Drabek v. Elsevier, Inc.
Filing
37
OPINION AND ORDER.....Elseviers November 30, 2016 motion to dismiss all but one of Drabeks claims is granted pursuant to Rule 12(b)(6). The action is dismissed in its entirety under Rule 12(b)(1). The Clerk of Court shall enter judgment for the defendant and close the case. (Signed by Judge Denise L. Cote on 2/13/2017) (gr)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
WARREN DRABEK D/B/A
:
EXPRESSPERMISSIONS,
:
:
Plaintiff,
:
:
-v:
:
ELSEVIER, INC.,
:
:
Defendant.
:
:
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16cv6786(DLC)
OPINION AND ORDER
APPEARANCES:
For the plaintiff:
Laura Scileppi
Richard Weiss
Dunnegan & Scileppi LLC
350 Fifth Avenue
New York, NY 10118
For the defendants:
Kerry M. Mustico
Oppenheim + Zebrak, LLP
5225 Wisconsin Ave. NW, Suite 503
Washington, DC 20015
DENISE COTE, District Judge:
Warren Drabek d/b/a Express Permissions (“Drabek”) brings
this breach of contract action against Elsevier, Inc.
(“Elsevier”) for an alleged breach of contract.
to dismiss the amended complaint.
Elsevier moves
For the following reasons,
the motion is granted pursuant to Rules 12(b)(1) and 12(b)(6),
Fed. R. Civ. P.
Background
These facts are taken from the amended complaint and
documents integral to the complaint.
Drabek and Elsevier
entered into a seven-month independent contractor’s agreement
(the “Contract”) commencing on June 1, 2012 and ending on
December 31, 2012.
The Contract was terminable by Elsevier
“without cause at any time upon two weeks prior written notice.”
Elsevier did not terminate the Contract prior to its expiration
on December 31.
Elsevier is a publishing company and the Contract provided
that Drabek would “investigate and identify potential copyright
violations of [Elsevier’s] owned content” by “supply[ing]
[Elsevier] concrete examples of direct lifts, adaptations, or
content where one can clearly identify the material to the
original version owned by [Elsevier].”
In exchange, Elsevier
agreed to pay a “monthly retainer in the amount of $1,000.00 for
the services performed under this agreement.”
The Contract also provided that
[Elsevier] will supply to any company/organization
that has been found to be in violation of copyright
law a bill for the use of [Elsevier’s] content that
was used without formal permission. A copy of the
letter and bill will be shared with [Drabek].
[Drabek] will receive 15% of the entire amount billed
from the breach of copyright law regarding
permissions. [Drabek] will be paid 60 days after
recovery.
2
Further, Elsevier agreed to “include in their letter to the
violating company/organization that should the
company/organization be interested in using [Elsevier’s] content
in the future, [Elsevier’s] preferred vendor for clearing
permissions is ExpressPermissions.”
Further, the Contract
obligated Elsevier to inform Drabek “[s]hould [Elsevier] have
any suspicion of companies/organizations that are in violation
of copyright law.”
On July 19, 2012, Drabek notified Elsevier of three
entities that had potentially infringed Elsevier’s Copyrights -the American Society of Hematology (“ASH”), the American
Chemical Society (“ACS”), and the American Association for
Cancer Research (“AACR”) –- and provided draft letters and bills
for Elsevier to send to the entities.
On August 27, Elsevier
sent bills totaling $48,000 to the three entities for unpaid
license fees.
Elsevier did not ultimately collect any money as
a result of the letters sent to ASH, ACS, and AACR.
Drabek
alleges that “Elsevier prohibited Drabek from approaching ASH,
ACS, and AACR to convert them into licensees.”
Between September 21 and December 28, 2012, Drabek sent
Elsevier draft letters and bills for an additional 22 entities
with potential infringements amounting to $322,610 in unpaid
fees.
Elsevier did not send letters or bills to any of the 22
entities.
