Free Reply to Response to Motion - District Court of Arizona - Arizona

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Dow Glenn Ostlund, Esq. State Bar No. 002909
THIRD FLOOR CAMELBACK ESPLANADE II 2525 EAST CAMELBACK ROAD PHOENIX, ARIZONA 85016B4237 TELEPHONE: (602) 255-6000 FACSIMILE: (602) 255-0103

Attorneys for Tegan Communities, Inc., American West Communities, LLC and Andrew Welch

UNITED STATES DISTRICT COURT
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DISTRICT OF ARIZONA
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Humphreys & Partners Architects, L.P.,
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Plaintiff, No. CIV 03-0169 PHX SMM vs. George F. Tibsherany, Inc.; et al., Defendants. ________________________________________ Tegan Communities, Inc.; American West Communities, L.L.C. and Andrew Welch, Crossclaimants, vs. George F. Tibsherany, Inc.; George F. Tibsherany, Crossdefendants. TEGAN DEFENDANTS' REPLY RE: TEGAN DEFENDANTS' MOTION FOR PARTIAL SUMMARY JUDGMENT

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The Tegan Defendants Reply with respect to their Motion for Partial Summary Judgment as follows: Scope Of The Motion For Partial Summary Judgment Re: HPA's Claims Of Vicarious Liability. Plaintiff's original Complaint and First Amended Complaint alleges that the Tegan Defendants are vicariously liable to HPA as a result of the direct copyright infringement committed, if at all, by the GFT Defendants. HPA's recently filed Second Amended Complaint retains the vicarious liability

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claims and adds new claims against the Tegan Defendants. The Second Amended Complaint alleges, for the first time, that by renting apartments to tenants at Augusta Ranch and by selling the Augusta Ranch Project itself, the Tegan Defendants have now also committed direct acts of copyright infringement and are therefore direct infringers. The instant Motion for Partial Summary Judgment is an attack upon the legal/factual viability of HPA's claims of vicarious liability only, not HPA's new claims

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of direct infringement. Therefore, this Reply is limited to showing that there are no material issues of disputed facts with respect to HPA's vicarious liability claims and that AWC and Welch are entitled to summary judgment on these claims. Withdrawal Of Motion For Partial Summary Judgment As To Tegan Only. Since the filing of the Motion for Partial Summary Judgment, the Tegan Defendants have become aware of Bonner v. Dawson, 404 F.3d 290 (4th Cir. 2005). With respect to the instant Motion for Partial Summary Judgment and insofar as Tegan was concerned, the legal thrust for seeking the dismissal of Tegan from the vicarious

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liability aspects of this case was principally with respect to HPA's inability to establish the necessary nexus between Tegan's profits and the alleged infringement. The Bonner case directly deals with that issue in the context of an alleged copyright infringement involving rental property and the rents received by the alleged

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direct infringer. While this Motion for Partial Summary Judgment focuses on HPA's claims of vicarious liability of the Tegan Defendants, and not HPA's recent claims of direct infringement, it is presently assumed that the principal of a causal nexus between the alleged infringement and the profits which is set forth in the Bonner case would be accepted in a vicarious liability setting with in the Ninth Circuit, as well as a direct infringement setting in the Fourth Circuit. On this issue, the Bonner court said:

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In meeting its initial burden, however, a copyright holder must show more than the infringer's total gross revenue from all of its profit streams. We have previously determined that a literal interpretation of "gross revenue" in §504(b) to include all profits produced by an infringer, no matter the source, would be incorrect. Bouchat v. Balt. Ravens Football Club, Inc., 346 F.3d 514, 520-22 (4th Cir. 2003). Rather, "gross revenue" refers only to revenue reasonably related to the infringement. Id. at 512. The copyright owner thus has the burden of demonstrating some causal link between the infringement and the particular profit stream before the burden-shifting provisions of §504(b) apply. Id. The District Court found no such connection existed here, holding that Bonner had produced no evidence "that Defendant's gross revenues were causally connected to the infringement of Plaintiff's architectural designs. (JA 9048). The Court acknowledged that Bonner had presented evidence that Dawson and Bishop had built and leased the building at issue, and that the profit stream established by Bonner derived from the building itself. Nevertheless, the Court found this evidence was not sufficient to satisfy the "causal connection" requirement articulated in Bouchat, because it was not clear that the basis for the profits was the particularized design of the building. In doing so, however, the Court misinterpreted the level of connection between infringement and profits that is required under Bouchat. Bonner produced evidence of the profits generated by the leasing agreements in the infringing building. This amount was derived
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exclusively from the infringed building; no other source contributed to the generated funds. The building generating the funds was designed based upon Bonner's copyright. This is sufficient to satisfy Bouchat's requirement of a "casual connection" between the infringement and the profit stream. . . .

