UMG Recordings, Inc. et al v. Grande Communications Networks LLC et al

Filing 185

REPORT AND RECOMMENDATIONS re 85 Motion for Leave to File Plaintiffs' First Amended Complaint. The undersigned RECOMMENDS that the district judge DENY UMG Recording, Inc., et als Motion for Leave to File Plaintiffs First Amended Complaint. Signed by Judge Andrew W. Austin. (dm)

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IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF TEXAS
AUSTIN DIVISION
UMG RECORDINGS, INC., et al.,
V.
GRANDE COMMUNICATIONS
NETWORKS, LLC, and PATRIOT
MEDIA CONSULTING, LLC

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CAUSE NO. A-17-CA-365-LY

REPORT AND RECOMMENDATION
OF THE UNITED STATES MAGISTRATE JUDGE
TO:

THE HONORABLE LEE YEAKEL
UNITED STATES DISTRICT JUDGE
Before the Court are: UMG Recording, Inc., et al’s Motion for Leave to File Plaintiffs' First

Amended Complaint (Dkt. No. 85); Grande’s Response (Dkt. No. 91); and Plaintiffs’ Reply (Dkt.
No. 93). The District Court referred the above motion to the undersigned Magistrate Judge for a
report and recommendation pursuant to 28 U.S.C. §636(b) and Rule 1(c) of Appendix C of the Local
Rules. The Court held a hearing on this motion on August 16, 2018.
I. BACKGROUND
Plaintiffs are record companies that produce and distribute commercial sound recordings in
the United States. They seek damages and injunctive relief for alleged infringements of copyrights
they own or have exclusive rights to. Grande is an internet service provider, with subscribers in parts
of Texas. Plaintiffs allege that Grande has received, through Plaintiffs’ agent Rightscorp, over a
million notices of direct copyright infringement allegedly committed by Grande subscribers.
Plaintiffs contend that these subscribers have directly infringed on their copyrights by using peer-topeer file sharing applications like BitTorrent to pirate copies of Plaintiffs’ copyrighted materials.
Plaintiffs further contend that Grande is secondarily liable for these alleged infringers’ activities

