WorkSTEPS, Inc. v. Ergo Sci., Inc.

• Decision Date: 20 April 2015
• Docket Number: Case No. A–14–CA–968–SS.
• Citation: 88 F.Supp.3d 732
• Parties: WORKSTEPS, INC., Plaintiff, v. ERGO SCIENCE, INC., Deborah E. Lechner, & Does (1–300), Defendants.
• Court: U.S. District Court — Western District of Texas

88 F.Supp.3d 732

WORKSTEPS, INC., Plaintiff

v.ERGO SCIENCE, INC., Deborah E. Lechner, & Does (1–300), Defendants.

Case No. A–14–CA–968–SS.

United States District Court, W.D. Texas, Austin Division.

Signed April 20, 2015.

Dax D. Anderson, Kirton McConkie, Salt Lake City, UT, Travis Plummer, Mary Schaerdel Dietz, Cox Smith Matthews Incorporated, Austin, TX, for Plaintiff.

Lisa A. Paulson, Shannon H. Ratliff, Ratliff Law Firm, Austin, TX, Peter D. Kennedy, Graves, Dougherty, Hearon & Moody, PC, Austin, TX, for Defendants.

ORDER

SAM SPARKS, District Judge.

BE IT REMEMBERED on the 7th day of January 2015, the Court held a hearing in the above-styled cause, and the parties appeared by and through counsel. Before the Court are Defendants ErgoScience, Inc. and Deborah E. Lechner's Motion to Dismiss [# 8], Plaintiff WorkSTEPS' Response [# 19] thereto, Defendants' Reply (Defs.' MTD Reply) [# 25] thereto, Defendants' Supplement to Pending Motion to Dismiss/Motion for Summary Judgment (Defs.' Mot. Summ. J.) [# 27], Plaintiffs Opposition Memorandum to Defendant's Motion for Summary Judgment and Plaintiffs Cross–Motion for [Partial] Summary Judgment [# 32–2] (sealed), Defendants' Reply in Support of Motion to Dismiss/Motion for Summary Judgment and Response to Plaintiff's Cross–Motion for Summary Judgment [# 39], Plaintiff's Reply to Defendant's Motion for Summary Judgment and Plaintiff's Cross–Motion for Summary Judgment [# 42], and Plaintiff's Motion to File Pleadings Under Seal [# 32] (sealed).¹ Having reviewed the documents, the arguments of the parties at hearing, the file, and the governing law, the Court now enters the following opinion and orders.

Background

This is an action for copyright infringement and breach of contract brought by Plaintiff WorkSTEPS, Inc. against Defendants ErgoScience, Inc., Deborah Lechner, President of ErgoScience, and Does 1–300, unknown alleged third-party infringers, for alleged willful, contributory, and induced infringement in violation of a consent judgment and settlement agreement. WorkSTEPS is a national provider of “functional employment testing,” a type of testing designed to evaluate the physical abilities of job applicants and new employees such that workers' jobs are matched to their physical capabilities, decreasing the likelihood of job-related injuries. ErgoScience is also a provider of functional employment testing and directly competes with WorkSTEPS.

WorkSTEPS holds a copyright in various materials related to its testing programs under Copyright Registration Number TXu000942472. The two copyrighted documents at issue in this case are WorkSTEPS' “Functional Capacity Evaluation,” a twelve-page detailed form that guides WorkSTEPS' providers through administration of WorkSTEPS' functional employment test and provides space for recording the results as the test proceeds, and WorkSTEPS' “Medical History” form, a questionnaire apparently given prior to administration of the Functional Capacity Evaluation (together, the WorkSTEPS Materials). WorkSTEPS alleges ErgoScience's “Physical Agility Test” and incorporated “Medical Issues” form infringe the WorkSTEPS Materials.

This is the second time WorkSTEPS has brought suit alleging ErgoScience has infringed its copyright. Although the original dispute between the parties was dismissed by consent judgment in July of 2012, attorney error (and, evidently, a heaping helping of inability to compromise) brought the action roaring back two years later. The mess the parties have made is now spread over two cause numbers: this one, No. 1:14–CV–968–SS, and the originally filed suit, WorkSTEPS, Inc. v. Johnston et al., No. l:10–CV–850–SS (W.D.Tex.2010) (the Original Suit). A brief history is outlined below.

A. The Original Suit

In the Original Suit, WorkSTEPS claimed ErgoScience, Lechner, and Donna Johnston, an ErgoScience employee not party to the present action, infringed WorkSTEPS' copyright by incorporating portions of the WorkSTEPS Materials into ErgoScience's testing materials. After completing discovery, the parties to the Original Suit informed the Court they had settled the case. Under the parties' settlement agreement, the defendants agreed to pay WorkSTEPS $75,000 and to cease using WorkSTEPS' copyrighted materials. Mot. Order Show Cause [# 39–9] (sealed), Feeler Decl., Ex. 3 (Settlement Agreement) at 3, Original Suit.² On July 26, 2012, the parties jointly moved the Court for entry of a consent judgment against the defendants. Agreed Stipulation [# 31] at 1–2, Original Suit. On July 30, 2012, the Court entered the consent judgment as drafted by the parties. Consent Judgment [# 32] at 2, Original Suit.