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Once Bonner met his burden under §504(b), it was incumbent upon Dawson and Bishop to show that their profits were "attributable to factors other than the copyrighted work," 17 USC §504(b). Dawson and Bishop presented a great deal of evidence to the jury that could have led to such a determination. For example, there is testimony in the record from Woodmark that it would have wanted the building built and would have gone forward with the lease even if a different façade had been used. Various witnesses testified that the company was primarily concerned about the need for additional space, and that the focus was on the interior design and set-up of the building. A reasonable trier of fact could have concluded that the basis for the profits that Dawson and Bishop obtained from the construction and leasing of the building was unrelated to the exterior design provided by Bonner, and rather reflected other concerns. There is enough evidence in the record to support a determination that Dawson and Bishop satisfied their §504(b) burden and thus to support the jury's verdict. In light of the above, it clearly appears that, at a minimum, a disputed issue of material fact exists concerning the nexus between Tegan's profits and HPA's alleged copyright infringement a sufficient enough nexus to defeat the instant Motion for Partial Summary Judgment on behalf of Tegan. Accordingly, Tegan seeks the Court's

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permission to withdraw, without prejudice, so much of the instant Motion for Partial Summary Judgment as deals with Tegan under a vicarious liability theory. Arista Doesn't Defeat This Motion For Partial Summary Judgment. In citing Arista Records, Inc. v. Fleaworld, Inc., 206 W.L. 842883 (D.N.J. 2006), HPA seeks to created a disputed issue of fact with respect to AWC and/or Welch's

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individual right or ability to control or supervise GFT's alleged infringement, thus defeating the instant Motion for Partial Summary Judgment as to them. Artista may, indeed, create a disputed issue of material fact which would defeat any Motion for Summary Judgment brought by HPA against AWC and/or Welch, but not the other way

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around. Arista disposes of only one of the two essential elements of vicarious liability in this case, not both. Arista does not dispose of the second element necessary to establish vicarious liability, the element of a direct financial interest in the infringing activity! AWC Is Not Vicariously Liable. HPA acknowledges the assignment of AWC's rights in and to the Augusta Ranch

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Project to Tegan. HPA further acknowledges that it has no evidence that contradicts the claim of both Tegan and AWC that Tegan paid AWC nothing for that assignment. Nor does HPA offer any evidence that shows or establishes that AWC has "a direct financial interest" [Metro-Goldyn-Meyer Studios, Inc. v. Grokster, 125 S.Ct. 2768, 2776 (2005) and Ellison v. Robertson, 357 F.3d 1072 (9th Cir. 2004)] in either Tegan, GFT or the alleged "infringing activities" allegedly committed by any of the GFT or Tegan Defendants with respect to the design, construction, ownership or sale of the

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August Ranch Project. Nor does HPA dispute that it was Tegan alone who sold the Augusta Ranch Project in 2005. However, HPA points out that, after the Augusta Ranch Project was constructed and in operation, but before the sale, AWC was hired by Tegan for a little while to act as the "Property Manager" of the Augusta Ranch Apartments and received $25,000.00

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fee/compensation for that work. Yet existing case law establishes that wages/salary and the like "are not to be considered as profits" for purposes of a 17 USC §504(b) claim. See Frank Music Corp. v. Metro-Goldyn-Meyer, Inc., 772 F.2d 505, 519, (9th Cir. 1985), citing MCA, Inc. v. Wilson, 677 F.2d 180, 186 (2nd Cir. 1981): Arden may be liable for profits he earned in connection with the production of Hallelujah Hollywood, but amounts paid to him as salary are not to be considered as profits. Further, case law says that to satisfy the direct financial interest part of the vicarious liability test, the Court is to determine "whether the Defendant derived a benefit from the infringement that was substantial enough to be significant.", see Polygram International Publishing v. Nevada/Tig, Inc., 855 F.Supp. 1314, 1333 (D.C. Mass.,

