Court Opinion

ID: 214804
Source: CourtListenerOpinion
Date Created: 2011-04-15 23:21:33+00
Date Added: 2024-06-11T13:17:04.439479
License: Public Domain

Case: 09-20868 Document: 00511447514 Page: 1 Date Filed: 04/15/2011

        IN THE UNITED STATES COURT OF APPEALS
                 FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                 Fifth Circuit

                                              FILED
                                                                 April 15, 2011

                                No. 09-20868                     Lyle W. Cayce
                                                                      Clerk

REAL ESTATE INNOVATIONS, INC.,

                                         Plaintiff - Appellant
v.

HOUSTON ASSOCIATION OF REALTORS, INC; E-HAR INC.; NATIONAL
ASSOCIATION OF REALTORS INC; REAL DATA INC.; HOUSTON
REALTORS INFORMATION SERVICE INC., also known as e-Har Inc;
SUSIE G. HALE, doing business as eFrog Pond Inc; MARKETLINX INC.,
doing business as Interactive Data Development; LANDSTAR INC.; STEVEN
D. SMITH, doing business as Applied Office Technology Inc.; RICHARD A
SMITH, doing business as Coldwell Banker United Realtors; JOHN
DAUGHERTY REALTORS INC.; ROBERT F. KORY, doing business as RK
Western Realty, also known as Century 21-Western Realty, Inc.; JAMES H.
KEENAN, doing business as Kidwell-Keenam, Realtors, also known as
RE/MAX Elite; PEGGY TUTHILL REALTORS, INC., formerly known as
Keller Williams Memorial; PETER B. MERRITT, doing business as Peter B.
Merritt, L.L.C., formerly known as Realty Associates; FIRST AMERICAN
REAL ESTATE SOLUTIONS, L.L.C.; ET AL,

                                         Defendants - Appellees

                Appeal from the United States District Court
                     for the Southern District of Texas
                          USDC No. 4:07-CV-3563

Before GARWOOD, ELROD, and SOUTHWICK, Circuit Judges.
     Case: 09-20868 Document: 00511447514 Page: 2 Date Filed: 04/15/2011

                                       No. 09-20868

PER CURIAM:*
       This suit arises from a failed business relationship between Real Estate
Innovations and Johnnie Norsworthy. Real Estate Innovations filed a barrage
of claims against the defendants, ranging from claims of copyright infringement
to RICO Act violations. Through a series of motions to dismiss, the district court
dismissed all claims against the defendants. Real Estate Innovations appealed.
We AFFIRM.
                               STATEMENT OF FACTS
       Real Estate Innovations (REI) is a software marketing corporation in
Houston, Texas, owned by Pamela Connery-Hazelwood. Johnnie Norsworthy is
a software engineer who created software for a Disk Operating System
copyrighted as “RE/minder loader v1.01.” The program provides real estate
brokers and agents listings-management software that organizes data delivered
from the Multiple Listing Service into a computerized property book. It contains
an inventory of real estate properties listed for sale and provides a platform for
agents to search, view, and track showings of listed properties.
       In October 1992, Norsworthy executed an agreement that gave REI
exclusive marketing and sales rights to the “VS/REMS-Re/Minder” software. We
mention now, and will discuss the relevance of the point later, that the software
identified in the agreement is not the same one named in the copyright
registration. Over the next 13 years, REI continued marketing the software, and
Norsworthy provided support to REI by maintaining the software’s compatibility
with the frequent changes in the Multiple Listing Service system. Norsworthy
released to REI for distribution the new VS/REMS-Re/Minder for Windows in

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.