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because it continued to provide them with internet access after receiving the more than one million
notices of infringement. Finally, Patriot is a management consulting firm which, by contract,
provides all of Grande’s senior management officers. Plaintiffs allege that Patriot is also liable for
secondary infringement, because it has “formulat[ed] and implement[ed]the [Grande] business
policies, procedures, and practices that provide repeat infringers with continued internet service
through Grande.”
Defendants previously moved to dismiss the claims against them. In a Report and
Recommendation filed February 28, 2018 (Dkt. No. 72), the undersigned recommended that the
vicarious copyright infringement claim against Grande and all claims against Patriot be dismissed.
Judge Yeakel adopted that recommendation on March 27, 2018. (Dkt. No. 77). Plaintiffs now
request leave to amend their Complaint to add back into the case the vicarious copyright
infringement claim against Grande and all of their claims against Patriot. In sum, they assert that
based on discovery received since the dismissal, they can now state plausible claims for the causes
of action previously dismissed. It is, as Plaintiffs admit, essentially a Motion for Reconsideration of
the dismissal order. Grande responds that Plaintiffs are just trying to re-litigate the claims already
lost, and the assertion that newly discovered facts support their claims is faulty as these “new facts”
are not new, and were already pled in the dismissed complaint.
II. LEGAL STANDARD
Plaintiffs move to amend their complaint pursuant to Rule 15 based on “newly discovered
evidence,” but in reality are moving the Court to reconsider its prior order dismissing certain claims.
Grande argues that allowing Plaintiffs to amend would be futile, as the “new evidence” does not fill
in the holes in the prior complaint, and would just lead to another round of motions ending in the
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same result. Additionally, Grande asserts that it has conducted a large portion of its discovery under
the presumption that vicarious liability is not at issue in this case, and would be greatly prejudiced
by reintroducing the issue at this point. It also points out that the claims against Patriot were
dismissed with prejudice and that Patriot has not participated in discovery.
Depending on the circumstances, a motion seeking reconsideration is governed by one of
three rules: Rule 54(b), 59(e), or 60(b). “The Fifth Circuit recently explained that ‘Rule 59(e)
governs motions to alter or amend a final judgment,’ while ‘Rule 54(b) allows parties to seek
reconsideration of interlocutory orders and authorizes the district court to revise at any time any
order or other decision that does not end the action.’” Dolores Lozano v. Baylor Univ., 2018 WL
3552351, at *1 (W.D. Tex. July 24, 2018) (quoting Austin v. Kroger Tex., L.P., 864 F.3d 326, 336
(5th Cir. 2017) ). Further, “‘[i]nterlocutory orders,’ such as grants of partial summary judgment, ‘are
not within the provisions of 60(b), but are left within the plenary power of the court that rendered
them to afford such relief from them as justice requires [pursuant to Rule 54(b) ].” McKay v.
Novartis Pharm. Corp., 751 F.3d 694, 701 (5th Cir. 2014) (quoting Zimzores v. Veterans Admin.,
778 F.2d 264, 266 (5th Cir. 1985)).
Under Rule 54(b), applicable in this case, a court may revise an interlocutory order at any
time before judgment. FED. R. CIV. P. 54(b). Rule 54(b) contains a less exacting standard than Rule
59. See Neaville v. Wells Fargo Bank, N.A., 2013 WL 121245900 at *2 (N.D. Tex. June 4, 2013)
(applying Rule 54(b) because the court’s order granting in part and denying in part the defendant’s
motion for summary judgment was interlocutory). Nevertheless, “motions for reconsideration are
only appropriate for the narrow purpose to correct manifest errors of law or fact or to present newly
discovered evidence.” Id.
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III. ANALYSIS
Plaintiffs assert that based upon facts learned in discovery, they should be allowed to add
back in previously dismissed claims. In their words,
based upon recent discovery, Plaintiffs can now plead additional facts further
showing that Grande and Patriot (1) had the right and ability to control their
infringing subscribers, yet (2) knowingly refused to do so, and thereby (3) directly
benefitted from the infringing subscribers. Specifically, the evidence shows that
during the relevant time period, Grande and Patriot tracked Grande’s infringing
customers (who overwhelmingly are among Grande’s most profitable customers), did
not terminate a single one for copyright infringement, and continued to accept
payment from them even after Grande received dozens and, is some cases, hundreds
of notices for a given subscriber.
Dkt. No. 85 at 1-2. Plaintiffs further allege that new evidence establishes that Patriot owns an equity
interest in Grande and that Patriot controlled Grande’s policies, including the policy of not
terminating known infringers. Id.
With regard to the dismissal of the vicarious infringement claims, the undersigned’s Report
and Recommendation stated that Plaintiffs had failed to establish the “direct financial interest”
element, because Plaintiffs had failed to plead that “the infringing activity constitutes a draw for
subscribers, not just an added benefit.” Dkt. No. 72 at 18. The Court found that to state a claim
Plaintiffs would have had to plead facts showing customers signed up with Grande because Grande
did not police infringing conduct by its subscribers. Plaintiffs assert that additional discovery bolsters
their prior pleadings as it shows that Grande refused to terminate a single user for copyright
infringement from at least 2011 through 2016, “while continuing to profit from the fees paid by
using infringers.” Dkt. No. 85 at 5. Notably, the original Complaint contained the following
allegations:

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Grande has had actual and ongoing specific knowledge of the repeat infringements
by its subscribers of the Copyrighted Sound Recordings occurring through the use of
its service for years. . . . Nonetheless, Defendants have refused to take any
meaningful action to discourage this wrongful conduct, let alone suspend or
terminate the accounts of repeat infringers. The reason that Defendants have not done
so is obvious – it would cause Grande to lose revenue from the subscription fees that
these infringing customers pay to Grande.
Dkt. No. 1 at ¶¶ 50-51.
The new evidence Plaintiffs rely on is: (1) Grande tracks its infringing customers; (2) these
customers are “a la carte” internet customers; (3) Grande’s profit margins on a la carte customers are
its highest of any business lines; and (4) Grande never terminated any user regardless of how many
notices of infringement it received. Dkt. No. 85 at 5. Plaintiffs contend that these facts make a
difference, and are enough to suggest that Grande’s failure to terminate infringers is a draw. Dkt. No.
85-4 at ¶ 64, 67-68. The Court disagrees. First, the original Complaint alleged essentially the same
or similar facts. Second, the new allegations still fail to say anything about the motivations of
Grande’s subscribers when they sign up with Grande. That is, Plaintiffs still fail to plead facts
showing Grande gained or lost customers because of its failure to terminate infringers. Instead, the
proposed amended complaint states that, “the evidence demonstrates that Plaintiffs’ Copyrighted
Sound Recordings were a draw to Grande’s infringing customers, including customers Grande had
identified as repeat infringers.” Dkt. No. 85-4 at 16. But as has been noted in prior orders, the means
by which Plaintiffs contend the infringing subscribers infringed the Copyrighted Sound Recordings
by use of the internet and the BitTorrent protocol, which one can access through any ISP. Again,
the draw must be something more than this to state a vicarious infringement claim. The allegedly
“new” facts are insufficient to overcome the deficiencies of the original Complaint.

