Fuss v. Bensch

601 F.Supp.3d 1329

Ray Scott FUSS, Plaintiff,

v.Frederick M. BENSCH, et al., Defendants.

CIVIL ACTION NO. 1:22-cv-64-AT

United States District Court, N.D. Georgia, Atlanta Division.

Signed May 4, 2022

ATTORNEYS FOR PLAINTIFF: Blaine Alexander Norris, John Robert Autry, Blaine A. Norris, PC d/b/a Norris Law, Athens, GA, Gregory Scott Smith, Matthew Hoots, Smith Tempel Blaha LLC, Athens, GA.

ATTORNEYS FOR DEFENDANTS: Amanda Hyland, Brent M. Radcliff, Todd Edward Jones, Taylor English Duma LLP, Atlanta, GA.

ORDER

AMY TOTENBERG, UNITED STATES DISTRICT JUDGE

This matter is before the Court on Plaintiff's Motion to Remand to State Court for Lack of Subject Matter Jurisdiction [Doc. 16]. For the reasons set forth below, Plaintiff's Motion is DENIED .

I. Background

Plaintiff initiated this action in the Superior Court of Fulton County on September 17, 2021. (Compl., Doc. 1-7.) The case stems from the sale of SweetWater Brewing Company ("SweetWater") to Aphria Inc. in November 2020 for the price of $366 million.¹ (Id. at 3.) The transaction granted Aphria the exclusive rights to all of SweetWater's intellectual property, including the logo that Plaintiff had designed for the brand in 1996 in exchange for $500. (See id. ¶¶ 16–24, 81–83.)

In the Complaint, Plaintiff claims that his agreement to let Defendants use the logo ("the IP") to build SweetWater's brand was subject to an implicit understanding that in the event that the business was sold he would be entitled to a share of the proceeds based on his ownership in the IP. (Id. ¶ 25.) Plaintiff further alleges that Defendants entered into negotiations with Aphria for the sale of SweetWater between December 2019 and November 2020, which culminated in the sale of the business, and that Defendants wrongfully concealed the sale from Plaintiff, transferred the IP without his approval, and denied him any share in the proceeds from the $366 million transaction. (See generally id. ¶¶ 47–78.) Plaintiff also emphasizes that $92 million of this transaction was allocated solely for the right to use the intellectual property in connection with the SweetWater brand, including the logo that Plaintiff designed and allegedly still owns. (Id. ¶¶ 89–98.)

The Complaint includes seven Counts in total: Conversion of Intangible Property (Count I); Fraud, Deceit, Fraudulent Concealment, Intentional Misrepresentation (Count II); Breach of Contract/Quantum Meruit (Count III); Unjust Enrichment (Count IV); Constructive Trust/Equitable Lien/Equitable or Legal Accounting (Count V); Punitive Damages (Count VI); and Attorney Fees and Litigation Expenses (Count VII). (Id. ¶¶ 102–83.) Plaintiff named SweetWater co-founder Frederick M. Bensch and numerous SweetWater-affiliated entities as Defendants in the Complaint; however, he did not name Aphria or any of its affiliated entities that purchased the business as Defendants.

Defendants removed the Complaint to federal court on January 7, 2021 on the ground that at least some of Plaintiffs’ state law claims were preempted by the Federal Copyright Act. (Notice of Removal, Doc. 1 ¶¶ 16–20.) In addition, SweetWater, Bensch, Aphria, and Aphria's parent company, Tilray, Inc., separately filed a case in federal court seeking a declaratory judgment that they had not violated Plaintiff's copyright rights. See Complaint for Declaratory Judgment, SweetWater Brewing Co., LLC v. Fuss , No. 22-cv-24 (N.D. Ga. Jan. 4, 2022). Then, on January 13, 2022, Defendants filed a Motion to Dismiss the removed state court Complaint. (Doc. 2.)

The Court scheduled a Teleconference the next day to discuss case management with the parties in the interest of efficiently proceeding with both the removed state court action and the federal declaratory judgment action. In that Teleconference, Plaintiff's counsel informed the Court that Plaintiff intended to file a motion to remand the removed state court Complaint back to state court on the ground that none of Plaintiff's claims were preempted by the Copyright Act. Based on that information, the Court elected to stay Defendants’ Motion to Dismiss pending the resolution of Plaintiff's forthcoming Motion to Remand. See Jan. 14, 2022 Docket Order.² The Court also advised the parties that it would endeavor to resolve Plaintiff's Motion to Remand by May 13, 2022. Id. Plaintiff subsequently filed his Motion to Remand on February 17, 2022. (Doc. 16.)

