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Nelson-Salabes, Inc. v. Morningside Holdings of Satyr Hill

United States District Court, D. Maryland
Feb 16, 2001
Civil No. B-98-2226 (D. Md. Feb. 16, 2001)

Opinion

Civil No. B-98-2226.

February 16, 2001.


OPINION


Plaintiff, Nelson-Salabes, Inc. brings this action against defendants Morningside Holdings of Satyr Hill, L.L.C., Morningside Development, LLC, and G. Nevill Turner for copyright infringement. More specifically, Nelson-Salabes alleges that the defendants copied the footprint and front exterior elevation from architectural designs and plans created by Nelson-Salabes for the development of an assisted living facility. This case was tried by the Court from October 10, 2000 through October 12, 2000. Following the submission of post-trial briefs by the parties, the Court heard closing argument on October 19, 2000. This Opinion constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure.

Plaintiff also filed a motion for permanent injunctive relief. The Court, however, denied plaintiff's motion on the first day of trial because the completion of the building rendered plaintiff's claim moot. Additionally, the Court granted defendants' pretrial request to dismiss its counterclaim with prejudice.

I.

Nelson-Salabes is an architectural firm based in Maryland. In the spring of 1996, Nelson-Salabes was hired by a local real estate development and construction company, The Strutt Group, to provide architectural work for a proposed assisted living facility, Satyr Hill Catered Living ("Satyr Hill"), located in Baltimore County, Maryland. On June 5, 1996, John Hollick, Vice President of Nelson-Salabes, sent Kim Strutt a letter agreement pursuant to which Nelson-Salabes agreed to develop a schematic building footprint on an hourly basis. Strutt never signed the agreement. Nonetheless, both parties performed fully under the contract.

The following month, Strutt retained Nelson-Salabes to perform the architectural work for the next phase of the project, the Design Phase. On July 24, 1996, Hollick sent Strutt another letter agreement outlining the services that Nelson-Salabes would perform for the Design Phase. Among other things, Nelson-Salabes agreed to develop the exterior elevations and attend the zoning exception hearing. All assisted living facilities in Baltimore County, such as the Satyr Hill site, require a special exception to the zoning laws. The special exception process entails submitting development plans prepared by the architect and civil engineer, attending meetings with community members, and attending a hearing on the matter. Again, Strutt did not sign the letter agreement. Nonetheless, Nelson-Salabes performed the services outlined in the Design Phase letter agreement, and in consideration Strutt paid Nelson-Salabes $18,250.

Pursuant to the Design Phase letter agreement, Nelson-Salabes created four drawings depicting the footprint, floor plans, and elevations of the Satyr Hill site. As designed by Nelson-Salabes, the Satyr Hill site has a three-story building configured in "Y" shape. The front elevation features an octagonal shaped silo in the center, where two arms of the "Y" intersect. The first floor of the silo serves as an entrance. A porte-cochere extends from the entrance to a traffic circle in front of the building. The second and third floors of the silo serve as common areas and contain large windows. The first floor of the vertical element is brick, and the remainder of the building is vinyl siding. Both ends of the front elevation contain a vertical element protruding from the building with bay windows and a gable roof. There are also vertical elements with gable roofs located between the silo and the ends of the building. These elements protrude from the building and aesthetically break up the length of the building.

The Strutt Group's civil engineer, Colbert Matz Rosenfelt, Inc. ("Colbert Matz"), incorporated Nelson-Salabes's drawings into its development plan. The development plan was then submitted to Baltimore County as part of Strutt's application for a special exception. Baltimore County granted the exception on April 7, 1997.

On February 14, 1997, Nelson-Salabes sent Strutt a third letter proposal offering to provide the design and working drawings for the remaining phases of the project. The letter agreement sets forth the services to be performed by Nelson-Salabes and concludes with the statement, "If the above is acceptable, we will prepare a Standard AIA Agreement." The letter agreement was signed only by Hollick and was revised on September 29, 1997, to exclude mechanical and electrical engineering from the scope of work.

