REDWALL LIVE CORPORATION v. ESG SECURITY, INC.
ORDER granting 40 and 41 Motions to Dismiss. Plaintiff's motion to dismiss is GRANTED. Count I of the Amended Complaint, alleging copyright infringement, is dismissed WITH PREJUDICE; Counts II, III, and IV are dismissed WITHOUT PREJUDICE. Defendant concedes that, with the dismissal of Plaintiff's copyright claim, its counterclaims for declaratory judgment of copyright invalidity, noninfringement, implied license, and co-authorship are moot and thus subject to dismissal. We therefore DISMISS Defendant's Counterclaim Counts I, II, III and IV as well. (See Order for Defendant's two state-law counterclaims). Signed by Judge Sarah Evans Barker on 2/24/2015. (CBU)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
REDWALL LIVE CORPORATION,
ESG SECURITY, INC.,
ORDER ON MOTIONS TO DISMISS
This cause is before the Court on two motions: (1) Plaintiff Redwall Live Corporation’s
Voluntary Motion to Dismiss [Docket No. 40], filed on July 18, 2014 pursuant to Federal Rule of
Civil Procedure 41; and (2) Defendant ESG Security, Inc.’s Motion to Dismiss [Docket No. 41],
filed on July 29, 2014 pursuant to Federal Rules of Civil Procedure 12(b)(6) and 41. 1 For the
reasons and in the manner explained below, the motions are GRANTED—partly with prejudice
and partly without prejudice.
Factual and Procedural Background
Plaintiff Redwall Live Corporation (“Redwall”) is an Indianapolis consulting and design
services firm engaged in the business of “strategic branding” and advertising. Am. Compl. ¶¶ 5,
7. Defendant ESG Security (“ESG”), also based in Indianapolis, provides security services and
professional staff in the entertainment and hospitality industries. Id. at ¶ 6.
Defendant’s primary argument engages Plaintiff’s voluntary motion to dismiss under Rule 41.
Since Defendant also moves, in the alternative, to dismiss the entire Amended Complaint with
prejudice, a Rule 12(b)(6) motion is at least implicit.
In June 2012, ESG engaged Redwall to “revamp its brand.” Id. at ¶ 8. Pursuant to this
contract, on which ESG made a $6500 down payment in July 2012, Redwall began preparing
design for a new corporate logo and other imagery that was to appear on business cards,
letterhead, envelopes, a new website, and promotional materials like printed brochures. Id. at ¶¶
10–12, 16. By October 2012, ESG had approved Redwall’s preliminary design concepts for a
new website, letterhead, and envelope designs. Id. at ¶¶ 17–19. These design concepts never
reached the final stage, however, because around November 2012 ESG stopped accepting
deliverables from Redwall; Redwall maintains that at the time that the contractual relationship
broke down, “nearly all of the agreed upon items from the comprehensive design plan [had been]
completed by Redwall and . . . only a few approvals from ESG [were] outstanding.” Id. at ¶ 21.
According to Redwall, a balance of $12,543.97 remains unpaid for its services rendered to ESG.
Id. at ¶ 29.
ESG asserts that it began using the new corporate logo devised by Redwall—referred to
by Redwall as the “Derivative Work”— shortly after it was delivered in the fall of 2012. Docket
No. 42 at 2 (citing Docket No. 30, Exs. D, E). Some six months later, in May 2013, Redwall
registered the Derivative Work as Registration No. VA1-874-872 with the United States
Copyright Office. Am. Compl. ¶ 25. Redwall registered a variation on this design (as the “Third
Derivative Work”) around the same time. Id. at 26.
Redwall filed suit against ESG on November 25, 2013, asserting a copyright
infringement claim under federal law, as well as state-law contract and unjust enrichment claims.
