Virtual Studios, Inc. v. Beaulieu Grp., LLC
| Decision Date | 31 May 2013 |
| Docket Number | Case No. 1:11-CV-359 |
| Parties | VIRTUAL STUDIOS, INC. Plaintiff, v. BEAULIEU GROUP, LLC, Defendant. |
| Court | U.S. District Court — Eastern District of Tennessee |
MEMORANDUM
Before the Court are the following motions: (1) Defendant Beaulieu Group, LLC's ("Defendant" or "Beaulieu") request for entry of default (Court File No. 41); (2) Defendant's motion to strike the affidavit of Tom Sucher (Court File No. 59); (3) Defendant's motion for summary judgment on its declaratory judgment counterclaim (Court File No. 46); and (4) Defendant's motion for summary judgment dismissing Plaintiff Virtual Studios, Inc.'s ("Plaintiff" or "Virtual") claims (Court File No. 47). The opposing party filed a response to the aforementioned motions (Court File Nos. 44, 51, 60) and the moving party subsequently filed a reply (Court File Nos. 45, 56, 63). For the following reasons, the Court will DENY Defendant's request for entry of default (Court File No. 41); GRANT IN PART and DENY IN PART Defendant's motion to strike the affidavit of Tom Sucher (Court File No. 59); DENY Defendant's motion for summary judgment on its declaratory judgment counterclaim (Court File No. 46); and GRANT IN PART and DENY IN PART Defendant's motion for summary judgment dismissing Plaintiff's claims (Court File No. 47).
In 1996, Plaintiff Virtual started its business as a graphic design company that served carpet manufacturers in Dalton, Georgia (Court File No. 53 ("Sucher Aff."), ¶ 3). Virtual offers a number of services including scanning, photography, image setting, and room scene manipulation (Court File No. 49-45 ("Sucher Dep."), at 18).1 Room scene manipulation involves the digital alteration of a photograph of a room so that a client's flooring product (e.g., tile, wood, or carpet) is virtually displayed in the room scene (Sucher Aff. ¶¶ 4-5). In 1997, Virtual and Beaulieu started doing business together (Court File No. 49-46 ("Stern Dep."), at 33; Sucher Dep. at 17-18; Sucher Aff. ¶ 11). Initially, Beaulieu hired Virtual to digitize Beaulieu's existing room scene library (Stern Dep. at 36; Sucher Dep. at 51-52; Sucher Aff. ¶11). However, as time went on, Beaulieu also began to use room scenes from Virtual's room scene library (Sucher Dep. at 55-61; Sucher Aff. ¶ 12). Beaulieu used the room scene images for both its displays and advertisements (see Stern Dep. at 34-35). The general process for purchasing and delivering room scenes involves the client contacting Virtual with an order and Virtual then delivering the photographs of the room scene images to the client (Court File No. 49-48 ("Clay Dep."), at 30-31, 69-70, 75).
Virtual's President, Thomas Sucher, contends Virtual offers three different options for its clients to purchase room scene images (Sucher Dep. at 24). Option 1 provides that a client can buy a room scene outright and obtain ownership of the copyright (Sucher Dep. at 24). Option 2 providesthat a client can purchase the exclusive rights to a room scene for one year (Sucher Dep. at 25). During that time period, no other client can use the room scene. The client does not obtain the copyright to the room scene, however, nor does the client have permission to manipulate the scene in any way (Sucher Dep. at 25). Finally, Option 3 provides that a client can have free non-exclusive access to a room scene for one year. The client, however, must pay for any manipulations, and they cannot manipulate the scene on their own (Sucher Dep. at 25). Sucher also explained Virtual's invoices contained Virtual's "Terms and Conditions," one provision of which reads as follows: "Virtual Studios will provide its Client with the unlimited use of all photographs for a period of one year from the day of completion and payment of services as stated below" (Court File No. 51-2). Beaulieu paid most, if not all, of its invoices to Virtual between 1999 to 2008 (Sucher Aff. ¶ 18). Though Sucher initially had difficulty remembering at his deposition whether he spoke to Beaulieu about these terms (see Sucher Dep. at 39-40), he later recalled having the first conversation about the one-year time limit "probably" around 2000 with Bruce Stern, Beaulieu's Director of Advertising, and Sam Ruble, Beaulieu's Vice President of Marketing (Sucher Dep. at 39, 40, 137).
