Advancetec, L.L.C. v. Wohlsen Construction Company

Filing 39

MEMORANDUM OPINION. Signed by District Judge Henry E. Hudson on 5/9/2017. (jsmi, )

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF VIRGINIA
Richmond Division

ADVANCETEC, L.L.C.,
Plaintiff,
Civil Action No. 3:17-CV-201-HEH

V.

WOHLSEN CONSTRUCTION

COMPANY,
Defendant.

MEMORANDUM OPINION

(Granting Defendant's Motion to Dismiss)
THIS MATTER is before the Court on Defendant Wohlsen Construction

Company's Motion to Dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6), filed
on March 31, 2017. (ECF No. 18.) Both parties filed memoranda supporting their
respective positions. Oral argument followed on May 2, 2017.
For the reasons announced from the bench during the hearing and further

amplified herein, the Court will grant the Motion. This case will be dismissed without
prejudice.
I.

BACKGROUND

As required by Rule 12(b)(6) of the Federal Rules of Civil Procedure, the Court
assumes Plaintiffs well-pleaded allegations to be true and views all facts in the light
most favorable to it. T.G. Slater & Son v. Donald P. & Patricia A. Brennan LLC, 385

F.3d 836, 841 (4th Cir. 2004) (citing Mylan Labs, Inc. v. Matkari, 1 F.3d 1130, 1134 (4th
Cir. 1993)). At this stage, the Court's analysis is both informed and constrained by the
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four comers of Plaintiff s Complaint. Viewed throughthis lens, the facts are as follows.
Plaintiff AdvanceTEC, L.L.C. ("Plaintiff or "AdvanceTEC") is a Virginia limited

liability company that specializes in cleanroom design and construction' as well as
process tool installation and integration. (Compl. ^ 2, ECF No. 1.) This action arises out
of a construction bid process for a 220,000 +/- square foot pharmaceutical

processing/manufacturing plant being built by Datwyler Pharma Packaging USA (the
"Owner"). {Id. H9.)

In or around October 2016, Defendant Wohlsen Construction Company

("Defendant" or "Wohlsen"), a general commercial contractor serving the mid-Atlantic
region {id. ^ 3), invited Plaintiff "to submit a bid that included assisting the designated
Engineer of Record with the design of the cleanroom and thereafter constructing the
cleanroom." {Id. H12.) One month later, Defendant approached Plaintiffagain to invite

it "to participate directly in the final selection interview for award of the Project to
Wohlsen, as Wohlsen's design-build specialty subcontractor for the Project." {Id. H13.)
On December 14, 2016, representatives from both Plaintiff and Defendant met to
discuss the terms of a letter of intent, which would form the basis of their relationship.

{Id. H15.) Throughout their negotiations. Plaintiff "made clear that it intended to reserve

for itself all rights in the Instruments ofService [("lOS")^ provided pursuant to any letter
' "A cleanroom is an environment that is controlled to International Organization for Standardization ...

standards for very low level of particulates and maintaining tight environmental conditions. Cleanrooms
are used in the manufacture of such products as pharmaceuticals, electronic components, and
semiconductors, as well as for advanced scientific research." (Compl. ^ 2.)

^The lOS includes, but is not limited to, "design drawings, 3D BIM models, engineering calculations and
loads, detailed estimates, value engineered solutions, detailed project sequence schedules of work for the
project, OEM lists, and prequalified subcontractorlists." (Compl. ^ 1.)

of intent entered into between the parties], including but not limited to any copyrights

AdvanceTEC mighthave, except as specifically provided for in any written agreements."
{Id. 116.)

On December 20, 2016, Wohlsen providedAdvanceTEC with a "proposed
Subcontract for the cleanroom scope of work." {Id. H17.) Several weeks later, on

January 5, 2017, Defendant provided Plaintiff with a proposed Letter ofIntent for
Subcontract (the "Draft LOI") in which it requested that Plaintiff perform certain design
services directed toward reducing the overall cost of the cleanroom in advance of

completing the Subcontract. {Id. fl 18, 19; see also Compl. Ex. A, ECF No. 1-1.)
However, Plaintifffound the Draft LOI to be unacceptable. Specifically, AdvanceTEC

objected to the fact that it defined the scope of work solely for "design-assist services"
and not "design-build services." (Compl. ^ 20.)