See Docket No. 1. After ESG sent Redwall a letter asserting that the copyright claim lacked a
viable basis because the material in question had been produced for hire and delivered to ESG,
Redwall filed a supplementary registration with the Copyright Office in January 2014 to identify
the Derivative Work and Third Derivative Work as, jointly, constituting a “derivative work or
compilation” based on the ESG logo. Id. at 27; Docket No. 42 at 2. In exchanges of documents
pursuant to this suit, Redwall has asserted that it never delivered a “final” logo to ESG, that the
company never intended to deliver such a logo, and that any delivery that did occur was
unauthorized by the company. In response, ESG has pointed to evidence that Redwall did, in
fact, deliver a logo to ESG in a number of formats—and never communicated to ESG that it had
any intention of placing restrictions on the logo’s use. See Docket No. 42 at 3.
After the Court granted it leave to do so, Redwall filed an Amended Complaint on April
8, 2014. While discovery was still in its initial stages and before either party had moved for
summary judgment, however, Redwall moved for voluntary dismissal of the action without
prejudice pursuant to Federal Rule of Civil Procedure 41(a)(2). Docket No. 40. Shortly
thereafter, ESG moved to dismiss the Amended Complaint with prejudice or, in the alternative,
without prejudice upon the condition that Defendant be awarded attorneys’ fees. Docket No. 41.
The most salient feature of the parties’ motions is that they desire the same outcome: the
dismissal of Redwall’s Amended Complaint. Their remaining disagreements concern how the
Court should do so, and why.
Redwall seeks voluntary dismissal—without prejudice—under Rule 41. In doing so, it
explains that the suit is simply no longer worth pursuing, and it draws a distinction between its
federal and state claims. Redwall explains its motives thus: “Although Redwall filed claims for
copyright infringement, it principally wanted to be paid for the services it had rendered to ESG,
including development of ESG’s new logo and website, and if it wasn’t going to receive
payment, Redwall wanted ESG to stop using Redwall’s copyrighted works.” Pl’s Br. ¶ 8. Since
ESG has not proved cooperative in resolving the matter to its satisfaction, Redwall now asserts
that the game is not worth the candle. “Redwall has determined that, regardless of the merits of
its claims, it does not make economic sense to continue to pursue its action against ESG. The
amount of money involved is not significant . . . and the amount of legal fees incurred and that
will continue to be incurred do not justify continuing . . . . The only beneficiaries from
continuing this litigation are the lawyers.” Id. at ¶ 11.
ESG is not content to let the matter rest so easily. “Because Redwall sought statutory
damages, injunctive relief, and attorneys’ fees under the Copyright Act,” ESG asserts, ESG
“incurred substantial expense in preparing its defenses and counterclaims. . . . ESG is entitled to
be compensated for the unnecessary expenses it has incurred to defend itself against Redwall’s
claims, which it now states are not worth pursuing.” Docket No. 42 at 5. ESG therefore contends
that the Amended Complaint should be dismissed with prejudice, rendering ESG the prevailing
party under Section 505 of the Copyright Act and enabling it to collect reasonable attorneys’ fees
to make it whole for its unnecessary expense. Id. at 11.
Two threads emerge from these conflicting arguments. First, Redwall seeks to escape
from court; while implicitly conceding the groundlessness of its copyright claim, it nonetheless
seeks to preserve for itself the option of bringing its state-law contract claims in state court.
Second, ESG demands recompense for its trouble in defending a copyright claim that, it insists,
was futile from the beginning. We believe that the parties’ desires can be partially reconciled,
and the interests of justice and judicial efficiency best served, by granting each party’s motion in
part. As we explain further below, we therefore grant ESG’s motion for dismissal with prejudice
with respect to the federal copyright claim and grant Redwall’s motion for voluntary dismissal
without prejudice as to the remaining state-law claims.
Federal Rule of Civil Procedure 41(a)(2) provides that, after service of an answer or
motion for summary judgment, an action “may be dismissed at the plaintiff’s request only by
court order, on terms that the court considers proper.” Fed. R. Civ. Pro. 41(a)(2). The district
court therefore enjoys wide discretion in considering Rule 41 motions, and the plaintiff bears the
burden of persuasion. See Tolle v. Carroll Touch, Inc., 23 F.3d 174, 177 (7th Cir. 1994) (citing
F.D.I.C. v. Knostman, 966 F.2d 1133, 1142 (7th Cir. 1992)).
