Steward Software Co. v. Kopcho, 09CA1690.

Citation275 P.3d 702
Decision Date02 September 2010
Docket NumberNo. 09CA1690.,09CA1690.
PartiesSTEWARD SOFTWARE COMPANY, LLC, Plaintiff–Appellee and Cross–Appellant, v. Richard KOPCHO, Defendant–Appellant and Cross–Appellee.
CourtCourt of Appeals of Colorado

OPINION TEXT STARTS HERE

Jeffrey M. Villanueva, P.C., Jeffrey M. Villanueva, Nicole S. Schram, Denver, Colorado, for PlaintiffAppellee and Cross–Appellant.

Bell, Boge & Associates, P.C., Gregory S. Bell, Laurie R. Stirman, Fort Collins, Colorado, for DefendantAppellant and Cross–Appellee.

Opinion by Judge GABRIEL.

This appeal involves a dispute between cross-appellant, Steward Software Company (SSC), and appellant, Richard Kopcho, concerning the development of certain software and related marketing materials. As pertinent here, the jury found for SSC and against Kopcho on claims for civil theft, breach of contract, and breach of fiduciary duty. The jury awarded damages on the civil theft claim and nominal damages on the remaining claims. The court also awarded SSC treble damages on its civil theft claim, costs, and prejudgment interest, but denied SSC's motion for attorney fees.

Kopcho now appeals the awards of treble damages, costs, and prejudgment interest. SSC cross-appeals, arguing that the trial court erred in effectively preventing the jury from awarding damages on all three of its claims and in denying its request for attorney fees. We agree with Kopcho that (1) the trial court erred in failing to instruct the jury on certain principles of copyright law, and (2) the absence of a signed contract does not render the economic loss rule inapplicable. We also agree with SSC that (1) the trial court erred in effectively preventing the jury from awarding the same damages on its three claims, and (2) an award of attorney fees to the prevailing plaintiff on a civil theft claim is mandatory. We are unpersuaded, however, by the parties' remaining arguments. Accordingly, we affirm in part, reverse in part, vacate in part, and remand for a new trial on SSC's civil theft claim and on damages.

I. Background

In approximately June 2006, SSC hired Kopcho's company, System II Enterprises, LLC, d/b/a Holonyx, to help it market a computer program that it had conceived to assist the banking industry with tracking assets. At that time, the parties signed a nondisclosure agreement. This agreement stated that Kopcho's company did not acquire intellectual property rights under the agreement, except for the limited right to use the confidential information received to develop a marketing plan for the ideas and concepts to be disclosed. Although the parties never signed a written contract for the agreed upon marketing work, Kopcho began performing and SSC began paying for that work.

Later that year, on Kopcho's recommendation, SSC hired a software development company called Ruffdogs, Inc. to undertake the development of the software itself. Again, no written agreement was signed. Shortly thereafter, unbeknownst to SSC, Kopcho purchased Ruffdogs. He then formed a new corporation named Holonyx, Inc. (Holonyx) and rolled his various entities, including Ruffdogs, into it. Despite some concerns regarding the new relationship between Holonyx and Ruffdogs, SSC proceeded with Ruffdogs as its software developer.

In early 2007, the preliminary version of the software was completed. According to Kopcho, however, SSC continued to request a significant number of modifications to the program. These modifications took a great deal of time and increased the costs of the project.

Thereafter, the relationship between the parties began to sour. At that time, SSC informed Kopcho that it would withhold payment until it received certain portions of the program. Although Kopcho initially responded that he understood SSC's position, later that same day a Holonyx representative responded that Holonyx had reassigned all resources that had been allocated to SSC's project to other projects. Holonyx then registered the copyright for the software program in the name of Ruffdogs Software, Inc.

SSC sued Holonyx and Kopcho for, among other things, breach of contract, breach of fiduciary duty, and conversion and theft. SSC also initially asserted a claim for replevin. Shortly after the suit was filed, Kopcho and Holonyx filed a response to SSC's replevin claim. In this response, they claimed that Holonyx was the author and copyright holder of the software program. The parties proceeded to litigate the replevin claim, and in the course of those proceedings, SSC asserted certain copyright interests. Holonyx and Kopcho then removed the case to federal court, arguing that the federal court had exclusive jurisdiction over such copyright claims.

After briefing by the parties, the federal court remanded the case to the state district court. In its remand order, the court held that it lacked jurisdiction because SSC's complaint itself did not raise a federal copyright question.

