Architettura Inc V Dsgn Associates Inc, et al

MOTION to Dismiss for Lack of Jurisdiction , Motion to Dismiss for Failure to State a Claim

N.D. Tex.February 13, 2017

IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION Architettura, Inc., § § Plaintiff, § § Case No. 3:16-cv-03021-D v. § § DSGN Associates, Inc.; et al., § § Defendants § MOTION TO DISMISS FOR LACK OF JURISDICTION AND FAILURE TO STATE A CLAIM, WITH BRIEF IN SUPPORT, BROUGHT BY DEFENDANT TEXAS DEPARTMENT OF HOUSING AND COMMUNITY AFFAIRS The Texas Department of Housing and Community Affairs (TDHCA), named as a defendant in this action, seeks dismissal based on lack of jurisdiction and failure to state a claim on which relief may be granted. In support of its motion, TDHCA would show the Court as follows: INTRODUCTION TDHCA is an agency of the State of Texas, and enjoys sovereign immunity from suit on federal claims, absent a valid abrogation of immunity from Congress. Courts in this Circuit follow binding case law from the Fifth Circuit Court of Appeals, holding that Congress’s attempt to abrogate state sovereign immunity in the Copyright Act is unconstitutional, and not effective. Even if this Court were to assert jurisdiction, the complaint fails to state a claim on which relief may be granted. Plaintiff’s one attempt at alleging a direct infringement does not plead sufficient factual content to meet the “facial plausibility” test of Iqbal and Twombly. Plaintiff’s Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 1 of 11 PageID 601 remaining allegations concerning TDHCA allege only secondary infringement, based on the fact that tax credit applications received by TDHCA are considered public documents, and are made available on the TDHCA website. Plaintiff’s claim for secondary infringement cannot succeed, however, because Plaintiff fails to allege any knowledge of infringement or wrongdoing on the part of TDHCA. In fact, a fair reading of the allegations in Plaintiff’s complaint indicate that TDHCA received the allegedly infringing material as part of an application for public tax credits, under circumstances that would not indicate likely infringement. FACTUAL BACKGROUND TDHCA is an agency of the State of Texas. Plaintiff’s Second Amended Complaint seems to admit as much when it describes TDHCA as a “Texas entity.” Comp. at p. 5. One of the functions of TDHCA, as a state agency, is to collect and evaluate applications for federal housing tax credits, which are funded by the United States Treasury Department and overseen by the Internal Revenue Service. Applications for these tax credits are considered public information, and TDHCA generally makes these applications public on its website after submission. See generally “Housing Tax Credit Basics - FAQs,” published on the TDHCA website at: https://www.tdhca.state.tx.us/multifamily/faqs-htc-basics.htm. In terms of asserting how TDHCA came into possession of any drawings allegedly owned by the Plaintiff, the Complaint states only that TDHCA “copied . . . infringement supplied to it by Bolin and his entities.” Comp. at p. 3. Brandon Bolin is named as a defendant in the suit, and described as a “Texas lawyer . . . who is a key defendant.” Comp. at p. 2. Page ! of !2 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 2 of 11 PageID 602 The Complaint begins, in its “Preliminary Statement,” by describing the relationship between the Plaintiff, Architettura, and Bolin. Comp. at p. 2. The Complaint states that “Bolin is the creator of a number of entities which built housing projects using Architettura’s intellectual property,” and that “Bolin . . . used contracts with Architettura to obtain the intellectual property.” Comp. at p. 2. The Complaint then alleges that “Bolin and his entities breached those contractual provisions dealing with the use of intellectual property.” Comp. at p. 2. The bulk of the Complaint then describes a series of business dealings between Plaintiff and the other private party defendants, in which Plaintiff agreed to provide drawings for certain projects run by Defendant Bolin and his associated entities. Comp. at pp. 7-9. These projects were the Taylor Farms project, the Millenium Project, the Roundrock Avery Center, the Post Oak Apartments and Canyon Creek. Comp. at pp. 7-9. The Complaint then identifies a project known as the “Avondale Seniors project.” Comp. at p. 9. This project is not one that Plaintiff was “hired or even contacted to work on.” Comp. at p. 9. Plaintiff alleges, however, that because Avondale Seniors is a “Tax Credit Development,” that “Bolin and his entities submitted [a] brochure containing Plaintiff’s designs, and plan for the development to TDHCA.” Comp. at p. 9. The Complaint then alleges that “[u]pon information and belief, the underwriting department of TDHCA took one of Plaintiff’s images from the brochure, and