Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_02-cv-01954/USCOURTS-azd-2_02-cv-01954-3/pdf.json

Nature of Suit Code: 820
Nature of Suit: Copyright
Cause of Action: 17:101 Copyright Infringement

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Merchant Transaction Systems, Inc.,

Plaintiff, 

vs.

Nelcela, Inc., and Arizona Corporation;

Len Campagna, an Arizona resident; Alec

Dollarhide, an Arizona resident; Ebocom,

Inc., a Delaware corporation; Post

Integrations, Inc., an Illinois corporation 

Defendants. _________________________________

And Related Counterclaims and CrossClaims and Third-Party Claims 

 

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No. CV 02-1954-PHX-MHM

ORDER

Currently before the Court is the Lexcel, Post and MTSI Parties’ Motion to Strike

Nelcela’s Affirmative Defenses, Counterclaims, and Third-Party Complaint (Dkt#410); Carl

Kubitz and Flora Kubitz’s Motion to Dismiss Nelcela, Inc., Len Campagna and Alec

Dollarhide’s Third-Party Complaint (Dkt.#416); the Lexcel Parties’ Motion for Possession

of Trial Exhibit 675 (Dkt.#502); Nelcela, Inc., Len Campagna and Alec Dollarhide’s

Renewed Motion for Judgment as a Matter of Law and/or Motion for Judgment

Notwithstanding the Verdict, or in the Alternative Motion for New Trial (Dkt.#505); the

Joint Parties’ Motion for Leave to File a Motion for Partial Summary Judgment Based on the

Jury’s Verdict (Dkt.#512); and Joint Parties’ Motion Request for Leave to Commence Phase

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II Discovery. (Dkt.#539). After reviewing the pleading and holding oral argument on August

15, 2007, the Court issues the following Order. 

I. Joint Parties’ Motion to Strike Nelcela’s Affirmative Defenses, Counterclaims,

and Third-Party Complaint

The Joint Parties; Lexcel, Inc., Lexcel Solutions, Inc., Merchant Transaction Systems,

Inc., Post Integrations, Ebocom, Inc., Mary Gerdts, and Douglas McKinney (the “Joint

Parties”) move to dismiss and/or strike Nelcela, Inc., Len Campagna and Alec Dollarhide’s

(collectively “Nelcela”) affirmative defenses, counterclaims and third-party complaint filed

by Nelcela on November 17, 2006. 

A. Procedural History 

On June 13, 2005, after the original Parties’ March 11, 2005 stipulation to bifurcate

the issue of ownership over the relevant computer credit card processing software (Dkt.#87),

Intervening Plaintiff Lexcel Solutions, Inc., moved to intervene in this case. (Dkt.#169). On

July 29, 2005, over Nelcela’s opposition, the Court granted Lexcel Solutions, Inc.’s, request

with a written order. (Dkt.#209). In granting the motion, the Court also extended certain

dates of the June 22, 2005 scheduling order such as extending the discovery deadline to

October 14, 2005. However, the previously imposed deadline of March 9, 2005 (Dkt.#76)

governing the time to file motions pursuant to Rule 12(b) of the Federal Rules of Civil

Procedure, motions to amend the complaint and motion to join additional parties was not

extended. On October 19, 2005, prior to any responsive pleading by Nelcela, Lexcel

Solutions, Inc., filed its Amended Complaint adding Lexcel, Inc. as an intervening Plaintiff.

(Dkt.#277). On November 11, 2005, after the close of discovery during Phase I of the

instant litigation, Nelcela filed a motion to dismiss the Lexcel Parties’ claims. (Dkt.#295).

On September 30, 2006, the Court denied Nelcela’s motion to dismiss the Lexcel Parties’

claims. (Dkt.#383). On November 17, 2006, just prior to the Court’s November 20, 2006

pretrial conference “regarding the issue of ownership” (Dkt.#383) Nelcela filed its Answer

to the Lexcel Parties’ Amended Complaint as well as counterclaims against the Lexcel

Parties and third-party complaint against Carl Kubitz and Flora “Pete” Kubitz (the

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“Kubitzes”) asserting claims of fraud, conversion, aiding and abetting tortious conduct,

copyright infringement, misappropriation, unfair competition and declaratory relief of

ownership over the software at issue. (Dkt.#399). The Joint Parties’ instant Motion to strike

asserts that Nelcela’s affirmative defenses, counterclaims and third-party claims are untimely

pursuant to Rule 12(a)(4)(A) of the Federal Rules of Civil Procedure; run afoul of the Court’s

amended pleading deadline to which Nelcela was required to seek leave from; and violate

Rule 9(b) of the Federal Rules of Civil Procedure. 

