Elsevier Inc. et al v. Comprehensive Microfilm & Scanning Services, Inc. et al

Filing 77

MEMORANDUM AND ORDER having considered Plaintiffs' and Third-Party Defendants' Motion to Dismiss Defendants' Third-Party Complaint and to Grant Plaintiffs Leave to Dismiss Their Unfair Competition Claim (Doc. 40), IT IS HEREBY ORDERED: 1. Plaintiffs' and Third-Party Defendants' Motion to Dismiss Defendants' Third-Party Complaint and to Grant Plaintiffs Leave to Dismiss Their Unfair Competition Claim (Doc. 40) is DENIED.Signed by Honorable Robert D. Mariani on 3/6/12. (jfg)

THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

ELSEVIER, INC., et al.
Plaintiffs

v.
COMPREHENSIVE MICROFILM
& SCANNING SERVICES, INC. et al.

3:10·cv·2513

Defendants

v.

(JUDGE MARIANI)

PRINCETON MICRO SCAN CORP.,
FRANKLIN CRAWFORD, ANTHONY
DESTEPHEN, and JOHN DOE NOS. 1·10:
Third·Party Defendants
MEMORANDUM AND ORDER

On July 14, 2011, Plaintiffs and Third-Party Defendants filed a Motion to Dismiss
Defendants' Third-Party Complaint and to Grant Plaintiffs Leave to Dismiss Their Unfair
Competition Claim (Doc. 40). The parties fully briefed their arguments and the motion is

should be granted leave to withdraw their sole common law claim against Defendants, and

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(2) whether the Court should dismiss Defendants' Third-Party Complaint.

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ripe for adjudication. The present analysis involves two distinct issues: (1) whether Plaintiff

BACKGROUND

This case originated in the Southem District of New York, where Plaintiffs sued

Third-Party Defendants to recover damages for copyright and trademark infringement. (See

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Elsevier, Inc. et al. v. Princeton Micro Scan Corp. et al., 10-cv-1117 (DLC) (SoO.N.Y. 2010)).

Pursuant to an agreement reached between those parties in November 2010, the Southern
District of New York Litigation ("Southern District Litigation") was settled, and Plaintiff
agreed to indemnify and defend Third-Party Defendants against any further actions arising
from the initial suit. (See generally Settlement Agreement, ECF Dkt. 50-2.) Then, on
December 20,2010, Plaintiffs filed the instant action against Defendants for copyright and
trademark infringement arising from the same facts and circumstances underpinning the
now settled Southern District Litigation.
Defendants assert that they innocently and unwittingly duplicated copyrighted
material at the behest of their then customer, Third-Party Defendants. (See Defs. Bf. in
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Opp. to Mot. to Dismiss at 8, ECF Dkt. 45) Defendants posit that they were unaware that
the materials provided to them by Third-Party Defendants for duplication were subject to
copyright or trademark restrictions, and that Third-Party Defendants "fraudulently
concealed" this fact. (See id.) Defendants then sought leave of Court to join Third-Party
Defendants for contribution and indemnification for claims brought against Defendant
sounding in both state and federal law.
STANDARD
In light of the Supreme Court's recent decisions in Bell Atlantic Corp. v. Twombly,
550 U.S. 433 (2007), and Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009), the Middle District of

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Pennsylvania has adopted the following standard by which to treat motions to dismiss. "[no

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survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as

true to 'state aclaim that relief is plausible on its face.'" Iqbal, 129 S.Ct. at 1949 (citing
Twombly, 550 U.S. at 570). In Iqbal, the Court emphasized that "only a complaint that
states a plausible claim for relief survives a motion to dismiss." Id. at 1950. Furthermore,
"[d]etermining whether a complaint states a plausible claim for relief will ... be a context­
specific task that requires the reviewing court to draw on its judicial experience and common
sense." Id. (citation omitted); McTernan v. City of York, 577 F.3d 521,530 (3d Cir. 2009).
District courts confronted by a motion to dismiss should engage in a two-step
analysis. First, the district court should accept all well-pleaded facts as true, but may reject
mere legal conclusions. Second, the district court should then determine whether the facts,
as asserted, establish a "plausible claim for relief." Iqbal, 129 S.Ct. at 1950. Thus, a
complaint must "show" an entitlement to relief with facts, as a mere allegation that a plaintiff
is entitled to relief is insufficient to withstand a motion to dismiss. See Philips v. Co. of
Allegheny, 515 F.3d 224, 234-35 (3d Cir. 2008). As the Supreme Court instructed in Iqbal,
"[w]here the well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged-but it has not 'show[n]'-'that the
pleader is entitled to relief.'" Iqbal, 129 S.Ct. at 1949. This "plausibility" determination will
be "a context-specific task that requires the reviewing court to draw on its judicial
experience and common sense." Id.; see also McTernan, Fowler v. UPMC Shadyside, 578
F.3d 203, 210-11 (3d Cir. 2009).

