UIRC-GSA Holdings, LLC v. Rainier GSA Portfolio I, LLC

Filing 284

MEMORANDUM Opinion and Order: Defendants' motion to dismiss [Doc. 251 ] is denied. Defendants are directed to answer the complaint on or before January 10, 2019. The parties are directed to submit a joint status report using this court's form on or before January 17, 2019. This case is set for a report on status on January 30, 2019, at 9:10 a.m. Signed by the Honorable Robert W. Gettleman on 12/13/2018. Mailed notice (cn).

Case: 1:15-cv-09518 Document #: 284 Filed: 12/13/18 Page 1 of 8 PageID #:5235

IN THE UNITED STATES DISTR ICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVIS ION
UIRC-GSA HOLDINGS, INC.,
Plaintiff,
v.
WILLIAM BLAIR & COMPANY, LLC.,
and MICHAEL KALT,
Defendants.

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Case No. 15 CV 9518
Judge Robert W. Gettleman

MEMORANDUM OPINION A ND ORDER
Plaintiff UIRC-GSA Holdings, Inc. sued William Blair & Company (“Blair”) and
Michael Kalt (collectively, “defendants”), alleging violations of the Copyright Act, 17 U.S.C.
§ 101 et seq. Defendants move to dismiss Count VI (copyright infringement), Count VII
(contributory infringement against Kalt) and Count VIII (vicarious infringement against Kalt),
arguing that plaintiff has failed to state a claim. For the following reasons, defendants’ motion
to dismiss is denied.
BACKGROUND 1
Plaintiff is a company that acquires and operates properties leased to the U.S. General
Services Administration (“GSA”) to be financed by the sale of bonds through its subsidiaries.
Defendant Blair was plaintiff’s investment banker and placement agent for certain bond
offerings, the proceeds of which were used to acquire a portfolio of real estate properties.
Defendant Kalt was plaintiff’s relationship manager at Blair.

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Well-pled facts from plaintiff’s complaint are presumed true for resolving defendants’ motion to
dismiss. Firestone Financial Corp. v. Meyer, 796 F.3d 822, 826 (7th Cir. 2015).

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In Counts VI, VII and VIII, plaintiff alleges that, to successfully market a bond portfolio
to provide the funds to acquire properties leased to GSA, plaintiff created and used a Private
Placement Memorandum (“PPM I”), and an Indenture of Trust. Plaintiff owns the registered
copyright for both documents. Without plaintiff’s knowledge, defendants acquired a copy of
PPM I and willfully infringed on plaintiff’s copyright by copying original portions of PPM I for a
bond offering issued by Rainier GSA Portfolio I (“Rainier”). Defendants used parts of PPM I to
create two documents for Rainier: a confidential placement memorandum and an indenture of
trust. Defendants distributed these documents to potential investors in Rainier’s bond offering.
The proceeds of that offering would be used by Rainier to acquire GSA leased properties.
For their bond offerings, plaintiff and Rainier hired the same investment bank, Blair, and
had the same relationship manager, Kalt. Plaintiff alleges that Kalt encouraged or assisted
Blair’s copyright infringement of plaintiff’s PPM I and Indenture of Trust.
LEGAL STANDARDS
Defendants move to dismiss under Fed. R. Civ. P. 12(b)(6). To survive a motion to
dismiss, plaintiff’s complaint must give fair notice of its claims and the grounds on which they
rest. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). The complaint must contain
enough facts to state a claim that is “plausible on its face.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (quotation marks omitted), citing id. at 570. Plaintiff’s claims are plausible if the court
can “draw the reasonable inference” that defendants are liable for what the complaint alleges.
Id. In reviewing the complaint, the court takes allegations as true and draws all inferences in
plaintiff’s favor, but the court need not accept the complaint’s legal conclusions. Id. Plaintiff
need not “delineate every detail of [its] legal theory,” Robertson v. Allied Solutions, LLC, 902
F.3d 690, 695 (7th Cir. 2018), or plead “facts corresponding to the elements of a legal theory.”