B. Analysis 

(1) Rule 12(a)(4)(A) 

Rule 12(a)(4)(A) Fed.R.Civ.P. provides in pertinent part:

Unless a different time is fixed by court order, the service of a motion

permitted under this rule alters these periods of time as follows: (A) if the

court denies the motion . . . the responsive pleading shall be served within 10

days after notice of the Court’s action[.] 

In this case, the Court denied Nelcela’s motion to dismiss the Lexcel Parties’

Amended Complaint on September 30, 2006. (Dkt.#383). However, Nelcela did not file its

Answer with cross-claims and third-party claims until November 17, 2006 (Dkt.#399), well

after the applicable ten-day period of Rule 12(a)(4)(A). Notably, Nelcela does not dispute

the fact that the responsive pleading is untimely under Rule 12(a)(4)(A), but rather argues

that its tardiness is excusable based upon its reasonable misinterpretation of the Court’s

September 30, 2006 order. Specifically, Nelcela states that it took the Court’s setting of the

pretrial conference for November 20, 2006 to address “the issue of ownership” with the

Court’s September 30, 2006 order (Dkt.#383) to mean that Nelcela “was to do nothing

unless and until the Court convened on November 20th.” (Dkt.#415, p.2) (Emphasis original).

In addition, Nelcela states that no prejudice will result to the Joint Parties by permitting

Nelcela’s answer with accompanying claims. 

Notwithstanding the Court’s difficulty in understanding Nelcela’s alleged confusion

regarding the appropriate time to file the responsive pleading to the Lexcel Parties’ Amended

Complaint, the Court does not deem it appropriate to bar Nelcela’s affirmative defenses,

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counterclaims and third-party claims raised in its Answer to the Lexcel Parties’ Amended

Complaint on this basis. Considering the procedural history of this litigation and the

likelihood that the Joint Parties were aware of Nelcela’s intent to file its responsive pleading

and related counterclaims, there is no prejudice resulting to the Joint Parties. In addition,

considering the extensive discovery performed to date combined with any discovery to be

performed in subsequent litigation in this case, i.e., Phase II, the Court does not believe

Nelcela’s responsive pleading will cause material prejudice. Notably, in one of Nelcela’s

motions for summary judgment during Phase I of this litigation, Nelcela stated its intent to

file a counterclaim against the Lexcel Parties. (Dkt.#324, p.1, n.1). Considering the stage of

the litigation and the absence of any material prejudice to the Joint Parties, the Court does

not find it appropriate to strike Nelcela’s affirmative defenses, counterclaims and third-party

claims on this basis. 

(2) Rule 15 of the Federal Rules of Civil Procedure

The Joint Parties also contend that Nelcela’s affirmative defenses, counterclaims and

third-party claims should be stricken because they run afoul of Rule 15 Fed.R.Civ.P.. The

Joint Parties contend that Nelcela was required to seek leave of the Court to assert such

defenses and claims at this stage of the proceedings, especially considering that such

defenses and claims were not asserted prior the Court’s March 9, 2005 amended pleadings

deadline. However, the Joint Parties’ argument ignores the procedural history surrounding

the intervention of the Lexcel Parties to this case. Specifically, the Court permitted the

Lexcel Parties to intervene on July 29, 2005. (Dkt.#209). Once Lexcel, Solutions, Inc.,

intervened and prior to any responsive pleading from Nelcela, and without leave of the Court,

Lexcel Solutions, Inc., filed its Amended Complaint to add Lexcel, Inc., as an intervening

Plaintiff in this matter. As explained in the Court’s September 30, 2006 order such action,

taken without leave of the Court, was not violative of Rule 15(a) as Nelcela had yet to file

any responsive pleading. 

The significance of this history is that Nelcela, with its previous challenges to the

Lexcel Parties’ claims upon motions to dismiss and summary judgment, had yet to file, prior

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1

 This Court has previously denied a request to amend the pleadings; however, that

situation was based upon different circumstances such as the existence of the original

complaint and answer which required leave to amend. (Dkt.#162). 

2

 The Court notes that Rule 14(a) Fed.R.Civ.P. with respect to third-party complaints,

provides that leave of the court is required if the third-party complaint is filed more than 10

days after serving the original answer. Notably, Nelcela’s third-party complaint is asserted

together with its answer and counterclaim. (Dkt.#399). 