On September 29, Nelson-Salabes also sent Strutt a revised AIA contract. The AIA contract is a form created by the American Institute of Architects which contains standard terms and conditions between architects and their clients. Architects then tailor the document to specific projects. Article 6 of the AIA Agreement provides, in relevant part:

The Architect's Drawings, Specifications or other documents shall not be used by the Owner or others on other projects, for additions to this Project, or for completion of this Project by others unless the Architect is adjudged to be in default under this Agreement, except by agreement in writing and with appropriate compensation to the Architect.

On October 7, 1997, Strutt instructed Nelson-Salabes to stop working on the project. Strutt's potential partner for the project, Gary Raffel, had backed out. Raffel was the only one with expertise operating assisted living facilities and his absence created too great a risk for Strutt. Strutt then asked Hollick if he knew of anyone who might be interested in purchasing the project.

Hollick solicited potential purchasers for the Satyr Hill site, including defendant G. Nevill Turner. Turner is the managing agent for defendant Morningside Development, LLC and defendant Morningside Holdings of Satyr Hill, L.L.C. Turner was particularly interested in the Satyr Hill site because it had an approved development plan.

On November 18, 1997, Turner sent Strutt a letter of intent to purchase two sites, including the Satyr Hill site. Turner was aware that Nelson-Salabes created the development plans for Strutt. In fact, Nelson-Salabes sent Turner its Design Development proposal for the Satyr Hill project as well as its latest billing for the project. Turner eventually decided to purchase the Satyr Hill site for $900,000. Morningside Holdings of Satyr Hill would actually own the property and Morningside Development would develop it. The closing occurred on December 22, 1997.

In January 1998, Turner and Salabes then met to discuss Nelson-Salabes's continued involvement in the project. Turner testified that he wanted the Satyr Hill site to conform with the Morningside prototype for assisted living centers, specifically the Morningside at Friendship assisted living center. According to Turner, this would require a massive redrawing. Turner informed Salabes of his various concerns at the meeting, and Salabes indicated that Nelson-Salabes would make any desired changes in the plans. After the meeting, however, Salabes was concerned that Turner did not want to proceed with Nelson-Salabes as the architect. Shortly thereafter, Salabes called Turner, and Turner confirmed Salabes's suspicions. Salabes testified that he instructed Turner that Turner could proceed with another architect, but if he did so, he could not use Nelson-Salabes's design, including the footprint and elevations. Further, Nelson-Salabes's attorney subsequently wrote Turner a letter to inform him that none of the design concepts or design documents prepared by Nelson-Salabes should be used without the express written consent of Nelson-Salabes. On February 13, 1998, Nelson-Salabes submitted its certificate of registration of a copyright for its schematic designs of the Satyr Hill project.

Instead of retaining Nelson-Salabes as the architect, Turner entered into a design build contract with Hamil Commercial, Inc. ("Hamil"). Hamil then employed EDG Architects ("EDG") to perform the architectural work for the project. Turner had previously used Hamil and EDG to design and build the Morningside at Friendship assisted living center. Turner gave Hamil a copy of Nelson-Salabes's plans and the approved development plan, which Hamil then gave to EDG. Turner also met with Phillip Gibbs, a contractor from Hamil, and Donald Tucker, an architect from EDG, to discuss the Satyr Hill plans. Turner asked EDG to design Satyr Hill to conform with Morningside's model and the Friendship assisted living facility. Importantly, however, Turner also instructed EDG not to change the plans to such a degree that EDG's design did not fit within the approved plan. Turner knew that substantial changes would require a new special exception, which would be time-consuming and costly. According, to Turner, EDG rolled up the Nelson-Salabes plans after the meeting and never used them again.

EDG designed the building according to Turner's instructions. EDG's design was then incorporated by Colbert Matz into a First Amended Development Plan and a Second Amended Development Plan, which were submitted to Baltimore County for approval. As stated on the amended development plans, the reasons for the amendments included "minor footprint revisions" and "minor changes to architectural elevations of buildings." Both of the amended plans were approved and the building was constructed.

On July 13, 1998, Nelson-Salabes filed a one-count complaint, alleging that the defendants infringed Nelson-Salabes's copyright by copying the footprint and exterior elevations from the architectural designs and plans created by Nelson-Salabes.

II.