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DISCUSSION
In the present matter, Plaintiffs and Third-Party Defendants essentially seek two
separate orders for relief through a single motion. Each issue is independently treated
below.

I.

Plaintiffs' Request to Withdraw Their Common Law Claim

With regard to Plaintiffs' attempt to withdraw their common law claim, Plaintiffs admit
that it is a tactical strategy designed to force the dismissal of the Third-Party Defendants.

See Pis.' and Third-Party Defs.' Br. in Supp. Mot. to Dismiss at 11. Plaintiffs' motion for
leave to withdraw their common law claim is governed by FED. R CIV. P. 41, whose
operation "lies within the sound discretion of the district court." See Dodge-Regupo/, Inc. v.

RB Rubber Prods., Inc., 585 F. Supp. 2d 645,652 (M.D. Pa. 2008). "The purpose of the
grant of discretion under Rule 41 {a)(2} ... is primarily to prevent voluntary dismissals which
unfairly affect the other side, and to permit the imposition of curative conditions." Id. {citing
Charles A. Wright & Arthur R Miller, 9 Fed. Prac. & Proc. Civ. 2d § 2364 n. 19 (citing
"many, many cases" with similar holdings)). In ruling on a motion to dismiss under Rule 41,
"a court must examine the prejudice to the defendant, both in terms of legal prejudice and
litigation expense." Id. {citing Schandelmeier v. Otis Div. of Baker-Material Handling Corp.,
143 F.RD. 102, 102-03 (W.O. Pa. 1992){Brooks Smith, D. J.)). "Relevant factors in this
analysis include (1) the excessive and duplicative expense of a second litigation; (2) the
effort and expense incurred by the defendant in preparing for trial; (3) the extent to which

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the current suit has progressed; (4) the plaintiffs diligence in bringing the motion to dismiss

and the explanation therefor; and (5) the pendency of a dispositive motion by the non­
moving party." Id. (citing Schandelmeier, 143 F.R.D. at 102-03).
Plaintiffs maintain that Defendants are unable to state claims for contribution and
indemnification under the Lanham Act or the Copyright Act, and thus, the only cause of
action permitting Third-Party Defendants to remain as parties in this case is the state law
claim for unfair competition. While Plaintiffs argue that the elimination of the sole common
law claim in their complaint would "streamline" and simplify the present litigation, Plaintiffs
are unwilling to withdraw their common law claim with prejudice. See Pis.' and Third-Party
Defs.' Br. in Supp. Mot. to Dismiss at 11, n.1. In fact, Plaintiffs indicate that they may,
however unlikely, prosecute asecond action premised upon this claim. See id. at 13. This
would permit the cause of action to be re-filed in another court at another time. Discovery in
this case has progressed significantly, and the Court is unwilling to allow Plaintiffs to
withdraw their claim at this late stage, which attempt was undertaken solely for tactical
reasons. The Court, as well as the parties, have an interest in settling the issues in this
case expeditiously and, under the present circumstances, in one forum. Granting Plaintiffs
leave to withdraw their claim, without prejudice, would undoubtedly inflict undue prejudice
upon Defendants as it would foster additional piecemeal litigation with the prospect of its
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renewal in another forum at some unspecified time in the future.

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In addition, Plaintiffs have previously, and with leave of Court, amended their

Complaint to include additional allegations, but did not withdraw their common law cause of
action at that time. Plaintiffs had ample opportunity to withdraw their common law claim at
earlier pOints, but instead waited until a time when such a withdrawal could negatively
impact, and materially prejudice, Defendants. Not only is the vast majority of discovery now
complete, but defendants have spent substantial time, energy, and sums preparing a
defense on this claim. Permitting Plaintiffs' common law claim to be withdrawn, only to be
asserted in another, later suit, would unjustifiably harm and materially prejudice Defendants.
Plaintiffs refrained from raising this motion at an earlier time, and should not be allowed to
do so now for purely tactical reasons. Accordingly, the Court will decline Plaintiffs' request
for leave to withdraw its common law claim.
II.

