Adventure Creative Group, Inc. v. CVSL, Inc. et al

Filing 119

ORDER granting 113 Motion for Default Judgment; granting 117 Motion for Attorney Fees. See Order for specifics. (Written Opinion) Signed by Judge Eric C. Tostrud on 9/12/2019. (RMM)

UNITED STATES DISTRICT COURT
DISTRICT OF MINNESOTA
Adventure Creative Group, Inc.,

File No. 16-cv-2532 (ECT/SER)

Plaintiff,
v.
CVSL, Inc., a Florida corporation d/b/a
JRJR Networks;
Your Inspiration at Home Pty Ltd, an
Australian proprietary limited company;
Your Inspiration at Home, Ltd, a Nevada
corporation;
Inspired Portfolio Pty Ltd., an Australian
proprietary limited company; and
CVSL YIAH Pty Ltd., an Australian
proprietary limited company,

OPINION AND ORDER

Defendants.

James B. Dickinson, Koenig Dickinson & Dalluge, PLC, Long Lake, MN, for Plaintiff.

Adventure Creative Group seeks entry of a default judgment in an amount up to
$16,350,000 against Your Inspiration at Home Pty Ltd (“YIAH”), one of several business
organizations it sued in this copyright-infringement case. Adventure arrives at this sum by
multiplying the number of works it says YIAH infringed (109) by the maximum statutory
damage award available for willful infringement ($150,000). If a default judgment is
entered against YIAH, then Adventure confirmed at the hearing on this motion that it
intended to dismiss its claims against all other Defendants. Adventure also seeks recovery
of its attorneys’ fees and costs incurred in bringing its motion. Adventure’s default-

judgment motion will be granted, but in an amount much less than Adventure seeks. To
summarize, registration is a prerequisite to obtaining statutory damages, and Adventure
identifies two registered works in its complaint and submissions—a catalog and a video.
Adventure reaches the number of works it says YIAH infringed (109) by separately
counting individual photographs and text removed from each registered work. But, as it
turns out, the law does not permit this approach on the facts presented here. A default
judgment will be entered against YIAH in the amount of $300,000. Adventure’s claims
against the remaining defendants will be dismissed, and Adventure’s motion for attorney’s
fees and costs will be granted in the amount requested.
The basic process for determining whether a default judgment should be entered is
straightforward. The entry of default1 means that “the factual allegations of the complaint,
except those relating to the amount of damages, will be taken as true.” 10A C. Wright, A.
Miller & M. Kane, Federal Practice and Procedure: Civil § 2688.1 (4th ed. & April 2019
Update) (footnotes omitted). Next, it must be determined whether the taken-as-true factual
allegations of the complaint “constitute a legitimate cause of action, since a party in default
does not admit mere conclusions of law.” Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir.
2010) (quoting Murray v. Lene, 595 F.3d 868, 871 (8th Cir. 2010)). If the taken-as-true
allegations of the complaint constitute a legitimate cause of action, then the amount of the

1

The Clerk properly entered default with respect to all Defendants except CVSL, Inc.
ECF No. 95 (entry of default); Dec. 27, 218 Order at 2–3 [ECF No. 106] (explaining
procedural history justifying entry of default, citing relevant authorities, and vacating entry
of default as to CVSL, Inc. because it previously had filed a bankruptcy petition).
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default judgment must be ascertained. Hagen v. Sisseton-Wahpeton Cmty. Coll., 205 F.3d
1040, 1042 (8th Cir. 2000).2
Start with the factual allegations of the complaint that will be taken as true.
Adventure is an “advertising agenc[y] in the Twin Cities.” Am. Compl. ¶ 9 [ECF No. 21].
Adventure provides “design services including providing its expertise in such areas as
brand identity and positioning, photography and style as part of the brand identity, log[o],
tagline verbiage, iconography illustrations style, packaging, website and label design and
video.” Id. Adventure and YIAH executed a contract entitled “Agreement to Provide
Marketing Services.” Id. at Schedule 1 at 2, 6 (“Agreement”) [ECF No. 21-2]; see also
Am. Compl. ¶ 10. The Agreement had an effective date June 19, 2012. Agreement at 2.
The Agreement required Adventure to “provide YIAH the standard services of an
advertising agency, such as consulting, creative design, copywriting, packaging design,
public relations, social media and strategic planning.” Id. For Adventure’s services, the
Agreement required YIAH to “pay to Adventure a sum (the “Fee”) equal to five percent
(5%) of gross sales of YIAH (including sales by any of its affiliates or subsidiaries selling
or marketing the same or similar products).” Id. The Agreement required YIAH to pay