A. Copyright Infringement

The owner of a copyright has the exclusive right to reproduce the copyrighted work and prepare derivative works. See 17 U.S.C. § 106. When the copyright owner's exclusive rights are violated, 17 U.S.C. § 501 provides a cause of action for copyright infringement. To prevail in a copyright infringement action, a plaintiff must establish: (1) ownership of a valid copyright, and (2) unauthorized copying of the protected work by the defendant. Towler v. Sayles, 76 F.3d 579, 581 (4th Cir. 1996).

1. Ownership of a Valid Copyright

Architectural works, including buildings and architectural plans or drawings, are subject to copyright protection. See 17 U.S.C. § 101, 102(a)(5) and (8). Further, the production of a registration certificate made with the United States Copyright Office constitutes prima facie evidence of the validity of the copyright. 17 U.S.C. § 410 (c); see M. Kramer Mfg. Co. v. Andrews, 783 F.2d 421, 434, (4th Cir. 1986). Here, Nelson-Salabes presented a certificate of registration for its architectural work for the Satyr Hill site. Consequently, the burden shifts to the defendants to rebut plaintiff's prima facie case of validity. See 4 Melville B. Nimmer David Nimmer, Nimmer on Copyright § 13.01[A], at 13-7; M. Kramer Mfg. Co., 783 F.2d at 434.

The defendants assert that neither the footprint of the building, nor the elevations are copyrightable. More specifically, defendants assert that the Y-shaped footprint is neither original nor an expression of artistic merit. Rather, they argue that it is utilitarian and within the public domain. According to the defendants, the "Y" shape is commonly used for architectural structures and, in this case, was dictated by zoning regulations, building codes, and physical attributes of the site. Similarly, the defendants assert that the various elements of the front elevation, such as brick, siding, gables, the octagonal entrance, and bay windows are common features of similar buildings in the area. Defendants further assert that the height of the building and the elevations were dictated by the Baltimore County zoning ordinance.

The Court agrees that Nelson-Salabes's use of certain individual features, such as the bay windows or the octagonal entrance, is neither original nor an expression of artistic merit. Nonetheless, "[t]he mere fact that component parts of a collective work are neither original to the plaintiff nor copyrightable by the plaintiff does not preclude a determination that the combination of such component parts as a separate entity is both original and copyrightable." Id. at 438. Moreover, 17 U.S.C. § 101 provides that an "architectural work" includes "the overall form as well as the arrangement and composition of spaces and elements in the design, but does not include individual standard features." 17 U.S.C. § 101.

Here, the Court finds that Nelson-Salabes's combination of common features such as a Y-shaped footprint, bay windows, the octagonal silo entrance, and gables created a unique design. To be sure, Paul Seiben, plaintiff's expert in architecture, testified that he had never seen the same combination of elements used by Nelson-Salabes on any other building. Further, the footprint and front elevation used by Nelson-Salabes were not the only feasible designs. Consequently, the Court further finds that the defendants have failed to rebut the prima facie validity of plaintiff's copyright, and that Nelson-Salabes's selection and arrangement of common architectural features is unique and exhibits artistic expression. Therefore, the Court further finds that Nelson-Salabes owns a valid copyright in its architectural work for the Satyr Hill site.

2. Copying

The second prong of an infringement action requires the plaintiff to prove copying. See Towler, 76 F.3d at 581. As is typically the case, the Court finds that the plaintiff has failed to offer sufficient evidence of direct copying. Nonetheless, the plaintiff may raise a presumption of copying by proving through circumstantial evidence (1) that the defendants had access to the copyrighted work and (2) that the alleged copy is substantially similar to the original work. See Keeler Brass Co., 862 F.2d 1063, 1065 (4th Cir. 1988). Access to the copyri ghted designs in this case is not disputed. The Strutt Group provided Turner with a copy of Nelson-Salabes's plans for the Satyr Hill site as well as a copy of the approved development plan incorporating Nelson-Salabes's design. Turner even discussed the plans with Hamil and EDG.

