United States District Court, W.D. Pennsylvania
MARK R. HORNAK, District Judge.
In this civil action, Plaintiff Clarity Software, LLC ("Plaintiff") has sued Defendant Financial Independence Group, LLC ("Defendant" or "FIG") for alleged infringement of certain copyrighted software of which Plaintiff claims ownership. Specifically, the complaint alleges that Plaintiff "is the owner of copyrighted Pen D'Calc R&EP Software, including, but not limited to, the Inherited illustration Software Program, the Inherited IRA Program, and the Inherited Annuity Program (collectively, the Software')." (Compl., "Introduction and Summary of Claims, " pp. 1-2, ECF No. 1.) Plaintiff claims that, without its consent or knowledge, "Defendant has... disseminated unlawfully developed derivative versions of the Software, including its marketing presentation output, ... and has made it available to virtually anyone who has access to the internet." (Id. at 2.)
Defendant disputes Plaintiff's ownership of the copyright in question and has filed a motion for summary judgment on that basis (ECF No. 18) which is now pending before the Court. For the reasons that follow, Defendant's motion for summary judgment will be granted.
A. Vincent Heck's Development of the PenD'Calc Software
Plaintiff's sole member, Vincent Heck ("Heck") (A.121),  is the developer of the Software at issue in this case as well as its predecessor versions. In 1987, Heck developed the original DOS-based version of the "PenD'Calc" software, a pension distribution calculator, while serving as the sole shareholder of MicroBase Corporation. (A. 123.)
In 1993, MicroBase Corporation transferred its ownership of the copyright for the PenD'Calc software to the newly-formed PenD'Calc Corporation (hereinafter, "PenD'Calc"). (A. 123.) In 1996, Heck began developing the 32-bit Windows-based version of the Software that is the subject of this litigation. (A. 124.)
Heck became the sole shareholder of PenD'Calc in 1997 or 1998. (A. 123.) At the same time, Heck was the sole owner of the copyright for the new 32-bit version of the Software, which was licensed to PenD'Calc for distribution. (A. 124.)
B. Eric Wallace's 1995 Loan to PenD'Calc
Eric Wallace ("Wallace"), Heck's friend and C.P.A., began advising Heck on financial matters in the early 1990s. (A. 124; DCSMF ¶1.) On December 14, 1995, Wallace made a loan to PenD'Calc (the "1995 Loan") because he perceived an opportunity for a business relationship that he thought would be beneficial to his own interests. (DCSMF ¶¶2-3.) Heck guaranteed the loan, both in his individual capacity and as PenD'Calc's president, shareholder, and director. (A. 5, 98; DCSMF ¶4).) The 1995 Loan was secured by PenD'Calc's corporate assets and by certain of Heck's personal assets, including the copyright for the Software that Heck personally owned. (DCSMF 95-8.)
C. PenD'Calc's Default on the 1995 Loan
In the late 1990's Heck encountered financial difficulties after falling ill. (A. 124.) As a result of Heck's difficulties, PenD'Calc began to fall behind on trust fund tax payments. (DCSMF ¶13.) By 2001, PenD'Calc owed the IRS approximately $60, 000 in unpaid taxes and penalties. (DCSMF ¶14.) At that time, the unpaid balance on the 1995 Loan owed to Wallace also totaled approximately $60, 000. (Id. ¶ 15.)
Wallace negotiated with the IRS on behalf of PenD'Calc and Heck in response to the IRS's threat to shut down PenD'Calc over the unpaid trust fund taxes. (DCSMF ¶16.) In 2001, Heck and Wallace entered into an escrow agreement pursuant to which PenD'Calc's client, AXA, made payments to an escrow agent who then made payments to the IRS and Wallace. (Id. ¶17.) Notwithstanding this arrangement, in 2003 PenD'Calc defaulted on the 1995 Loan. (DCSMF ¶19.)
D. The August 29, 2003 Settlement Agreement and the Putative Formation o "Clarity Software, LLC"
In connection with PenD'Calc's loan default, Heck and Wallace agreed that Wallace would take ownership of Heck's intellectual property rights. (A. 124.) To that end, Wallace founded a new business under the name "Clarity Software, LLC" (hereinafter, "Clarity") for the stated purpose of taking ownership of and marketing the Software. (A. 124; DCSMF ¶22.) Plaintiff contends that "Clarity Software, LLC" was formed on August 29, 2003. (DCSMF ¶¶32, 33.) Although Wallace could not state the exact date on which formed this new business, he agreed in his deposition that August 29, 2003 could be the date. (DCSMF ¶ 32; A. 22-23.) Wallace maintains that, at the time Clarity was formed, he directed an attorney to register the entity as an LLC with the Pennsylvania Department of State. ( See ECF No. 1-5, ¶6.) At all times thereafter, Wallace operated the business under the assumption that the company had been duly registered as an LLC. (Id.)