After the case was remanded, Holonyx and Kopcho filed an answer asserting several affirmative defenses, including that they owned the software at issue. They also filed a counterclaim against SSC for breach of contract.

As the case approached trial, the parties submitted proposed jury instructions. The instructions submitted by Holonyx and Kopcho included instructions related to copyright law. The trial court directed the parties to submit briefs concerning the applicability of copyright law in this case and ultimately held that copyright law was inapplicable. This ruling effectively precluded Holonyx from pursuing a copyright ownership defense.

The case was then tried to a jury, and, as pertinent here, the jury found in favor of SSC and against Kopcho on its claims for civil theft, breach of contract, and breach of fiduciary duty. The jury awarded SSC $168,025 against Kopcho on the civil theft claim and nominal damages against him on the remaining claims. The court then entered orders trebling the civil theft damages pursuant to section 18–4–405, C.R.S.2009, and awarding prejudgment interest and costs. The court, however, denied SSC's request for attorney fees.

Kopcho now appeals, and SSC cross-appeals.

II. Kopcho's Appeal

Kopcho contends that the trial court erred in (1) refusing to instruct the jury regarding principles of copyright law, which he contends were necessary to allow the jury to determine ownership for purposes of civil theft; (2) refusing to instruct the jury on the economic loss rule, which he claims applied to SSC's civil theft claim; (3) refusing to give his proffered instructions regarding ownership of the property at issue; and (4) giving a single civil theft instruction that addressed his and Holonyx's liability together. We agree with Kopcho's first two contentions but reject the others.

A. Standard of Review

We review the trial court's rejection of a tendered jury instruction for an abuse of discretion. Kendrick v. Pippin, 222 P.3d 380, 385 (Colo.App.2009) ( cert. granted in part 2010 WL 60114, Jan. 11, 2010). We will not conclude that the trial court abused its discretion unless its decision was manifestly arbitrary, unreasonable, or unfair. Id. at 384. A trial court necessarily abuses its discretion, however, when it bases its ruling on an erroneous view of the law. People v. Wadle, 97 P.3d 932, 936 (Colo.2004).

B. Copyright Instruction

Kopcho argues that, as the author of the computer program at issue, Holonyx owned the program under federal copyright law. He further asserts that Holonyx's copyright ownership provided him with a complete defense to SSC's theft claim, because to find for SSC on that claim, the jury had to find that Kopcho had exercised control over property belonging to SSC and SSC did not own the property. In light of the foregoing, Kopcho contends that the trial court erred in refusing to instruct the jury regarding principles of copyright ownership.

SSC responds that (1) Kopcho and Holonyx possessed no copyrightable interest in the program because it was SSC's concept, (2) SSC's concept constituted a trade secret belonging to SSC, and (3) Kopcho and Holonyx had merely developed the trade secret. SSC further argues that the trial court correctly refused to instruct on copyright ownership based on the law of the case doctrine. Specifically, SSC claims that the federal court had previously determined that copyright law was inapplicable in this case. We disagree with SSC and agree with Kopcho that an instruction on copyright ownership should have been given.

To prevail on a claim for civil theft, a plaintiff must prove that the defendant committed theft, robbery, or burglary. Itin v. Ungar, 17 P.3d 129, 133 (Colo.2000). To prove theft, a plaintiff must show that the defendant knowingly obtained or exercised control over anything of value of the plaintiff without authorization and with the intent to deprive the plaintiff of the use or benefit of that item permanently. § 18–4–401(1), C.R.S.2009; Itin, 17 P.3d at 134. Thus, if a defendant can prove that he or she, rather than the plaintiff, owned the item allegedly stolen, then he or she would have a complete defense to the claim of civil theft. See Jenkins v. State, 898 So.2d 1134, 1135 (Fla.Dist.Ct.App.2005).

In its complaint, SSC defined the “Property” allegedly stolen by Kopcho and Holonyx to include the intellectual property rights associated with the software, as well as the promotional materials produced in conjunction with it. Specifically, it contended that SSC was:

the owner of the software as well as the website and domain name known as PassIT.com, the domain name known as gopassIT.com, the domain name known as StewardSW.com, the source code, the object code, all software documentation, the video, logos, brochures and other materials for which it [had] paid and the associated intellectual property rights.

Intellectual property rights include, among other things, such intangible property as copyrights, trademarks, patents, and trade secrets. See Black's Law Dictionary 881 (9th ed. 2009). As...

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