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April 2003. REI marketed and sold VS/REMS-Re/Minder for Windows until
Norsworthy terminated their contract in October 2005.
      REI alleges that in 2002, Defendants Norsworthy, First American MLS
Solutions, National Association of Realtors, Houston Association of Realtors,
Houston Realtors Information Service, Inc., Steve Smith, and Real Data, Inc.
released REI’s licensed VS/REMS-Re/Minder software over the internet without
REI’s knowledge or permission. These defendants allegedly released various
web-based software products, called “copy products” by REI, that performed the
same functions as REI’s software. They were either free to Houston Association
of Realtors’ members or cost significantly less than REI’s product.
      In 2003, REI’s clients began cancelling their subscriptions to REI’s
software in favor of competing products. REI contends that the defendants
launched a web-based version of listing-management software that infringed
REI’s software. This allegedly infringing web-based version eliminated the need
for the software governed by the agreement between REI and Norsworthy. REI
asserts that Norsworthy acted in violation of REI’s exclusive marketing and
sales rights by secretly developing and selling similar, but directly-competing
software. Many of the defendants are former clients of REI that terminated
their subscriptions to use the competing online software.     REI also alleges
numerous defendants created partially or wholly owned entities to be resellers
of VS/REMS-Re/Minder software without REI’s permission.
      Pamela Connery-Hazelwood, as owner of REI, filed a pro se complaint
against four defendants alleging 11 claims for relief, including breach of
contract, copyright infringement, tortious interference with a contract and a
prospective business, fraudulent conversion and concealment, civil conspiracy,
and violations of the Sherman Antitrust Act. Connery-Hazelwood, pro se, filed
three amended complaints on behalf of REI. The result of the amendments was
to add 34 defendants and 21 claims for relief. Counsel was retained by REI at

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some point after the third amended complaint was filed. The defendants moved
to dismiss. The district court partially granted these motions, holding that REI
did not have standing to bring a copyright infringement claim.                 The court
permitted REI to re-plead its fraud and RICO claims.
       REI then filed its fourth amended complaint. Twenty-four defendants
moved to dismiss the complaint under Federal Rules of Civil Procedure 12(b)(1)
and 12(b)(6). The defendants argued that at least seven of the claims were
preempted by the Copyright Act, that REI’s fraud allegations failed the
particularity requirements of Rule 9(b), and that the remaining claims were
insufficient to state a claim for relief. The district court agreed and granted the
motion of 24 defendants. Then sua sponte, the district court dismissed those
same claims against the remaining defendants.
       A final judgment was entered on November 16, 2009, dismissing all claims
against every defendant except Norsworthy.1 This appeal followed.
                                     DISCUSSION
       As an initial matter, there were seven claims raised in the district court
but not discussed by REI on appeal. The defendants noted in their response
brief the absence of these claims, yet REI did not file a reply to explain the
omission. We consider the claims waived for failure to brief. See Brinkmann v.
Dallas Cnty. Deputy Sheriff Abner, 813 F.2d 744, 748 (5th Cir. 1987). There also
are a number of issues mentioned in REI’s brief in too cursory a fashion for us
to consider. Federal Rule of Appellate Procedure 28 requires that an appellant’s
brief “contain . . . [the] appellant’s contentions and the reasons for them, with
citations to the authorities and parts of the record on which the appellant relies.”
Fed. R. App. P. 28(a)(9)(A). Because issues inadequately briefed on appeal are
considered waived, we do not address REI’s claims related to the Sherman

      1
         Norsworthy filed for bankruptcy on or about April 17, 2008, and the district court
signed an order administratively closing the case against him on June 6, 2008.

