Yellowcake, Inc. v. Morena Music, Inc.

Decision Date01 March 2021
Docket NumberCase No. 1:20-CV-0787 AWI BAM
Citation522 F.Supp.3d 747
Parties YELLOWCAKE, INC., Plaintiff v. MORENA MUSIC, INC., and Eduardo Leon dba Long Play Music, and Does 1-50 Inclusive, Defendants Morena Music, Inc., Count-Plaintiff v. Yellowcake, Inc., Colonize Media, Inc., and Jose David Hernandez, Counter-Defendants
CourtU.S. District Court — Eastern District of California

Seth Berman, PHV, Pro Hac Vice, Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wo, Lake Success, NY, Thomas P. Griffin, Jr., Hefner Stark & Marois, LLP, Sacramento, CA, for Plaintiff/Counter-Defendant Yellowcake, Inc.

Seth Berman, PHV, Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara, Wo, Lake Success, NY, for Counter-Defendants Colonize Media, Inc., Jose David Hernandez.

Alejandro Menchaca, Lopez and Prajin, Anthony Rodriguez Lopez, Law Offices Lopez & Associates, Beverly Hills, CA, George Lewis Prajin, Lopez and Prajin, Newport Beach, CA, for Defendants/Count-Plaintiff.

ORDER ON COUNT-DEFENDANTSMOTION TO DISMISS

Anthony W. Ishii, SENIOR DISTRICT JUDGE

This is a copyright dispute involving three musical albums by the artist Los Originales De San Juan. Counter-Plaintiff Morena Music, Inc. ("Morena") brings claims against Counter-Defendants Yellowcake, Inc. ("Yellowcake"), Colonize Media, Inc. ("Colonize"), and Jose Hernandez ("Hernandez") (collectively "YCH") for two copyright violations under the Copyright Act (17 U.S.C. § 100 et seq.) involving the albums and cover art, and state law claims for intentional interference with prospective economic advantage, intentional interference with contractual relations, unfair competition, and conversion. Currently before the Court is YCH's Rule 12(b)(6) motion to dismiss six of the seven claims alleged against them. For the reasons that follow, YCH's motion will generally be granted.

RULE 12(b)(6) FRAMEWORK

Under Federal Rule of Civil Procedure 12(b)(6), a claim may be dismissed because of the plaintiff's "failure to state a claim upon which relief can be granted." Fed. R. Civ. P. 12(b)(6). Counterclaims are subject to Rule 12(b)(6) challenges. See Seismic Reservoir 2020, Inc. v. Paulsson, 785 F.3d 330, 335 (9th Cir. 2015). A dismissal under Rule 12(b)(6) may be based on the lack of a cognizable legal theory or on the absence of sufficient facts alleged under a cognizable legal theory. Mollett v. Netflix, Inc., 795 F.3d 1062, 1065 (9th Cir. 2015). In reviewing a complaint under Rule 12(b)(6), all well-pleaded allegations of material fact are taken as true and construed in the light most favorable to the non-moving party. Kwan v. SanMedica, Int'l, 854 F.3d 1088, 1096 (9th Cir. 2017). However, complaints that offer no more than "labels and conclusions" or "a formulaic recitation of the elements of a cause of action will not do." Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) ; Johnson v. Federal Home Loan Mortg. Corp., 793 F.3d 1005, 1008 (9th Cir. 2015). The Court is "not required to accept as true allegations that contradict exhibits attached to the Complaint or matters properly subject to judicial notice, or allegations that are merely conclusory, unwarranted deductions of fact, or unreasonable inferences." Seven Arts Filmed Entm't, Ltd. v. Content Media Corp. PLC, 733 F.3d 1251, 1254 (9th Cir. 2013). To avoid a Rule 12(b)(6) dismissal, "a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Mollett, 795 F.3d at 1065. "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Somers v. Apple, Inc., 729 F.3d 953, 959 (9th Cir. 2013). "Plausibility" means "more than a sheer possibility," but less than a probability, and facts that are "merely consistent" with liability fall short of "plausibility." Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 ; Somers, 729 F.3d at 960. The Ninth Circuit has distilled the following principles for Rule 12(b)(6) motions: (1) to be entitled to the presumption of truth, allegations in a complaint or counterclaim may not simply recite the elements of a cause of action, but must contain sufficient allegations of underlying facts to give fair notice and to enable the opposing party to defend itself effectively; (2) the factual allegations that are taken as true must plausibly suggest entitlement to relief, such that it is not unfair to require the opposing party to be subjected to the expense of discovery and continued litigation. Levitt v. Yelp! Inc., 765 F.3d 1123, 1135 (9th Cir. 2014). If a motion to dismiss is granted, "[the] district court should grant leave to amend even if no request to amend the pleading was made ...." Ebner v. Fresh, Inc., 838 F.3d 958, 962 (9th Cir. 2016). However, leave to amend need not be granted if amendment would be futile or the plaintiff has failed to cure deficiencies despite repeated opportunities. Garmon v. County of L.A., 828 F.3d 837, 842 (9th Cir. 2016).