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With regard to Patriot, Plaintiffs rely on evidence acquired in discovery showing that Patriot
has an ownership interest in Grande and that Patriot employees advise Grande or “make policy” on
Grande’s DMCA and other infringement policies. In originally recommending dismissal of these
claims, the undersigned stated:
The problem with UMG’s argument is that nowhere does the Complaint allege that
Patriot itself, as an entity, was involved in the decisions or actions on which UMG
bases its claim. Instead, it only alleges that employees of Patriot, who were also
employees of Grande, may have assisted in formulating Grande’s policies in dealing
with the underlying infringement at issue here. This is a far cry from showing that
Patriot as an entity was an active participant in the alleged secondary infringement.
UMG concedes that Grande is a valid legal entity. Thus, whatever decisions Grande
made that might impose liability on it, they were made by Grande, not Patriot.
UMG’s claims against Patriot are a very poorly disguised attempt to ignore Grande’s
corporate form, and to impose liability on Patriot solely because it provides services
to Grande. The relationship between the alleged direct infringers and Patriot is too
attenuated to support a claim against Patriot.
Dkt. No. 72 at 20-21. This is still the problem with Plaintiffs’ proposed amended complaint. The
relevant language of the original Complaint was:
during the relevant period, Patriot was responsible for management of Grande,
including performing executive, legal and compliance responsibilities.
Dkt. No. 1 at ¶ 75. The new language, which allegedly cures the defects identified by the Court, is:
Patriot performs the functions of Grande’s CEO, CFO, and COO; develops Grande’s
overall business strategy; and handles various marketing, legal, regulatory, and other
functions for Grande. In particular, Patriot sets Grande’s policies, including policies
relating to copyright infringement.
Dkt. No. 85-4 at 10. Though there is more detail in the proposed amendment, these allegations are
“more of the same” when compared to the original complaint. Nothing in the new allegations

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changes the fact that Grande is the entity that provided internet access to the subscribers, and Grande
(albeit with employees provided by Patriot) made the decisions of which Plaintiffs complain.1
In their Motion to Amend Plaintiffs seek to re-litigate issues already decided by this Court.
The Court presumed all Plaintiffs’ factual allegations to be true when it analyzed the Motions to
Dismiss. The newly discovered facts only bolster what was already alleged, and do not make any
material changes to the pleadings already found to be insufficient.
IV. RECOMMENDATION
The undersigned RECOMMENDS that the district judge DENY UMG Recording, Inc., et
al’s Motion for Leave to File Plaintiffs’ First Amended Complaint (Dkt. No. 85).2
V. WARNINGS
The parties may file objections to this Report and Recommendation. A party filing objections
must specifically identify those findings or recommendations to which objections are being made.
The District Court need not consider frivolous, conclusive, or general objections. See Battle v.
United States Parole Comm’n, 834 F.2d 419, 421 (5th Cir. 1987).
A party’s failure to file written objections to the proposed findings and recommendations
contained in this Report within fourteen (14) days after the party is served with a copy of the Report
shall bar that party from de novo review by the District Court of the proposed findings and

1

With regard to Patriot having an ownership interest in Grande, Grande acknowledged that
Patriot’s counsel mistakenly represented that Patriot did not have an ownership interest in Grande.
This too makes no difference to the pending motion. A minority ownership interest in an entity does
not make one liable for acts of the entity, and Plaintiffs still fall far short of stating a claim to
disregard the Grande corporate form.
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Plaintiffs also sought leave to file exhibits to the First Amended Complaint under seal. Dkt.
No. 82. If this recommendation is adopted, this motion should be denied as moot, as the First
Amended Complaint will not be filed.
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recommendations in the Report and, except upon grounds of plain error, shall bar the party from
appellate review of unobjected-to proposed factual findings and legal conclusions accepted by the
District Court. See 28 U.S.C. § 636(b)(1)(c); Thomas v. Arn, 474 U.S. 140, 150-53 (1985); Douglass
v. United Servs. Auto. Ass’n, 79 F.3d 1415, 1428-29 (5th Cir. 1996) (en banc).
SIGNED this 20th day of September, 2018.

_____________________________________
ANDREW W. AUSTIN
UNITED STATES MAGISTRATE JUDGE

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