And so, later that day, representatives from Plaintiffemailed Defendant and

provided comments and suggested revisions to the Draft LOI. {Id. 121; see also Compl.
Ex. B, ECFNo. 1-2.) In the email, Plaintiffreaffirmed that it had no intention of

providing solely "design-assist services" and stated that it could not "accept anLOI that
is not tied to constructing our scope of work for the Project." (Compl. Ex. B, at 2.)
Plaintiff elaborated that "[t]his context is very important and applicable when we get

down to the lowertopic of ownership rightto work products produced by AdvanceTEC."

{Id.) Plaintiffconcluded the January 5 email by proposing that the following terms be
added so that the parties could clarify ownership rights in the event that their relationship
ended prior to entering into a design-build subcontract:
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AdvanceTEC is agreeing to participate and perform design-assist, value
engineering, and estimating services under this Letter of Intent until such
time as a fully executed design-build subcontract is executed between
Wohlsen Construction and AdvanceTEC. Until such time that Advance

TEC is contracted, constructs, and is compensated for the scope of design-

assist/build scope of work stated in AdvanceTEC's December 14, 2016
document, all work products shall remain the property of AdvanceTEC,
unless such time if AdvanceTEC is found to be in contract breach. Upon

completion and compensation of AdvanceTEC's work[,] a perpetual
royalty free license will be granted to the Owner for the Owner's Mure use
pertaining to the Project.
{Id. at 3.)

The next day, the parties signed an executed Letter of Intent (the "Executed LOI"

or "LOI"), which included some, butnot all, of Plaintiffs proposed revisions. {See

generally Compl. Ex. C, ECF No. 1-3.) At the outset, the LOI affirmed that it was a fully
integrated contract by stating that "[t]his Letter isthe entire agreement between the
parties until the parties execute a subcontract and any changes to the terms of this Letter
must be made in writing based on mutual agreement of the parties." {Id. at 3.) The LOI

continued by clarifying that Plaintiffs scope of services went beyond mere "design-assist
services" by noting that the "scope of ('Service') [to be provided] is based on
AdvanceTEC's attached 'Design-Assist / Build Scope of Work, dated December 14,
2016." {Id at 2.)

Wohlsen went on to make clear that it "reserve[d] the right to stop the Services at

any time." {Id. at 3.) TheExecuted LOI also stated that "[i]nthe event that negotiations
between Owner and [Defendant] conclude without an executed Contract, Subcontractor

shall be compensated for the costs of the Services performed in accordance with the
provisions of this Letter." {Id.) And, if such an event occurred, "all workproduct
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produced by [Plaintiff] pursuant to this Letter shall be the property of, and provided to the
Owner." {Id.)

The LOI contained no provision by whichDefendant would acquire any rights in

Plaintiffs work product created pursuant to the Executed LOI. {See generally id.)

Significantly, the fully integrated contract also did not include Plaintiffs proposed terms
regarding its retention of ownership rights until the completion of the project. {See
generally id.) The LOI contained no provision to that effect.

Subsequent to signing the LOI, Plaintiff "provided the [lOS] described in the LOI
and delivered the resulting work product to Wohlsen." {Id. 13 L) At some point over the

ensuing months, the parties' relationship soured, and Defendant notified Plaintiff by letter
on February 23, 2017, that it was ending subcontract negotiations and terminating the
LOI. (Compl. Ex. D, ECF No. 1-4.) Defendant requested thatPlaintiff submit "all
invoices for the costs of the Services AdvanceTEC performed ... in accordance with the"

LOI^ and also asked Plaintiff to sign an "Acknowledgement of Termination of Letter of

Intent and Final Release ofLiens and Claims."'^ {Id. at 2.)
AdvanceTEC objected to the Acknowledgement, contending that Wohlsen was

conditioning payment for Plaintiffs services on an extra-contractual requirement that

Plaintiff assign all rights to its work product to Defendant.^ (Compl. ^133.) In a letter
^As of the date of oral argument, Plaintiff had notprovided Defendant with an invoice for its services.
^Specifically, the letter stated: "Please submit all invoices for the costs ofthe Services AdvanceTEC
performed through February 8, 2017 in accordance with the Letter of Intent, along with an executed copy
of the enclosed Acknowledgement of Termination of Letterof Intent and Final Release of Liens and
Claims." (Compl. Ex. D, at 2.)