If a court grants a motion for voluntary dismissal, its discretion extends to deciding
whether or not to grant the plaintiff dismissal without prejudice. The Seventh Circuit has ruled
that courts should not grant dismissal without prejudice if the defendant would suffer “plain legal
prejudice” as a result of such a decision. Kovalic v. DEC Int’l, Inc., 855 F.2d 471, 473 (7th Cir.
1988); In re Bridgestone Firestone Prods. Liability Litig., 199 F.R.D. 304, 306 (S.D. Ind. 2001).
In determining whether a defendant would suffer plain legal prejudice, we consider four factors:
(1) the defendant’s effort and expense of preparation for trial; (2) whether there has been
excessive delay and lack of diligence on the part of the plaintiff in prosecuting the action, (3) the
sufficiency of the plaintiff’s explanation for the need to take a dismissal, and (4) whether the
defendant has filed a motion for summary judgment. Knostman, 966 F.2d at 1142; Pace v. S.
Exp. Co., 409 F.2d 331, 334 (7th Cir. 1969)).
Application to Plaintiff’s motion
Here, there is no dispute that Redwall filed its motion to dismiss before ESG had moved
for summary judgment. Pl.’s Br. ¶ 7. Neither does ESG contend that Redwall has engaged in
unnecessary delay or manifested any particular failure of diligence. Cf. F.D.I.C., 966 F.2d at
1142. As for the remaining two factors, we conclude that they weigh in ESG’s favor with respect
to the copyright claim, and in Redwall’s favor with respect to the other claims.
A. Effort and expense in preparation for trial
Courts may determine that dismissal with prejudice is appropriate where a case has been
pending for a considerable time and discovery had been completed, see Tolle, 23 F.3d at 177, or
where the record shows that the defendant has expended considerable resources on preparation
for trial or dispositive motions. See RSR Corp. v. Avanti Dev. Inc., 2000 WL 1448655, at *3
(S.D. Ind. Jul. 20, 2000).
Here, ESG states that it has made a number of efforts to convince Redwall of the futility
of its copyright claim and to prepare a defense on the issue: several letters to Plaintiff’s counsel,
Def.’s Ex. 13; a motion for judgment on the pleadings, Docket No. 19; arguments concerning the
futility of amending the complaint, Docket Nos. 26, 27; interviewing key witnesses and sending
the resulting declarations to Redwall, Def.’s Exs. 1, 2; responses to interrogatories; and
preparation for depositions. Def.’s Br. 7–8. As the content of these exhibits and the thrust of
ESG’s briefing makes clear, ESG’s efforts in defending this suit were predominantly, if not
wholly, directed towards the claim for copyright infringement. We thus agree with ESG that—
with respect to the copyright issue—it would be inequitable to allow Redwall to “take a
voluntary nonsuit and start over.” Cf. McCall-Bey v. Franzen, 777 F.2d 1178, 1184 (7th Cir.
1985). Such equitable concerns apply with considerably less force, however, to the state law
claims which have thus far not been the focus of the parties’ disputes or pre-trial efforts.
B. Redwall’s explanation for seeking dismissal
As we have already noted, Redwall justifies its motion for voluntary dismissal on the
grounds that continuing the suit is not cost-effective. As both sides acknowledge, the contract
amount in controversy is scarcely $12,000—an amount that pales in comparison to the legal fees
generated by any significant litigation. See Am. Compl. ¶ 29; Def.’s Br. 9. Moreover, as ESG has
demonstrated and Redwall has implicitly conceded, ESG’s alleged copyright infringement began
before Redwall ever registered any of its “derivative work” copyrights. Redwall’s claim for
statutory damages or attorneys’ fees under the Copyright Act is therefore futile. See 17 U.S.C. §
As ESG rejoins, however, Redwall should have known all this from the beginning of the
suit. Indeed, the most rational reading of Redwall’s conduct is that it included a copyright claim
not only to open the door to federal jurisdiction 3, but as leverage in obtaining what it really
wanted: full payment under its contract with ESG. As we have seen, Redwall has admitted as
much: “Although Redwall filed claims for copyright infringement, it principally wanted to be
paid for the services it had rendered to ESG.” Pl.’s Br. ¶ 8. Redwall’s explanation for seeking
dismissal now is thus hardly compelling with respect to its copyright claim; allowing it to
withdraw without any res judicata consequences would be to reward its gamesmanship. See
Riviera Distribs., Inc. v. Jones, 517 F.3d 926, 927–928 (7th Cir. 2008) (affirming grant of
dismissal with prejudice under Rule 41, and an attorneys’ fees award to defendant, where
plaintiff “conceded that it lacked the evidence to prove its claim, though hoping to acquire better
evidence in the future”).