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to November 17, 2006, any responsive pleading to Lexcel’s allegations and claims. As such,

this Court will not preclude Nelcela from answering Lexcel’s claims and asserting

appropriate affirmative defenses, counterclaims and third-party claims. Notably, with the

filing of Lexcel’s intervening complaint and amended complaint, Lexcel opened the door to

any applicable affirmative defenses, counterclaims and relevant third-party claim. See Massy

v. Helman, 196 F.3d 727, 735 (7th Cir. 2000) (explaining that “[b]ecause a plaintiff’s new

complaint wipes away prior pleadings, the amended complaint opens the door for defendants

to raise new and previously unmentioned affirmative defense.”).1

 While any subsequent

attempt by Nelcela to amend its answer, counterclaim and/or third-party claim will face stiff

scrutiny considering the running of the amended pleadings deadline, such expiration does not

act as a bar to Nelcela’s answer to Lexcel’s intervening complaint.2

 Again, considering the

unique posture of this case and history, the Court notes that the Joint Parties cannot be

surprised by Nelcela’s answer and accompanying claims and any alleged prejudice is

minimal considering the litigation history and discovery still to come. 

(3) Rule 9(b) Challenge to Nelcela’s Fraud Claims 

The Joint Parties also move to strike Nelcela’s affirmative defenses, counterclaims

and third-party claims against the Joint Parties because such claims allegedly run afoul of

Rule 9(b) of the Federal Rules of Civil Procedure. Rule 9(b) requires that, “in all averments

of fraud or mistake, the circumstances constituting fraud or mistake shall be stated with

particularity.” “Federal Rule of Civil Procedure 9(b) requires a pleader of fraud to detail

with particularity the time, place, and manner of each act of fraud, plus the role of each

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defendant in each scheme.” Lancaster Cmty Hosp. v. Antelope Valley Dist., 940 F.2d 397,

405 (9th Cir. 1991). 

In reviewing the allegations, as a whole, of Nelcela’s answer, counterclaims and thirdparty claims, the Court finds that Nelcela does sufficiently state its allegations of fraud with

particularity pursuant to Rule 9(b) Fed.R.Civ.P. For instance, Nelcela has sufficiently

asserted the time element of its fraud claims. Specifically, Nelcela asserts that: (1) on April

6, 2001, Mary Gerdts of Post met with Mr. Kubitz of Lexcel and allegedly convinced Mr.

Kubitz “to assert that Nelcela had copied Lexcel’s software despite that Lexcel had already

concluded Nelcela’s software was not the same as Lexcel’s” (Dkt.#399, ¶32); (2) shortly

after the April 6, 2001 meeting and a subsequent June 4, 2001 meeting in California, Nelcela

alleges Lexcel, Post and MTSI implemented a common plan to defraud Nelcela, which

included Lexcel’s applications for copyright protection of its software (Id. ¶¶32-35); and (3)

on or about January 20, 2006, the Lexcel Parties entered into a settlement agreement with

Post and MTSI in furtherance of the conspiracy to defraud and harm Nelcela. (Id. ¶43). In

addition, Nelcela has sufficiently identified the alleged acts of fraud. For instance, as noted

above, the alleged common plan between the Lexcel, Post and MTSI Parties is alleged to

have included Lexcel’s fraudulently obtained copyright applications, Lexcel’s involvement

in this suit despite its previous determination that Nelcela’s software was different than that

of Lexcel’s, and Lexcel’s receipt of money pursuant to the settlement agreement between the

Lexcel, Post and MTSI Parties. (Id. ¶¶31-48). The allegations of the counterclaim and thirdparty claims also adequately identify the alleged role of the relevant Parties involved in the

fraudulent scheme, such as the Post and MTSI Parties push to involve the Lexcel Parties in

this litigation. (Id. ¶¶31-34). 

As such, when reviewing the allegations asserted by Nelcela as a whole, the Court

finds that Nelcela has plead such claims with sufficient particularity so as to enable the

Lexcel Parties and the Kubitzes to formulate an adequate response. See Blake v. Dierdoff,

856 F.2d 1365, 1368 (9th Cir. 1988) (“[P]leading is sufficient under Rule 9(b) if it identifies

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3

The Court accepts as true the allegations of Nelcela’s counterclaim and third-party

claims for purposes of the Rule 9(b) and 12(b)(6) review. 

4

 The Court notes that the Kubitzes did not file any reply in support of their Motion

to dismiss. 