Drabek alleges that “Elsevier prohibited Drabek from
3
approaching at least some of the other 22 potential infringers
in order to convert them into licensees.”
Elsevier informed Drabek of one suspected infringer during
the term of the Contract.
The amended complaint alleges that
“[u]pon information and belief, Elsevier identified at least
dozens, if not hundreds, of suspected infringers of its
copyrights during the seven-month duration of the Contract.”
Drabek alleges the following breaches of contract and
corresponding damages: (1) Elsevier failed to “pay Drabek his
monthly retainer of $1,000 for October, November, and December
2012,” resulting in damages of $3,000; (2) Elsevier refused to
pay Drabek 15% of the amounts billed from ASH, ACS, and AACR,
resulting in damages of $7,320; (3) Elsevier refused to “pay
Drabek 15% of the amounts that Elsevier should have billed in
unpaid license fees from the 22 potential infringers Drabek
identified,” resulting in damages of $48,391 -- 15% of the
estimated amount that should have been billed -- and a least an
additional $20,000 for Drabek’s “lost enhanced opportunity to
convert these potential infringers into new licensing clients of
Drabek”; (4) Elsevier failed “to notify Drabek of additional
suspected infringers of the Copyrights” resulting in damages of
at least $20,000 -- 15% of the estimated amount that should have
been billed -- and at least an additional $20,000 based on his
4
“lost enhanced opportunity to convert suspected infringers into
licensing clients.”
The complaint in this action was originally filed on August
29, 2016, more than three years after the Contract’s expiration
in 2012.
On October 26, Elsevier filed a motion to dismiss.
By
Order of October 27, Drabek was given an opportunity to file
either an opposition to the motion to dismiss or an amended
complaint.
The Order advised Drabek that it was unlikely that
he would have a further opportunity to amend.
Drabek filed an amended complaint. 1
On November 16,
Drabek filed a renewed
motion to dismiss for lack of subject matter jurisdiction and
failure to state a claim on November 30, which became fully
submitted on January 13, 2017.
Discussion
I.
12(b)(6) Motion to Dismiss
When deciding a motion to dismiss under Rule 12(b)(6), Fed.
R. Civ. P., a court must “accept all allegations in the
complaint as true and draw all inferences in the non-moving
party’s favor.”
LaFaro v. New York Cardiothoracic Grp., PLLC,
The amended complaint added information regarding Drabek’s
experience identifying copyright infringers and knowledge of
licensing rates. It also added an alternative ground for the
third breach of Contract, that Elsevier “changed its mind about
the types of uses of its copyrighted works that Elsevier
believed were infringements” and failed to inform Drabek of this
change.
1
5
570 F.3d 471, 475 (2d Cir. 2009).
The court is “not bound to
accept as true legal conclusions couched as factual
allegations.”
Id. at 475-756.
The court may consider the facts
alleged in the complaint as well as “any written instrument
attached to the complaint as an exhibit or any statements or
documents incorporated in it by reference.”
Stratte-McClure v.
Morgan Stanley, 776 F.3d 94, 100 (2d Cir. 2015) (citation
omitted).
“To survive a motion to dismiss under Rule 12(b)(6), a
complaint must allege sufficient facts which, taken as true,
state a plausible claim for relief.”
Keiler v. Harlequin
Enters. Ltd., 751 F.3d 64, 68 (2d Cir. 2014); Ashcroft v. Iqbal,
556 U.S. 662, 678 (2009) (“[A] complaint must contain sufficient
factual matter, accepted as true, to state a claim for relief
that is plausible on its face.”).
“A claim has facial
plausibility when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.”
Parkcentral
Global Hub Ltd. v. Porsche Auto. Holdings SE, 763 F.3d 198, 208
(2d Cir. 2014) (citation omitted).
The Contract’s choice of law clause selected New York as
its governing law.
“To state a claim for breach of contract
under New York law, the complaint must allege: (i) the formation
of a contract between the parties; (ii) performance by the
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plaintiff; (iii) failure of defendant to perform; and (iv)
damages.”