With respect to the second element, substantial similarity, the Fourth Circuit uses a two-prong test to assist the trier of fact in determining whether both works contain the same ideas and express those ideas in a substantially similar manner. See Towler v. Sayles, 76 F.3d 579, 583-84 (4th Cir. 1996). "First, a plaintiff must show — typically with the aid of expert testimony — that the works in question are extrinsically similar because they contain substantially similar ideas that are subject to copyright protection. Towler, 76 F.3d at 583. Here, the plaintiff's experts testified that the defendants' design contained numerous design elements that were substantially similar to the design elements in plaintiff's design. For example, both designs contained an octagonal silo as the main entrance, bay windows, protruding gables, and sun porches. Further, the design elements were the same dimensions. And, plaintiff's expert had not seen such close similarities without both buildings being designed by the same architect. In response, the defendants assert that they made substantial changes to Nelson-Salabes's design, including changes to the footprint and front elevation. In particular, the defendants assert that the changes to the interior of the building caused the footprint and elevations to change. Specific differences cited by the defendants include: the use of metal roofing instead of fiberglass roofing, windows of a different size and in different locations, elimination of the porte-cochere, different gable vents, different roofs on the bay windows, different brick elevation, and the elimination of shutters.

The Court finds that the plaintiff has proved that extrinsically the two designs are substantially similar. In particular, the Court finds that both works contain the same unique combination of design elements including the use of an octagonal entrance, protruding gables, and bay windows on the ends of the building. The Court recognizes that differences do exist between the two designs. Nonetheless, "lilt is entirely immaterial that, in many respects, plaintiff's and defendant's works are dissimilar, if in other respects, similarity as to a substantial element of plaintiff's work can be shown." 4 Nimmer, supra, § 13.03[B][1][a], at 13-53. Further supporting the Court's conclusion is the fact that Turner told his architect that he wanted the design to fit within the approved plan. It is also undisputed that only minor changes could be made to the plan or it would require a new special exception. Moreover, the defendants noted on their amended development plans that they only made "minor" changes to the footprint and elevations. Accordingly, the Court finds that the plaintiff has satisfied the first prong of the test.

The second prong of the substantial similarity test requires the plaintiff to prove that the work's intended audience could conclude that the ideas are expressed in a substantially similar manner. Towler, 76 F.3d at 583-84. In other words, whether both works have the same "total concept and feel." See id. at 584. Comparing a photograph of the defendants' design, as constructed, to a computer generated depiction of the plaintiff's design, the Court finds that the two designs are strikingly similar in total concept and feel. Again, certain differences between the designs slightly affect the feel, such as the use of different windows, the use of brick instead of siding in certain areas, and different roofs on the bay windows. Despite these differences, however, the two designs still have the same overall feel based on the same combination of the unique features, including the octagonal silo entrance, the bay windows on the ends, and the protruding gables. Although the defendants purport to base their design on Morningside's prototype, the total concept of the Satyr Hill site much more closely resembles the plaintiff's design than any of its own, including the defendants' assisted living center at Friendship. Accordingly, the Court finds that the plaintiff has satisfied the second prong and have established a prima facie case of copying.

The Court reaches the same result regardless of whether the intended audience is an ordinary layperson or a person with specialized expertise. Sufficient evidence was produced for the Court, as fact finder, to conclude that the expression of the ideas in the defendants' and plaintiff's works were substantially similar. Further, plaintiff's expert, Seiben, produced sufficient evidence for the Court to conclude that an expert in architecture would reach the same conclusion.

To rebut the presumption of copying raised by the plaintiff's prima facie case, defendants assert the defense of independent creation. To support its contention, the defendants point to testimony of Donald Tucker, a principal in EDG, who stated that he did not use Nelson-Salabes's plans when designing the building. Rather, Tucker asserted that he based the design of the Satyr Hill site on Morningside's model and its assisted living center at Friendship. The Court, however, is not persuaded by the defendants' argument. It is simply unbelievable that the defendants could look at plaintiff's design and then Independently design a substantially similar building containing the same combination of features and in the same proportions. The Court recognizes that the defendants may have incorporated many of the individual features in its other buildings. Nonetheless, the evidence demonstrates that the Satyr Hill design clearly resembles Nelson-Salabes's design more closely than any of the defendants' own designs.

B. Implied Nonexclusive License

Notwithstanding the Court's finding that the defendants copied plaintiff's architectural designs, the defendants nonetheless assert that they are not liable for infringement because Nelson-Salabes granted them a nonexclusive license to use the plans. According to the defendants, such a license is implied based upon Nelson-Salabes's failure to contractually prohibit the use of the designs despite its knowledge that Strutt intended to sell the approved development plan containing plaintiff's designs if he could not obtain financing. In response, Nelson-Salabes asserts that there is no implied nonexclusive license because it never acknowledged that Strutt could use the drawings without Nelson-Salabes's involvement as the architect, and that Nelson-Salabes tendered an AIA document to Strutt expressly prohibiting such conduct. Nelson-Salabes further asserts that even if it granted Strutt a nonexclusive license, he could not transfer the license to the defendants.