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‘the circumstances constituting fraud so that the defendant can prepare an adequate answer

from the allegations.’” (quoting Semegen v. Weidner, 780 F.2d 727, 735 (9th Cir. 1985)).3

C. Summary of Joint Parties’ Motion to Strike 

The Court finds that Nelcela’s affirmative defenses, counterclaims and third-party

claims are not procedurally deficient nor are such allegations deficient under Rule 9(b)

scrutiny.

II. Carl Kubitz and Flora Kubitz’s Motion to Dismiss Nelcela’s Third-Party

Complaint

A. Background and Standard of Review

On December 26, 2006, the Kubitzes filed their instant Motion to dismiss Nelcela’s

Third-Party Complaint against them on the grounds that the Third-Party Complaint is barred

by the applicable statute of limitations and/or Nelcela’s fraud claim does not comply with

Rule 9(b)’s particularity requirement. (Dkt.#416). The Court has already addressed the Rule

9(b) Fed.R.Civ.P. issue above, thus will not revisit the issue here. Therefore, the sole issue

presented by the Kubitzes’ Motion to dismiss is whether Nelcela’s claims are barred by the

applicable statute of limitations.4

 

As noted in Nelcela’s response to the Kubitzes’ Motion, in the context of a Rule

12(b)(6), the court will not dismiss a complaint unless it appears beyond a doubt that the

plaintiff can prove no set of facts to support the claim that would entitle the plaintiff to relief.

Morley v. Walker, 175 F.3d 756, 759 (9th Cir. 1999). In determining whether a complaint

states a claim, all allegations of material fact are taken as true and construed in the light most

favorable to the nonmoving party. Wyler Summit Partnership v. Turner Broad. Sys., Inc., 135

F.3d 658, 661 (9th Cir.1998). Moreover, Rule 12(b)(6) Fed.R.Civ.P. provides that a motion

to dismiss must be treated as a motion for summary judgment when “matters outside the

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pleadings are presented to and not excluded by the court.” However, if the court does not

rely on the extraneous matters, the motion to dismiss will not be converted into a motion for

summary judgment. See North Star Intern. v. Arizona Corp. Commission, 720 F.2d 578,

581-82 (9th Cir. 1983).

As a preliminary matter, the Court notes that it will not rely on the extraneous

declarations and exhibits relied upon by the Kubitzes in support of their Motion to dismiss.

See North Star Int’l v. Arizona Corporation Comm’n, 720 F.2d 578, 582 (9th Cir. 1983) (“[A]

motion to dismiss is not automatically converted into a motion for summary judgment

whenever matters outside the pleading happen to be filed with the court . . . .”). Were the

Court to do so, the Court would be forced to convert the instant 12(b)(6) Motion into a Rule

56 Fed.R.Civ.P. summary judgement motion. Given the stage of the proceedings and the

unique discovery schedule created by the Parties’ stipulation to bifurcate this litigation, the

Court finds no prejudice to the Kubitzes. As such, the instant Motion to dismiss will be

reviewed only as a facial challenge to Nelcela’s Third-Party Complaint. 

B. Analysis 

As noted by the Kubitzes, Nelcela’s claims for conversion, aiding and abetting

tortious conduct and unfair competition are governed by a two-year limitation period. A.R.S.

§ 12-542. Moreover, Nelcela’s claim for fraud, misappropriation and copyright infringement

are governed by a three-year limitation period. A.R.S. §§ 12-543 and 44-406; 17 U.S.C. §

507(b). The Kubitzes cite an accrual date of all of Nelcela’s claims of January 3, 2003, based

upon the submission of their declarations in support of the Post Parties’ response to Nelcela’s

motion to dismiss. (Dkt.#26). However, as noted above, the Court will not consider the

declarations as evidence in support of the accrual date at this stage of the proceedings.

Moreover, even considering the Kubitzes’ reliance upon a January 3, 2003 accrual date, the

Court finds, based upon 12(b)(6) analysis, that Nelcela’s claims survive the Kubitzes’ facial

challenge. 