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1994). According to HPA, Tegan's profits are just under $33,000,000.00 (HPA's Statement of Facts at Exhibit 24). AWA's fee for property management is $25,000.00, less than one/tenth of one percent (0.07%) of $33,000,000.00, hardly substantial enough to be significant even if those monies do qualify as "profits" under the Act which, as shown above, they do not. Thus it is clear that Plaintiff is not able to sustain its burden of proof at trial to establish the second of the two-prong vicarious liability test with respect to AWC (even

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assuming GFT's claimed infringement) and, therefore, this Motion for Partial Summary Judgment as to AWC must be granted and AWC allowed to recover its reasonable attorneys' fees herein. . . . . . .

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Andrew Welch Is Not Vicariously Liable. Plaintiff attempts to defeat the Motion for Partial Summary Judgment as to Andrew Welch by the same use of the Arista case and arguments as were used in the attempt to defeat the Motion for Partial Summary Judgment as to AWC.

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Yet HPA does not dispute that Welch is not the owner of Tegan and has no direct or substantial financial interest in Tegan. He is not individually liable for its debts and does not participate in its profits. He receives only a salary for his work. He received no bonuses. He is a nominal creditor. Under Frank Music, supra, and Polygram, supra, his salary and repayment of debt are not "profits" within the meaning of the Act.

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Thus it is clear that Plaintiff is not able to sustain its burden of proof at trial to establish the second of the two-prong vicarious liability tests with respect to Andrew Welch (even assuming GFT's claimed infringement) and, therefore, this Motion for Partial Summary Judgment as to Mr. Welch must be granted and Mr. Welch allowed to recover his reasonable attorneys' fees incurred herein. HPA's Expansive Reading Of The Act, The Gift That Keeps On Giving. Under HPA's interpretation of the Copyright Act, GFT has given HPA a gift that

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truly keeps on giving -- a windfall annuity -- without regard to the innocence and lack of any direct actual original infringement of its copyright protections by the victims of HPA's ever-expanding list of Defendants. Under HPA's theory of the scope of the Act, everyone associated with the Augusta Ranch Project, for example, are either vicariously liable for GFT's alleged actual

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infringement, or, following the disclosure of HPA's claims of an infringement (but even before the proof of those claims) they become direct infringers if they do not accept HPA's unproven claims. This net is very broad and, according to HPA's interpretation of the Act, includes, but is not limited, the following:

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The City of Mesa. The City of Mesa controls what it would allow to be built in its City, had input into the original design of the Augusta Ranch Project, issued the building permits, inspected and passed off on the construction, licensed and taxes the revenues and provides services for fees which are paid for by revenues flowing from the rental income derived from the project. The construction and permanent lenders (original or subsequent purchasers) for

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the Augusta Ranch Project. These are people who also had input into the project and its design, and/or provided money for the construction of the project or the purchase of the project, and/or took a security interest in the project and are getting paid back from the rental/sale proceeds generated from the project. Each and every management company who acted as the rental/maintenance agent for Tegan. In light of the claims being made against Mr. Welch individually as well as AWC, this probably also includes each of the individual managers and/or rental agents of

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each of these management companies, as well as their employees. Every vendor who keeps the project supplied with the things needed to make the property rentable. Their acts are aiding and abetting in each act of renting an apartment or selling the project. These people would include APS, SRP, City of Mesa, swimming pool maintenance companies, recreation building maintainers and/or suppliers, etc.

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Every tenant or purchaser of a unit in the project. They are also either direct infringers, or aiders and abetters of direct infringers. The general contractor who will be hired, if at all, to perform the work to convert the apartments into condominiums, as well as the lenders, lawyers and office staff who do

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the condo conversion financing and paper work. All of them, like the current purchaser and real estate agents, are doing something with the buildings which HPA claims the very existence of violates its copy right protections. Apparently the only way to stop this madness is for the lenders, owners, tenants, city and vendors to totally abandon any attempt to operate the project for a profit, or, alternatively (and more probably), walk away from an investment of over

