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Tes Franchising, LLC v. Dombach

November 24, 2010

TES FRANCHISING, LLC, ET AL., PLAINTIFFS,
v.
J. ERIC DOMBACH, ET AL., DEFENDANTS,
v.
TERRY POWELL, ET AL., ADDITIONAL DEFENDANTS.



The opinion of the court was delivered by: Henry S. Perkin United States Magistrate Judge

MEMORANDUM

Presently before the Court is the Motion to Dismiss the Amended Counterclaims of Counterclaim Plaintiff J. Eric Dombach ("Dombach") filed by Counterclaim Defendants TES Franchising, LLC ("TES"), Advicoach Franchising, LLC ("AdviCoach"), Steven Schick, Business Partner Franchising, LLC ("BP") and ERC Franchising, LLC ("ERC"). See Document No. 52. The Amended Counterclaims subject to the instant Motion include: (1) infringement of copyright in violation of the Copyright Act, 17 U.S.C. § 101 et seq. against original Plaintiffs/Counterclaim Defendants TES, AdviCoach, Steven Schick, BP and ERC (Am. Countercl. ¶¶ 85-89); (2) breach of contract against TES (Am. Countercl. ¶¶ 90-98); (3) violation of the Pennsylvania Wage Payment and Collection Law, 42 P.S. § 260.1 et seq., against TES (Am. Countercl. ¶¶ 99-106); and (4) promissory estoppel against TES (Am. Countercl. ¶¶ 107-121). For the following reasons, the Motion to Dismiss will be denied.

I. PROCEDURAL BACKGROUND

On March 9, 2010, Defendants filed their Joint Answer with Affirmative Defenses to Plaintiffs' Amended Complaint and Counterclaims of Defendants Dombach, C. Michael Cody and Business Action, Inc. See Document No. 37. On April 16, 2010, Counterclaim Plaintiff Dombach filed his Amended Counterclaims against Counterclaim Defendants Terry Powell, AdviCoach Franchising, LLC ("AdviCoach"), TES Franchising, LLC ("TES"), Steven Schick, Business Partners Franchising, LLC ("BP"), ERC Franchising, LLC ("ERC") and Does 1 through 500.*fn1 See Document No. 47, pp. 36-55. On April 30, 2010, Counterclaim Defendants Terry Powell, Decor & You, Inc. and John Does 1 through 500 filed the instant Motion to Dismiss the Amended Counterclaims of Counterclaim Plaintiff Dombach. See Document No. 52. Counterclaim Plaintiff Dombach filed his Response to the Motion to Dismiss on May 17, 2010. See Document No. 54.

II. STANDARD OF REVIEW

A motion to dismiss under Rule 12 (b)(6) of the Federal Rules of Civil Procedure examines the legal sufficiency of the complaint. Conley v. Gibson, 355 U.S. 41, 45-46 (1957). The motion to dismiss standard has been the subject of recent examination, culminating with the United States Supreme Court opinion Ashcroft v. Iqbal, 129 S.Ct. 1927 (2009). Following Iqbal, "threadbare recitals of the elements of a cause of action supported by mere conclusory statements do not suffice" to defeat a Rule 12 (b)(6) motion to dismiss. Id. at 1949; see also Bell Atlantic v. Twombly, 550 U.S. 544 (2007). The Third Circuit Court of Appeals applied the principles of Iqbal in Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir. 2009), and articulated a two-part analysis that district courts in this Circuit must conduct in evaluating whether allegations in a complaint survive a 12 (b)(6) motion to dismiss.

First, the factual and legal elements of a claim should be separated, meaning "a District Court must accept all of the complaint's well-pleaded facts as true, but may disregard legal conclusions." Id. at 210-11. Second, the Court must determine whether the facts alleged in the complaint demonstrate that the plaintiff has a "plausible claim for relief." Id. at 211. A complaint must do more than allege a plaintiff's entitlement to relief, it must "show" such an entitlement with its facts. Id. (citing Phillips v. County of Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008)). "Where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged - but it has not 'shown' that the pleader is entitled to relief." Iqbal, 129 S.Ct. at 1950; Jones v. ABN Amro Mortg. Group, Inc., 606 F.3d 119, 123 (3d Cir. 2010). The Supreme Court explained that deciding whether a "complaint states a plausible claim for relief will... be a context specific task that requires the reviewing court to draw on its judicial experience and common sense." Iqbal, 129 S.Ct. at 1950. "While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations. When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id.

When faced with a motion to dismiss for failure to state a claim, courts may consider the allegations in the complaint, exhibits attached to the complaint, matters of public record, and documents that form the basis of a claim. Lum v. Bank of Am., 361 F.3d 217, 222 n. 3 (3d Cir. 2004). A district court may also consider an undisputedly authentic document that a defendant attaches as an exhibit to a motion to dismiss if the plaintiff's claims are based on the document. Pension Benefit Guar. Corp. v. White Consol. Indus., 998 F.2d 1192, 1196 (3d Cir. 1993).