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Antitrust Act or the Texas Uniform Fraudulent Transfer Act, nor do we discuss
claims for circumvention of copyright systems, fraudulent concealment,
fraudulent misrepresentation, and unfair competition.2 See id. What remains
for our consideration are the core issues of the controversy.
I.     Copyright Infringement3
       REI brought a copyright infringement claim, alleging that certain
defendants infringed REI’s copyright when they permitted the VS/REMS-Re/
Minder software to be accessed, downloaded, and updated by other entities for
commercial advantage or private financial gain. The district court dismissed
REI’s copyright infringement claim for lack of standing with no further
explanation. REI then filed a motion seeking clarification of the court’s ruling.
The court reasoned that REI lacked standing to bring a claim for copyright
infringement because the evidence demonstrated that Norsworthy had owned
the copyright to the software since 1992, not REI. Further, the court explained
that although Norsworthy granted REI exclusive sales and marketing rights to
the software in 1992, that agreement did not establish REI owned the copyright
at issue.
       We review questions of jurisdiction, and specifically standing, de novo.
Arguello v. Conoco, Inc., 330 F.3d 355, 361 (5th Cir. 2003).
       “The ownership of a copyright may be transferred in whole or in part by
any means of conveyance or by operation of law . . . .” 17 U.S.C. § 201(d)(1).
“The owner of any particular exclusive right is entitled . . . to all of the protection
and remedies accorded to the copyright owner by this title.” Id. § 201(d)(2).
Section 106 of the Copyright Act provides a list of exclusive rights accorded to

       2
         The claims we are not discussing because of inadequate briefing are identified in REI’s
brief as Issues 5, 6, 8, 9, and 10.
       3
        We discuss Issue 1 from REI’s brief in this section. Because we determine REI has
standing, we need not address Issue 13, REI’s doctrine of accrued claim argument.

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a copyright owner, including the exclusive right “to distribute copies . . . of the
copyrighted work to the public by sale . . . .” 17 U.S.C. § 106(3). Attached to
REI’s fourth amended complaint was a contract by which Norsworthy granted
REI “exclusive Marketing and Sales Rights” to VS/REMS-Re/Minder software.
The district court’s holding that REI lacked standing was incorrect. Because
REI received the exclusive right to marketing and sales of the VS/REMS-
Re/Minder software, REI has standing as the owner of that right and is entitled
to the protections of the Copyright Act as to that particular software.
      This court, however, may affirm the dismissal of REI’s copyright
infringement claim for any reason supported by the record regardless of whether
the district court relied upon it. See Forsyth v. Barr, 19 F.3d 1527, 1534 n.12
(5th Cir. 1994). The defendants argued below and here that REI failed to state
a claim because it did not meet this statutory registration requirement: “no civil
action for infringement of the copyright in any United States work shall be
instituted until preregistration or registration of the copyright claim has been
made in accordance with this title.” 17 U.S.C. § 411(a).
      The Supreme Court recently decided that lack of a copyright registration
for the intellectual property that is the subject of a claim is not fatal to a court’s
jurisdiction but instead is a claims-processing requirement. Reed Elsevier, Inc.
v. Muchnick, __ U.S. __, 130 S. Ct. 1237, 1243-47 (2010). If a plaintiff does not
have a copyright registration, her claim may be dismissed for failure to state a
claim but should not be dismissed for lack of subject matter jurisdiction. 2-7
Nimmer on Copyright, § 7.16[B][2][c].
      The defendants assert that the proof of registration provided by REI dated
April 20, 1993, is limited to a program called RE/minder loader v1.01. REI’s
copyright infringement claims are based on VS/REMS-Re/Minder for Windows.
REI has made no effort to explain the discrepancy in software names, nor has
REI produced proof of registration for VS/REMS/RE/Minder for Windows. It was