First, the Kubitzes’ fail to consider Nelcela’s allegations invoking a tolling of the

applicable limitations period based upon estoppel. See Roer v. Buckeye Irr., Co., 809 P.2d

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970, 972 (Ariz.App. 1990) (stating that “[a] defendant will be estopped from asserting the

defense of statute of limitations if by its conduct the defendant induces the plaintiff to forego

litigation . . .”). For instance, the Third-Party Complaint in referencing the May 1999

meeting between the Kubitzes and Nelcela expressly states that after the Parties had agreed

that Nelcela was not using Lexcel’s software that “Lexcel and Nelcela agreed to go their

separate ways, agreeing that Nelcela had developed processing software for the Merchant

side of the credit card business [and] . . . they agreed they were not doing the same type of

work.” (Dkt.#399, ¶ 27). Such allegations, taken as true within the context of the ThirdAmended Complaint, demonstrate that Nelcela may have reasonably believed any claims

were eliminated by the Parties’ agreement. Moreover, as noted by Nelcela, assuming it had

such a reasonable belief that litigation between it and the Kubitzes and Lexcel was waived,

Lexcel did not attempt to intervene in this matter until June 13, 2005 (Dkt.#169), which is

within the two and three year limitation period created by Nelcela’s November 17, 2006

Third-Party Complaint. (Dkt.#399). 

It is also relevant to note that Nelcela’s Third-Party claims invoke a theory of

continuing wrongs or violations by the Kubitzes such as January 20, 2006 settlement

agreement between the Joint Parties “in furtherance of the conspiracy . . . to defraud and

harm Nelcela.” (Dkt.#399, ¶43). Such continuing acts into the limitations period would not

be barred by the statute of limitations. 

C. Summary of Kubitzes’ Motion to Dismiss

In taking the allegations of Nelcela’s Third-Party Complaint as true, and excluding

any reliance on matters outside the pleadings, the Court finds that Nelcela’s claims are not

barred by the applicable statute of limitations. Consistent with the Court’s handling of the

Nelcela’s statute of limitations argument, this issue is better reserved for subsequent

proceedings. 

III. The Lexcel Parties’ Motion for Possession of Trial Exhibit 675

Based upon the jury’s April 25, 2007 verdict finding Lexcel, Inc., to be the true owner

of the software at issue in this litigation (Dkt.#501), the Lexcel Parties move this Court to

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obtain possession of Trial Exhibit 675. Trial Exhibit 675 is the “Original Lexcel floppy

disks” of the software that was the subject of the agreement between Charlie Anderson of

CCS, Ltd., and Lexcel, Inc. Specifically, these floppy disks were to be transferred to CCS

as part of a settlement agreement and were ultimately produced in this litigation by Alec

Dollarhide. The Lexcel Parties assert that because Lexcel, Inc., is the owner of the source

code saved on those disks, the disks should be turned over to Lexcel, Inc. In opposition, the

Nelcela Parties contend that the Court should either return the disks to Nelcela or hold the

disks “until such time as each party can (in a ‘forensically sound’ and ‘proper’ environment’

inspect them and/or evaluate them . . .” (Dkt.#507). Nelcela’s argument is based primarily

on its contention that the issue of ownership has not been finally resolved because of the

pending “analytical dissection” analysis, discussed below, that must be performed by the

Court before a true ownership determination can be made. Notably, while disagreeing with

Nelcela’s position, the Lexcel Parties do not object to the Court retaining possession of the

floppy disks “pending completion of this litigation.” (Dkt.#515, p.3). 

Considering the Parties’ common recommendations that the Court retain possession

of the floppy disks (Trial Exhibit 675) the Court, without reviewing the merit of the Parties’

competing positions, will retain possession of the disks until the conclusion of the litigation

or upon stipulation of the Parties. 

IV. Nelcela’s Renewed Motion for Judgment as a Matter of Law and/or Judgment

Notwithstanding the Verdict or, in the Alternative, Motion for New Trial 

A. Background and Standard of Review

Nelcela moves for judgment as a matter of law pursuant to Rules 50(b) Fed.R.Civ.P.

notwithstanding the jury’s verdict on April 25, 2007 finding Lexcel, Inc., to be the true

owner of the software systems at issue in this litigation. In the alternative, Nelcela moves

for a new trial pursuant to Rule 59 Fed.R.Civ.P. The two grounds identified by Nelcela in

support of the instant Motion are: (1) all claims by Lexcel, including Lexcel’s claim of

ownership over the relevant software, are barred by the applicable statute of limitations; and

(2) the jury improperly relied on the Court’s September 30, 2006, finding of “substantial

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similarity” between the Lexcel software and Nelcela software and that “copying took place.”

During the trial, both of these grounds were presented to the Court and were denied. As

such, Nelcela re-raises them pursuant to Rule 50(b). 