BACKGROUND

Morena is a record label that is in the business of producing, manufacturing, distributing, exploiting, selling, and licensing sound and audiovisual recordings and artwork. Jesus Chavez Sr. ("Chavez") is the founder and principal of the musical group Los Originales De San Juan, a popular Mexican musical group.

On September 16, 2013, Morena entered into an oral recording agreement with Chavez whereby Morena commissioned Chavez to provide services as a recording artist in the making of sound and audio-visual recordings for three albums (50 Mentadas, 15 Corridos Inmortales, and Celebrando 39). Pursuant to the agreement, Morena agreed to: (1) select the musical compositions to be recorded on the albums; (2) produce the musical performances on the albums; (3) direct the recording and filming of musical and audiovisual performances to be embodied on the albums; and (4) pay Chavez a fixed amount per album. Chavez agreed to follow Morena's artistic direction, perform the recordings, and grant Morena the non-exclusive right to utilize Chavez's likeness and his group's name. Chavez also agreed that Morena would be the owner of all title, right, and interest in and to the tangible masters of the albums and all intellectual property rights in the musical performances embodied in the tangible masters of the albums (including the copyrights and any extensions and renewals of the copyrights) from the inception of the creation of each album. Morena performed the above services and contributed sufficient originality to the albums such that Morena at a minimum is a co-author, co-owner, or joint owner of the copyrights in the albums for purposes of the Copyright Act. Morena also produced, created, and designed the album cover art for each of the three albums. Morena also registered copyrights in the content of the three albums and in the cover art of the three albums. Morena alleges that it is the exclusive copyright owner of the three albums and the albums’ cover art.

In April 2019, Hernandez had a meeting with Chavez wherein Hernandez expressed his interest in exploiting the three Los Originales’ albums. Chavez advised Hernandez that he had entered into a contract with Morena and that Morena was owner of the three albums. Hernandez intentionally misled Chavez and wrongfully told Chavez that Morena had no rights in the three albums and that Chavez was free to sell to Hernandez's companies, Colonize and Yellowcake. Hernandez offered Chavez a significant sum of money purportedly to purchase the rights to the three albums and also promised to indemnify Chavez if Morena sought legal redress from Chavez. Hernandez engaged in this conduct individually and on behalf of Colonize and Yellowcake to disrupt the contractual relations between Morena and Chavez. Chavez purportedly entered into an agreement with Yellowcake. In exchange for money, Chavez wrongfully transferred his ownership rights in the three albums and cover art to Yellowcake, even though Chavez had no such rights to grant.

On December 21, 2019, Morena discovered that Yellowcake and Colonize created or caused the creation of copies of the three Los Originales albums and cover art and was distributing, selling and exploiting these works through online platforms such as ITunes, Amazon Music, and YouTube. The only difference between the cover art created by Morena and the cover art being utilized by Yellowcake and Colonize was that Yellowcake and Colonize removed the Morena logos and replaced them with Yellowcake and Colonize's respective logos. This was done without Morena's authorization. Yellowcake sent correspondences to Morena in which Yellowcake was claiming ownership of the masters and sound recordings of the three albums.

Yellowcake and Colonize sent fraudulent takedown notices to YouTube that falsely claimed that Morena had no right to post or upload the three albums and cover art. Prior to the takedown notices, Morena had received significant revenue from YouTube, and the YouTube uploads provided an important and lucrative marketing channel for the three albums and cover art. Now, YCH's uploads of the albums and cover art have generated substantial views and revenue on their YouTube channels. YCH's exploitation of the three albums is unlawful and a blatant violation of California law and federal copyright law.

On June 4, 2020, Yellowcake filed a copyright infringement claim against Morena. On June 10, 2020, Morena procured registered copyrights for the three albums. See Berman Reply Dec. Exs. A, B, C.1 On September 1, 2020, Morena filed its counterclaim.

COUNTER-DEFENDANTSMOTION TO DISMISS
I. First Cause of Action – Copyright Infringement of Sound Recordings Counter-Defendants’ Arguments

Yellowcake explains that in March 2019, it entered into an asset purchase agreement with Chavez whereby Yellowcake...

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