UIRC-GSA Holdings, LLC v. Rainier GSA Portfolio I, LLC
Filing
87
MEMORANDUM Opinion and Order Signed by the Honorable Amy J. St. Eve on 3/29/2017:Mailed notice(kef, )
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
UIRC-GSA Holdings Inc.,
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Plaintiff,
v.
William Blair & Company, L.L.C.,
And Michael Kalt,
Defendants.
Case No. 15-CV-9518
Hon. Amy St. Eve
MEMORANDUM OPINION AND ORDER
AMY J. ST. EVE, District Court Judge:
On October 11, 2016, Plaintiff UIRC-GSA Holdings, Inc. (“JCI”) brought the present
Complaint against Defendants William Blair & Company (“Blair”) and Michael Kalt,
collectively, “Defendants,” alleging copyright infringement in violation of 17 U.S.C. § 101 et
seq. and professional negligence. Both Blair and Kalt moved to dismiss Plaintiff’s Complaint for
failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). For the following
reasons, the Court denies Blair’s motion to dismiss and grants Kalt’s motion to dismiss without
prejudice.
BACKGROUND
Plaintiff is a Delaware Limited Liability Company located in Chicago, Illinois that is in
the business of acquiring and operating properties leased to the U.S. General Services
Administration (“GSA”) to be financed by the sale of bonds through its subsidiaries. (R. 62,
Third Am. Compl. ¶ 2.) Defendant Blair is a Delaware Limited Liability Company registered to
do business in Illinois and with an office in Illinois. (Id. ¶ 3.) Blair was Plaintiff’s investment
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banker and placement agent in connection with Plaintiff’s bond offering, the proceeds of which
were used to acquire a portfolio of real estate properties. (Id. ¶ 6.) Kalt is an Illinois citizen and
was Plaintiff’s relationship manager at Blair. (Id. ¶¶ 6, 35.)
Plaintiff alleges that in order to successfully market a bond portfolio to provide the funds
to acquire properties leased to the GSA, Plaintiff created and used a series of documents,
including a Preliminary Private Placement Memorandum (“PPPM IV”), a Final Private
Placement Memorandum (“FPPM IV”), and an Indenture of Trust (“Indenture IV”). (Id. ¶¶ 9,
18, 26.) Plaintiff provided the PPPM IV, FPPM IV, and Indenture IV to Defendant, and
Defendant distributed it to potential investors to market the proposed bond offering. (Id. ¶ 10,
19, 27.) Plaintiff, in compliance with the relevant copyright laws, secured the exclusive rights
and privileges to the copyright for the PPPM IV, FPPM IV, and Indenture IV. (Id. ¶ 10, 21, 29.)
As a result, on July 21, 2015, the U.S. Copyright Office issued to Plaintiff U.S. Copyright Reg.
No. TX 8-069-779 (“‘799 Reg.”) entitled Preliminary Private Placement Memorandum, which
includes additional and revised text to the memorandum. (Id. ¶ 11.) The Copyright Office
issued to Plaintiff similar copyrights for FPPM IV and Indenture IV entitled Final Private
Placement Memorandum (Copyright Reg. No. TX 8-107-571) and Indenture of Trust (Copyright
Reg. No. TX 8-107-552), both of which included additional and revised text. (Id. ¶¶ 20, 28.)
Plaintiff alleges that it is the owner of all rights, title, and interest in and to the copyrights for
PPPM IV, FPPM IV, and Indenture IV. (Id. ¶¶ 12, 21, 29.)