Orlander v. Staples, Inc., 802 F.3d 289, 294 (2d Cir.
2015) (citation omitted).
Under New York law, “agreements are
to be construed in accordance with the parties’ intent,” the
“best evidence” of which “is what they say in their writing.”
In re World Trade Ctr. Disaster Site Litig., 754 F.3d 114, 122
(2d Cir. 2014) (citation omitted).
“Accordingly, a written
agreement that is complete, clear and unambiguous on its face
must be enforced according to the plain meaning of its terms.”
Id.
(citation omitted).
“At the outset, the court must determine whether the
language the parties have chosen is ambiguous.”
Gary Friedrich
Enterprises, LLC v. Marvel Characters, Inc., 716 F.3d 302, 313
(2d Cir. 2013).
“A contract is unambiguous when the contractual
language has a definite and precise meaning about which there is
no reasonable basis for a difference of opinion.”
Keiler v.
Harlequin Enterprises Ltd., 751 F.3d 64, 69 (2d Cir. 2014).
“By
contrast, ambiguity exists where a contract’s term could
objectively suggest more than one meaning to one familiar with
the customs and terminology of the particular trade or
business.”
of law.”
Id.
Id.
“Whether a contract is ambiguous is a question
But ambiguity does not arise merely by virtue of
the fact that the parties volunteer different definitions.
Law
Debenture Trust Co. of New York v. Maverick Tube Corp., 595 F.3d
7
458, 467 (2d Cir. 2010).
“Thus, the court should not find the
contract ambiguous where the interpretation urged by one party
would strain the contract language beyond its reasonable and
ordinary meaning.
Id. (citation omitted).
“[W]ords and phrases
in a contract should be given their plain meaning, and the
contract should be construed so as to give full meaning and
effect to all of its provisions.”
Olin Corp. v. Am. Home Assur.
Co., 704 F.3d 89, 99 (2d Cir. 2012) (citation omitted).
A. Failure To Pay $3,000 In Monthly Retainer Fees
The Contract provided that Elsevier would pay a “monthly
retainer in the amount of $1,000.00 for the services performed
under this agreement.”
Drabek asserts, and Elsevier does not
dispute, that Elsevier failed to pay him $3,000 in retainer fees
for the last three months of the Contract’s term.
Elsevier argues that this claim is moot because it sent
Drabek’s counsel an Offer of Judgment pursuant to Rule 68, Fed.
R. Civ. P., for $3,400 as the “total amount to be paid by
Defendant on account of any liability and damages.”
The Offer
of Judgment conditioned payment on Drabek’s release of all
claims against Elsevier.
Drabek did not accept the offer.
Under Rule 68, “an unaccepted offer is considered
withdrawn.”
“[A]n unaccepted settlement offer has no force.
Like other unaccepted contract offers, it creates no lasting
right or obligation.
With the offer off the table, and the
8
defendant’s continuing denial of liability, adversity between
the parties persists.”
663, 666 (2016).
Campbell-Ewald Co. v. Gomez, 136 S. Ct.
Since the settlement offer was not accepted,
this claim is not moot.
B. Refusal To Pay 15% Of Amounts Billed But Not Recovered
Drabek alleges that Elsevier was obligated and failed to
pay him 15% of the amounts billed to but not recovered from ASH,
ACS, and AACR.
Elsevier moves to dismiss this claim on the
basis that Drabek was entitled to a payment only if Elsevier
recovered money.
Elsevier is correct.
The two sentences of the Contract addressing this matter
are unambiguous when read together: Drabek is owed 15% of the
amount billed sixty days “after recovery.”
It is undisputed
that Elsevier never recovered any monies from the three billed
entities.
Drabek makes two arguments as to why he is entitled to 15%
of the amount billed whether or not Elsevier recovered any
payment.
Drabek first argues that Elsevier was obligated to pay
15% once it sent the letters and bills, because the Contract
states in one sentence that Drabek “will receive 15% of the
entire amount billed.”