2

When, as here, a court is asked to enter a default judgment, it may conduct hearings
to establish the amount of damages or to establish the truth of allegations, “preserving any
federal statutory right to a jury trial.” Fed. R. Civ. P. 55(b)(2). “[T]he Seventh Amendment
provides a right to a jury trial on all issues pertinent to an award of statutory damages under
§ 504(c) of the Copyright Act, including the amount itself.” Feltner v. Columbia Pictures
Television, Inc., 523 U.S. 340, 355 (1998). Perhaps in some copyright-infringement cases
these authorities might require empanelment of a jury to determine an award of statutory
damages. This cannot be one of those cases, however, because Defendants waived their
right to a jury trial. Stip. ¶ 1 [ECF No. 53]; March 6, 2017 Order ¶ 1 [ECF No. 55].
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these sums “within 30 days of the end of each [calendar] quarter.” Id. The Agreement also
contained a provision regarding the ownership of intellectual property:
Subject to the license below, all written or other expressions of
Adventure’s work pursuant to this Agreement, whether
performed separately or in conjunction with YIAH, including
without limitation written copy, photographs, images,
graphics, audio, video, means of development, products,
designs and derivative works or any other results of the
services performed by Adventure in connection with this
Agreement (“Work Product”), shall be the property of
Adventure[], and YIAH hereby agrees to assign, and does
hereby assign, to Adventure all worldwide rights, title and
interest in and to the Work Product developed or hereafter
developed during this Agreement, provided that: (a) during the
Fee Term, so long as YIAH is in compliance with this
Agreement, including it is current on paying the Fee,
Adventure hereby grants to YIAH a worldwide limited license
to use the Work Product for the purposes contemplated by this
Agreement and by the parties for the specific Work Product
created hereunder; and (b) after the end of the Fee Term, so
long as YIAH has complied with all terms of this Agreement,
including without limitation paying all Fees due, Adventure
agrees to then transfer and assign to YIAH all ownership rights
in the Work Product which it prepared exclusively for YIAH
hereunder.
Agreement at 3; see also Am. Compl. ¶¶ 14–16 (summarizing parts of this provision).
Adventure developed Work Product as defined in this provision, including two works with
registered copyrights: a “‘Your Inspiration At Home’ Product/Recruiting Catalog which
included 29 pages of print materials, including but not limited to text, photograph(s),
compilation, editing and artwork, Registration Number: TX0007766577; and ‘Your
Inspiration

At

Home’

Consultant

Recruitment

Video,

Registration

Number:

PA0001865255.” Am. Compl. ¶ 21. At some point prior to Adventure’s commencement
of this case, YIAH stopped paying under the Agreement and did not allow Adventure to
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“conduct an independent audit of [YIAH’s] gross sales as provided for in the Agreement.”
Id. ¶ 28. After it stopped paying under the Agreement, YIAH continued to use Adventure’s
works. Id. ¶ 29. In particular, YIAH copied all or “selected pieces of” Adventure’s
copyrighted works and published and utilized them “to promote and generate business for
their own monetary purposes.” Id. ¶¶ 36, 43.
These taken-as-true allegations constitute a legitimate cause of action for copyright
infringement.3 “The Copyright Act entitles a copyright owner to institute a civil action for
infringement of” its “‘original works of authorship.’” Fourth Estate Pub. Benefit Corp. v.
Wall-Street.com, LLC, 139 S. Ct. 881, 887 (2019) (quoting 17 U.S.C. § 102(a); citing
17 U.S.C. § 501(b)).