A nonexclusive license permits the licensee to use the copyrighted work in a particular manner and creates an affirmative defense to copyright infringement. See I.A.E., Inc. v. Shaver, 74 F.3d 768, 775 (7th Cir. 1996). A nonexclusive license may "be granted orally, or may even be implied. [w]hen the totality of the parties' conduct indicates an intent to grant such permission." 3 Nimmer, supra, § 10.03[A][7], at 10-42.

In I.A.E., Inc. v. Shaver, a case that is factually similar to the present case, the Seventh Circuit set forth several factors to guide the judicial inquiry as to whether an implied nonexclusive license exists. 74 F.3d at 776. In Shaver, an architect, Paul Shaver, created schematic design drawings for an air cargo/hanger building pursuant to a letter agreement entered into by Shaver and a joint venture ("Joint Venture").Id. at 770. Shaver delivered the drawings to the Joint Venture with notice of copyright and under the belief that, once the drawings were approved, he would perform the architectural work for the remaining phases of the project. Id. at 771. The Joint Venture, however, employed another architect to perform the remaining work. Id. Shaver then wrote a letter to the Airport's Executive Director indicating that he was no longer involved in the project and stating "[w]e trust that our ideas and knowledge exhibited in our work will assist the Airport in realizing a credible and flexible use Cargo/Hanger facility." Id. Shaver enclosed copies of his drawings with the letter. Id. I.A.E, a member of the Joint Venture, then sought a declaratory judgment that it had a right to use the drawings and that it did not infringe Shaver's copyright. Shaver, 74 F.3d at 771. To determine whether Shaver granted I.A.E an implied nonexclusive license, the court considered various factors, including: the language of the copyright registration certificate, the letter agreement, the deposition testimony, and the delivery of the copyrighted material without warning that its further use would constitute copyright infringement. Id. at 776 (citation omitted). Applying these factors, the court held that the evidence supported the existence of a license to use Shaver's drawings to construct the air cargo building. Id. at 777.

Here, the defendants assert that the evidence similarly supports a finding that an implied nonexclusive license was granted. More specifically, the defendants point out that here, like in Shaver, the architectural work was completed in components, and that Nelson-Salabes did not have a contractual right to remain the architect through the completion of the project. The defendants further assert that, despite Nelson-Salabes's knowledge that Strutt would sell the development plan if he could not obtain financing, neither contract contained language prohibiting the transfer of the development plan or completion of the project using another architect. In fact, the defendants contend that Nelson-Salabes did not assert a copyright claim on the designs until after the defendants purchased the property. According to the defendants, these facts are sufficient to support a finding that Nelson-Salabes intended to grant Strutt and Morningside a nonexclusive license.

The Court, however, disagrees. While the facts of this case are similar to the facts in Shaver, there is a critical difference. In Shaver, after the architect ended his involvement, he sent a copy of the plans to the Airport Executive Director and expressed his intent regarding the continued use of the plans. 74 F.3d at 771. Here, by contrast, there is no such expression of intent by Nelson-Salabes. Rather, the Court is left to infer Nelson-Salabes's intent based on its silence regarding its copyright protection. The Court is satisfied that these facts do not support a finding that Nelson-Salabes granted Strutt a nonexclusive license. The Court further finds that because Nelson-Salabes never granted Strutt a nonexclusive license, Strutt obviously could not assign such a right to the defendants. Nor is there any evidence suggesting that Nelson-Salabes granted a nonexclusive license directly to any of the defendants. Accordingly, the Court finds that the defendants did not have an implied nonexclusive license to use Nelson-Salabes's designs.

Prior to purchasing the Satyr Hill site, Turner received a copy of the most recent proposal between Strutt and Nelson-Salabes which referenced an AIA agreement. Turner testified that he was familiar with AIA agreements, which provide, among other things, that an architect's work cannot be used without written permission. Turner further testified that Strutt told him that he never signed the AIA agreement. Nonetheless, Turner's knowledge was sufficient to put him on notice that Nelson-Salabes was asserting copyright protection for its designs.