He argues that the next sentence, that
he “will be paid 60 days after recovery” merely provides a
deadline for Elsevier to pay if it receives a payment from the
accused infringer, and that while the Contract does not provide
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a deadline if there is no recovery, a reasonable time should be
implied by law.
This interpretation renders the 6o-day time
period partly superfluous -- because the obligation to pay
inheres at the time of billing under this interpretation -- and
creates a missing term that must then be supplied –- when Drabek
should be paid if there is no recovery.
Since this proposed
interpretation fails to give full meaning and effect to all of
the Contract’s provisions, it is rejected.
Drabek next argues that if Elsevier’s obligation to pay did
not arise from sending the bills, then Elsevier breached the
Contract by failing to make reasonable efforts to collect the
amounts billed.
The Contract, however, did not obligate
Elsevier to take any particular action to collect on bills it
sent.
C. Failure To Bill Identified Potential Infringers
Drabek alleges that Elsevier was obligated and failed to
pay him 15% of the amounts that “should have been billed” to 22
other entities Drabek identified to Elsevier as potential
infringers during the term of the Contract.
But the Contract
imposed no obligation on Elsevier to pay Drabek at the time of
identification.
Under the Contract, Elsevier had the
opportunity to assess and decide whether to pursue infringement
claims against potential infringers identified by Drabek.
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Drabek argues that Elsevier breached an implied covenant of
good faith and fair dealing by failing to make a good faith
determination as to whether the potential infringements
identified by Drabek were actionable infringements.
Under New
York law, a covenant of good faith and fair dealing is implicit
in all contracts during the course of the contract.
Sec. Plans,
Inc. v. CUNA Mut. Ins. Soc., 769 F.3d 807, 817 (2d Cir. 2014).
It “applies where an implied promise is so interwoven into the
contract as to be necessary for effectuation of the purposes of
the contract.
For this to occur, a party’s action must directly
violate an obligation that may be presumed to have been intended
by the parties.”
Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d
400, 407-08 (2d Cir. 2007) (citation omitted).
But, “the
implied covenant of good faith and fair dealing cannot be used
to impose an obligation that is inconsistent with express
contractual terms.”
In Touch Concepts, Inc. v. Cellco P’ship,
788 F.3d 98, 102 (2d Cir. 2015) (citing Murphy v. Am. Home
Prods. Corp., 58 N.Y.2d 293, 304 (1983)).
“[T]he implied
covenant does not extend so far as to undermine a party’s
general right to act on its own interests in a way that may
incidentally lessen the other party’s anticipated fruits from
the contract.”
Thyroff, 460 F.3d at 408 (citation omitted).
Drabek argues that Elsevier breached the duty of good faith
and fair dealing by failing to make a good faith determination
11
of whether the potential infringements he identified to it were
actually infringing and by failing to send the corresponding
letter and bill for any it determined warranted such an action.
He argues that this obligation must have been breached because
no bills were sent to the 22 entities he identified, and their
uses of Elsevier’s content were similar to uses for which
Elsevier sent ASH, ACS, and AACR letters and bills, and for
which Elsevier has demanded license fees from Drabek’s clients
in the past.
Drabek has not pleaded a cognizable claim for damages.
The
Contract does not entitle him to be paid for monies Elsevier
“should have” billed, but did not.
What Drabek seeks are
consequential damages, which “seek to compensate a plaintiff for
additional losses (other than the value of the promised
performance) that are incurred as a result of the defendant’s
breach.”
2000).
Schonfeld v. Hilliard, 218 F.3d 164, 176 (2d Cir.
A party claiming consequential damages must plausibly
plead the existence and amount of damages with “reasonably
certainty,” and that the damages were foreseeable and within the
contemplation of both parties.
See Tractebel Energy Mktg., Inc.
v. AEP Power Mktg., Inc., 487 F.3d 89, 111 (2d Cir. 2007)
(summary judgment decision).