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not    until      oral   argument       that     REI’s    counsel      first   asserted     that
VS/REMS/RE/Minder for Windows is a derivative work of the underlying
registered software. REI did not provide caselaw to the court on its derivative
work argument until well over a month after oral argument in a Rule 28(j) letter.
We do not address the merit of REI’s derivative work argument because the
argument was not presented to the district court for its consideration. See
Louque v. Allstate Ins. Co., 314 F.3d 776, 779 n.1 (5th Cir. 2002).
       Because the registration requirements of 17 U.S.C. § 411(a) were not met
as to the software at issue in this case, REI failed to state a claim for copyright
infringement. Dismissal of REI’s copyright infringement claims was proper.
II.    Copyright Act Preemption 4
       REI contends that the district court erred in dismissing its state law
claims for breach of contract and fraudulent conversion based on the preemption
doctrine. “We review the district court’s preemption analysis de novo.” Wright
v. Allstate Ins. Co., 415 F.3d 384, 389 (5th Cir. 2005) (citation omitted).
       Though perhaps counter-intuitive, it is settled that the absence of a
copyright registration does not preclude the application of the doctrine of
preemption that exists under the Copyright Act.                        The claim-processing
requirements of Section 411(a) relate to the validity of the copyright
infringement claim, but have “no bearing on the preemption of state law under
[Section] 301.” Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 658 (4th Cir.
1993). Quite simply, Section 301’s broad preemptive scope is not affected by
Section 411(a)’s registration requirements. Id.
       State laws are subject to federal preemption under the Copyright Act if
they create “legal or equitable rights that are equivalent to any of the exclusive
rights within the general scope of copyright as specified by section 106 . . . .” 17

       4
           We have combined the discussion of Issues 2, 3, and 4 from REI’s brief in this section.

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U.S.C. § 301(a). Application of this provision is by a two-part test. Carson v.
Dynegy, Inc., 344 F.3d 446, 456 (5th Cir. 2003). Both parts must be satisfied for
there to be a preempted claim. Id. The cause of action first “is examined to
determine whether it falls within the subject matter of copyright as defined by
17 U.S.C. § 102.” Id. (quotation marks and citations omitted). If it does, “the
cause of action is examined to determine if it protects rights that are equivalent
to any of the exclusive rights of a federal copyright, as provided in 17 U.S.C. §
106.” Id. (quotation marks and citation omitted). Section 106 grants the holder
of a copyright the exclusive right to reproduce, distribute, perform, and display
the copyrighted work. 17 U.S.C. § 106.
       We first address the issue of preemption as applied to REI’s breach of
contract claim. REI’s fourth amended complaint alleged that the defendants
“breached Plaintiff[’]s contract and caused economic injury to Plaintiff’s business
from    the   illegal   distribution   (file-sharing)   of   Plaintiff[’]s   licensed
VS/REMS/RE/Minder software to non-licensed real estate offices, agents and
entities, in breach of Plaintiff[’]s contract and in violation of Plaintiff[’]s
exclusive distribution rights.”
       The parties do not dispute that REI’s software is within the subject matter
of copyright. We must then decide whether the cause of action protects rights
equivalent to exclusive rights under the Act. Carson, 344 F.3d at 456. This
court has held that breach of contract claims are not preempted by the Copyright
Act. Taquino v. Teledyne Monarch Rubber, 893 F.2d 1488, 1501 (5th Cir. 1990).
“[An] action for breach of contract involves an element in addition to mere
reproduction, distribution or display: the contract promise made by [the parties],
therefore, it is not preempted.” Id. (citations omitted).
       Although the district court erred in holding that REI’s breach of contract
claim is preempted by the Copyright Act, we may affirm the dismissal of a claim

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for any reason supported by the record. See Forsyth, 19 F.3d at 1534 n.12. REI’s
breach of contract claim should be dismissed for failure to state a claim.
      The Federal Rules of Civil Procedure require “a short and plain statement
of the claim showing that the pleader is entitled to relief[.]” Fed. R. Civ. P.
8(a)(2). While the complaint does not need detailed factual allegations to survive
a motion to dismiss, factual allegations must support that a right to relief is
neither speculative nor merely a legal conclusion. Ashcroft v. Iqbal,__ U.S. __,
129 S. Ct. 1937, 1949 (2009).
      Under Texas law, a breach of contract action requires “(1) the existence of
a valid contract; (2) performance or tendered performance by the plaintiff; (3)
breach of the contract by the defendant; and (4) damages sustained by the
plaintiff as a result of the breach.” Smith Int’l, Inc. v. Egle Group, LLC, 490 F.3d
380, 387 (5th Cir. 2007) (quotation marks and citation omitted).
      REI does not attach, identify, or describe the terms of any contract
between REI and the defendants. The only contract mentioned and attached to
its complaint is the exclusive distribution right agreement between REI and
Norsworthy. No defendant other than Norsworthy was a party to that contract,
and Norsworthy is not a party to this appeal. REI does not contend that the
defendants in some other way owed obligations under the contract to REI,
perhaps as a third-party beneficiary or for some other reason.
      REI’s breach of contract claim fails to state a claim because REI has not
pled the existence of a contract between it and the defendants or the factual
basis for a breach of any such contract.
      We now consider whether preemption applies to REI’s fraudulent
conversion claim. “The tort of conversion relates to interference with tangible
rather than intangible property and, hence, should be held immune from pre-
emption.” 1-1 Nimmer on Copyright § 1.01[B][1][i]. In Texas, conversion claims
are limited to the wrongful exercise of dominion and control over tangible,