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Chapman v. Yellow Cab Cooperative, 875 F.3d 846, 848 (7th Cir. 2017). In ruling on a motion
to dismiss, a district court may consider documents attached to the pleadings when they are
referred to in the complaint and central to the claims. Geinosky v. Chicago, 675 F.3d 743, 745
n. 1 (7th Cir. 2012).
A district court may also consider, by taking judicial notice, facts not subject to
reasonable dispute because it is generally known within the trial court’s territorial jurisdiction; or
can be accurately and readily determined from sources whose accuracy cannot reasonably be
questioned. Fed. R. Evid. 201(b). At defendants’ request, the court takes judicial notice of: the
definition of “Operating Lease,” according to the Government Accountability Office’s website;
the definition of “Extraordinary Call or Redemption,” according to the Municipal Securities
Rulemaking Board’s website; and the government’s usually-unconditional obligation to pay rent
for GSA leases, according to an article in an online business journal.
DISCUSSION
To state a claim of copyright infringement, the complaint must allege that,
(1) plaintiff owned a valid copyright, and (2) defendants copied original elements of plaintiff’s
work. Feist Publications, Inc. v. Rural Telephone Service Co., 499 U.S. 340, 361 (1991).
Defendants move to dismiss, arguing that plaintiff has failed to allege either element.
First, defendants argue that plaintiff does not own a valid copyright because plaintiff
seeks copyright protection for forms of expression that lack a “minimal level of creativity.” Id.
at 358. Specifically, defendants argue that: the terms “Excess Cash Flow/Defeasance Reserve
Account” and “Cap Ex and Contingency Reserve Fund” are unprotectable fragments; the terms
“Excess Cash Flow Defeasance Reserve Account” and “Extraordinary Redemption” are
unprotectable expressions dictated solely by their function; and descriptions of GSA’s leasing

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structure constitute unprotectable facts. Second, defendants argue that because their work is not
substantially similar to plaintiff’s, a reasonable person would not conclude that they had copied
original elements of plaintiff’s work.
1.

Valid copyright
The Copyright Act does not protect facts, fragmented phrases, expressions dictated solely

by function, or subjects that can be expressed only in certain ways. See Harper & Row
Publishers, Inc. v. Nation Enterprises, 471 U.S. 539, 547 (1985) (facts); Alberto-Culver Co. v.
Andrea Dumon, Inc., 466 F.2d 705, 710–11 (7th Cir. 1972) (fragmented phrases); Incredible
Techs., Inc. v. Virtual Techs., Inc., 400 F.3d 1007, 1012 (7th Cir. 2005) (expressions dictated
solely by function); Seng-Tiong Ho v. Taflove, 648 F.3d 489, 499 (7th Cir. 2011) (subjects that
can be expressed only in certain ways). Defendants argue that these limitations on copyright
protection apply to the terms and definitions in plaintiff’s bond offering documents.
Although defendants’ arguments may be meritorious at summary judgment or at trial,
they do not carry the day on a motion to dismiss. See Merritt Forbes & Company Inc. v.
Newman Investment Securities, Inc., 604 F. Supp. 943, 952 (S.D.N.Y. 1985) (denying summary
judgment for defendants on a copyright infringement claim concerning bond documents, and
holding that their originality was a triable issue of fact, when the plaintiff had submitted an
affidavit from the author, and the defendants had submitted two affidavits from people familiar
with the bond industry). Whether, for example, “Extraordinary Redemption” is a mere
fragment—or, instead, has “separate value as a composition”— cannot be resolved on a motion
to dismiss, even though the court takes judicial notice of how the term is defined by the
Municipal Securities Rulemaking Board. Alberto-Culver Co., 466 F.2d at 711. Without
affidavits, depositions or expert testimony, the court finds it plausible that the terms in plaintiff’s