the Department created a design from that image and included it on its website.” Comp. at p. 9. The Complaint goes on to describe how Bolin and/or the Bolin entities, submitted Architettura’s allegedly proprietary drawings to other individuals and groups associated with attempting to fund the Avondale Seniors project. Comp. at pp. 9-10. These provisions contain no mention of TDHCA. Page ! of !3 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 3 of 11 PageID 603 The final reference to TDHCA occurs near the end of the Complaint, when Plaintiff states that “Exhibit y” identified as Defendant “DSGN’s drawing,” is “an infringing copy of Plaintiff’s proprietary works.” Comp. at p. 10. The Complaint then states that “[u]pon information and belief, TDHCA published Exhibit y on their website, as well.” Comp. at p. 10. The Complaint concludes with a general statement that “[a]ll defendants are liable for infringement under the copyright laws of the United States.” Comp. at p. 11. The “prayer” seeks “injunctive relief, statutory or other damages, attorneys’ fees and such interest as may be permitted by law.” Comp. at p. 11. ARGUMENT A. TDHCA is a Texas state agency, and should be dismissed based on sovereign immunity. “The Eleventh Amendment grants a State immunity from suit in federal court by citizens of other States, and by its own citizens as well.” Union Pacific R. Co. v. La. Pub. Serv. Com’n, 662 F.3d 336, 340 (5th Cir. 2011) (quoting Lapides v. Bd. of Regents, 535 U.S. 613, 616 (2002)). Eleventh Amendment immunity may only be overcome by (1) an act of Congress abrogating Eleventh Amendment immunity; or (2) a demonstration that the State has waived its immunity and consented to suit in federal court. See Hurst v. Tex. Dep’t of Assistive and Rehab. Servs., 482 F.3d 809, 810 (5th Cir. 2007). Here, TDHCA is an agency of the State of Texas, and entitled to assert the sovereign immunity of the State. See generally, Tex. Gov’t Code Chapter 2306 (establishing and governing TDHCA). Page ! of !4 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 4 of 11 PageID 604 Plaintiff makes no allegation in the Complaint that TDHCA has consented to suit, or that immunity has been waived or abrogated by Congress. As Courts in this Circuit have recognized, Congress did attempt to abrogate the states’ sovereign immunity for violations of the Copyright Act in passing the Copyright Remedy Clarification Act (CRCA) in 1994. See Rodriguez v. Tex. Comm’n on the Arts, 199 F.3d 279, 280-81 (5th Cir. 2000); Chavez v. Arte Public Press, 204 F.3d 601, 603 (5th Cir. 2000). That attempt at abrogation, however, was ineffective because it exceeded Congress’s authority under the Fourteenth Amendment. Rodriguez, 199 F.3d at 281; Chavez, 204 F.3d at 607. The analysis in Rodriguez and Chavez is based on the Supreme Court’s decision in Fla. Prepaid Postsecondary Educ. Expense Bd. v. College Savings Bank, 527 U.S. 666, 672-73 (1999), which addressed a similar issue arising from a case brought under a patent statute. As the panel in Rodriguez explained, “the Supreme Court [in Florida Prepaid] held that the Patent Remedy Act cannot be sustained as legislation enacted to enforce the guarantees of the Fourteenth Amendment’s Due Process Clause,” and “[i]t is appropriate for us to adopt this analysis in the copyright context.” 199 F.3d at 181. “The interests Congress sought to protect in each statute are substantially the same and the language of the respective abrogation provisions are virtually identical.” Id. The panel in Chavez engaged in a more extensive analysis, but reached the same conclusion. 204 F.3d at 604-08 (summarizing the panel’s assessment of the many factors identified in Florida Prepaid as follows: “Since the record does not indicate that Congress was responding to the kind of massive constitutional violations that have prompted proper remedial legislation, that it considered the adequacy of state remedies that might have provided the required due process of law, or that it sought to limit the coverage to arguably Page ! of !5 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 5 of 11 PageID 605 constitutional violations, we conclude that the CRCA is, like the [patent statute at issue in Florida Prepaid], an improper exercise of Congressional legislative power.”). Courts within this district and outside of it follow these holdings, and it is considered settled law that state entities cannot be sued for copyright infringement. See e.g., Issaenko v. Univ. of Minn., 57 F. Supp. 3d 985, 1008 (D. Minn. 2014) (“The Court finds persuasive the reasoning of Chavez and the numerous district courts that have concluded that Congress failed to act pursuant to a valid exercise of its enforcement powers under Section 5 when it sought to abrogate state sovereign immunity in the CRCA”) (collecting cases); Marketing