Court Opinion

ID: 9786689
Source: CourtListenerOpinion
Date Created: 2023-08-31 00:00:40.748239+00
Date Added: 2024-06-11T15:43:23.031732
License: Public Domain

Case: 22-20362    Document: 00516878487       Page: 1     Date Filed: 08/30/2023

          United States Court of Appeals
               for the Fifth Circuit
                                                                      United States Court of Appeals
                                                                               Fifth Circuit

                              ____________                                   FILED
                                                                       August 30, 2023
                               No. 22-20362                             Lyle W. Cayce
                              ____________                                   Clerk

   Zelma M. Loeb-Defever; Loeb Architects, L.L.C.,

                                                        Plaintiffs—Appellants,

                                    versus

   Mako, L.L.C., doing business as Padua Realty Company;
   Francisco Padua; Alejandro Padua; Antonio Padua;
   Woodhaven Inmobilia, Limited; Bratten Inmobilia,
   Limited; Inmobilia 2000, L.L.C.; Padua Investments,
   Limited; Luisfina Corporation; Texas Senior Living
   Operator, L.L.C.; Texas Senior Living Manager, L.L.C.;
   Texas Senior Living Group, L.L.C.; Cottages at
   Woodhaven Village, Limited; Propero Conroe, L.L.C.;
   Propero Seniors Housing Fund, L.L.C.; CPF Living
   Communities II - Woodhaven, L.L.C.; CPF Living
   Communities II Acquisitions, L.L.C.; Grace
   Management, Incorporated,

                                          Defendants—Appellees.
                 ______________________________

                 Appeal from the United States District Court
                     for the Southern District of Texas
                          USDC No. 4:20-CV-1981
                 ______________________________
Case: 22-20362          Document: 00516878487             Page: 2      Date Filed: 08/30/2023

                                          No. 22-20362

   Before Jones, Clement, and Haynes, Circuit Judges.
   Per Curiam:*
           This is a copyright infringement case brought by Zelma M. Loeb-
   Defever and her architectural firm, Loeb Architects, L.L.C. (collectively,
   “Plaintiffs”), against Mako, L.L.C. d/b/a Padua Realty Company (“Padua
   Realty”) and other various entities (collectively, “Defendants”) involved in
   the development of a senior living facility. Years after learning that Padua
   Realty and Defendants allegedly used their copyrighted schematics to
   develop a senior living facility, Plaintiffs sued for copyright infringement,
   violations of the Digital Millennium Copyright Act (“DMCA”), and breach
   of contract.
           Defendants and Padua Realty moved for summary judgment on the
   copyright infringement and DMCA claims. Padua Realty separately moved
   for summary judgment on the breach of contract claims. The district court
   granted both motions, and Plaintiffs timely appealed. For the reasons set
   forth below, we AFFIRM.

                                              Background

           In 2010, Padua Realty, a real estate development business owned and
   operated by Antonio Padua,1 initiated a project to construct assisted living

           _____________________
           *
               This opinion is not designated for publication. See 5th Cir. R. 47.5.
           1
            Antonio, together with his father, Francisco, and brother, Alejandro, have direct
   and/or indirect ownership interests in the following entities: Mako, L.L.C., Woodhaven
   Inmobilia, Ltd.; Bratten Inmobilia, Ltd.; Inmobilia 2000, L.L.C.; Padua Investments, Ltd.;
   Luisfina Corp.; Texas Senior Living Operator, L.L.C.; Texas Senior Living Manager,
   L.L.C.; Texas Senior Living Group, L.L.C.; and Cottages at Woodhaven Village, Ltd.
   Several of these entities were investors in the Project.

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   and memory care facilities, independent living facilities, and cottages in
   Woodhaven Village (“the Project”), located in Conroe, Texas. Padua Realty
   was referred to Loeb-Defever as a possible architect for the Project and
   requested a cost proposal from her for all architectural services. Although
   her initial proposal was rejected, Plaintiffs and Padua Realty subsequently
   entered into two limited-service contracts.
           The contracts provided that Plaintiffs would complete the first two of
   seven phases of the Project. Under these phases, Plaintiffs agreed to provide
   Padua Realty “[o]ne set of schematic site plan, floor plan, and exterior front
   elevation, drawn, colored/rendered and ready for Client to reproduce, scan,
   and/or dry mount and laminate as desired.”                  However, the contracts
   included an important limitation: the schematics could not be used “on other
   projects or extensions to [the Project] except by agreement in writing and
   with appropriate indemnification and compensation to” Plaintiffs. In return
   for their services, Plaintiffs would receive $10,800.
           After Plaintiffs performed their contractual obligations, their
   relationship with Padua Realty faltered and another architect, Ted Trout &
   Associates, Ltd. (“Ted Trout”), was retained to complete the remaining
   phases of the Project.         Although Ted Trout was provided Plaintiffs’
   preliminary design schematics as a “starting point” for further development,
   it allegedly redesigned and delivered a full set of architectural plans in late
   2013.2 It was around this time that Plaintiffs learned their schematics were
   allegedly being used in later stages of the Project. Shortly thereafter, Loeb-