On August 29, 2003, PenD'Calc, Clarity, Heck, and Wallace entered into a "Satisfaction, Settlement, and Release Agreement" (the "2003 Agreement"). (A. 98-99.) Pursuant to the 2003 Agreement, all of PenD'Calc's assets and all of Heck's property rights in the Software were purportedly transferred to Clarity and the 1995 Loan was ostensibly discharged. (A. 98-99, 124.) Wallace retained Attorney William Weiler to draft the 2003 Agreement. (DCSMF ¶ 38.) Prior to retaining Weiler, Wallace was aware that Weiler and Heck had a professional relationship, which he believed encompassed Weiler working as the corporate attorney for PenD'Calc from time to time. (Id. ¶ 39.)
As of the date of the 2003 Agreement, Heck became the General Manager of Clarity, and PenD'Calc was dissolved. (A. 124; DCSMF ¶¶ 37 43.) There was no written employment agreement between Clarity and Heck relating to Heck's position as general manager. (DCSMF ¶ 44.)
Following Clarity's putative assumption of PenD'Calc's assets and Heck's property right to the Software pursuant to the 2003 Agreement, Clarity held itself out as an LLC and operated under the business name "Clarity Software, LLC." Among other things, Clarity maintained a checking account at PNC Bank and identified itself on state and federal tax filings as "Clarity Software, LLC" under a federal tax identification number. (PAUMF ¶¶ 2-4.) On September 21, 2004, a copyright for the Software was registered with the U.S. Copyright Office, with "Clarity Software, LLC" listed as the claimant. (See ECF 1-6.)
E. Heck's Bankruptcy Proceedings
On December 31, 2003, Weiler, serving as Heck's personal attorney, filed a voluntary petition for personal bankruptcy under chapter 13 of the bankruptcy code on behalf of Heck and his wife. (DCSMF ¶52.) Heck assisted Weiler in the preparation of the "Chapter 13 Plan and Schedules Dated 1/23/04" that were filed on January 26, 2004. (Id. ¶53.) Upon filing for bankruptcy, Heck estimated that he owed the IRS $220, 000 in taxes, penalties, and interest that had gone unpaid from 1996 through 2003. (Id. ¶54.) Heck's bankruptcy schedules indicated that he owed over $178, 000 to his secured creditors. (Id. ¶55.) The bankruptcy schedules did not list or otherwise disclose the existence of either the 2003 Agreement or the transaction which occurred pursuant to that agreement. (DCSMF ¶¶ 56-59, 61, 63; A. 144-96.) Similarly, Heck's employment as the general manager for Clarity was not listed on the January 23, 2004 schedules. (Id. ¶ 60; A. 144-96.)
On May 24, 2014, Chapter 13 Trustee Ronda J. Winnecour filed "Objections to Confirmation of Plan Dated January 23, 2004" in Plaintiff's Chapter 13 case. (DCSMF ¶ 64; A. 197-202.) Among other things, the Trustee asserted that Heck had failed to list among his assets certain bank accounts which he had been holding jointly with his uncle. (A. 198.)
The United States also filed objections to confirmation of the January 23, 2004 plan. (DCSMF ¶ 65; A. 203-04.) The United States asserted that it had $65, 435.36 in secured claims against the debtors and $27, 275.96 in unsecured priority claims which, the United States contended, were required to be paid in full under the bankruptcy code. (A. 203.) The United States objected to the debtors' proposal under their Chapter 13 plan to make a $30, 000 offer to the Internal Revenue Service as a compromise payment of this debt. (Id.) (A. 203-04; DCSMF 65.)
On July 12, 2004, Weiler - acting as Heck's bankruptcy counsel - filed a motion to convert the debtors' chapter 13 case to a chapter 7 case. (DCSMF ¶ 67.) In the motion, debtors asserted that they "are unable to make the proposed plan payments, as the income of the parties will not be sufficient to pay the secured and priority unsecured claimants in full, and will certainly not be sufficient to pay any amount to the general unsecured creditors." (A. 210; DCSMF ¶ 67.)
On July 22, 2004, following a hearing, the bankruptcy court granted the objections to the plan, converted the case to chapter 7 proceeding, and appointed a new trustee. (DCSMF ¶ 68.) The court subsequently granted a Discharge of Debtor on November 12, 2004. (Id. ¶70.) On May 9, 2005, the Chapter 7 Trustee reported that there were no assets to administer for the benefit ...