Rule 50(b) provides in pertinent part:

If, for any reason, the court does not grant a motion for judgment as a matter

of law made at the close of all the evidence, the court is considered to have

submitted the action to the jury subject to the court’s later deciding the legal

questions raised by the motion. The movant may renew its request for

judgment as a matter of law by filing a motion no later than 10 days after entry

of judgment - and may alternatively request a new trial or join a motion for

new trial under Rule 59. In ruling on a renewed motion, the court may:

(1) if a verdict was returned:

(A) allow the judgment to stand,

(B) order a new trial, or

(C) direct entry of judgment as a matter of law

Fed.R.Civ.P. 50(B)

Judgment as a matter of law may be granted “[i]f during a trial by jury a party has

been fully heard on an issue and there is no legally sufficient evidentiary basis for a

reasonable jury to find for that party on that issue . . .” Juhnke v. EIG Corp., 444 F.2d 1323,

1325 (9th Cir. 1971) (noting that directed verdict and motion for judgment notwithstanding

the verdict “are measured by the same standards as the latter is merely a renewal of the

former.”). In considering a motion for judgment as a matter of law under Rule 50(b), “the

court must draw all reasonable inferences in favor of the nonmoving party, and it may not

make credibility determinations or weigh the evidence.” Reeves v. Sanderson Plumbing

Prods., Inc., 530 U.S. 133, 150 (2000). Therefore, the Court’s role is not to substitute its

view of the evidence for that of the jury. Winarto v. Toshiba Am. Electronics Components,

274 F.3d 1276, 1283 (9th Cir. 2001). When two possible sets of inferences are supported by

the record, “the inferences that support the jury’s verdict of course win the day.” Id. at 1287.

Under Rule 59 of the Federal Rules of Civil Procedure, the Court “may grant a new

trial if the ‘verdict is contrary to the clear weight of the evidence, or is based upon evidence

which is false, or to prevent, in the sound discretion of the trial court, a miscarriage of

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justice.’” Silver Sage Partners, Ltd. v. City of Desert Hot Springs, 251 F.3d 814, 819 (9th Cir.

2001) (quoting United States v. 4.0 Acres of Land, 175 F.3d 1133, 1139 (9th Cir. 1999)). 

B. Analysis 

(1) Statute of Limitations 

With respect to the statute of limitations issue, Nelcela asserts that “[l]egally the

statute of limitations must be addressed now . . . [and] the evidence proved that Lexcel’s

claims have all expired and that Lexcel was not entitled to any claims, ownership included.”

(Dkt.#505, p.2) (Emphasis original). Nelcela further asserts that Lexcel has been fully heard

on the statute of limitations issue and there is no evidentiary basis for a reasonable jury to

find any of Lexcel’s claims to be viable. 

However, the Court finds that Nelcela’s reliance on the statute of limitations issue

provides no basis to support judgment as a matter of law or a new trial in Nelcela’s favor.

As detailed in Nelcela’s motion, the Court has consistently deemed the statute of limitations

regarding Lexcel’s claims, based upon a summary judgment or evidentiary standard, to be

properly reserved for subsequent litigation. For instance, in the Court’s September 30, 2006

order the Court denied Nelcela’s limitations challenge to Lexcel’s claims pursuant to a Rule

12(b)(6) standard of review, but because of the unique posture of the case created by the

Parties’ stipulation to bifurcate the issue of ownership combined with Lexcel’s intervention,

the Court determined that the limitations issue, upon summary judgment review, was better

placed in Phase II with the benefit of a full discovery period. (Dkt.#383, pp.16-17). On

March 26, 2007, the Court denied Nelcela’s subsequent request to defer a trial on the issue

of ownership so as to first address the limitations issue. (Dkt.#454). The Court explained that

should Lexcel, Inc., be deemed to be the owner of the software nothing would prevent

Nelcela from making a subsequent limitations challenge to Lexcel’s claim of legal

ownership. (Dkt.462, pp.21-22, ll.19-5). Moreover, the Court rejected Nelcela’s argument

that inconsistent verdicts could exist should Lexcel’s claims turn out to be time-barred.

Specifically, the Court rejected Nelcela’s argument that Nelcela could somehow be deemed

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to be the owner of the software should Lexcel’s ownership turn out to be time barred. (Id.,

pp.22-23, ll. 17-3). 

The Court, again, finds no basis for this statute of limitations issue to justify a finding

of judgment as a matter of law or a new trial. The Court has consistently maintained that the

jury’s determination of ownership would not be wholly determinative of the issue. Rather,

with respect to the jury’s verdict, Lexcel, Inc., has been deemed to the be the owner of the

relevant software based upon the timing of creation of its software and the overlapping

similarity between Lexcel, Inc.’s and Nelcela’s software. However, that determination in

no way limits or impacts Nelcela’s ability to present a challenge to Lexcel’s ultimate legal

status as owner of the relevant software. Should Lexcel, Inc.’s ownership claim be timebarred then its declaratory claim for ownership and claims dependent on ownership will

likely fail. 