The Court of Appeals and several district courts have noted that the pleading standards set forth in Twombly and Iqbal apply with equal force to crossclaims, counterclaims and third party complaints. SEPTA v. AECOM, USA, Inc., No. 10-117, slip op. (E.D. Pa. Nov. 18, 2010)(O'Neill, J.)(citing Travelers Indem. Co. v. Dammann & Co., Inc., 594 F.3d 238, 256 n.13 (3d Cir. 2010)(applying the Iqbal pleading standard to crossclaims); Rocheux Intern. of N.J., Inc. v. U.S. Merch. Fin. Gr., Inc., - F. Supp. 2d -, 2010 WL 3833733, at *6 (D. N.J. Sep. 29, 2010) (noting that Iqbal and Twombly apply to counterclaims); Simon Prop. Gr., Inc. v. Palombaro, 682 F. Supp. 2d 508, 511 (W.D. Pa. 2010) (same); Miami Valley Fair Housing Ctr. v. Steiner & Assocs., Inc., No. 08-00150, 2010 WL 2631110, at *7 (May 13, 2010) (applying Twombly and Iqbal to third party complaint); Colon v. Blades, - F.R.D.-, 2010 WL 1731666, at *2 (D.P.R. Apr. 29, 2010) (same); Mottley v. Maxim Crane Works, L.P., No. 06-78, 2010 WL 1284433, at *2 (D.V.I. Mar 26, 2010) (Bartle, C.J.) (same); Source One Global Partners, LLC v. KGK Synergize, Inc., No. 08-7403, 2009 WL 2192791, at *2 (N.D. Ill. July 21, 2009) (same)).

III. DISCUSSION*fn2

A. Whether Dombach Has Stated a Claim for Infringement of Copyright in Violation of the Copyright Act, 17 U.S.C. § 101 et seq.

Counterclaim Defendants move for dismissal of Dombach's counterclaim for infringement of copyright in violation of the Copyright Act, arguing that Dombach's allegations are legal conclusions and not sufficient to state a claim for copyright infringement. The Copyright Act grants the owner of a copyright exclusive rights: (1) to reproduce the copyrighted work; (2) to prepare derivative works based upon the copyrighted work; and (3) to distribute copies of the copyrighted work to the public by sale or other transfer of ownership. 17 U.S.C. § 106. To show a claim of copyright infringement, a plaintiff must establish: "(1) the ownership of a valid copyright; and (2) unauthorized copies of original elements of the Plaintiff's work." Dun & Bradstreet Software Servs. v. Grace Consulting, Inc., 307 F.3d 197, 206 (3d Cir. 2002); see also Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991).

Dombach alleges at Count I of his Amended Counterclaim that he is the author and copyright claimant of his Silver Bullet Marketing System*fn3 which is a registered copyright with the United States Copyright Office, Registration No. TX 6-855-795. See Am. Countercl., §§ 86-87. Dombach attaches to his Amended Counterclaim at Exhibit C a copy of the Certificate of Registration issued by the United States Copyright Office effective January 4, 2008. See Am. Countercl., Ex. C. Dombach has therefore met the first requirement to show a claim of copyright infringement.

Dombach also alleges that "each of the Corporate Counterclaim Defendants and each of their affiliated franchisors and franchisees including Steven Schick and John Does 1 through 500 has violated and continues to violate Mr. Dombach's copyrighted works by, among other things, reproducing and distributing Mr. Dombach's copyrighted works without any license to do so, and by failing to give proper attribution to Mr. Dombach's original copyrighted works." Id. at § 88. Counterclaim Defendants contend that Dombach does not identify what works Plaintiffs have allegedly reproduced or distributed from the Silver Bullet Marketing System or to which Plaintiffs fail to give proper attribution. As such, Counterclaim Defendants contend that Dombach's allegation is a legal conclusion that must be dismissed pursuant to Twombly and Iqbal. Counterclaim Defendants also contend that Dombach's claim for copyright infringement must be dismissed because Dombach, while he was affiliated with TES, used his own copyrighted work for the benefit of the Corporate Counterclaim Defendants. Mot. to Dismiss, p. 5.

Dombach responds by stating that his claim is not based on his own reproduction and distribution of his copyrighted materials during his association with TES. Rather, his claim is based on the Counterclaim Defendants' unauthorized reproduction and distribution of his materials following termination of his relationship with TES and Terry Powell on December 3, 2009. Dombach asserts in paragraph 83 of his Amended Counterclaim that "[b]y letter dated January 4, 2010, Mr. Dombach responded to the December 23, 2009 cease and desist letter and expressly revoked any and all rights relating to Mr. Dombach's copyrighted works and other intellectual property." Am. Countercl., ¶ 83.

"A plaintiff establishes unauthorized copying by showing that the defendant 'had access to a copyrighted work' and 'that there are substantial similarities between the two works.'" Mon Cheri Bridals, Inc. v. Wen Wu, Nos. 09-1239, 09-1321, 2010 WL 2222497, at *5 (3d Cir. June 4, 2010) (quoting Dam Things from Denmark v. Russ Berrie & Co., 290 F.3d 548, 561 (3d Cir. 2002)). Dombach's Counterclaim alleges he owns a copyright and that the Counterclaim Defendants have copied the copyrighted material and placed the copies into the market place.

At the pleading stage of the litigation, the Court must look to the pleaded facts and construe them in the light most favorable to Dombach as the Counterclaim Plaintiff. Although Dombach does not identify the manner or time at which infringement took place, assuming that Dombach's allegations are true, this conduct by the Counterclaim Defendants would be considered improper. The Court therefore finds that Dombach has sufficiently pled, at this stage of the litigation, a claim for copyright infringement. ...


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