“[A] party seeking consequential
damages must identify specific contractual provisions
demonstrating that recovery of such damages was contemplated by
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the parties.”
Globecon Group, LLC v. Hartford Fire Ins. Co.,
434 F.3d 165, 176 (2d Cir. 2006) (summary judgment decision).
As discussed above, Elsevier was not obligated by the
Contract either to bill any entity or to do anything to collect
on the bills it did send.
The Contract also states that “[i]n
no event will [Drabek] be entitled to receive more than the
total amount of compensation provided for herein.”
Drabek also argues that he is entitled to at least $20,000
from the “lost enhanced opportunity to convert these potential
“Lost profits
infringers into new licensing clients of Drabek.”
are consequential damages when, as a result of the breach, the
non-breaching party suffers loss of profits on collateral
business arrangements.”
Tractebel Energy Mktg., Inc., 487 F.3d
at 109.
[L]ost profit damages may be awarded only if (1) a
plaintiff demonstrates with reasonable certainty that
such damages have been caused by the breach; (2) the
alleged loss was capable of proof with reasonable
certainty; and (3) lost profit damages were fairly
within the contemplation of the parties at the time of
contracting.
Westerbeke Corp. v. Daihatsu Motor Co., 304 F.3d 200, 209–10 (2d
Cir. 2002) (quoting Kenford Co. v. County of Erie, 67 N.Y.2d
257, 261 (1986) (per curiam)).
Again, there was no breach of a duty here.
The Contract
does not guarantee to Drabek the right to convert potential
infringers into his clients.
Nor does it obligate Elsevier to
13
take any action to help Drabek gain clients, other than noting
that he would be identified as their “preferred vendor” if it
sent a letter and bill.
Further, the lost profit damages Drabek
requests fail as a matter of law.
The alleged lost profits are
not capable of proof with reasonable certainty or fairly implied
by the Contract.
D. Failure To Notify Drabek Of Additional Infringers
Drabek alleges that Elsevier was obligated by the Contract
to notify Drabek about dozens, if not hundreds of additional
suspected infringers, and failed to do so.
Drabek alleges that
the alleged failure caused him damages in the amount of 15% of
what Elsevier might have billed to these potential infringers,
and at least an additional $20,000 for “lost enhanced
opportunity to convert suspected infringers into licensing
clients.”
While the Contract did obligate Elsevier to inform Drabek
of “any suspicion” that entities were in violation of the
copyright law, it also warned that “[i]n no event will [Drabek]
be entitled to receive more than the total amount of
compensation provided for herein.”
Read together, any failure
by Elsevier to advise Drabek of its suspicions cannot support a
claim for damages.
If Elsevier had identified a suspected
infringer to Drabek, and Drabek ultimately recommended a letter
and bill be sent, it is still uncertain whether Elsevier would
14
decide to send a letter and bill, and whether it would recover
any monies from the entity.
As described above, Drabek’s right
to a 15% fee is triggered by recovery.
This chain of events is
too lengthy and speculative to support a claim for damages.
II.
Subject Matter Jurisdiction
Drabek asserts diversity jurisdiction in this matter
pursuant to 28 U.S.C. § 1332, and Elsevier moves to dismiss
pursuant to 12(b)(1), Fed. R. Civ. P., on the basis that the
amount in controversy does not exceed $75,000 to a legal
certainty.
“[A] claim is properly dismissed for lack of subject
matter jurisdiction under Rule 12(b)(1) when the district court
lacks the statutory or constitutional power to adjudicate it.”
Morrison v. Nat’l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir.
2008) (citation omitted).
In reviewing a motion to dismiss
under Rule 12(b)(1) the court “must accept as true all material
factual allegations in the complaint, but [is] not to draw
inferences from the complaint favorable to plaintiffs.”
J.S. ex
rel. N.S. v. Attica Cent. Schs., 386 F.3d 107, 110 (2d Cir.
2004) (citation omitted).