Plaintiff alleges that Defendants, with full knowledge of Plaintiff’s rights, willfully
infringed on Plaintiff’s copyright by copying original portions of Plaintiff’s copyrighted work for
use in a Confidential Placement Memorandum (“CPM”) in relation to a bond offering issued by
Rainer GSA Portfolio I (“Rainer”) on July 1, 2015. (Id. ¶¶ 13-14, 22, 30.) Specifically, Plaintiff
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alleges that Defendant copied almost verbatim both protected and non-protected expression of
Plaintiff’s Indenture IV in the Indenture of Trust that Blair assisted Rainer in drafting for
marketing bonds Rainer used to acquire GSA leased properties. (Id. ¶ 31.) Plaintiff claims that
Defendants also distributed the infringing CPM and Indenture of Trust to potential investors in
Rainer’s bond offering. (Id. ¶¶ 15, 23, 32.) Plaintiff further alleges that Defendant Kalt was the
relationship manager for both Plaintiff’s bond offering and Rainer’s offering, and engaged in
conduct that encouraged or assisted Blair’s copyright infringement of PPPM IV, FPPM IV, and
Indenture IV. (Id. ¶ 36.)
LEGAL STANDARD
“A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6) challenges the
viability of a complaint by arguing that it fails to state a claim upon which relief may be
granted.” Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014). Under
Rule 8(a)(2), a complaint must include “a short and plain statement of the claim showing that the
pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The short and plain statement under Rule
8(a)(2) must “give the defendant fair notice of what the claim is and the grounds upon which it
rests.” Bell Atlantic v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted). Under the federal
notice pleading standards, a plaintiff’s “factual allegations must be enough to raise a right to
relief above the speculative level.” Twombly, 550 U.S. at 555. Put differently, a “complaint
must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible
on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Twombly, 550 U.S. at 570).
In determining the sufficiency of a complaint under the plausibility standard, courts must “accept
all well-pleaded facts as true and draw reasonable inferences in the plaintiffs’ favor.” Roberts v.
City of Chicago, 817 F.3d 561, 564 (7th Cir. 2016). In ruling on a Rule 12(b)(6) motion, district
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courts may also consider documents attached to the pleadings without converting the motion into
a motion for summary judgment, as long as the documents are referred to in the complaint and
central to the claims. See Geinosky v. City of Chicago, 675 F.3d 743, 745 n. 1 (7th Cir. 2012).
ANALYSIS
I.
Counts I-III—Copyright Infringement
To establish copyright infringement, a plaintiff is required to prove two elements: “(1)
ownership of a valid copyright, and (2) copying of constituent elements of the work that are
original.” Muhammad–Ali v. Final Call, Inc., 832 F.3d 755, 760 (7th Cir. 2016), cert. denied sub
nom. Final Call, Inc. v. Muhammad-Ali, 137 S. Ct. 681 (2017) (quotations omitted). As to the
second requirement, due to the rarity of direct evidence of copying, “a plaintiff may prove
copying by showing that the defendant had the opportunity to copy the original (often called
‘access’) and that the two works are ‘substantially similar,’ thus permitting an inference that the
defendant actually did copy the original.” Peters v. West, 692 F.3d 629, 633 (7th Cir. 2012); see
also Nova Design Build, Inc. v. Grace Hotels, LLC, 652 F.3d 814, 817–18 (7th Cir. 2011). The
Court focuses on the “substantially similar” aspect of this requirement because it is
determinative.1 The substantially similar test, also known as the “ordinary observer” test,
requires the Court to consider “whether the accused work is so similar to the plaintiff’s work that
an ordinary reasonable person would conclude that the defendant unlawfully appropriated the
plaintiff’s protectable expression by taking material of substance and value.” Incredible Tech.,
Inc. v. Virtual Tech., Inc., 400 F.3d 1007, 1011 (7th Cir. 2005) (citation omitted). The Seventh
Circuit has recently simplified the test for substantial similarity, namely, whether “the two works
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Defendants do not, at this stage, attack Plaintiff’s claim to ownership. Defendants, however, do not
waive their right to challenge Plaintiff’s ownership of any of the copyrightable material included in the
Placement Memoranda.
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share enough unique features to give rise to a breach of the duty not to copy another’s work.”
Peters, 692 F.3d at 633–34. “The test for substantial similarity is an objective one.” JCW Inv.,
Inc. v. Novelty, Inc., 482 F.3d 910, 916 (7th Cir. 2007).2
Certain types of expression, however, are not protectable under copyright law. It is “a
fundamental tenet of copyright law that the idea is not protected, but the original expression of
the idea is.” JCW Inv., 482 F.3d at 917. Put differently, the “Copyright Act protects the
expression of ideas, but exempts the ideas themselves from protection.” Seng-Tiong Ho v.