Dismissal of Defendants' Third-Party Complaint

Plaintiffs and Third-Party Defendants also ask the Court to dismiss Defendants'
Third-Party Complaint upon the grounds that (1) any claim against Third-Party Defendant
Anthony DeStephen ("DeStephen") was discharged in his prior Chapter 7 bankruptcy and
(2) contribution and indemnity are unavailable to Defendants under the Lanham Act and the

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Copyright Act. We address each issue.
First, pursuant to 11 U.S.C. § 523{a), allegations sounding in fraud, namely that
DeStephen's alleged activities were "concealed in fraud," see Defs: Br. in Opp. to Mot. to
Dismiss at 5, ECF Dkt. 45, could vitiate the discharge of any claims asserted against him

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relating to the fraud. Defendants did not plead their fraud claim until they were able to do so

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with specificity, and the fact that claims against DeStephen originating prior to his
bankruptcy petition may have been discharged by the bankruptcy court does not
unqualifiedly provide DeStephen with immunity from suit. See Judd v. Wolfe, 78 F.3d 110

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114 (3d Cir. 1996){"Debts listed in sections 523{a){2), (4), and (6) describe debts which
arise from intentional torts such as fraud....Section 523(a)(3)(8) excepts from discharge
'intentional tortl debts that were not listed.") Furthermore, the record indicates that
DeStephen alone, and not his other co-Third-Party Defendants, has been the subject of a
bankruptcy discharge. DeStephen's discharge of bankruptcy would not shield from liability
nor discharge the debts of the other Third-Party Defendants. Accordingly, at this stage, it is
appropriate to permit Defendants to progress with their claims against DeStephen
concerning fraud.
Second, Plaintiffs and Third-Party Defendants argue that Defendants are unable to
adequately maintain an action against them for indemnity and contribution under either the
Lanham Act or the Copyright Act. They are correct. In fact, "[t]here is a dearth of case law
concerning whether a claim for contribution is permitted" under the federal causes of action
raised in this matter. See Santana Prods., Inc. v. Bobrick Washroom Equip., Inc" 69 F.
Supp. 2d 678, 681 (M.D. Pa. 1999). In Santana Prods., the Middle District of Pennsylvania
noted that there is no indication that Congress intended to include a right of contribution in
the Lanham Act. Id. at 684. The Lanham Act was not designed to protect trademark

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violators by allowing them to mitigate the effects of their wrongdoing by invoking equitable

principles in an effort to distribute blame. See id. at 684. As the Second Circuit held in
Getty Petroleum Corp. v. Island Transp. Corp., 862 F.2d 10 (2nd Cir. 1988), "no express
right of contribution exists under the Lanham Act." Id. at 16. "It is up to Congress, not the
courts, to provide a right of contribution." Id. Neither the Lanham Act, nor federal common
law, provides such a right.
Indemnification and contribution under the Copyright Act are similarly unavailable. A
right to contribution under a federal statute "may arise in either of two ways: first, through
the affirmative creation of a right of action by Congress, either expressly or by clear
implication; or, second, through the power of federal courts to fashion a federal common law
of contribution." Texas Indus., Inc. v. Radcliff Materials, Inc., 451 U.S. 630, 638, 101 S.Ct.
2061,68 L.Ed.2d 500 (1981)(citing Nw. Airlines, Inc. v. Transp. Workers,451 U.S. 77, 90­
91,101 S.Ct. 1571,67 L.Ed.2d 750 (1981)). Moreover, the "courts have held that copyright
infringing defendants cannot assert contribution in claims against third parties who allegedly
contribute to infringement; neither the Copyright [a]ct nor federal common law recognizes a
copyright infringer's right to contribution." Arista Records, Inc. v. Flea World, Inc., 356 F.
Supp. 2d 411, 416 (D.N.J. 2005)(citing Lehman Brothers, Inc. v. Wu, 294 F. Supp. 2d 504
(S.D.N.Y. 2003)); see also Equity Builders &Contractors, Inc. v. Russell, 406 F. Supp. 2d
882,885-87 (N.D. III. 2005)(neither the Copyright Act nor federal common law provide a
right to contribution); Elektra Entm't Group, Inc. v. Santangelo, 2008 WL 461536, *2

