estimated that if he completed the house, he would show a loss of about $160,000. He introduced into evidence his receipts and ledger of expenditures for construction to date totaling approximately $660,000, and he estimated that it would cost an additional $250,000 to $300,000 to complete the house. He estimated that upon completion, the house itself would be worth $758,000. He also introduced into evidence the Mecklenburg County tax assessment of his house when half-completed, which evaluated the house in that state at $408,100.

At the end of the trial, the jury returned a verdict in favor of Phelps & Associates, finding that Galloway had infringed Phelps & Associate's architectural design copyright; awarding Phelps & Associates $20,000 in actual damages; and finding that Galloway had no profits to disgorge. Thereafter, Phelps & Associates requested injunctive relief from the court (1) ordering that the infringing copy of the plans be returned or destroyed; (2)...

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