Taflove, 648 F.3d 489, 497 (7th Cir. 2011) (citation omitted). As the Supreme Court has
explained:
The idea/expression dichotomy is codified at 17 U.S.C. § 102(b): “In no case does
copyright protec[t] ... any idea, procedure, process, system, method of operation, concept,
principle, or discovery ... described, explained, illustrated, or embodied in [the
copyrighted] work.” “Due to this [idea/expression] distinction, every idea, theory, and
fact in a copyrighted work becomes instantly available for public exploitation at the
moment of publication”; the author’s expression alone gains copyright protection.
Golan v. Holder, 565 U.S. 302, 328–29 (2012) (citation omitted). “This limitation on copyright
protection promotes the purpose of the Copyright Act by assuring ‘authors the right to their
original expression,’ but also by ‘encourag[ing] others to build freely upon the ideas and
information conveyed by a work.’” Seng–Tiong Ho, 648 F.3d 497 (citation omitted).
Additionally, it is well-established that common words and phrases are not protected
under the Copyright Act. See Peters, 692 F.3d at 635–36. In other words, “phrases that are
‘standard, stock . . . or that necessarily follow from a common theme or setting’ may not obtain
copyright protection.” Lexmark Int’l Inc. v. Static Control Components, Inc., 387 F.3d 522, 535
(6th Cir. 2004) (citation omitted). In line with this principle, the scènes à faire doctrine prohibits
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Because the test for substantial similarity is an objective test, district courts may determine copyright
infringement claims at the motion to dismiss stage of litigation. Hobbs v. John, No. 12 C 3117, 2012 WL
5342321, at *3 (N.D. Ill. Oct. 29, 2012), aff’d, 722 F.3d 1089 (7th Cir. 2013).
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copyright protection for “incidents, characters or settings which are as a practical matter
indispensable, or at least standard, in the treatment of a given topic.” Incredible Tech., 400 F.3d
at 1012 (citation omitted). Put differently, “a copyright owner can’t prove infringement by
pointing to features of his work that are found in the defendant’s work as well but that are so
rudimentary, commonplace, standard, or unavoidable that they do not serve to distinguish one
work within a class of works from another.” Bucklew v. Hawkins, Ash, Baptie & Co., LLP, 329
F.3d 923, 929 (7th Cir. 2003).
Here, Defendants do not, at least at this stage, contest that the expression in Plaintiff’s
Placement Memoranda over which Plaintiff claims copyright infringement is substantially
similar to the expression in the CPM that Blair created for Rainer. (Def.’s Mem. in Supp. of its
Mot. to Dismiss 7.) Defendants argue, however, that Plaintiff has failed to state a plausible
copyright infringement claim because the expression, although similar, is comprised entirely of
(1) ideas and themes and (2) common words and phrases, none of which is copyrightable, and
when those unprotectable elements are excluded, no actionable substantial similarity exists
between the memoranda at issue. Specifically, Defendants contend that the similar expression in
the two memoranda includes the following: “the general description of the type of GSA revenue
bonds,” “the application of proceeds generated by the GSA revenue bonds,” “the particular terms
governing the issuance and redemption of GSA revenue bonds,” “terminology and definitions
pertaining to GSA revenue bonds,” and the “manner in which proceeds from the GSA leases are
applied or paid out.” (Id. 7-8.) Defendants argue that this expression conveys general ideas and
themes and common words and phrases, all of which are necessary components of the type of
GSA revenue bond offered in both memoranda and are thus not protectable under copyright law.
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(Id.) Essentially, Defendants argue that Plaintiff is attempting to “use its copyright registrations
to claim monopoly over the entire concept of GSA revenue bonds and their usage.” (Id. 9.)