As part of the Settlement Agreement, the parties negotiated a safe harbor which would permit ErgoScience to use certain materials without threat of further litigation. See Mot. Order Show Cause [# 39–8] (sealed), Feeler Decl., Ex. 2 (Safe Harbor) at 3, Original Suit. Unfortunately, a serious miscommunication occurred during the negotiations. During WorkSTEPS' final review of the proposed safe harbor, WorkSTEPS “redlined,” or electronically crossed out, certain portions, indicating WorkSTEPS did not agree to inclusion of those portions in the final safe harbor. See Defs.' Resp. Mot. Order Show Cause [# 54] (sealed) at 1, Original Suit. WorkSTEPS then sent the redlined version to ErgoScience via email. Counsel for ErgoScience printed and reviewed the safe harbor-but, apparently due to the configuration of certain printing settings in Adobe Acrobat (counsel's PDF reader), WorkSTEPS' electronic redlines did not appear on the printed document. Id. at 1–2. Believing WorkSTEPS had agreed to the proposed safe harbor without redlining anything, counsel for ErgoScience confirmed the same to his clients, and “relyi[ng] on its lawyer's confirmation that the ‘safe harbor’ materials had been fully approved by WorkSTEPS,” ErgoScience signed the Settlement Agreement and proceeded to use all of the proposed safe harbor materials in its business, including those WorkSTEPS redlined. Id. at 2; see also Mot. Order Show Cause [# 39–16] (sealed), Feeler Decl., Ex. 10 (July 31, 2013 Letter) at 1–2, Original Suit (letter from Brandon Browning, then-counsel for ErgoScience, to counsel for WorkSTEPS explaining the error).

WorkSTEPS eventually discovered ErgoScience's use of the redlined materials, reigniting the infringement dispute. To their credit, the parties attempted to resolve their issues without court involvement, but were ultimately unsuccessful. See, e.g., July 31, 2013 Letter; Mot. Order Show Cause [# 39–17] (sealed), Feeler Decl., Ex. 11, Original Suit (Sept. 27, 2013 Letter). Consequently, on August 5, 2014, WorkSTEPS filed a motion for order to show cause in the Original Suit. See Mot. Order Show Cause [# 39] (sealed), Original Suit. In its motion, WorkSTEPS argues ErgoScience has committed willful infringement, should be held in contempt of the Consent Judgment, and is liable to WorkSTEPS for damages and attorney's fees.

The Court held a show cause hearing in the Original Suit on September 5, 2014. During the hearing, the Court heard testimony concerning the alleged infringement from Larry Feeler, CEO of WorkSTEPS and author of the materials at issue, and ordered the parties to submit supplemental briefing on the question whether the issue of infringement, in the context of a contempt proceeding, should be tried to a jury or the bench. In that briefing, WorkSTEPS indicated because “the law is unsettled as to what relief a complainant in a contempt proceeding may recover[,]” it would file a new lawsuit and seek to consolidate the two cases to preserve its rights. Pl.'s Brief Responsive to Court's Sept. 5, 2014 Order [# 58] at 4, Original Suit. WorkSTEPS has not sought consolidation of the Original Suit and the present action.

B. The Present Action

On October 24, 2014, WorkSTEPS filed its complaint in the present action. The complaint alleges the facts as recounted above, tracing the history of the Original Suit and the redline mix-up that brought the parties back to court. See Compl. [# 1] ¶¶ 23–42. The complaint alleges Lechner and ErgoScience willfully distributed materials which infringe WorkSTEPS' copyright and actively induced their network of third-party providers to infringe by instructing those providers to reproduce and distribute the infringing materials. Id. ¶¶ 43–50. As previously noted, WorkSTEPS brings causes of action for: (1) willful, contributory, and induced infringement by Lechner, ErgoScience, and Does 1–300, the unidentified third-party providers to whom ErgoScience distributed its materials; (2) breach of contract against Lechner and ErgoScience for alleged violation of the Settlement Agreement; and (3) collateral estoppel, claiming the Original Suit “resolved, in favor of WorkSTEPS, the issue of that [sic] Reg. No. TXu000942472 is valid and enforceable and that Lechner and ErgoScience's works infringed WorkSTEPS' copyrights.” Id. ¶¶ 51–69.

Defendants filed their motion to dismiss on November 19, 2014. See Mot. Dismiss [# 8], Given the evidence outside the pleadings submitted with Defendants' motion, at hearing on January 7, 2015, the Court informed the parties it would construe the motion to dismiss as a motion for summary judgment and permit the parties to supplement the record with additional evidence and argument. Hr'g Tr. [# 28] at 20:22–25. Following Defendants' submission of a supplement, see Defs.' Mot. Summ. J. [# 27], WorkSTEPS responded and cross-moved for partial summary judgment on the issue of liability for copyright infringement. See Pl.'s Opp. & Cross–Mot. Summ. J. [# 32–2] (sealed) at 1.

Analysis

I. Legal Standard

A. Converted Motion to Dismiss

Under Federal Rule of Civil Procedure 12(d), a Rule 12(b)(6) motion to dismiss may be converted into a Rule 56 motion for summary judgment if matters beyond the pleadings are presented to and considered by the court. Fed.R.Civ.P. 12(d) ; Exxon Corp. v. Md. Cas. Co., 599 F.2d 659, 661 (5th...