           _____________________
           2
             In the district court, the Defendants contended that Ted Trout essentially threw
   away the Plaintiffs’ preliminary design schematics and started over from scratch.
   However, given that this was disputed, Defendants argued—for purposes of their summary
   judgment motion—that even if it were true that Ted Trout used Plaintiffs’ schematics, the
   copyright infringement claim still failed due to the license.

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   Defever registered her designs with the United States Copyright Office as
   architectural works.
          In 2015, several Defendants engaged in a series of sale/leaseback
   financing transactions in order to appropriately fund and manage the
   facilities. Thereafter, construction commenced, and once complete, Texas
   Senior Living Operator, LLC (“TSLO”) began marketing the facilities by
   posting copies of Ted Trout’s floor plans on its website. TSLO eventually
   sold the facilities to CPF Living Communities II-Woodhaven, LLC
   (“CPF”), who assigned Grace Management, Inc. as the day-to-day manager
   of the facilities and website. After this acquisition, CPF placed copies of Ted
   Trout’s unit floor plans in brochures and posted them on the Woodhaven
   Village website.

          Nearly five years after they became aware that their schematics were
   allegedly being used in the Project, Plaintiffs sued Defendants and Padua
   Realty for copyright infringement under 17 U.S.C. § 501, violations of 17
   U.S.C. § 1202(a) and (b), and breach of contract.          For the copyright
   infringement claims, Plaintiffs alleged certain Defendants were liable for
   direct infringement because they used the schematics to create and
   subsequently market, rent, and sell the derivative works. Plaintiffs further
   alleged other Defendants and Padua Realty were contributorily or vicariously
   liable. As for the DMCA claims, Plaintiffs alleged certain Defendants were
   directly liable by removing “Loeb Architects, LLC” from infringing plans
   and either (1) including a different title block and copyright notice on the
   plans, and/or (2) distributing them through brochures and posting them on
   the Woodhaven Village website. Plaintiffs also alleged other Defendants and
   Padua Realty were secondarily liable under the DMCA because they induced
   or encouraged the alleged infringing conduct. Finally, Plaintiffs alleged that

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   Padua Realty breached the two contracts by failing to (1) consult with them
   before using the designs in advertisements; (2) inform them of all information
   known about the site that might have affected Plaintiffs’ contractual
   performance; (3) acknowledge Plaintiffs’ professional services in
   advertisements; and (4) furnish and coordinate the services of consultants
   “not included in the [contracts’] Scope of Services.”
          Defendants and Padua Realty moved for summary judgment on the
   copyright infringement and DMCA claims. They argued, as relevant here,
   that (1) the contracts granted them an express, nonexclusive license to use
   the preliminary design schematics in connection with the Project, including
   to make derivative works; (2) the DMCA does not apply to derivative works;
   and (3) Plaintiffs failed to show there was a genuine dispute of material fact
   regarding scienter for their DMCA claims. Padua Realty separately moved
   for summary judgment on the breach of contract claims. It argued that
   Plaintiffs failed to carry their burden of showing actual damages stemming
   from the purported breaches of contract. The district court granted both
   motions. Plaintiffs timely appealed.

                          Jurisdiction & Standard of Review

          The district court had jurisdiction under 28 U.S.C. §§ 1331 and 1367.
   We have appellate jurisdiction under 28 U.S.C. § 1291. “We review [the]
   district court’s grant of summary judgment de novo, applying the same
   standard of review as . . . the district court.” Brand Servs., L.L.C. v. Irex
   Corp., 909 F.3d 151, 155–56 (5th Cir. 2018) (quotation omitted). “Summary
   judgment is proper only when it appears that there is no genuine issue of
   material fact and that the moving party is entitled to judgment as a matter of
   law.” Id. at 156 (quotation omitted); see also FED. R. CIV. P. 56(c). We draw
   all inferences from the facts in the light most favorable to the non-moving
   party. Id.