It is important to note, as discussed more fully below, at oral argument the Parties

seemed to be in general agreement that judgment as a matter of law or a new trial was not

necessary to address the statute of limitations issue. The Parties were in general agreement

that the issue could and should be addressed in short order, with the benefit of some

discovery, prior to the start of Phase II of this litigation. The Court does not disagree with

the Parties’ assessment. As such, the jury’s verdict finding Lexcel, Inc., to be owner will be

subject to Nelcela’s statute of limitations challenge before any final determination of legal

ownership is afforded to Lexcel, Inc.. Thus, the Court finds Nelcela’s challenge to the

statute of limitations issue to be unpersuasive in support of judgment as a matter of law

pursuant to Rule 50(b) or a new trial pursuant to Rule 59.

(2) “Analytical Dissection” 

Nelcela further asserts that judgment as a matter of law or a new trial is warranted

because of the Court’s error or mistake of law in not performing a proper “analytical

dissection” of the Lexcel and Nelcela software prior to finding such software to be

“substantially similar beyond the possibility of random chance and that copying took place.”

(Dkt.#383, p.28). Nelcela’s argument is based primarily on the Ninth Circuit’s decision in

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5

 see also Idema v. Dreamworks, Inc., 162 F.Supp.2d 1129, 1177 (C.D. Cal. 2001) (“It

is the copyright plaintiff’s burden to identify the ‘elements’ for the purposes of

comparison.”).

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Apple Computers, Inc. v. Microsoft Corp., 35 F.3d 1435 (9th Cir. 1994). Specifically, in

Apple Computers, the Ninth Circuit instructed “[b]ecause only those elements of a work that

are protectable and used without the author’s permission can be compared when it comes to

the ultimate question of illicit copying, we use analytical dissection to determine the scope

of copyright protection before works are considered ‘as a whole.’” Id. at 1443; see also Data

East U.S.A., Inc. v. Epyx, Inc., 862 F.2d 204, 208 (9th Cir. 1988) (“The rule in the Ninth

Circuit . . . is that . . . copyright protection [cannot] be afforded to elements of expression that

necessarily flow from an idea, or to ‘scenes a faire,’ i.e., expressions that are ‘as a practical

matter,’ indispensable or at least standard in the treatment of a given [idea].”). The Ninth

Circuit provides a three-step inquiry in performing “analytical dissection”of competing

works: (1) the plaintiff must identify the sources of the alleged similarity between its work

and the defendant’s work5

; (2) using analytical dissection and, if necessary, expert testimony,

the court must determine whether any of the alleged similar features are protected by

copyright, which may entail sorting unprotectable ideas from protected expression; and (3)

having dissected the alleged similarities, the court must then define the scope of the

plaintiff’s copyright, i.e., whether it is entitled to “broad” or “thin” protection and depending

on the degree of protection set the appropriate standard for a determination of whether the

works are sufficiently similar to support a finding of illicit copying. Id. 

Nelcela correctly notes that this “analytical dissection” process was not presented to

the Court by any party in the summary judgment papers and, as a result, the “analytical

dissection” procedures set forth in Apple Computers for comparison of the software versions

was not performed by the Court during the summary judgment proceedings. Rather, the

Court made its finding that the Lexcel and Nelcela software were “substantially similar

beyond the possibility of random chance and that copying took place” based upon the

overlapping common features of the competing Lexcel and Nelcela code and the opinions

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of the experts. As such, in light of the absence of the “analytical dissection” analysis the

Court’s determination of “substantial similarity” possesses the real possibility that some,

many or all of the overlapping features between the two software versions are not subject to

copyright protection. Therefore, the issue created is whether the lack of an “analytical

dissection” justifies setting aside the jury’s ownership verdict or setting the ownership issue

for a new trial with an “analytical dissection” performed prior to such a trial. The Court

finds that it does not.