Beaulieu, on the other hand, argues it was not made aware of the one-year limitation until 2008 when Virtual first notified Beaulieu of its copyright infringement allegations (Stern Dep. at 46-47, 91-92; Court File No. 49-44 ("Flavin Dep."), at 66; Court File No. 49-47 ("Jayne Dep."), at 43-44). Beaulieu also claims Virtual never presented it with a formal contract document defining the terms of their dealings (Stern Dep. at 38-39). Beaulieu contends the invoices went directly to its accounts payable office so, to the extent the invoices contained Virtual's "Terms and Conditions," those documents were not reviewed by or signed by anyone outside of accounts payable (Stern Dep. at 44). Beaulieu further contends this information was not delivered or included with the imagesthemselves.
After Virtual contacted Beaulieu in 2008 to inform Beaulieu that it was infringing Virtual's copyrights by impermissibly using Virtual's room scene images, the parties communicated for several months in an attempt to resolve the problem. In August 2008, Sucher emailed Bruce Stern regarding the alleged misuse of Virtual's room scene images (Court File No. 49-21; Court File No. 49-23). In his email, Sucher claimed Beaulieu had used several of Virtual's images for more than one year and had impermissibly digitally manipulated those images (Court File No. 49-21). Sucher subsequently engaged in negotiations, primarily by email and through in-person meetings, with Patricia Flavin, Beaulieu's former Senior Vice President of Marketing (Court File No. 24; Flavin Dep. at 37, 61-65, 67-72, 74-79, 80-83; Sucher Dep. at 197-99, 201-03, 209-30, 233-38).
The parties dispute the outcome of those communications. In describing her perceptions at the time, Flavin explains, "When Tom and I reached an understanding that we were moving forward in a business relationship together, I guess I assumed some of the existing images that were in Beaulieu's possession were okay to be used" (Flavin Dep. at 36). She claims she reached this assumption "[w]hen Tom stopped communicating," which would have been in 2009 (Flavin Dep. at 36). After being asked how she came to understand the business relationship was "moving forward," Flavin responded, "[b]ecause Tom and I had communication and meetings with each other for four or five months, and we got to what I believed to be a resolution to move forward" (Flavin Dep. at 37). Sucher, on the other hand, claims he never felt they reached an agreement (Sucher Dep. at 209, 233). In June 2009, Sucher sent Flavin an email indicating that he had not received any recent responses from Flavin and that if she failed to respond Virtual would have to take legal action against Beaulieu (Court File No. 51-5). In response, Flavin explained that they would have morework coming to Virtual but Beaulieu would need Virtual to sign a release to drop its grievances (Court File No. 51-5). Sucher claims he never affirmatively responded to Flavin's request that he sign a release to "drop" Virtual's dispute with Beaulieu (Sucher Aff. ¶ 26). He also claims he never signed any sort of settlement or release agreement (Sucher Aff. ¶ 26).
On December 1, 2011, Virtual brought suit against Beaulieu in the Eastern District of Tennessee (Court File No. 1). Virtual's primary allegation is copyright infringement, brought under the Federal Copyright Act of 1976 as amended, 17 U.S.C. §§ 101 et seq. The remaining counts of the complaint--that is, breach of contract, unjust enrichment, and misrepresentation--are state law claims. Virtual seeks, inter alia, injunctive relief, monetary damages, and attorney's fees.
Beaulieu contends an entry of default by the Clerk's Office is appropriate pursuant to Fed. R. Civ. P. 55(a) because Virtual failed to plead or otherwise defend against Beaulieu's counterclaim. As noted above, Virtual filed a complaint in this case on December 1, 2011, alleging claims of copyright infringement, breach of contract, unjust enrichment, and misrepresentation (Court File No. 1). Beaulieu filed an answer on February 21, 2012, responding to Virtual's complaint and also asserting a counterclaim in which it sought a "declaration of rights under [the] room scene agreements" (Court File No. 7). The case proceeded forward with the Court holding a scheduling conference on March 26, 2012 (Court File No. 13) and the parties engaging in discovery, which can be observed by the parties' various filings and requests in this case (Court File Nos. 22, 33, 39).
On February 14, 2013, Beaulieu filed an application for clerk's default (Court File No. 41).Four days later, Virtual submitted an answer to Beaulieu's counterclaim (Court File No. 42). Beaulieu filed a response to its application for clerk's default requesting that the clerk still enter default against Virtual because Virtual's answer was untimely (Court File No. 44). Virtual submitted a reply arguing that Beaulieu's request should be denied because it did "otherwise defend" itself with respect Beaulieu's counterclaim (Court File No. 45).
Rule 55 of the Federal Rules of Civil Procedure provides that "[w]hen a party against whom a judgment for affirmative relief is sought has failed to plead or otherwise defend, and that failure is shown by affidavit or otherwise, the clerk must enter the party's default." Fed. R. Civ. P. 55(a). Virtual admits that it "failed to plead" within the requisite time period. However, the Court concludes that Virtual's actions in this case satisfy the alternative requirement of "otherwise defend[ing]"...
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