^The Acknowledgment stated, in pertinent part: "As an inducement to [Defendant] making the requested
payment, and contingent only upon receipt of the Final Payment Amount, [Plaintiff] agrees that all rights

dated February 28, 2017, Plaintiffinformed Wohlsen it was "not willing to sign the

Acknowledgement in its current form, and frankly, [it did] not see any benefit in

attempting to negotiate a document that is so unreasonably one-sided." (Compl. Ex. E, at
2, ECFNo. 1-5.)

In the letter, AdvanceTEC told Defendant that it had "no continuing right to use

any ofthe Instruments of Service prepared by AdvanceTEC for or in connection with the

Project." {Id.) In support ofthis assertion, Plaintiff cited Section 201(a) ofthe Copyright
Act and stated that it was "the author and, therefore, the owner of the Instruments of

Service." {Id. (citing 17 U.S.C. § 201(a).) Therefore, it demanded that "Wohlsen must
immediately discontinue all use of the Instruments of Service, any derivative works

prepared from them and any protected information contained in them." {Id.)
Plaintiff also affirmed that it "ha[d] not granted and does not grant Wohlsen any
license to use the Instruments of Service.... [And], to the extent Wohlsen may claim that

it has an implied license to use some or all of the Instruments of Service ...

AdvanceTEC hereby terminates any such license effective immediately." {Id.) Plaintiff
concluded by noting that "[g]oing forward, any use by the Owner, Wohlsen, or the
consultants or subcontractors of either of them, or anyone else acting on behalf of either
of them, will constitute copyright infringement, and AdvanceTEC will take all action
necessary to fully enforce its rights in its Instruments of Service." {Id.)

to the drawings, specifications and otherdocuments ('Instruments of Service'), including those in
electronic form, prepared by [Plaintiff] or its subcontractors or subconsultants (of anytier), including all
statutory, common law and contractual rights of ownership to the Instruments of Service, shall transfer to
the Contractor and may be used by the Contractor and the Ownerin any way in connection withthe
design, construction, use, maintenance, expansion or promotion of the Project." (Compl. Ex. D, at 414.)

On March 2,2017, Defendant's counsel sent Plaintiff a letter responding to its

objections. (See Compl. Ex. F, ECF No. 1-6.) The letter argued that the LOI "clearly

contemplates that all work product created underthe Letter of Intent would be assigned
to, and become property of, either Wohlsen or [the Owner].... To that end, the Letter of

Intent contemplates that AdvanceTEC would transfer ownership of any created works to
Wohlsen who would then, in turn, use the works in the performance of its duties." (Id at

2.) Alternatively, Defendant asserted that,"[a]t a minimum, Wohlsen possesses an

implied license to use the works created by AdvanceTEC pursuant to the Letter of
Intent." (Id at 3.)

Five days later. Plaintifffiled the two-count Complaint currently before this Court
seeking a declaratory judgment and injunctive relief regarding two issues:
1. Whether Plaintiff is obligated to assign to Defendant the
[Instruments of Service] Plaintiff created ....
2. Whether Defendant has an implied license to continue to use the
lOS.

(Compl.

4(a)-(b).)

Defendant's Motion to Dismiss followed.
n.

LEGAL STANDARD

"A motion to dismiss under Rule 12(b)(6) tests the sufficiency of a complaint;

importantly, it does not resolve contests surrounding the facts, the merits of a claim, or
the applicability of defenses." Republican Party ofN.C. v. Martin, 980 F.2d 943, 952
(4th Cir. 1992) (citation omitted). The Federal Rules of Civil Procedure "require[] only
'a short and plain statement of the claim showing that the pleader is entitled to relief,' in
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order to 'give the defendant fair notice of what the ... claim is and the grounds upon
which it rests.'" BellAtl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (quoting Conley v.
Gibson, 355 U.S. 41, 47 (1957)). A complaint need not assert "detailed factual

allegations," but it must contain "morethan labels and conclusions" or a "formulaic
recitation of the elements of a cause of action." Twombly, 550 U.S. at 555 (citations

omitted). Thus, the "[f]actual allegations must be enough to raise a right to reliefabove

the speculative level" to one that is "plausible on its face," rather than merely
"conceivable." Id. at 555, 570.