C. Estoppel

Defendants next argue that Nelson-Salabes should be estopped from pursuing a copyright infringement action against them because Nelson-Salabes intentionally misled Turner into believing he could use the plans. "Equitable estoppel may deprive a plaintiff of an otherwise meritorious copyright infringement claim." Service Training, Inc. v. Data Gen. Corp., 963 F.2d 680, 689 (4th Cir. 1992) (citations omitted). To establish an estoppel defense, defendant must show: (1) that the plaintiff must know the facts of the defendant's infringing conduct, (2) that the plaintiff intends that the defendant will act on his conduct or that the defendant has the right to believe that the plaintiff so intended, (3) that the defendant is ignorant of the true facts, and (4) that the defendant relied on the plaintiff's conduct to his injury. See 4 Nimmer, supra, § 13.07 at 13-275-276.

Here, the defendants appear to assert that (1) Nelson- Salabes knew that Turner intended to use the development plan, potentially without Nelson-Salabes as the architect, (2) that the defendants had a right to believe that Nelson-Salabes would not assert that the architectural designs were protected by a copyright, (3) that the defendants did not know that Nelson-Salabes claimed a copyright on the use of the designs, and (4) the defendant would not have purchased the Satyr Hill site for the same amount of money had it known about the copyright protection. In response, Nelson-Salabes asserts that its failure to warn the defendants of its intellectual property rights does not preclude it from bringing an action for copyright infringement.

The Court finds that the defendants have failed to show that estoppel is appropriate. Prior to purchasing the Satyr Hill site, Turner received a copy of a contract between Strutt and Nelson-Salabes that referenced an AIA Agreement. Based on Turner's familiarity of AIA Agreements, the Court finds that Turner should have been on notice that Nelson-Salabes would assert copyright protection over its designs. Further, after Turner informed Salabes that he did not want to use Nelson- Salabes as the architect for the project, Salabes told Turner that he could nor use Nelson-Salabes's designs. Therefore, the Court finds that the defendants knew that Nelson-Salabes did not consent to the copying of its designs. The Court further finds that the defendants have not proffered sufficient evidence for the Court to conclude that Nelson-Salabes intended or expected the defendants to rely to their detriment on its earlier silence regarding its intellectual property rights. Accordingly, the Court finds that Nelson-Salabes is not estopped from asserting their copyright infringement claim.

III.

Remaining is the issue of damages. The plaintiff seeks damages in the amount of $2,513,941.00, plus prejudgment interest and attorneys' fees. This figure represents $127,089.00 in actual damages, $487,354.00 in profits made by Morningside Development, and $1,899,498.00 in profits made by Morningside Holdings of Satyr Hill. Alternatively, plaintiff seeks statutory damages for willful violations. The plaintiff further asserts each of the three defendants is jointly and severally liable for the entire award. In response, the defendants assert that Nelson-Salabes has failed to prove that it was injured, and therefore, is not entitled to any damages.

In accordance with Local Rule 109, the Court will address the issue of attorney's fees following the entry of judgment.

A successful plaintiff in an infringement action is entitled to recover both actual damages and any additional profits of the infringer. More specifically, 17 U.S.C. § 504 (b) provides:

The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages.

A. Actual Damages

Beginning with actual damages, Nelson-Salabes asserts that its damages consist of the value of the infringed drawings. According to the plaintiff, the value of its drawings is $127,089, which represents the amount of money that it would have earned to complete the Satyr Hill project.

The Court will deny plaintiff's request for actual damages because its theory of damages is speculative. First, the Court finds that Nelson-Salabes did not have a contractual right to remain the architect on the project. Therefore, the amount of money it would have received to complete the project is not an accurate measure of its damages. The proper measure of damages appears to be the additional amount of profit that Nelson-Salabes would have received had it sold to defendants the right to use the footprint and front elevation in connection with another architect's completion of the project. Currently, the record reflects what Strutt paid to use the footprint and elevation solely for the purpose of obtaining the special exception. Further, Turner testified that the value of the special exception was approximately $500,000. Nonetheless, neither these figures, nor plaintiff's damages calculation is sufficient to correctly determine the actual damages suffered by the plaintiff. Further, any damage suffered by the plaintiff is likely accounted for in defendants' profits. Accordingly, the Court will deny plaintiff's claim for actual damages.