“Before pursuing an infringement claim in court, however, a

copyright claimant generally must comply with [17 U.S.C.] § 411(a)’s requirement that
‘registration of the copyright claim has been made.’” Id. To prevail on a claim of copyright
infringement under § 501 of the Copyright Act, a plaintiff must show “(1) ownership of a
valid copyright and (2) copying of original elements of the copyrighted work.” Warner

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Adventure asserts two claims in its Amended Complaint, the first for breach of
contract and the second for copyright infringement. The breach-of-contract claim is not at
issue here because it was resolved separately in a different forum. In January 2017, the
Court dismissed Adventure’s breach-of-contract claim based on the doctrine of “forum non
conveniens” and retained jurisdiction over the copyright-infringement claim. ECF No. 50
(Nelson, J.). The breach-of-contract claim was then litigated in Minnesota District Court,
Crow Wing County. Those proceedings concluded on June 28, 2018, with the entry of a
default judgment in Adventure’s favor against all Defendants “jointly and severally” in the
amount of $460,213.26. Mitchell Aff., Ex. B at 9 [ECF No. 109-2]. Of this amount,
$403,362.13 was intended to compensate Adventure for delinquent licensing fees “for the
four quarters of 2016,” and $56,851.13 was intended to compensate Adventure for its
attorney’s fees and costs incurred in that action. Id. at 7, 8. Thus, Adventure’s copyrightinfringement claim is the only cause of action at issue in its default-judgment motion.
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Bros. Entm’t v. X One X Prods., 644 F.3d 584, 595 (8th Cir. 2011) (citation omitted).
Adventure’s complaint plainly and plausibly pleads these elements.

The complaint

identifies two registered works—a catalog and a video. Am. Compl. ¶ 21. It alleges facts
establishing Adventure’s ownership of these works. Id., Agreement at 3; see also Am.
Compl. ¶¶ 14–16, 21. And it alleges that YIAH copied all or “selected pieces of”
Adventure’s copyrighted works and published and utilized them “to promote and generate
business for their own monetary purposes.” Id. ¶¶ 36, 43.
A copyright owner who proves infringement may recover either the “owner’s actual
damages and any additional profits of the infringer,” or “statutory damages.” 17 U.S.C. §
504(a). Here, Adventure seeks statutory damages. See generally Mem. in Supp. [ECF No.
111]. A copyright owner may elect to recover “statutory damages for all infringements
involved in the action, with respect to any one work . . . in a sum of not less than $750 or
more than $30,000.”