Despite Defendants’ arguments, they can point to no case law in which courts have
analyzed bond documents or the bond market and found that the expression contained in bond
documents is not copyrightable or protectable. In fact, as Plaintiff notes, courts that have
analyzed similar bond offering documents have found that they were in fact protectable under
copyright law. In Merritt Forbes & Co. Inc. v. Newman Inv. Sec., Inc., 604 F. Supp. 943, 946–
47 (S.D.N.Y. 1985), for example, the plaintiff and defendant both were underwriters of
municipal bonds, which were offered to investors via disclosure documents, such as offering
memoranda. The plaintiff developed a bond program involving long-term tax-exempt bonds that
included an option for the holder to tender the bond back to the seller prior to its stated maturity.
Id. at 947. The plaintiff, believing its bond program was unique in the bond market, registered a
copyright over the documents offering this bond program. Id. When the defendant offered a
similar bond program to investors, the plaintiff sued for copyright infringement. Id. at 948. The
defendant moved to dismiss and for summary judgment claiming that the plaintiff’s bond
program was not copyrightable because all bond documents “follow a similar form and contain
similar language by virtue of legal disclosure requirements, use of boilerplate and standardized
language, and industry consensus” and because allowing the plaintiff copyright protection would
give it “monopoly on the idea behind the bond offering, because the program . . . can only be
expressed” in limited ways. Id. at 949, 952. The court rejected the defendant’s argument and
found that genuine issues of material fact existed as to whether the concepts conveyed in the
plaintiff’s bond documents were original and copyrightable. Id. at 953. The court refused to
find, even after considering affidavits from two bond industry professionals arguing that the
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language in the bond documents was standard and not copyrightable, that bond documents were
not subject to copyright protection as a matter of law. Id. at 952-53.
Other courts analyzing similar financial, contractual, or legal documents have also been
unwilling to find that the documents are not copyrightable or protectable. See, e.g., Mid Am.
Title Co. v. Kirk, 991 F.2d 417, 421–23 (7th Cir. 1993) (overturning dismissal of infringement
claim because question of whether title commitment document was copyrightable was more
“properly addressed at the summary judgment stage”); Homeowner Options for Mass. Elders,
Inc. v. Brookline Bancorp, Inc., 754 F. Supp. 2d 201, 209 (D. Mass. 2010) (denying motion for
summary judgment and finding that mortgage forms were copyrightable); Kingsbury Int’l, Ltd. v.
Trade The News, Inc., No. 08 C 3110, 2008 WL 4853615, at *2 (N.D. Ill. Oct. 28, 2008)
(denying motion to dismiss infringement claim because it could not determine whether plaintiff’s
business index was unprotectable expression at the motion to dismiss stage); Phoenix Renovation
Corp. v. Rodriguez, 439 F. Supp. 2d 510, 516–17 (E.D. Va. 2006) (finding at summary judgment
stage that expression in customer contract was not boilerplate and thus was copyrightable); Am.
Family Life Ins. Co. of Columbus v. Assurant, Inc., No. 1:05-CV-1462-BBM, 2006 WL
4017651, at *6–8 (N.D. Ga. Jan. 11, 2006) (finding that plaintiff’s insurance policies were
copyrightable).
Here, Defendants do not dispute that the expression in Plaintiff’s Placement Memoranda
is substantially similar to the expression in the Placement Memoranda that Blair created for
Rainer. Defendants, however, ask the Court to find that the similar language in the two
documents is entirely comprised of words and themes that are common to all GSA bond
memoranda. Based on Merritt Forbes, and the other cited case law, bond documents and similar
financial documents can in fact contain copyrightable protected expression that is not so general
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and boilerplate as to constitute common words or themes. In Merritt Forbes, the defendant
submitted affidavits from bond industry professionals asserting that the language in bond
documents was standard and not copyrightable, and the court still rejected the defendant’s
argument that the bond documents at issue contained expression common to all bond documents.
Merritt Forbes, 604 F. Supp. at 952-53. Here, Defendants have submitted no such affidavits,
and the Court, at this procedural stage, without any factual record regarding the nature of the
GSA bond market or the expression contained in bond documents, cannot find that the allegedly
copied expression in the Placement Memoranda is unprotectable as a matter of law or that the
expression is common to all bond documents.