II. Legal Standard

Under 17 U.S.C. § 301(a),"all legal or equitable rights that are equivalent to any of the exclusive rights within the general scope of copyright as specified by [ 17 U.S.C. § 106 ] ... are governed exclusively by [the Copyright Act]." The statute provides an exception to the rule of federal preemption for "activities violating legal or equitable rights that are not equivalent to any of the exclusive rights within the general scope of copyright as specified by section 106." Id. § 301(b)(3). As the Eleventh Circuit has recognized, "[t]he result of this subsection is that the [Copyright] Act ‘preempts only those state law rights that may be abridged by an act which, in and of itself, would infringe one of the exclusive rights provided by federal copyright law.’ " Foley v. Luster , 249 F.3d 1281, 1285 (11th Cir. 2001) (internal quotation marks omitted) (quoting Computer Assocs. Int'l, Inc. v. Altai, Inc. , 982 F.2d 693, 716 (2d Cir. 1992) ).

"[T]his language sets up a two-part test for determining when a state-law claim is preempted[.]" Priority Payment Sys., LLC v. Signapay, Ltd. , 161 F. Supp. 3d 1285, 1289 (N.D. Ga. 2015). First, the Court must determine "whether the rights at issue fall within the ‘subject matter of copyright’ set forth in sections 102 and 103’ " of the Copyright Act. Id. (quoting Crow v. Wainwright , 720 F.2d 1224, 1225–26 (11th Cir. 1983) ). Second, it must determine "whether the rights at issue are ‘equivalent to’ the exclusive rights of section 106" of the Act. Id.

The Eleventh Circuit applies an "extra element" test to determine whether a plaintiff's state law claims are qualitatively different from violations of the bundle of copyright rights protected by 17 U.S.C. § 106. Foley , 249 F.3d at 1285 (citing Bateman v. Mnemonics, Inc. , 79 F.3d 1532, 1549 (11th Cir. 1996) ). Under this test, a plaintiff's state law claims are preempted if there is "no extra element" that would remove the plaintiff's claims "from the general scope of copyright." Lipscher v. LRP Publ'ns, Inc. , 266 F.3d 1305, 1312 (11th Cir. 2001). But the plaintiff's state law claims are not equivalent to the exclusive rights under section 106, and therefore are not preempted, when they involve an "extra element" that "changes the nature of the action so that it is qualitatively different from a copyright infringement claim." Foley , 249 F.3d at 1285 (emphasis in original) (quoting Altai , 982 F.2d at 716 ).

III. Discussion

As an initial matter, Plaintiff does not dispute that the IP falls within the subject matter of copyright for purposes of the first step, and the Court agrees with that conclusion. Under 17 U.S.C. § 102(a)(5), copyright protection extends to "works of authorship fixed in any tangible medium of expression," including "pictorial, graphic, and sculptural works." The logo that Plaintiffs designed for Defendants would surely qualify. As such, the first step of the Eleventh Circuit's two-part test is easily satisfied.

The parties do however dispute whether the second step is satisfied with respect to a number of Plaintiff's state law claims -- specifically, Plaintiffs’ conversion, fraud, quantum meruit, and unjust enrichment claims in the first four Counts of the Complaint.³ In his Motion to Remand, Plaintiff argues that none of these claims are preempted because they do not involve allegations of "factual copying," but rather "wrongful behavior before, leading up to, and at the closing on December 2, 2020" — specifically, that Defendants "wrongfully converted" the IP and "fraudulently excluded Plaintiff from the sale of his own property." (Pl.’s Mot., Doc. 16-1 at 9.) Plaintiff therefore asserts that unlike claims involving factual copying, none of the claims that he specifically pled are "based on an act that would, of itself, violate an exclusive right under the Copyright Act." (Id. at 1.) In their opposition, Defendants argue that Plaintiffs’ disputed state law claims are still equivalent to federal copyright claims because they are based on allegations that Defendants wrongfully authorized the nonparty buyers to engage in factual copying, and that — at least on Plaintiff's theory — the alleged wrongful authorization would also violate the bundle of copyright rights protected by section 106.

In his reply, Plaintiff argues that applying federal preemption to claims involving the mere authorization of a third party to engage in factual copying — rather than only applying it to claims involving first-party factual copying — would improperly expand the scope of federal jurisdiction under the Copyright Act. But Plaintiff ignores that such conduct falls squarely within the scope of section 106, which expressly states that "the owner of copyright under this title has the exclusive rights to do and to authorize " a variety of conduct, including "[the] distribut[ion] [of] copies ... of the copyrighted work to the public by sale or other transfer of ownership." 17 U.S.C. § 106(a)(3) (emphasis added); see Altovise Davis & Boyar Invs. v. Barret , No. 3:08-cv-8, 2008 WL 11349744, at *3, 2008 U.S. Dist. LEXIS 139557, at *13 (N.D. Tex. Apr. 3, 2008) (noting that "[t]he Copyright Act specifically provides that ‘the owner of a copyright ... has the exclusive rights to do and to authorize any of the following ...’ " (quoting 17 U.S.C. § 106 )). Thus, if Plaintiff's theory were correct and Defendants improperly authorized a third party to engage in factual copying in violation of state law, that same conduct would also violate Plaintiff's copyright rights under section 106.

In short, the lack of any...