17 U.S.C. § 504(c)(1).

If the copyright owner proves the

infringement was willful, then the maximum available amount of statutory damages
increases to $150,000 per copyright infringed. 17 U.S.C. § 504(c)(2); see also Pearson
Educ., Inc. v. Almgren, 685 F.3d 691, 693 n.3 (8th Cir. 2012). “[W]hen defendant’s work
copies various separate portions or passages of plaintiff’s work, but all those portions are
protected under a single copyright, then minimum damages are not to be multiplied by
reason of the several, separately copied [portions or] passages.” 4 M. Nimmer & D.
Nimmer, Nimmer on Copyright § 14.04[E][1][b][i] (2018). “[I]n determining whether
more than one ‘work’ has been infringed for the purpose of multiple statutory damages
awards, ‘all the parts of a compilation or derivative work constitute one work.’” Id.
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(quoting 17 U.S.C. § 504(c)(1)). “The prevailing reading in the circuits is . . . [that] under
§ 504(c) the total number of ‘awards’ of statutory damages that a plaintiff may recover in
any given action against any single defendant depends on the number of works that are
infringed and the number of individually liable infringers and is unaffected by the number
of infringements of those works.” Venegas-Hernandez v. Sonolux Records, 370 F.3d 183,
194 (1st Cir. 2004); see also Nat. Hair Growth Ctrs. of Ariz., LLC v. Edmund, No. 3:19cv-00026-H-BGS, 2019 WL 2249976, at *6 (S.D. Cal. May 23, 2019) (“[E]ach work
infringed may form the basis of only one award, regardless of the number of separate
infringements of that work.”) (quoting Louis Vuitton Malletier, S.A. v. Akanoc Sols., Inc.,
658 F.3d 936, 946 (9th Cir. 2011)).
Here, Adventure identifies two registered works—the catalog and video—that
YIAH infringed. Adventure contends nonetheless that “YIAH has used 71 separate images
from the catalog and 38 separate images and text from the video,” and that each of these
109 “separate images and text” should be counted as a separate work. Mem. in Supp. at
10. To support this argument, Adventure relies primarily on Playboy Enters., Inc. v.
Sanfilippo, No. 97-0670-IEG (LSP), 1998 WL 207856 (S.D. Cal. Mar. 25, 1998). In that
case, Playboy alleged that an individual (Sanfilippo) infringed its copyrights in 7,475
images by publishing and selling access to those images through a website. Id. at *1.
Playboy owned registered copyrights “for all of the disputed images,” id. at *2, and sought
statutory damages with respect to Sanfilippo’s infringement of each work, id. at *3–5.
Sanfilippo argued that his liability for statutory damages should be reduced because “he
did not consider each of the images to amount to a separate copyright violation.” Id. at *5.
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Specifically, Sanfilippo argued “that because the images were collectively included in one
of plaintiff’s copyrighted magazines, then [he] should only be liable for a singular violation
of that particular magazine’s copyright and not for separate violations of each image
included in that magazine issue.” Id. The court rejected Sanfilippo’s argument:
Although each of these images may have appeared in a singular
issue of one of plaintiff’s copyrighted publications, these
images are subject to re-use and redistribution in accordance
with various licensing arrangements. Furthermore, each image
represents a singular and copyrightable effort concerning a
particular model, photographer, and location. The fact that
many of these images appeared together should not detract
from the protection afforded to each individual effort.
Id. Playboy is distinguishable from Adventure’s claims in this case. Playboy owned a
registered copyright for every one of the 7,475 sued-upon images. Id. at *2. Adventure
alleges only that it has copyright registrations in the catalog and video; there is no evidence
Adventure owns copyright registrations for any of the individual images and text used by
YIAH. But registration is a prerequisite to an infringement suit. 17 U.S.C. § 411(a);
Fourth Estate, 139 S. Ct. at 886–87. There is no evidence showing that the images and
text YIAH used are subject to other licensing agreements or that Adventure and YIAH
contemplated separate use of these materials. The Agreement suggests otherwise. Had
YIAH complied with its terms, the Agreement provided that Adventure would “then
transfer and assign to YIAH all ownership rights in the Work Product which it prepared
exclusively for YIAH hereunder.” Agreement at 3. The law permits an award of statutory
damages on the two registered works—the catalog and video—and not on the 109 separate
images and text Adventure says YIAH used.
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Among the factors that may be considered to determine an appropriate statutorydamage award “are the licensing expenses saved and profits reaped by defendants from the
infringements, the revenues lost by plaintiffs as a result of defendants’ infringements, and
the infringers’ state of mind, i.e., willful, knowing or innocent.” Halnat Publ’g Co. v.
L.A.P.A., Inc., 669 F. Supp. 933, 937 (D. Minn. 1987) (MacLaughlin, J.); see also Broad.
Music, Inc. v. Edcon Enters., LLC, No. 4:11-CV-1950-JAR, 2012 WL 5508485, at *2 (E.D.
Mo. Nov. 14, 2012) (same); see also Mango v. BuzzFeed, Inc., 356 F. Supp. 3d 368, 374
(S.D.N.Y. 2019) (identifying factors that may be considered to determine an award of
statutory damages as “(1) the infringer’s state of mind; (2) the expenses saved, and profits
earned, by the infringer; (3) the revenue lost by the copyright holder; (4) the deterrent effect
on the infringer and third parties; (5) the infringer’s cooperation in providing evidence
concerning the value of the infringing material; and (6) the conduct and attitude of the
parties”) (quoting Bryant v. Media Right Prods., Inc., 603 F.3d 135, 144 (2d Cir. 2010)).
A copyright holder seeking to establish willful infringement must show that the infringer
had knowledge that its conduct constituted infringement or that it recklessly disregarded
that possibility. RCA/Ariola Int’l, Inc. v. Thomas & Grayston Co., 845 F.2d 773, 779 (8th
Cir. 1988); Broad. Music, Inc. v. City & Country Tavern, LLC, Civil No. 15-3441
(JNE/BRT), 2016 WL 3566209, at *3 n.1 (D. Minn. June 27, 2016) (citing RCA/Ariola,
845 F.2d at 779). Courts have found willful infringement when, for example, a defendant
engages in infringing activity after receiving warning that the activity constitutes
infringement and from the fact of a defendant’s default. Chi–Boy Music v. Charlie Club,
Inc., 930 F.2d 1224, 1227–28 (7th Cir. 1991); Philpot v. Music Times LLC, No. 16cv1277
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(DLC) (DF), 2017 WL 9538900, at *7 (S.D.N.Y. Mar. 29, 2017), R&R adopted, 2017 WL
1906902 (S.D.N.Y. May 9, 2017); Graphic Styles/Styles Int’l LLC v. Kumar, Civil
No. 14-4283, 2016 WL 299083, at *5 (E.D. Pa. Jan. 25, 2016).
Here, the record establishes that YIAH’s infringement was willful.