Importantly, this is not a case involving “simplistic works” that the Court can analyze
under the ordinary observer test, such as songs, poems, or television shows. Francescatti v.
Germanotta, No. 11 CV 5270, 2014 WL 2767231, at *8 (N.D. Ill. June 17, 2014) (noting that
“[w]hile simplistic works may be determined by the spontaneous response of the ordinary
observer, more complex works may require expert testimony in order to help the trier of fact”).
Unlike songs or poems, GSA bond documents are complex financial documents relating to a
niche investment market, and despite Defendants’ contentions, the Court, like the court in
Merritt Forbes, cannot at this stage determine that all the copied expression is “boilerplate and
standardized language” in the GSA bond market. Id. at 949. Defendants, like the defendant in
Merritt Forbes, claim that allowing Plaintiff copyright protection would give it “monopoly on
the idea behind the bond offering.” That may be true, but without more information on the GSA
bond market and the types of expression included in bond documents, the Court cannot reach
that conclusion at this stage.
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Accordingly, the Court denies Defendants’ motion to dismiss Plaintiff’s copyright
infringement claims. Accepting the Complaint’s factual allegations as true and drawing all
reasonable inferences in Plaintiff’s favor, Plaintiff has alleged sufficient facts to state plausible
copyright infringement claims.
II.
Count IV—Contributory and Vicarious Infringement Against Michael Kalt
In Count IV, Plaintiff alleges that Kalt should be held personally liable for contributory
and vicarious infringement because he is a partner at Blair and as Plaintiff’s relationship manager
“engaged in conduct that encouraged or assisted Blair’s direct copyright infringement.” (Third
Am. Compl. ¶ 36.) Kalt argues that he cannot be held personally liable for contributory or
vicarious infringement because Plaintiff failed to make a “special showing” that Kalt did
anything beyond the scope of his duties at a Blair relationship manager.3 (R. 78, Def. Kalt’s
Mem. in Supp. of his Mot. to Dismiss 4.)
The Supreme Court has held that “[o]ne infringes contributorily by intentionally inducing
or encouraging direct infringement . . . and infringes vicariously by profiting from direct
infringement while declining to exercise a right to stop or limit it.” Metro-Goldwyn-Mayer
Studios Inc. v. Grokster, Ltd., 545 U.S. 913, 930–31 (2005) (citations omitted). Specifically, to
sustain a claim for contributory copyright infringement, the plaintiff must prove the defendant
engaged in “personal conduct that encourage[d] or assist[ed] the infringement.” Flava Works,
Inc. v. Gunter, 689 F.3d 754, 757 (7th Cir. 2012). To sustain a claim for vicarious copyright
infringement, the plaintiff must prove that “the defendant: (1) at all material times possessed the
right and ability to supervise the infringing activity; and (2) has a direct financial interest in the
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Kalt and Blair also contend that the Court must dismiss Count IV because Plaintiff’s direct infringement
claims fail. Having found above that Plaintiff’s direct infringement claims still stand, the Court focuses
on Kalt’s other argument for dismissal.
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infringer’s activity.” Frerck v. John Wiley & Sons, Inc., No. 11-CV-2727, 2014 WL 3512991, at
*9 (N.D. Ill. July 14, 2014). Additionally, as the parties agree, the seminal Seventh Circuit case
of Dangler v. Imperial Mach. Co., 11 F.2d 945 (7th Cir. 1926), still provides the governing law
regarding whether corporate officers can be held personally liable for their corporation’s
infringement. In Dangler, the court explained:
In the absence of some special showing, the managing officers of a corporation are not
liable for the infringements of such corporation, though committed under their general
direction. . . It is when the officer acts willfully and knowingly— that is, when he
personally participates in the manufacture or sale of the infringing article (acts other than
as an officer), or when he uses the corporation as an instrument to carry out his own
willful and deliberate infringements, or when he knowingly uses an irresponsible
corporation with the purpose of avoiding personal liability— that officers are held jointly
with the company.