B. Defendants' Profits

The second element of plaintiff's remedy for infringement is the defendants' profits. Under 17 U.S.C. § 504 (b), a plaintiff is entitled to "any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." Further, "[i]n establishing the infringer's profits, the copyright owner is required to present proof only of the infringer's gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work." 17 U.S.C. § 504 (b).

Here, the plaintiff seeks profits from defendant Morningside Holdings of Satyr Hill and from defendant Morningside Development. As to Morningside Holdings of Satyr Hill, the plaintiff asserts that gross revenue is measured by the appraised value of the Satyr Hill site. The plaintiff's expert appraiser presented two appraisal values, one representing the "upon completion" value and one representing the "future stabilized value." Turner testified that the assisted living center had not yet stabilized; therefore, the Court finds that the "upon completion" value is the appropriate appraisal. Using this value, the plaintiff asserts that Morningside Holdings of Satyr Hill's gross revenue is $8,600,000.

The "upon completion" value represents the market value of the fee simple interest in the Satyr Hill site, as a going concern including oersonal property and business value, effective August 1, 1998. The "future stabilized" value represents the market value of the fee simple interest in the Satyr Hill site, as a going concern including personal property and business value after the first full year of stabilization.

From the gross revenue, the Court will subtract Morningside Holdings's deductible expenses. The plaintiff concedes that Morningside Holdings incurred deductible expenses in the amount of $8,000,502. Additionally, Turner testified that Morningside Holdings incurred further expenses, including contingency costs and interest. Nonetheless, the Court, finds that the defendants' have proffered little, if any, evidence to corroborate Turner's testimony regarding the additional expenses. Consequently, the Court will not deduct these expenses from Morningside Holdings of Satyr Hill's gross revenue. Morningside Holdings's profit, therefore, is its gross revenue of $8,600,000 less its deductible expenses of $8,000,502, or $599,498.

The defendants, nonetheless, assert that the plaintiff is not entitled to any of this profit because the profit is not attributable to the infringing activity. More specifically, the defendants appear to argue that if its profits are apportioned, no portion of the profit would be attributable to the front elevation or footprint. In support of their contention, the defendants' expert appraiser testified that architectural design is not an important factor in determining the value of an assisted living center. Nonetheless, the Court finds that aesthetics, including the front elevation and footprint, do contribute to the value of the Satyr Hill site. Yet, the defendants have not proffered sufficient evidence to permit the Court to fairly apportion the profits between those profits attributable to the copyrighted work and those profits attributable to other aspects of the assisted living center.

Based on the record before it, the only profit that is clearly not attributable to the defendants' infringement is profit associated with personal property. The plaintiff's expert appraiser included $600,000 for personal property in his overall appraisal value. Yet, the defendants' actual personal property expenses only amount to $354,568.35. Therefore, plaintiff's calculation includes a $245,431.65 profit on personal property. The Court will exclude this amount from Morningside Holding of Satyr Hill's profit. The Court will not, however, further apportion the defendants' profits because the defendants have failed to meet their burden of providing the Court with a rational division which the Court could use to further apportion the profits. See Twin Peaks Productions, Inc. v. Publications Intern., Ltd., 996 F.2d 1366, 1382 (2nd Cir. 1993) (no apportionment where the defendant did not carry its burden of suggesting a rational division of profits); see also Walker v. Forbes, Inc., 28 F.3d 409, 414 (4th Cir. 1994) (in performing the apportionment, the benefit of the doubt must always be given to the plaintiff). Accordingly, the Court finds that Morningside Holdings of Satyr Hill realized profits attributable to its infringing activity in the amount of $345,066.45.

With respect to Morningside Development's profits, the plaintiff established gross revenues of $487,354.00, which represent a development fee paid to Morningside Development by Morningside Holdings of Satyr Hill. At trial, the defendants established that Morningside Development paid Strutt $96,383.00 of this amount as part of the land purchase price. The Court is satisfied that this payment is a deductible expense. Accordingly, the Court finds that Morningside Development realized profits in the amount of $390,971.00. The Court further finds that all of Morningside Development's profit is attributable to its infringing activity. In total, therefore, the defendants realized profits attributable to its infringement in the amount of $736,037.45.