If ESG’s use of the corporate logo were not licensed, then actual damages might be
recoverable. However, Redwall has implicitly conceded ESG’s point that ESG’s use of the logos
was, in fact, licensed. See Pl.’s Reply at 6 (“Copyright ownership is comprised of a bundle of
rights; in granting a nonexclusive license . . . [Plaintiff] has given up only one stick from the
bundle—the right to sue.”) (citing Effects Assocs., Inc. v. Cohen, 908 F.2d 555, 559 (9th Cir.
Both parties are Indiana-based corporations.
In ruling on a motion to dismiss under Rule 41, the court’s exercise of discretion in
attaching conditions to a dismissal is “the quid for the quo of allowing the plaintiff to dismiss his
suit without being prevented by the doctrine of res judicata from bringing the same suit again.”
McCall, 777 F.2d at 1184. Redwall has emphasized here that its chief aim in bringing this suit
was to make itself whole with respect to its consulting contract with ESG—and its chief aim in
withdrawing its complaint is to preserve its state-law claims. We shall allow Redwall to walk
away with its state-law claims intact, but we dismiss its copyright claim with prejudice. ESG is
the “prevailing party” on the copyright claim, and is thus presumptively entitled to attorneys’
fees for the litigation of that claim under 17 U.S.C. § 505 and relevant Seventh Circuit precedent.
See Riviera, 517 F.3d at 928 (“Midwest obtained a favorable judgment. That this came about
when Riviera threw in the towel does not make Midwest less the victor than it would have been
had the judge granted summary judgment or a jury returned a verdict in its favor. Riviera sued;
Midwest won; no more is required.”).
Plaintiff’s motion to dismiss is therefore GRANTED. Count I of the Amended
Complaint, alleging copyright infringement, is dismissed WITH PREJUDICE; Counts II, III, and
IV are dismissed WITHOUT PREJUDICE. 4 Defendant concedes that, with the dismissal of
Plaintiff’s copyright claim, its counterclaims for declaratory judgment of copyright invalidity,
noninfringement, implied license, and co-authorship are moot and thus subject to dismissal. See
Def.’s Br. 10 (citing Mostly Memories, Inc. v. For Your Ease Only, Inc. 526 F.3d 1093, 1098 n.1
(7th Cir. 2008)). We therefore DISMISS Defendant’s Counterclaim Counts I, II, III and IV as
Defendant’s parallel motion to dismiss with prejudice [Docket No. 41] is thus granted as to
Count I and denied as moot with respect to the other counts.
As a consequence of this order, all that remains before us are Defendant’s two state-law
counterclaims: Count V for breach of contract and Count VI for abuse of process. Defendant has
represented to the Court that it intends to stipulate to the dismissal of those two counterclaims
given our other rulings. Def.’s Br. 10 n.3. When it does so, the Court will dismiss the suit in its
entirety and enter judgment. Because no federal question remains and the parties are non-diverse,
Plaintiff may pursue its still viable contract claims in state court, if it chooses to do so.
IT IS SO ORDERED.
SARAH EVANS BARKER, JUDGE
United States District Court
Southern District of Indiana
Steven G. Cracraft
BRANNON SOWERS & CRACRAFT PC
Alastair J. Warr
KRIEG DEVAULT LLP
Jennifer K. Gregory
KRIEG DEVAULT LLP
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