Aagard v. Palomar Builders, Inc.

• Decision Date: 16 November 2004
• Docket Number: No. CIV.S-04-0825 FCDDAD.,CIV.S-04-0825 FCDDAD.
• Court: U.S. District Court — Eastern District of California
• Parties: Jane E. AAGARD, d/b/a Designs by Jane, Plaintiff, v. PALOMAR BUILDERS, INC., Jeffrey D. Allen, Sue Tsai, Palomar Construction Co., and Todd Selk, Defendants.

Page 1211

344 F.Supp.2d 1211

Jane E. AAGARD, d/b/a Designs by Jane, Plaintiff, v. PALOMAR BUILDERS, INC., Jeffrey D. Allen, Sue Tsai, Palomar Construction Co., and Todd Selk, Defendants.

No. CIV.S-04-0825 FCDDAD.

United States District Court, E.D. California.

November 16, 2004.

Steven H. Gurnee, Steven H. Gurnee and Associates, Roseville, CA, Anthony J. Biller, Pro Hac Vice, Coats and Bennett, Cary, NC, for Plaintiff.

Daniel N. Ballard, McDonough Holland and Allen PC, Sacramento, CA, for Defendants.

MEMORANDUM AND ORDER

DAMRELL, District Judge.

This matter comes before the court on plaintiff and counterclaim defendant Jane E. Aagard's ("Aagard") motion to dismiss counterclaims three through seven, brought by defendants and counterclaimants Palomar Builders, Inc., Jeffrey D. Allen, Sue Tsai, Palomar Construction Co., and Todd Selk (collectively, "Palomar"), for failure to state a claim upon which relief can be granted.

¹

Aagard asserts that Palomar's counterclaims fail to state a claim for relief for misappropriation; unlawful business practices, pursuant to Cal. Bus. & Prof.Code §§ 17200 and 17500 et seq.; intentional interference with prospective business advantage; breach of fiduciary duty; and declaratory relief, pursuant to 28 U.S.C. §§ 2201 and 2202. Specifically, Aagard contends that these state law counterclaims are preempted, pursuant to the Supremacy Clause of the United States Constitution, by federal copyright law.

BACKGROUND

Palomar designs and constructs residential homes in and around Redding, California. (Defs.' Answer and Counterclaim ("Defs.' Counterclaim"), filed May 26, 2004 at 7.) Early in the company's development, Palomar created several original House Design Plans ("Plans"), which were recognized nationally² for "unique and distinctive features." (Id. at 8-9.) Palomar contends that these Plans are known in the industry as "Palomar Plans." (Id. at 11.) In 1995, Palomar hired Aagard as an independent contractor to perform residential energy calculations. (Id. at 9.) At that time, the company provided Aagard with numerous original Plans, each labeled with Palomar's name and address. (Id.)

In 1997, Aagard began working as a draftsman for Palomar's new Plans. (Id. at 10.) As part of the arrangement, Aagard redrew Palomar's original Plans into a larger size suitable for submission to the City of Redding, Building Division. ³

(Id. at 9-10.) The resized Plans were then labeled as being created and owned by Palomar. (Id. at 9.) Over the years, Palomar contracted with numerous draftsmen, including Aagard, to redraw or otherwise modify approximately sixty Plans. (Id. at 9-10.) As with all draftsmen employed by Palomar, Aagard's duties were limited to resizing Palomar's original Plans. (Id. at 10.) Inherent in the parties' relationship was Aagard's obligation to refrain from claiming credit for, or ownership of, the reproductions. (Id.)

In 2000, without Palomar's approval, Aagard began stamping some of the Plans with a copyright notification. (Id. at 11.) The stamp informed prospective home builders that only Plans containing the notification were legal. (Id.) When Palomar inquired about the purpose of the stamp, Aagard explained that it was used for insurance purposes only. (Id.) Shortly thereafter, the parties' contractual relationship ended. (Id.) In November 2001, Palomar learned that Aagard, d/b/a Designs by Jane, was selling Palomar's Plans to local home builders as part of her Redding, California, house design business. (Id. at 7, 11.) Many of her customers allegedly built homes based upon these Plans. (Id. at 11.)

On April 23, 2004, Aagard filed the instant civil action in federal district court, Eastern District of California, claiming copyright infringement of Plans 2138, 2776, and 2496. (Pl.'s Complaint, filed Apr. 23, 2004.) Palomar subsequently filed copyright registrations for Plans 2138, 3088, 2496, 1608, and 2510 on May 25, 2004. (Declaration of Daniel N. Ballard ("Ballard Declaration"), filed May 26, 2004, at 2.) On May 26, 2004, Palomar answered and presented counterclaims, alleging, among other charges: misappropriation; unlawful business practices, pursuant to Cal. Bus. & Prof.Code §§ 17200 and 17500 et seq.; intentional interference with prospective business advantage; breach of fiduciary duty; and declaratory relief, pursuant to 28 U.S.C. §§ 2201 and 2202. (Defs.' Counterclaim.) On July 1, 2004, Aagard filed the instant motion to dismiss, asserting that Palomar's state law claims are preempted by federal copyright law. (Pl.'s Memorandum in Support of Motion to Dismiss Third Through Seventh Counterclaims ("Pl.'s MTD"), filed July 1, 2004.)