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           “The existence of a license authorizing use of copyrighted material is
   an affirmative defense” to a copyright infringement claim, and therefore
   Defendants bear the burden of proving its existence. Lulirama Ltd., Inc. v.
   Axcess Broad. Servs., Inc., 128 F.3d 872, 884 (5th Cir. 1997). As such, to
   warrant entry of summary judgment, Defendants “must establish beyond
   peradventure all of the essential elements of the . . . defense.” Guzman v.
   Allstate Assurance Co., 18 F.4th 157, 160 (5th Cir. 2021) (internal quotation
   marks and citation omitted). Only if Defendants succeed must Plaintiffs
   “designate specific facts showing that there is a genuine issue for trial.” Id.
   (internal quotation marks and citation omitted). Nonetheless, conclusory
   evidence is insufficient to avoid summary judgment. See DIRECTV, Inc. v.
   Budden, 420 F.3d 521, 531 (5th Cir. 2005).

                                             Discussion

           Plaintiffs raise three main issues on appeal. First, Plaintiffs contend
   the district court misinterpreted the scope of the license Plaintiffs granted to
   Defendants.      Second, Plaintiffs assert Defendants were not entitled to
   summary judgment on the DMCA claims because there were genuine
   disputes of material fact regarding scienter. Third, Plaintiffs maintain Padua
   Realty was not entitled to summary judgment on the breach of contract
   claims because there were genuine disputes of material fact regarding
   damages. We examine each issue in turn, but none warrant reversal.

           It is undisputed that Plaintiffs granted Padua Realty an express,
   nonexclusive license to use the preliminary design schematics in connection
   with the Project.3 What is disputed, however, is the scope of this license.
           _____________________
           3
             Although Plaintiffs dispute the district court’s holding regarding the implied
   license, we do not reach this issue because we affirm the district court on the ground that

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   Plaintiffs contend they only granted Padua Realty a limited license to use the
   preliminary design schematics to obtain financing for the Project. Padua
   Realty, on the other hand, contends that Plaintiffs’ license allowed it, and the
   other Defendants, to use the preliminary design schematics to create
   derivative works—such as to develop construction plans and build
   facilities—as well as market, rent, and sell the facilities. Thus, the two main
   issues here are whether the license (1) included the right to create derivative
   works; and (2) allowed third parties to implement it.
           A nonexclusive license can be express or implied and is generally
   construed under state contract law. See Fantastic Fakes, Inc. v. Pickwick Int’l,
   Inc., 661 F.2d 479, 482–83 (5th Cir. Unit B Nov. 1981). This is not to say that
   federal law is inapplicable when construing a nonexclusive copyright license.
   See id. at 483 (explaining the “context of copyright law in which the
   agreement exists cannot be overlooked”). Rather, it simply acts as a gap filler
   when application of state law principles are preempted by the “[C]opyright
   [A]ct” or “violate federal copyright policy.” Id. Neither conflict is present
   here and therefore, because the contracts contain a Texas choice of law
   provision, we apply Texas contract law.
           A court’s primary concern when construing a contract “is to ascertain
   the intentions of the parties as expressed in the document.” RSUI Indem.
   Co. v. The Lynd Co., 466 S.W.3d 113, 118 (Tex. 2015). Our “analysis [begins]
   with the language of the contract because it is the best representation of what
   the parties mutually intended,” and we give “words and phrases . . . their
   ordinary and generally accepted meaning.” Id. We also “examine and
   consider the entire writing in an effort to harmonize and give effect to all

           _____________________
   Defendants conduct fell within the scope of the express license. Therefore, we express no
   judgment on the merits of the district court’s holding for the implied license.

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   provisions of the contract so that none will be rendered meaningless.”
   Compliance Source, Inc. v. GreenPoint Mortg. Funding, Inc., 624 F.3d 252, 259
   (5th Cir. 2010) (quoting J.M. Davidson, Inc. v. Webster, 128 S.W.3d 223, 229
   (Tex. 2003)).