The

infringement was widespread, not isolated or sporadic. Am. Compl. ¶ 37; Mitchell Aff.
¶¶ 19–21, 23 [ECF No. 109].

The infringement continued after Adventure “made

numerous demands” to YIAH to stop. Am. Compl. ¶ 24. YIAH’s conduct in this case
shows willfulness with respect to the infringement. Though it appeared initially, YIAH
(and every other Defendant) has ceased to defend since July 2018. See ECF Nos. 91–92.
Though YIAH retained and was represented in this case by several attorneys at various
times, it (and the other Defendants) placed all of those attorneys in a position of concluding
that it was necessary to file motions to withdraw (and all of those motions were granted).
ECF Nos. 56, 63, 66, 69, 74, 91. An order to obtain new representation on or before
August 3, 2018 was disregarded, prompting the Clerk’s entry of default. ECF No. 91
(Order); ECF No. 95 (entry of default). At the hearing on this motion, Adventure’s counsel
represented that Adventure’s discovery requests were never answered. The licensing fees
that were paid under the Agreement suggest that a significant statutory-damages award is
appropriate here. The fees paid from the fourth quarter of 2013 through the end of 2015
total $806,724.25. Mitchell Aff. ¶11; id. Ex. B at 4, ¶ 11. As noted earlier, the amount
awarded by the Crow Wing County District Court to compensate Adventure for delinquent
licensing fees “for the four quarters of 2016” was $403,362.13. Id., Ex. B at 6. Based on