Id. at 947.
Here, Plaintiff’s allegations claim that Kalt is a partner at Blair, was the relationship
manager for both Plaintiff and Rainer’s bond offering, and that he encouraged Blair’s copyright
infringement. (Third Am. Compl. ¶¶ 35-36.) These boilerplate assertions are insufficient to
support a claim for vicarious or contributory infringement under Dangler or the specific
standards for each type of infringement. First, under Dangler, Plaintiff’s bald assertion that Kalt
“encouraged or assisted” Blair’s infringement is insufficient to make a “special showing” that
Kalt “personally participated in the manufacture or sale” of the Placement Memoranda at issue
here. Dangler, 11 F.2d at 947. Plaintiff only alleges that Kalt was the relationship manager for
Plaintiff and Rainer, but offers no facts about the actions Kalt took as a relationship manager, his
responsibilities with regard to the Plaintiff or Rainer, or his part in the sale or distribution of the
infringing documents. Plaintiff also alleges no facts about the role Kalt personally played in the
alleged infringement and alleges no details about the benefits Kalt received from the infringing
activity. Therefore, on the Dangler precedent alone, Plaintiff’s infringement claim against Kalt
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fails. See FM Indus., Inc. v. Citicorp Credit Servs., Inc., No. CIV.A. 07 C 1794, 2007 WL
4335264, at *4 (N.D. Ill. Dec. 5, 2007) (dismissing infringement claim against individual
defendants because plaintiff made no “special showing” and did not show that defendant did
anything “beyond the scope of their duties as officers” or profited personally).
In addition to failing under the Dangler standard, Plaintiff’s conclusory allegations are
also insufficient under the specific standards for contributory and vicarious liability. With regard
to vicarious infringement, Plaintiff’s allegations fail because they do not allege or even support
an inference that Kalt had a direct financial interest in or received any personal financial benefit
from the alleged infringing activity. Flava Works, 2012 WL 2459146, at *4 (granting motion to
dismiss because plaintiff failed to “allege any facts to suggest that [the defendant] received a
direct financial benefit as a result of the infringing activity”). With regard to contributory
infringement, Plaintiff’s allegations merely repeat in boilerplate fashion the Seventh Circuit
requirement that a defendant’s personal conduct must have “encourage[d] or assist[ed] the
infringement.” This conclusory allegation, unsupported by any facts regarding Kalt’s role in the
infringement, is insufficient to state a claim for contributory infringement against Kalt as an
individual. Seals v. Compendia Media Grp., No. 02 C 0920, 2003 WL 731369, at *7 (N.D. Ill.
Feb. 28, 2003) (dismissing contributory infringement claim against individual defendants
because plaintiff “inadequately alleged any facts to support his conclusion that they knew of, and
induced, caused, or materially contributed to, the infringing conduct”).
In sum, Plaintiff’s boilerplate allegations of contributory and vicarious liability lack the
factual detail required to show that Kalt is personally liable for the alleged infringement. In
other words, Plaintiff’s “[t]hreadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.” Iqbal, 556 U.S. at 678 (citation omitted).
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Accordingly, the Court grants without prejudice Kalt’s motion to dismiss Plaintiff’s contributory
and vicarious infringement claims against him.
III.
Count V—Professional Negligence
In Count V, Plaintiff alleges that Defendants breached their duty of care to Plaintiff. In
its Motion to Dismiss, Blair argues that the Court must dismiss Count V because it is premised
on Plaintiff’s copyright infringement allegations. Since Plaintiff’s copyright allegations still
stand, Blair’s argument fails. Accordingly, the Court denies Defendants’ motion to dismiss
Plaintiff’s professional negligence claim.
CONCLUSION
For these reasons, the Court denies Blair’s Rule 12(b)(6) motion to dismiss Plaintiff’s
infringement and professional negligence claims and grants Kalt’s motion to dismiss Plaintiff’s
contributory and vicarious infringement claims without prejudice.
Dated: March 29, 2017
ENTERED
______________________________
AMY J. ST. EVE
United States District Court Judge
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