“Diversity jurisdiction exists over civil actions where the
matter in controversy exceeds the sum or value of $75,000,
exclusive of interest and costs, and is between citizens of
different States.”
Hallingby v. Hallingby, 574 F.3d 51, 56 (2d
Cir. 2009) (citation omitted); see 28 U.S.C. § 1332(a).
15
The
party invoking the federal court’s jurisdiction bears the burden
of showing a “reasonable probability” that the threshold amount
in controversy for diversity jurisdiction is satisfied.
Colavito v. N.Y. Organ Donor Network, Inc., 438 F.3d 214, 221
(2d Cir. 2006) (citation omitted).
“This burden is hardly
onerous, however, for we recognize a rebuttable presumption that
the face of the complaint is a good faith representation of the
actual amount in controversy.”
Scherer v. Equitable Life Assur.
Soc’y of the U.S., 347 F.3d 394, 397 (2d Cir. 2003) (citation
omitted).
“To overcome the face-of-the-complaint presumption, the
party opposing jurisdiction must show to a legal certainty that
the amount recoverable does not meet the jurisdictional
threshold.”
Id. (citation omitted).
In making this
determination, “the legal impossibility of recovery must be so
certain as virtually to negate the plaintiff’s good faith in
asserting the claim.”
Chase Manhattan Bank v. American Nat’l
Bank and Trust Co., 93 F.3d 1064, 1070 (2d Cir. 1996).
“If the
right of recovery is uncertain, the doubt should be resolved in
favor of the subjective good faith of the plaintiff.”
Id.
(citation omitted).
The face of the amended complaint alleges damages in excess
of $75,000, but Elsevier has successfully rebutted the
presumption that this is a good faith representation of the
16
actual amount in controversy.
As discussed above through the
Rule 12(b)(6) framework, based on the unambiguous language of
the Contract, all but $3,000 of Drabek’s damages fail as a
matter of law.
Drabek cannot meet the threshold amount required
for diversity jurisdiction to a legal certainty.
This is not
merely because he did not allege facts sufficient to warrant
damages, but because the damages he seeks are not recoverable
under the Contract.
III. Request to Amend the Complaint
Drabek requests that, in the event that the motion to
dismiss is granted, he be afforded a second opportunity to amend
his complaint.
“When a party requests leave to amend its
complaint, permission generally should be freely granted.”
Grullon v. City of New Haven, 720 F.3d 133, 139 (2d Cir. 2013)
(citation omitted); Fed R. Civ. P. 15(a)(2) (“The court should
freely give leave [to amend] when justice so requires.”).
“Leave to amend may properly be denied if the amendment would be
futile,” however.
2014).
Krys v. Pigott, 749 F.3d 117, 134 (2d Cir.
“A proposed amendment to a complaint is futile when it
could not withstand a motion to dismiss.”
Balintulo v. Ford
Motor Co., 796 F.3d 160, 164-65 (2d Cir. 2015) (citation
omitted).
Drabek’s request to amend his complaint a second time is
denied.
He has not proposed any specific amendments to the
17
first amended complaint that would cure the defects identified
in this Opinion.
See Loreley Fin. (Jersey) No. 3 Ltd. v. Wells
Fargo Secs., LLC, 797 F.3d 160, 190 (2d Cir. 2015) (noting that
leave to amend has been properly denied “where the request gives
no clue as to how the complaint’s defects would be cured”
(citation omitted)).
Drabek has already amended his complaint
once in response to sElsevier’s initial motion to dismiss, and
the amended complaint contained substantially the same theories.
Conclusion
Elsevier’s November 30, 2016 motion to dismiss all but one
of Drabek’s claims is granted pursuant to Rule 12(b)(6).
The
action is dismissed in its entirety under Rule 12(b)(1).
The
Clerk of Court shall enter judgment for the defendant and close
the case.
Dated:
New York, New York
February 13, 2017
____________________________
DENISE COTE
United States District Judge
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