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(S.D.N.Y. Feb. 15, 2008}(no right to indemnification or contribution under the Copyright Act

or federal common law). Accordingly, Defendants are unable to assert claims for
contribution and indemnification stemming from an alleged violation of the Copyright Act.
However, Plaintiffs' claim against Defendants for unfair competition arising under
state common law permits Defendants to state claims for contribution and indemnification
against the Third-Party Defendants. As the Eastern District of Pennsylvania noted in
Transdermal Prods., Inc. v. Performance Contract Packaging, Inc., 943 F. Supp. 551 (E.D.
Pa. 1996), "the Commonwealth unquestionably authorizes ajoint tort-feasor defendant to
seek contribution from fellow joint tort-feasors." Id. at 554. In that case, the court held that
although claims arising under the Lanham Act were not subject to contribution, the
defendant's claims for contribution remained viable exclusively as the result of plaintitrs
claims arising under the Pennsylvania Trademark Act. See id. Similarly, the Eastern District
of Pennsylvania held in Johnson v. Household Mortgage Services, 2004 WL 2188111 (E.D.
Pa. Sept. 9, 2004), that although the defendants cannot assert claims for indemnification or
contribution under federal law, the plaintitrs state law claim alleging a violation of the
Pennsylvania Unfair Trade Practices and Consumer Protection Act permitted such claims to
survive.

kh at *2-3. "Where state SUbstantive law recognizes a right of contribution and/or

indemnity, impleader under Rule 14 is the proper procedure by which to assert such
claims." Id. at *3. Thus, with regard to Plaintiffs' claims arising under state law, Defendants
can maintain their action for indemnification and/or contribution.

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Furthermore, "[i]ndemnity, in Pennsylvania, is a common law action which has been
described as a 'right which ensures to a person who, without active fault on his own part,
has been compelled, by reason of some legal obligation, to pay damages occasioned by the
initial negligence of another, and for which he himself is only secondarily liable.'" Johnson,
2004 WL 2188111, at *3 {citing Sirianni v. Nugent Bros., Inc., 506 A.2d 868,870-71 (Pa.
1986)). "[S]econdary as distinguished from primary liability rests upon afault that is imputed
or constructive only, being based on some legal relation between the parties, or ariSing from
some positive rule of common or statutory law or because of a failure to discover or correct
a defect or remedy a dangerous situation caused by the act of the one primarily
responsible." Builders Supply Co. v. McCabe, 77 A.2d 368, 371 (Pa. 1951). Indemnity is
unavailable if the party asserting it "had any part in causing the injury." See Sirianni, 506
A.2d at 871. At the motion to dismiss stage, while the Court is unable to discern whether
contribution and indemnity will be ultimately unavailable to Defendants, Defendants may
properly assert such claims in their pleadings. Plaintiffs' Motion to Dismiss will therefore be
denied.

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CONCLUSION
For the reasons set forth in this Memorandum, Plaintiffs' and Third-Party Defendants'
Motion to Dismiss Defendants' Third-Party Complaint and to Grant Plaintiffs Leave to
Dismiss Their Unfair Competition Claim will be DENIED. An appro riate Order will follow.

DATE: March 6, 2012

obert D. Mariani
United States District Judge

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THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF PENNSYLVANIA

ELSEVIER, INC., et at

Plaintiffs

v.
COMPREHENSIVE MICROFILM
&SCANNING SERVICES, INC. et al.
Defendants

v.

3:10-cv-2513
(JUDGE MARIANI)

PRINCETON MICRO SCAN CORP.,
FRANKLIN CRAWFORD, ANTHONY
DESTEPHEN, and JOHN DOE NOS. 1-10:
Third-Party Defendants
AND NOW, this 6th day of MARCH, 2012, having considered Plaintiffs' and ThirdParty Defendants' Motion to Dismiss Defendants' Third-Party Complaint and to Grant
Plaintiffs Leave to Dismiss Their Unfair Competition Claim (Doc. 40), IT IS HEREBY
ORDERED:
1. Plaintiffs' and Third-Party Defendants' Motion to Dismiss Defendants' Third-Party
Complaint and to Grant Plaintiffs Leave to Dismiss Their Unfair Competition

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Claim (Doc. 40) is DENIED.

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Robert D. anam
United States District Judge

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