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documents show the “modicum of creativity” required for copyright protection. Feist, 499 U.S.
at 346; see also Continental Casualty Co. v. Beardsley, 253 F.2d 702, 704 (2d Cir. 1958) (“We
find nothing which, as a matter of law, prevents the copyrighting of forms and insurance
instruments . . . .”), quoted with approval in 1 Melville B. Nimmer and David Nimmer, Nimmer
on Copyright § 2A.11 (2018). And just as the terms themselves are creative enough, so too are
their definitions.
The same reasoning applies to facts concerning GSA’s leasing structure. Although those
facts may indeed be unprotectable, plaintiff’s description of those facts may be an “original
collocation of words” worthy of copyright protection. Feist, 499 U.S. at 348. On a record this
sparse, defendants cannot show that plaintiff’s description of GSA’s leasing structure lacks even
a modicum of creativity by pointing to the Government Accountability Office’s definition of
“Operating Lease,” and a business journal’s claims concerning the government’s treatment of
GSA leases. “Without any factual record,” as Judge St. Eve wrote, “[the Court] cannot find that
the allegedly copied expression in the Placement Memoranda is unprotectable as a matter of law
. . . [.] Unlike songs or poems, GSA bond documents are complex financial documents relating to
a niche investment market . . . [.]” UIRC-GSA Holdings Inc. v. William Blair & Co., LLC.,
No. 15-CV-9518, 2017 WL 1163864, at *4 (N.D. Ill. Mar. 29, 2017) (denying defendants’ motion
to dismiss the fourth amended complaint, in which they had argued that plaintiffs sought
copyright protection of ideas, themes, and common phrases). Since then, defendants’ arguments
for dismissal have shifted slightly, but the factual record remains the same.
2.

Copying of original elements
A plaintiff may prove copying by showing that, (1) the defendant had the opportunity to

copy the original, and (2) “the two works share enough unique features to give rise to a breach of

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the duty not to copy another’s work.” Peters v. West, 692 F.3d 629, 633–34 (7th Cir. 2012).
Defendants argue that plaintiff’s allegations do not satisfy the second requirement, which courts
sometimes call “substantial similarity.” Id. Works are substantially similar when “an ordinary
reasonable person would conclude that the defendant unlawfully appropriated the plaintiff’s
protectible expression by taking material of substance and value.” Wildlife Express Corp. v.
Carol Wright Sales, Inc., 18 F.3d 502, 509 (7th Cir. 1994) (citation omitted).
Here, a reasonable person would conclude that defendants appropriated plaintiff’s
documents. A few comparisons suffice:
Plaintiff’s Placement Memorandum (cont.)

Defendants’ Placement Memorandum (cont.)

A separate Excess Cash Flow/Defeasance Reserve Account shall be set aside to hold the net proceeds from
any of the following “Extraordinary Transactions:”

A separate Excess Cash Flow/Defeasance Reserve
Fund shall be set aside to hold the net proceeds from
any of the following “Extraordinary Transactions:”

(i) proceeds received by any Borrowers from any
Property sale during the term of the Bonds, after deduction of all costs of sale; plus

(i) proceeds received by any Borrowers from any
Property sale during the term of the Financing, if the
related Lease has been cancelled or terminated, after
deduction of all costs of sale; plus

(ii) net insurance or condemnation proceeds received
by any Borrowers in the event that all or a portion of
any Property shall have been damaged, destroyed,
condemned or taken by eminent domain or sold under
a reasonably apprehended threat of the same so as to
render the Property unsatisfactory for its intended
uses, to the extent not reinvested in the Property; plus

(ii) net insurance or condemnation proceeds received
by any Borrowers in the event that all or a portion of
any Property shall have been damaged, destroyed,
condemned or taken by eminent domain or sold under a reasonably apprehended threat of the same so
as to render the Property unsatisfactory for its intended uses, to the extent not reinvested in the Property; plus

(iii) any Bond proceeds allocable to any Identified
Property that is not acquired within four weeks following the initial issuance of the Bonds.