Turner also sought to testify about other expenses, but the Court excluded the testimony because the defendants failed to produce any evidence of such expenses during the discovery process.

The plaintiff asserts that the defendants are jointly and severally liable for this amount. The defendants, however, assert that Turner is not personally liable because there is no evidence that he profited from the infringement and there is insufficient evidence to "pierce the corporate veil."

If a corporation commits an act of infringement, its employees may escape personal liability if the employees were simply carrying out required duties which did not require the exercise of discretion or judgment. See 3 Nimmer, supra, § 12.04 [A][3][d] at 12-92. Under certain situations, however, employees may not be able to escape personal liability. For example, corporate officers will be personally liable for infringement if (1) they use the corporation as an instrument to carry out the wilful and deliberate infringement, (2) if they are a dominant influence in the corporation and determined the policies that result in the infringement, or (3) if they derive financial benefit from the infringing activity. See 3 id. § 12.04 [A][3][d] at 12-94-95. Here, Turner is the managing agent for both Morningside Holdings of Satyr Hill and Morningside Development. Further, Turner appears to have directed every aspect of the Satyr Hill project, including the decision to use Nelson-Salabes's front elevation and footprint designs. Moreover, Turner made this decision despite Nelson-Salabes's admonition not to use its designs without permission. Based on this evidence, the Court finds that Turner is liable as a direct and willful infringer.

As such, Turner is jointly and severally liable for Nelson-Salabes's actual damages. Nonetheless, individual defendants are generally "not jointly liable for the total profits realized by all of the defendants, but are rather individually liable for their own respective profits." 3 Nimmer, supra, § 12.04 [C][3] at 12-124.3. Defendants may, however, be jointly liable for the total profits "among noninnocent infringers, or among defendants engaged in a partnership, joint venture, or similar enterprise." Id. at 124.4. Again, Turner, along with the other defendants, are not innocent infringers and they did engage in a partnership, joint venture or similar enterprise. Accordingly the Court finds that the each of the defendants is jointly and severally liable for the entire award of $736,037.45.

The plaintiff has also requested prejudgment interest. Ordinarily, where, as here, a statute is silent on the issue of prejudgment interest, it is committed to the sound discretion of the trial court. See Coliseum Cartage Co., Inc. v. Rubbermaid Statesville, Inc., 975 F.2d 1022, 1026 (4th Cir. 1992). In this case, the Court finds that the damages and profits awarded to Nelson-Salabes will compensate it for its loss and discourage the defendants from further infringement. The Court further finds, in its discretion, that an award of prejudgement interest will serve no purpose. Accordingly, the Court will deny plaintiff's request.

VI.

For all of the foregoing reasons, the Court will enter Judgment in favor of plaintiff, Nelson-Salabes, Inc. in the amount of $736,037.45, with costs. Judgment will be entered in accordance with this Opinion.

JUDGMENT

In accordance with the Opinion filed today in the above-captioned case, IT IS, this 16th day of February 2001, by the United States District Court for the District of Maryland,

ORDERED:

(1) That Judgment is entered in favor of plaintiff Nelson-Salabes, Inc., against defendants Morningside Holdings of Satyr Hill, L.L.C., Morningside Development, LLC, and G. Nevill Turner jointly and severally in the amount of $736,037.45 with Costs; and

(2) That the Clerk shall mail a copy of this Judgment and the accompanying Opinion forthwith to counsel of record.


Summaries of

Nelson-Salabes, Inc. v. Morningside Holdings of Satyr Hill

United States District Court, D. Maryland
Feb 16, 2001
Civil No. B-98-2226 (D. Md. Feb. 16, 2001)
Case details for

Nelson-Salabes, Inc. v. Morningside Holdings of Satyr Hill

Case Details

Full title:NELSON-SALABES, INC. v. MORNINGSIDE HOLDINGS OF SATYR HILL, L.L.C.…

Court:United States District Court, D. Maryland

Date published: Feb 16, 2001

Citations

Civil No. B-98-2226 (D. Md. Feb. 16, 2001)

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