Information Masters, Inc. v. Bd. of Trustees of Ca. State Univ. Sys., 552 F. Supp. 2d 1088, 1094 (S.D. Ca. 2008) (“This Court concurs with the Fifth Circuit’s application of the analytical framework presented in Florida Prepaid to the CRCA.”). Because Congress has not abrogated state sovereign immunity for copyright claims, and there is no allegation in Plaintiff’s complaint that the State has waived immunity, TDHCA, as a state entity, is entitled to dismissal. B. Plaintiff’s complaint should be dismissed for failure to state a claim. As the other named defendants in this case have argued, Plaintiff’s complaint, even after two rounds of amendments, remains primarily a list of conclusory legal assertions rather than well-pleaded “factual content that [would allow] the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949 (2009). “Conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.” Taylor v. Books a Million, Inc., 296 F.3d 376, 378 (5th Cir. 2002). Page ! of !6 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 6 of 11 PageID 606 1. Plaintiff’s complaint fails to state a claim for direct infringement. Here, Plaintiff asserts that TDHCA is “liable for infringement under the copyright laws of the United States,” because it published certain material on its website. Comp. at p. 11. The complaint does not provide factual assertions regarding when this material was posted, under what agreements or understandings the material was posted, and any facts indicating that this action of posting the material was taken without permission. See Architettura, Inc. v. DBSI Cumberland at Granbury LP, 652 F. Supp. 2d 775, 778-79 (N.D. Tex. 2009) (noting that Plaintiff Architettura in that case abandoned several claims of copyright infringement because it admitted that the alleged infringers had permission to use the work). “A properly plead copyright infringement claim must allege 1) which specific original works are the subject of the copyright claim, 2) that plaintiff owns the copyrights in those works, 3) that the copyrights have been registered in accordance with the statute, and 4) by what acts during what time the defendant infringed the copyright.” Kelly v. L.L. Cool J., 145 F.R.D. 32, 36 (S.D.N.Y. 1992), aff’d, 23 F.3d 398 (2d Cir.), cert. denied, 513 U.S. 130 (1994). The Complaint’s most specific statement about TDHCA - that it “took one of Plaintiff’s images from the brochure, and the Department created a design from that image and included it on its website” - contains no allegations regarding what specific “image” is at issue, whether that image is properly subject to copyright protection, and whether TDHCA’s alleged use of that image to create a “design” was actionable. In that sense, the allegation is perfectly described by language in Iqbal stating that “where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not ‘show[n]’ - that the pleader is entitled to relief.” 556 U.S. at 679 (quoting Fed. R. Civ. P. 8(a)). There is simply Page ! of !7 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 7 of 11 PageID 607 not enough “factual content” in this assertion to allow the court “to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. Moreover, the idea that TDHCA, a state agency that processes tax credit applications, would “create a design” from Plaintiff’s architectural drawings is simply not an allegation that passes the basic Iqbal test of “plausibility.” Iqbal itself discusses the plausibility standard as going beyond merely assessing whether a plaintiff has made a factual assertion that could “show[] that the pleader is entitled to relief.” Fed. R. C. P. 8(a). In assessing plausibility, courts must address whether even well-pleaded factual allegations have “nudged . . . claims . . . across the line from conceivable to plausible.” 556 U.S. at 680 (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). In Iqbal, Justice Kennedy, writing for the majority, refused to find that plaintiff’s allegations of deliberate discrimination on the part of government officials in detaining thousands of Arab Muslims after the terrorist attacks of September 11, 2001, was sufficient to allow plaintiff’s claims to go forward. 556 U.S. at 681-82. While acknowledging that plaintiff’s proffered explanation of discriminatory intent was “conceivable,” the Court nevertheless held that explanation not plausible, in light of the far more likely explanation that “the arrests [the FBI director] oversaw were . . . lawful and justified by his nondiscriminatory intent to detain aliens who were illegally present in the United States and who had potential connections to those who committed terrorist acts.” Id. at 682. “As between that ‘obvious alternative explanation’ for the arrests, and the purposeful, invidious discrimination respondent asks us to infer, discrimination is not a plausible conclusion.” Id. (citation omitted) (quoting Twombly, 550 U.S. at 567). Page ! of !8 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 8 of 11 PageID 608 Applying that standard here, this Court is entitled to and should “draw on its judicial experience and common sense” in assessing whether the allegation that TDHCA “created” an unidentified design from an unidentified “image” provided by the Plaintiff is plausible. Id. at 679. Under the analysis articulated in Iqbal, it is not, and the complaint against TDHCA should not be allowed to go forward. 