(iii) any loan proceeds allocable to any identified
Property that is not acquired within 30 days following the closing of the Financing (as reduced to the
extent of the costs of the Financing already expended).

Such reserve account proceeds shall be applied pro
rata toward redemption of the Bonds based upon their
respective outstanding principal amounts from time to
time.

Such reserve fund proceeds shall be applied pro rata
toward redemption of the Bonds based upon their respective outstanding principal amounts from time to
time.

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Plaintiff’s Placement Memorandum (cont.)

Defendants’ Placement Memorandum (cont.)

The Bonds will be subject to extraordinary redemption
at par plus accrued, unpaid interest to the extent of net
cash proceeds available from any of the following
instances:

The Bonds will be subject to extraordinary redemption
at par plus accrued, unpaid interest to the extent of net
cash proceeds available from any of the following
instances:

(i) failure of any of the Borrowers to acquire their
Identified Properties within 28 days following the date
of initial issuance of the Bonds –to be redeemed based
on the ratable amount of the $30,000,000 of Issuer
loans allocable to those Identified Properties;

(i) failure of any of the Borrowers to acquire their
identified Properties within 30 days following the date
of the closing of the Financing (to be applied pro rata
based on the respective outstanding principal amounts
of the Note allocable to those identified Properties);

(ii) occurrence of a casualty loss or a condemnation at
a Property where:

(ii) occurrence of a casualty loss or a condemnation at
a Property where:

(a) the GSA terminates its lease as a result of such
event—in such case the full net proceeds from the
casualty loss or condemnation are to be applied for
extraordinary redemption; or

(a) the U.S. Government terminates its Lease as a
result of such event (in such case the full net proceeds from the casualty loss or condemnation are to
be applied for extraordinary redemption); or

(b) the Borrower does not apply the full net proceeds from such casualty loss or condemnation toward the replacement/modification of its Property—in such case the full remaining net proceeds are
to be applied for extraordinary redemption.

(b) the U.S. Government does not terminate its
Lease as a result of such event and the Borrower replaces/modifies the Property but the Borrower does
not apply the full net proceeds from such casualty
loss or condemnation toward the replacement/modification of its Property (in such case the
full remaining net proceeds are to be applied for extraordinary redemption).

The GSA uses this firm/soft lease structure to accommodate statutory regulations which prohibit the GSA
from entering into operating leases for which the net
present value of the lease payments would exceed 90%
of the cost to build and own itself. Any lease for which
the net present value of the lease payments would exceed 90% is categorized as a capital lease, requiring a
discrete Congressional appropriation.

The practice of dividing the lease term into firm and
soft periods allows the GSA to enter into operating
leases which don’t require discrete congressional appropriations (leases for which the net present value of
the lease payments exceeds 90% of the cost of the GSA
to build and own a property itself are categorized as
capital leases which require discrete congressional appropriations).

(Tabulation added by the court). Because an ordinary reasonable person would conclude
that the placement memoranda share enough unique features to give rise to a breach of the duty
to not copy another’s work, the works are substantially similar.
***

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Plaintiff’s allegations allow the court to draw the reasonable inference that
plaintiff owned a valid copyright, and that defendants copied original elements of plaintiff’s
work. Consequently, plaintiff has stated a claim for copyright infringement, and Count VI
survives defendants’ motion to dismiss. Defendants also moved to dismiss Counts VII
(contributory infringement against Kalt) and VIII (vicarious infringement against Kalt), arguing
that that those counts rise and fall with Count VI. Because Count VI survives, Counts VII and
VIII do as well.
CONCLUSION
Defendants’ motion to dismiss [Doc. 251] is denied. Defendants are directed to answer
the complaint on or before January 10, 2019. The parties are directed to submit a joint status
report using this court’s form on or before January 17, 2019. This case is set for a report on
status on January 30, 2019, at 9:10 a.m.
ENTER:

December 13, 2018

__________________________________________
Robert W. Gettleman
United States District Judge

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