STANDARD

On a motion to dismiss, the allegations of the counter complaint must be accepted as true. Cruz v. Beto, 405 U.S. 319, 322, 92 S.Ct. 1079, 31 L.Ed.2d 263 (1972). Given that the counter complaint is construed favorably to the pleader, the court may not dismiss it for failure to state a claim unless it appears beyond a doubt that the counterclaimant can prove no set of facts in support of the counterclaim which would entitle him or her to relief. Conley v. Gibson, 355 U.S. 41, 45, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); NL Industries, Inc. v. Kaplan, 792 F.2d 896, 898 (9th Cir.1986).

The court is bound to give the counterclaimant the benefit of every reasonable inference to be drawn from the "well-pleaded" allegations of the counter complaint. Retail Clerks Int'l Ass'n v. Schermerhorn, 373 U.S. 746, 753 n. 6, 83 S.Ct. 1461, 10 L.Ed.2d 678 (1963). Thus, the counterclaimant need not necessarily plead a particular fact if that fact is a reasonable inference from facts properly alleged. See id. Nevertheless, it is inappropriate to assume that the counterclaimant "can prove facts which it has not alleged or that the [counterclaim] defendants have violated the ... laws in ways that have not been alleged." Associated Gen. Contractors of Calif., Inc. v. Calif. State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).

In ruling upon a motion to dismiss, the court may consider only the counter complaint, any exhibits thereto, and matters which may be judicially noticed pursuant to Federal Rule of Evidence 201. See Mir v. Little Co. Of Mary Hospital, 844 F.2d 646, 649 (9th Cir.1988); Isuzu Motors Ltd. v. Consumers Union of United States, Inc., 12 F.Supp.2d 1035, 1042 (C.D.Cal.1998).

ANALYSIS

Aagard contends that Palomar's state law claims are preempted by the federal Copyright Act, 17 U.S.C. §§ 101-1101 ("Copyright Act"). "When acting within constitutional limits, Congress is empowered to pre-empt state law by so stating in express terms." Downing v. Abercrombie & Fitch, 265 F.3d 994, 1003 (9th Cir.2001). Section 301 of the Copyright Act specifically provides that state copyright legislation is preempted when two elements are present.⁴ 17 U.S.C. § 301(a).

First, the content of the protected right must fall within the subject matter of the Copyright Act as described in 17 U.S.C. §§ 102-103. Downing, 265 F.3d at 1003 (ruling that while a photograph is a pictorial work of authorship protected by the Copyright Act, a person's likeness and name are not). Second, the rights asserted under the state law claim must be "rights that are equivalent" to those protected by section 106 of the Copyright Act. Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1212 (9th Cir.1998) (holding that the rights protected by plaintiff's state law claims were equivalent to those protected by the Copyright Act where defendants released a cartoon and accompanying merchandise derived from plaintiff's drawings).

A. Subject Matter of the Copyright Act

Palomar concedes that the Plans fall within the subject matter of the Copyright Act. (Defs.' Opposition to Motion to Dismiss ("Defs.' Opposition"), filed Aug. 27, 2004, at 4.) Therefore, the only remaining issue involves the "equivalency" of rights addressed by the Copyright Act to those presented by Palomar's state law claims.

B. Equivalency of Rights

Pursuant to section 106 of the Copyright Act, a copyright owner maintains the exclusive rights of reproduction, preparation of derivative works, distribution, and display.⁵ 17 U.S.C. § 106. Therefore, "[t]o survive preemption, the state [claims] must protect rights which are qualitatively different from the copyright rights. The state claim[s] must have an `extra element' which changes the nature of the action." Del Madera Props. v. Rhodes and Gardner, Inc., 820 F.2d 973, 977 (9th Cir.1987) (citations omitted); see also Summit Mach. Tool Mfg. Corp. v. Victor CNC Sys., Inc., 7 F.3d 1434, 1440 (9th Cir.1993) ("Preemption analysis involves determining whether the state law claim contains an element not shared by the federal law; an element which changes the nature of the action `so that it is qualitatively different from a copyright infringement claim.'") (emphasis in original); see also Pollstar v. Gigmania Ltd., 170 F.Supp.2d 974 (E.D.Cal.2000) (a state law claim "is cognizable if the claim contains an extra element which changes its nature"). Therefore, in order to determine whether Palomar's state law counterclaims are preempted by the Copyright Act, the court must precisely identify the nature of each allegation.

1. Unlawful Business Practices and Misappropriation Counterclaims

Palomar alleges that Aagard's use of the Plans both (1) constituted misappropriation and (2) violated California Business & Professions Code section 17200 (" § 17200"). California misappropriation law requires that, (a) Palomar invested substantial time, skill or money in developing the Plans; (b) Aagard appropriated and used Palomar's Plans at little or no cost to Aagard; (c) Aagard's appropriation and use of Palomar's Plans was without Palomar's authorization or consent; and (d) Palomar can establish that it has been injured by Aagard's conduct. See U.S. Golf Ass'n v. Arroyo Software Corp., 69 Cal.App.4th 607, 618, 81 Cal.Rptr.2d 708 (1999) (noting that common...