          1.       Derivative Works

          There are two relevant provisions in the contracts that Plaintiffs
   executed with Padua Realty. The first provision explains that Plaintiffs
   agreed to provide Padua Realty with preliminary design schematics that
   Padua Realty could “reproduce, scan, and/or dry mount and laminate as
   desired.”   The second provision explained that the “[d]rawings and
   specifications” were the property of Plaintiffs and prohibited their use “on
   other projects or extensions to this project” absent certain conditions.
   Reading these two provisions together, the district court concluded the
   contracts granted Padua Realty a nonexclusive license to use the schematics
   to create derivative works in connection with the Project so long as they were
   not used on “other projects or extensions to [the] project[s].” We agree with
   that construction.
          The plain meaning of the verb “reproduce” in the first provision sug-
   gests the license granted Defendants the right to create derivative works.
   “[R]eproduce” is defined as “to imitate closely” or “to make a representa-
   tion (such as an image or copy) of” something. Reproduce, MERRIAM-WEB-
   STER, https://www.merriam-webster.com/dictionary/reproduce (last          vis-
   ited July 7, 2023). Derivative works, by definition, are substantially similar
   to the copyrighted work. See Vault Corp. v. Quaid Software Ltd., 847 F.2d
   255, 267 (5th Cir. 1988) (noting that to constitute a derivative work, the in-
   fringing work must, in part, “be substantially similar to the copyrighted
   work”). Therefore, the right to “reproduce” a work appears to encompass
   the right to create a derivative work. The verbs following “reproduce”—

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   “scan,” “dry mount,” and “laminate”—and the broad qualifier at the end
   of the provision, “as desired,” further support this interpretation. Cumula-
   tively, these provisions suggest Padua Realty had largely unfettered discre-
   tion to distribute and use the schematics throughout the Project’s develop-
   ment.
           The second provision reinforces this point. The phrase, “[t]hese
   documents may not be used on other projects or extensions to this project,”
   limits the scope of the first provision. See Kachina Pipeline Co., Inc. v. Lillis,
   471 S.W.3d 445, 450 (Tex. 2015) (explaining that in interpreting contracts,
   contracts must be read to give effect to all the provisions). However, this
   phrase also implies that Defendants were permitted to use the preliminary
   design schematics in subsequent phases. See Universal Health Servs., Inc., v.
   Renaissance Women’s Grp., P.A., 121 S.W.3d 742, 748 (Tex. 2003). The
   parties clearly contemplated this use because otherwise, Padua Realty would
   have entered into contracts that effectively prevented it from completing the
   Project and paid $10,800 for useless schematics. See Absurdity Doctrine,
   Black’s Law Dictionary (11th ed. 2019). Accordingly, we conclude that
   the contracts granted Padua Realty a license to use the schematics in
   connection with the Project, including to create derivative works.
           We briefly address a few of Plaintiffs’ counterarguments.4 First,
   contrary to Plaintiffs’ contention, construing the verb “reproduce”

           _____________________
           4
              Plaintiffs raise a number of arguments on appeal, but we conclude that none
   change the outcome. For instance, Plaintiffs contend the word “project” in the contracts
   only referred to their architectural services. Therefore, according to Plaintiffs, the second
   provision limited use of the schematics to phases one and two of the Project. This is a
   stilted interpretation of the word “project,” particularly so because the contract expressly
   defines the term as “a freestanding, single story wood framed Assisted Living and Memory
   Care facility” with “60 assisted living units plus 24 memory care units.” Plaintiffs’
   remaining arguments—such as their reliance on out-of-circuit precedent, their cramped

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   according to its plain meaning would not conflict with copyright policy. See
   Womack & Hampton Architects, L.L.C. v. Metric Holdings Ltd. P’ship, 102 F.
   App’x 374, 378 (5th Cir. 2004) (per curiam) (applying Texas’s contract law
   principle that words in a contract should be given their plain meaning to a
   copyright license).
           Second, the contracts’ title—“Proposed Scope of Limited Services
   for Financing Package”—does not imply that the schematics could only be
   used in financing packages to solicit investors. Rather, the title and the two
   relevant provisions, when considered together, establish that the parties
   intended the schematics to be used both for financing purposes and as a
   conceptual springboard for later design stages. If they did not intend the
   latter usage, the parties’ inclusion of the schematics in the financing package
   would amount to an affirmative misrepresentation. See Harmonious Reading
   Canon, Black’s Law Dictionary (11th ed. 2019). Accordingly, such a
   construction is unreasonable.