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these considerations, a statutory damages award of $150,000 for each of Adventure’s two
infringed copyrights is justified.
A court may, at its discretion, award costs and attorneys’ fees to a prevailing party
in a copyright infringement action. 17 U.S.C. § 505. That discretion is “to be exercised in
an evenhanded manner by considering factors such as whether the lawsuit was frivolous or
unreasonable, the losing litigant’s motivations, the need in a particular case to compensate
or deter, and the purposes of the Copyright Act.” Killer Joe Nevada, LLC v. Does 1-20,
807 F.3d 908, 911 (8th Cir. 2015) (quoting Action Tapes, Inc. v. Mattson, 462 F.3d 1010,
1014 (8th Cir. 2006); see Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417,
432 (1984) (“[T]he ultimate aim” of the Copyright Act is “to stimulate artistic creativity
for the general public good.”). If fees are awarded, the Eighth Circuit employs the lodestar
method to determine a reasonable fee. Pinkham v. Camex, Inc., 84 F.3d 292, 294 (8th Cir.
1996). In determining a reasonable fee, the Court may, but is not required to, consider the
following factors: (1) the time and labor required; (2) the novelty and difficulty of the
question; (3) the skill requisite to perform the legal service properly; (4) the preclusion of
employment by the attorney due to acceptance of the case; (5) the customary fee;
(6) whether the fee is fixed or contingent; (7) time limitations imposed by the client or the
circumstances; (8) the amount involved and the results obtained; (9) the experience,
reputation and ability of the attorney; (10) the “undesirability” of the case; (11) the nature
and length of the professional relationship with the client; and (12) awards in similar cases.
Hensley v. Eckhart, 461 U.S. 424, 430 n.3 (1983). The fee is calculated by multiplying the
number of hours reasonably expended by a reasonable hourly rate with the resulting total
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presumed to be a reasonable fee subject to an upward or downward adjustment based upon
the factors enumerated above. Norwood Operating Co. v. Beacon Promotions, Inc., Civil
No. 04-1390 (MJD/SRN), 2006 WL 3103154, at *3 (D. Minn. Oct. 31, 2006).
Here, Adventure seeks to recover only the attorneys’ fees and costs it incurred in
seeking default judgment, an amount of $8,369.50.

This request is supported by

documentation showing the tasks performed by Adventure’s counsel, the amount of time
associated with these tasks, and the fees charged for each. ECF No. 110. As Adventure
justifiably observes, it “has not sought all of [its] fees and costs since the inception of this
Federal action but should be entitled to the fees incurred with the instant motions at the
very least.” Mem. in Supp. at 13. Adventure’s request is reasonable and supported. Given
the legal and factual nature of Adventure’s claims, Adventure’s default-judgment motion
required greater time relative to most default-judgment motions. Adventure’s submissions
were thorough, and the motion included an evidentiary hearing. And the hourly fee
claimed by Adventure’s counsel is reasonable given his experience.
At the hearing on the default-judgment motion, Adventure confirmed that, if it
obtained a default judgment against YIAH, it intended to dismiss this action with respect
to all other Defendants. Rule 41(a)(2) of the Federal Rules of Civil Procedure permits an
action to be dismissed by court order at a plaintiff’s request “on terms that the court
considers proper.” Dismissal of the non-YIAH Defendants is proper here because of the
finality it provides to Adventure in this matter and because dismissal of those Defendants
would not prejudice them.

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ORDER
Based upon all the files, records, and proceedings herein, IT IS ORDERED that:
1.

Plaintiff’s motion for default judgment [ECF No. 113] is GRANTED.

Plaintiff shall recover from Defendant Your Inspiration at Home Pty Ltd statutory damages
pursuant to 17 U.S.C. § 504 in the amount of $300,000;
2.

Plaintiff’s motion for attorneys’ fees and costs [ECF No. 117] is

GRANTED. Plaintiff shall recover from Defendant Your Inspiration at Home Pty Ltd an
award of $8,369.50 in attorneys’ fees and costs.
3.

Plaintiff’s claims against Defendants CVSL, Inc., a Florida corporation d/b/a

JRJR Networks; Your Inspiration at Home, Ltd, a Nevada corporation; Inspired Portfolio
Pty Ltd., an Australian proprietary limited company; and CVSL YIAH Pty Ltd., an
Australian proprietary limited company, are dismissed with prejudice pursuant to
Rule 41(a)(2) of the Federal Rules of Civil Procedure.
LET JUDGMENT BE ENTERED ACCORDINGLY.

Dated: September 12, 2019

s/ Eric C. Tostrud
Eric C. Tostrud
United States District Court

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