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$ 20,000,000.00 and leave the project as vacant, derelict, buildings -- for to do anything else merely increases their alleged liability to HPA for their profits forever! Truly, GFT, if it did what Plaintiff claims they did, and the Copyright Act gives HPA the power HPA claims the Act gives it, this is the gift/annuity that keeps on giving as long as the project turns a profit. As long as other people are trying to salvage their investments in the Augusta Ranch project, HPA can sit back and collect all of the profits of all of these people, without ever having to invest or risk a dime of its own in the

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project. Such a result hardly seems equitable, just or constitutional. But if that is really what the Act does, it is probably an unconstitutional taking of property without due process of law. If all of these people are liable for acts they did not commit, did not know about when they were committed, did not authorize, do not ratify, and all they are presently attempting to do is to protect the investment they innocently

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made in the project -- but the act does not recognize their innocence as a viable defense nor allow them any other meaningful way to defend themselves from the Plaintiffs claims to entitlement to their profits -- then truly their property is being taken from them without due process of law because of the over-breadth and scope of this Act. Due process of law

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is not given when guilt is found before the trial commences, but the trial occurs anyhow to give the appearance of justice, but not its substance. Further, we must remember that even the United States Supreme Court has recognized that the Act itself does not create this class of vicarious liability1. Vicarious liability for the copy right infringement of another rests on common law principles, principles which do recognize the lack of knowledge, and/or no actual right of control as

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a defense to the claim of liability for an intentional tort committed by someone else. This is another indication that Plaintiff's present claims concerning the Act are not in harmony with the Act. CONCLUSION Plaintiff has not sustained its burden of establishing facts available for trial that will show that either AWC or Welch had or has a direct and/or significant financial interest in any of the alleged infringing activities involving the design, development or

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operation of the Augusta Ranch Property. Without such evidence, the Motion for Partial Summary Judgment on behalf of AWC and Welch with respect to HPA's claims of vicarious liability as to them must be granted. RESPECTFULLY SUBMITTED this ________ day of May, 2006.

Metro-Goldwyn-Meyer Studios, Inc. v. Grokster, Ltd., 125 S.Ct. 2764, 2776,
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2005.
Case 2:03-cv-00169-SMM

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TIFFANY & BOSCO, P.A.

By

s/Dow Glenn Ostlund Dow Glenn Ostlund, Esq. Third Floor Camelback Esplanade II 2525 East Camelback Road Phoenix, Arizona 85016-4237 Attorneys for Tegan Defendants

X I hereby certify that on the 23rd day of May, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Kathleen L Beiermeister [email protected]; [email protected],[email protected] Mark A Bloomquist [email protected] [email protected],[email protected] Guy William Bluff [email protected] [email protected] Louis K Bonham [email protected] John D Everroad [email protected] [email protected]
Monty Lee Greek [email protected]; [email protected]

Ray Kendall Harris [email protected] [email protected] Christopher DC Hossack [email protected] [email protected] Edward Albert Kenney [email protected]

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C. Mark Kittredge [email protected]; [email protected]; [email protected] Joseph E. Mais [email protected]; [email protected]; [email protected] Scott Sebastian Minder [email protected]; [email protected]; [email protected]

Joseph W Mott [email protected] [email protected] Jimmie W Pursell, Jr [email protected] [email protected],[email protected] Joseph A Schenk [email protected] [email protected],[email protected] Richard W Shapiro [email protected] [email protected] Deborah F Sirias [email protected] [email protected],[email protected] William C Steffin [email protected] [email protected],[email protected] Barry Harris Uhrman [email protected] [email protected],[email protected] Kurt M Zitzer [email protected] [email protected],[email protected] Patrick Zummo [email protected]; [email protected] I hereby certify that on the 23rd day of May, 2006, I served the X attached document by United States ail on the following, who are not registered participants of the CM/ECF System: Wayne Michael Flood Jennings Strouss & Salmon PLC Collier Ctr 201 E Washington, Ste 1100 Phoenix, AZ 85004-2385
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Case 2:03-cv-00169-SMM

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Paul L Mitchell Mayer Brown Rowe & Maw LLP 700 Louisiana St, Ste 3600 Houston, TX 77002-2730 John Henri Toohey Bremer & Whyte 20320 SW Birch St 2nd Floor Newport Beach, CA 92660

By
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s/Donna Hamel Donna Hamel

9269.005/306383.doc

Case 2:03-cv-00169-SMM

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