Notably, although the papers presented to the Court suggested otherwise, at oral

argument the Parties appeared to be in agreement with respect to the future handling of the

“analytical dissection” issue. Specifically, the Parties agreed, that prior to any final

determination or judgment regarding ownership, the issue of whether the software is subject

to copyright protection must be addressed by the Court. See Newton v. Diamond, 204

F.Supp.2d 1244, 1253 (C.D. Cal. 2002) (“The protectability of elements of a copyrighted

work is a question of law for the court.”) (citing Feist Publ’ns, Inc. v. Rural Tel. Serv. Co.,

499 U.S. 340, 348-51 (1991)). The Court agrees with the Parties that prior to any final

determination of ownership, the Court must determine the copyrightability of the software

by and through the “analytical dissection” analysis presented in Apple Computers. Thus,

although the jury deemed Lexcel, Inc., to be the owner of the software, as noted above, this

determination is subject to the copyrightability or “analytical dissection” analysis. For

instance, should it be determined that Lexcel’s claims for copyright infringement are based

upon overlapping software versions that are common in nature and not protectable, Lexcel’s

claims based upon copyright ownership and infringement may be invalidated. See Data East

USA, Inc. v. Epyx, Inc., 862 F.2d 204, 208 (9th Cir. 1988) (substantial similarity of

unprotected expression does not support finding of infringement). Therefore, while Lexcel,

Inc., has been deemed to be the owner of the software by the jury, this ownership

determination will face scrutiny based upon the requisite “analytical dissection.” 

Thus, based upon the Parties’ agreement with respect to the issue of “analytical

dissection” and good cause shown the Court will deny Nelcela’s Motion for judgment as a

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matter of law or Motion for new trial based upon the omission of the “analytical dissection”

analysis prior to the jury’s verdict. 

C. Summary 

The Court will deny Nelcela’s renewed Motion for judgment as a matter of law and

in the alternative Motion for new trial. As agreed by the Parties at oral argument, the statute

of limitations and “analytical dissection” analyses do not warrant setting aside the jury’s

verdict. Rather, to finally resolve these issues, the Court, taking into consideration the

Parties’ pending recommendation, will authorize a limited discovery period and consider the

appropriate motions to finally resolve the issue of legal ownership.

V. Joint Parties’ Motion for Leave to File Joint Parties’ Motion for Partial

Summary Judgment 

The Joint Parties’ move this Court for leave to file a motion for summary judgment

based upon the jury’s ownership verdict to address several of Nelcela’s claims against the

Joint Parties. Specifically, the Joint Parties contend that allowing the Joint Parties to file

such a partial dispositive motion will materially advance the litigation as the motion will

likely dispose of Nelcela’s copyright infringement, conversion and aiding and abetting of

tortious conduct cross-claims, counterclaims and third-party claims against the Joint Parties.

At oral argument, Nelcela, while contesting the Joint Parties’ position, did not oppose the

Joint Parties’ request for leave and stated its intent to oppose any such motion on the merits.

In light of the absence of any objection to the Joint Parties’ Motion for leave and in the

interests of advancing the litigation, the Court will grant the Joint Parties’ request. 

Accordingly,

IT IS HEREBY ORDERED denying the Joint Parties’ Motion to Strike Nelcela’s

Affirmative Defenses, Counterclaims, and Third-Party Complaint. (Dkt#410).

IT IS FURTHER ORDERED denying the Kubitzes’ Motion to Dismiss Nelcela,

Inc., Len Campagna and Alec Dollarhide’s Third-Party Complaint. (Dkt.#416).

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IT IS FURTHER ORDERED denying the Joint Parties’ Motion for Possession of

Trial Exhibit 675. (Dkt.#502). The Court will retain possession of this trial exhibit pending

resolution of this matter or upon agreement of the Parties. 

IT IS FURTHER ORDERED denying Nelcela’s Motion for Judgment as a Matter

of Law and/or Motion for Judgment Notwithstanding th Verdict, or in the Alternative Motion

for New Trial. (Dkt.#505).

IT IS FURTHER ORDERED granting the Joint Parties’ Motion for Leave to File

a Motion for Partial Summary Judgment Based on the Jury’s Verdict. (Dkt.#512).

IT IS FURTHER ORDERED directing the Clerk of the Court to file the Joint

Parties’ lodged Motion for Partial Summary Judgment. (Dkt.#513).

IT IS FURTHER ORDERED granting, in part, the Joint Parties’ Motion for Leave

to Commence Phase II Discovery. (Dkt.#539). The Joint Parties’ Motion is granted in that

the Court will consider the Parties’ joint proposed case management plan to address any

remaining discovery and briefing addressing the statute of limitations and “analytical

dissection” issues relevant to the issue of ownership. The joint proposed case management

plan is to be filed by August 22, 2007. 

DATED this 21st day of August, 2007.

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