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physical objects. See Carson, 344 F.3d at 456 (citing Waisath v. Lack’s Stores,
Inc., 474 S.W.2d 444, 447 (Tex. 1971)).                 Allegations involving intellectual
property rights are outside the scope of Texas conversion law. Id. A claim for
conversion will be preempted when the theory of recovery merely asserts the
wrongful copying, distribution, or performance of an interest under the
Copyright Act. Daboub, 42 F.3d at 289.
        REI represents in its brief that it “alleged Defendants committed the acts
of fraudulent conversion by not returning the software after Defendants
improperly copied and used REI’s software.” A review of the pleadings does not
support this assertion. REI’s complaint instead demonstrated that its theory of
conversion is based on intangible property – the alleged infringing distribution
of “an Internet hosted version of [REI]’s licensed VS/REMS/RE/Minder
software.”
        Because the allegations underlying REI’s fraudulent conversion claim
involved the defendants’ wrongful distribution of REI’s software, the district
court properly held it was preempted.
III.    Racketeering Influenced and Corrupt Organizations Act (RICO)5
        REI’s third amended complaint alleged that the defendants violated RICO
under 18 U.S.C. §§ 1961-68 and described nine predicate offenses. The district
court granted REI leave to amend its RICO claims, noting deficiencies in the
pleadings. Despite a fourth amendment, the district court dismissed REI’s RICO
claims for failure to state a claim. REI contends its allegations sufficiently
stated a claim and should not have been dismissed.
        Regardless of subsection, RICO claims have three common elements: “1)
a person who engages in 2) a pattern of racketeering activity, 3) connected to the
acquisition, establishment, conduct, or control of an enterprise.” Crowe v. Henry,

        5
            We discuss Issue 7 from REI’s brief in this section.

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43 F.3d 198, 204 (5th Cir. 1995) (quotation marks and citation omitted). “A
plaintiff asserting a RICO claim must allege the existence of an enterprise.” Id.
(citation omitted).
       An enterprise under RICO can include legal entities such as partnerships
and corporations, but it also can include “any union or group of individuals
associated in fact although not a legal entity.” 18 U.S.C. § 1961(4). “If the
enterprise alleged is an ‘association in fact’ enterprise, the plaintiff must show
evidence of an ongoing organization, formal or informal, that functions as a
continuing unit over time through a hierarchical or consensual decision-making
structure.” Elliot v. Foufas, 867 F.2d 877, 881 (5th Cir. 1989) (citation omitted).
       The district court held that REI failed to plead specific facts to established
the existence of an enterprise. We agree. REI’s conclusory allegations did not
provide sufficient facts to establish the existence of an enterprise. REI’s fourth
amended complaint provided a mere recitation of the elements necessary to
demonstrate an enterprise without providing relevant facts. Accordingly, the
district court properly dismissed REI’s RICO claims for failure to state a claim.
IV.    Denial of Leave to Amend 6
       First American Real Estate Solutions filed a motion to dismiss REI’s
fourth amended complaint, arguing that REI had abandoned its claims against
it. Although First American was a named defendant in REI’s third amended
complaint, it was omitted in the fourth amended complaint. REI claimed the
omission was a typographical error and sought leave to amend its complaint a
fifth time to include First American as a defendant. First American responded
that despite being a named defendant in the third amended complaint, it was
never served with process and had sought dismissal on that basis. In fact, the