2. Plaintiff’s complaint fails to state a claim for secondary infringement. Similarly, with respect to any allegation that TDHCA acted as a contributory infringer, this claim appears to be based on TDHCA’s practice of posting tax credit applications, which can contain architectural drawings, on its website. “A party is liable for contributory infringement when it, with knowledge of the infringing activity, induces, causes or materially contributes to infringing conduct of another.” Alcatel USA, Inc. v. DGI Techs., Inc., 166 F.3d 772, 790 (5th Cir. 1999). Here, the Complaint makes no allegation that TDHCA had knowledge of infringing activity when it was provided with the tax credit application. In fact, the Complaint indicates the opposite. According to the Complaint, Plaintiff provided its allegedly proprietary materials voluntarily to Bolin pursuant to a contract. Comp. at p. 2. Bolin and/or related entities then provided these materials to TDHCA as part of an application for a tax credit. Comp. at p. 2. These facts indicate consent, not wrongful conduct, and the Complaint makes no allegations that would demonstrate otherwise. Accordingly, Architettura cannot make out a prima facie case for secondary infringement. Defendant TDHCA also states that it expressly adopts all arguments raised by its co- defendants in their Motions to Dismiss, including arguments under Fed. R. Civ. P. 12(b)(6), Page ! of !9 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 9 of 11 PageID 609 raising facial plausibility under Iqbal and Twombly. See “Motion to Dismiss” and “Brief / Memorandum in Support”, filed by Boston Capital Corporation [Docket Entry 27 and 28]; “Motion to Dismiss” and “Brief/Memorandum in Support”, filed by Defendant Fort Worth Housing Authority [Docket Entry 30 and 31]; “First Motion to Dismiss filed by Brandon Bolin with Brief/Memorandum in Support” [Docket Entry 39]; and “Motion to Dismiss for Failure to State a Claim filed by Ellen Rourke with Brief/Memorandum in Support” [Docket Entry 40]. CONCLUSION TDHCA respectfully requests that this Court dismiss Plaintiff’s Second Amended Complaint for lack of jurisdiction and failure to state a claim on which relief may be granted. [Signature page follows] Page ! of !10 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 10 of 11 PageID 610 Respectfully submitted, KEN PAXTON Attorney General of Texas JEFFREY C. MATEER First Assistant Attorney General BRANTLEY STARR Deputy First Assistant Attorney General JAMES E. DAVIS Deputy Attorney General for Civil Litigation JOSHUA R. GODBEY Division Chief Financial Litigation and Charitable Trusts Division _/s/ H. Melissa Mather______________________ H. MELISSA MATHER Assistant Attorney General State Bar No. 24010216 Financial Litigation and Charitable Trusts Division P.O. Box 12548 Austin, Texas 78711-2548 Phone: (512) 475-2540 Fax: (512) 477-2348 Email: melissa.mather@oag.texas.gov Attorneys for Defendant Texas Department of Housing and Community Affairs CERTIFICATE OF SERVICE I certify that on February 13, 2017, all counsel of record are being served with a copy of this document via the Court’s CM/ECF system. __/s/ H. Melissa Mather__________ H. Melissa Mather Page ! of !11 11 Case 3:16-cv-03021-D Document 44 Filed 02/13/17 Page 11 of 11 PageID 611 IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION Architettura, Inc., § § Plaintiff, § § Case No. 3:16-cv-03021-D v. § § DSGN Associates, Inc.; et al., § § Defendants § [PROPOSED] ORDER Came on this day to be heard the Motion to Dismiss filed by Defendant, Texas Department of Housing and Community Affairs (TDHCA), based on lack of jurisdiction and failure to state a claim on which relief may be granted. The Court, having reviewed the briefs and arguments filed by the parties, finds that TDHCA’s motion should be and is GRANTED. All claims against Defendant TDHCA are hereby DISMISSED without prejudice based Defendant TDHCA’s motion under Fed. R. Civ. P. 12(b)(1), or, in the alternative, with prejudice based on Defendant TDHCA’s motion under F. R. Civ. P. 12(b)(6). Signed this ____ day of ___________, 2017. ______________________________________ Honorable Sidney A. Fitzwater United States District Judge for the Northern District of Texas Case 3:16-cv-03021-D Document 44-1 Filed 02/13/17 Page 1 of 1 PageID 612