           2.      Third Party Implementation

           Plaintiffs maintain Padua Realty could not assign the contracts to
   Defendants because the contracts contained an anti-assignment clause. They
   further contend that under Texas law, the provision of architectural services
   are non-assignable personal services. Defendants do not dispute these
   conclusions, but instead contend any prohibition on assignments is irrelevant
   because Plaintiffs’ license granted Padua Realty the right to work with third
   parties to effectuate the Project. We agree with Defendants.
           Again, under Texas contract law, we begin with the text of the express,
   nonexclusive license.       See Compliance Source, Inc. v. GreenPoint Mortg.
           _____________________
   interpretation of the word “extensions,” and the superfluous canon—also fail to establish
   that the license did not extend to derivative works.

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   Funding, Inc., 624 F.3d 252, 259–60 (5th Cir. 2010). The contracts expressly
   stated Padua Realty would provide, among other things, “[c]ivil
   [e]ngineering,” “third party inspections,” “[c]onstruction [t]esting
   services,” and also “furnish and coordinate services of . . . [c]onsultants.”
   These provisions demonstrate Padua Realty was expressly authorized to use
   third parties to implement the license. See also Seaview Hosp., Inc. v.
   Medicenters of Am., Inc., 570 S.W.2d 35, 39–40 (Tex. App.—Corpus Christi
   1978, no writ) (concluding the word “furnish” requires a person to provide
   what is needed to perform the function while the word “perform” requires
   the person to actually carry out the function). This authorization also
   included the right to market, rent, and sell the facilities, which was the very
   purpose for which they were built. See Kourosh Hemyari v. Stephens, 355
   S.W.3d 623, 626 (Tex. 2011) (explaining courts avoid construing a contract
   in a manner that would lead to absurd results). Thus, Defendants’ use of the
   preliminary design schematics to create derivative works and subsequent
   marketing, rental, and sale of the facilities did not exceed the scope of the
   license.

           Plaintiffs also contend the district court erred in granting summary
   judgment on the DMCA claims. We find no error. Plaintiffs failed to
   establish a genuine dispute of material fact on scienter.5
           The DMCA prohibits distribution of false copyright management
   information as well as the unauthorized removal of copyright management

           _____________________
           5
             The district court also concluded that the DMCA does not apply to derivative
   works. Because we affirm the district court’s alternative holding on scienter, we do not
   reach the issue relating to derivative works and express no judgment on the merits of that
   holding.

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   information.   See 17 U.S.C. § 1202(a), (b).        To recover under these
   provisions, Plaintiffs must show that Defendants engaged in the prohibited
   conduct with the intent or knowledge that such conduct would, “induce,
   enable, facilitate, or conceal an infringement.” See id. Defendants could not
   have intended or even known that their conduct would “induce, enable,
   facilitate, or conceal an infringement” when they were not infringing
   Plaintiffs’ copyright in the first place because they held a license. As such,
   Defendants—including those alleged to be directly and vicariously liable—
   were entitled to summary judgment on Plaintiffs’ DMCA claims as well.

          Finally, Plaintiffs contend the district court erred in granting summary
   on the breach of contract claims. We conclude that it was not erroneous.
   Neither Plaintiffs’ evidence of copyright infringement damages nor the
   alleged judicial admissions purportedly ignored by the district court created
   a genuine dispute of material fact regarding damages.
          Plaintiffs’ theory of damages for copyright infringement—the profits
   they would have earned had they completed phases three through seven of
   the contracts—did not align with their theory of damages for their breach of
   contract claim because Padua Realty had no contractual obligation to retain
   Plaintiffs beyond the first two phases. So, one could not support the other.
          Likewise, Defendants’ statement in the pretrial order that “the
   amount of any damages” was a contested issue of fact was not an unequivocal
   admission. Bank v. Redcom Lab’ys, Inc., 250 F.3d 319, 329 (5th Cir. 2001)
   (explaining to qualify as a judicial admission, the statement must be, among
   other things, “deliberate, clear, and unequivocal”). Rather, when it is read
   in context with their earlier statement that “Plaintiff[s] ha[ve] no actual
   damages and ha[ve] put forth no evidence of actual damages,” it is clear
   Defendants were merely taking alternative litigation positions. That does not

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   amount to a judicial admission. See Helpert v. Walsh, 759 F. App’x 199, 203–
   04 (5th Cir. 2018) (concluding a statement in a pretrial order that the party
   was at fault for the accident was not a judicial admission that the party was
   negligent because “[i]n that same order, [the party] expressly reserved as a
   contested issue of fact whether [the party] was negligent in causing the
   accident”).
      Therefore, Padua Realty was properly granted summary judgment for
   these claims as well.

                                      Conclusion

          For the reasons discussed above, we AFFIRM the district court’s
   grants of summary judgment.

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