       6
           We discuss Issue 11 from REI’s brief in this section.

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district court previously had granted dismissal to First American on the third
amended complaint without prejudice, allowing REI leave to perfect service.
      The district court held that REI already had four opportunities to amend
its complaint to cure any deficiencies. The district court denied REI’s request for
leave to amend its complaint for a fifth time and granted First American’s
motion to dismiss.
      REI contends the district court erred by denying its request to amend. We
review “a district court’s denial of leave to amend a complaint for abuse of
discretion.” Ashe v. Corley, 992 F.2d 540, 542 (5th Cir. 1993) (citation omitted).
“The court should freely give leave when justice so requires.” Fed. R. Civ. P.
15(a)(2). In deciding whether to allow an amendment, a district court “may
consider such factors as undue delay, bad faith or dilatory motive on the part of
the movant, repeated failure to cure deficiencies by amendments previously
allowed, undue prejudice to the opposing party, and futility of amendment.”
Matter of Southmark Corp., 88 F.3d 311, 314-15 (5th Cir. 1996).
      REI was afforded the opportunity to perfect service on First American
after filing its third amended complaint, but did not. REI then filed a fourth
amended complaint omitting First American and again failing to perfect service.
The district court did not abuse its discretion in denying leave to amend.
V.    Sua Sponte Dismissal of Claims 7
      REI challenges the sua sponte dismissal of its remaining claims. By ruling
on a series of motions to dismiss, the district court dismissed claims against a
number of defendants. The district court then sua sponte dismissed those same
claims against other defendants. The court explained that REI had alleged the
same 15 claims disposed of by its previous order against many of the remaining
defendants, and that to the extent those same claims were alleged, the court

      7
          We discuss Issue 12 from REI’s brief in this section.

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dismissed them with prejudice against the remaining defendants consistent with
that order.   Following that same approach, the district court dismissed all
remaining claims sua sponte in a subsequent order.
      A district court’s sua sponte dismissal is reviewed de novo. White v.
Johnson, 429 F.3d 572, 573 (5th Cir. 2005). A district court has authority to
dismiss a complaint on its own motion for failure to state a claim. Carroll v. Fort
James Corp., 470 F.3d 1171, 1177 (5th Cir. 2006). The district court may
dismiss sua sponte only “as long as the procedure employed is fair.”              Id.
(quotation marks and citation omitted). This court has “suggested that fairness
in this context requires both notice of the court’s intention and an opportunity
to respond.” Id. Even if the district court failed to provide notice to the plaintiff
prior to dismissal, this court still may affirm if the plaintiff has alleged its “best
case” and the dismissal was otherwise proper. Lozano v. Ocwen Fed. Bank, FSB,
489 F.3d 636, 643 (5th Cir. 2007). “At some point a court must decide that a
plaintiff has had fair opportunity to make his case; if, after that time, a cause of
action has not been established, the court should finally dismiss the suit.”
Jacquez v. Procunier, 801 F.2d 789, 792 (5th Cir. 1986).
      REI contends that the district court erred by failing to give REI notice of
the court’s intention to dismiss the claims or an opportunity to amend its
complaint. Despite several amendments, REI insists it only had one opportunity
to amend once employing counsel. The defendants argue that despite the lack
of notice, REI had the opportunity to allege its best case.
      The district court permitted REI to amend its complaint four times to
correct deficiencies noted by the court before its sua sponte dismissal. REI’s
explanation for wanting to amend again did not offer reasons that would change
the outcome of the case. REI had the opportunity to allege its best case. We find
no error in the dismissal of REI’s remaining claims.
      AFFIRMED.

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