In considering such a motion, a plaintiffs well-pleaded allegations are taken as

true, and the complaint is viewed in the light most favorable to the plaintiff. T.G. Slater,
385 F.3d at 841 (citation omitted). Legal conclusions enjoy no such deference. Ashcroft
V. Iqbal, 556 U.S. 662, 678 (2009).
III.

ANALYSIS

Plaintiffhas affirmatively statedthat the relief it is seeking in this case "turns

simply on the Court's interpretation of the terms of a simple written contract, the
Executed LOI" (Mem. 0pp. Mot. Dismiss 6, ECF No. 31) and that the rights it is

attempting to enforce emanate solely from contract—and not copyright—law. {Id at 2, 5
("This case concerns contractual rights"; "Those rights emanate from contract law";
"Here, AdvanceTEC has brought a prototypical declaratory judgment action based on a
written contract"; "The justiciable controversy here is one that is prototypical of a
declaratory judgment action—the parties disagree over the meaning of a written contract,
the Executed LOI").)

In its Motion to Dismiss, Defendant challenges the sufficiency of both Counts of

Plaintiffs Complaint, arguing that there is no actual controversy with regard to Count I

and that Count II is unsupported by the LOI. The Court will address each contention in
turn.

A. Count I: Assignment of Rights

"In Count I, AdvanceTEC seeks the Court's declaration of the parties' respective

rights to resolve a dispute over whether AdvanceTEC is obligated under the Executed
LOI to assign to Wohlsen all rights in the Instruments of Service. In other words, the
Court will decide whether AdvanceTEC is contractually obligated to sign the

Acknowledgement." (Mem. 0pp. Mot. Dismiss 5-6.) Plaintiff contends that Defendant
"has no right to condition payment on AdvanceTEC's acquiescence to new terms,

including but not limited to the express grant of rights in Paragraph 4 of the

Acknowledgement." {Id. at 6.) Plaintiff alleges that Defendant is holding it hostage "by
demanding new terms it never would have agreed to" and that it "is in a position to obtain
declaratory relief freeing it from captivity." (Id.)

In its Reply Brief in Support of its Motion to Dismiss, Wohlsen appears to agree

with Plaintiffs position. Wohlsen expressly stated that it "does not require, and therefore
does not seek, a written assignment of any ownership rights." (Reply Br. 4, ECF No. 35.)
And it further affirmed that it "does not claim, require, assert, or demand a right to a

written assignment by AdvanceTEC underthe LOI and confirms it will not do so in the
future." (Id. at 4 n.2.) While it concedes that "it requested extra-contractual actions,

including a written confirmatory assignment" subsequent to the dissolution of the parties'
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professional relationship, Defendant contends that it never conditioned payment upon

Plaintiff acquiescing to those requests. {Id.) Therefore, Wohlsen concludes by asserting
that there is no dispute for the Court to resolve in Count I.

"[A] federal court may properly exercise jurisdiction in a declaratory judgment

proceeding when three essentials are met: (1) the complaint alleges an 'actual
controversy' between the parties 'of sufficient immediacy and reality to warrant issuance
of a declaratory judgment;' (2) the court possesses an independent basis for jurisdiction
over the parties (e.g. federal question or diversity jurisdiction); and (3) the court does not
abuse its discretion in its exercise ofjurisdiction." Voho Constr. Equip, N. Am., Inc. v.

CLMEquip. Co., 386 F.3d 581, 592 (4th Cir. 2004) (citing 28 U.S.C. § 2201; Cont'l Cas.
Co. V. Fuscardo, 35 F.3d 963, 965 (4th Cir. 1994);A^. Jefferson Square Assocs. v. Va.
Hous. Dev. Auth., 94 F. Supp. 2d 709, 714 (E.D. Va. 2000)).
Based on Defendant's affirmation that AdvanceTEC is not contractually obligated

to sign the Aclcnowledgment—and that it will not condition Plaintiffspayment on it
doing so in the future—^the Court finds that there is no "actual controversy" between the
parties with regard to Count I. Therefore, the Court concludes that it lacks subject-matter
jurisdiction over this claim and that it must be dismissed. See Arbaugh v. Y&H Corp.,
546 U.S. 500, 506 (2006) ("The objection that a federal court lacks subject-matter

jurisdiction ... may be raised ... at any stage in the litigation."); Noble Sec., Inc. v. MIZ
Eng'g, 611 F. Supp. 2d 513, 550 n.21 (E.D. Va. 2009) ("[Fjederal courts, being of limited
jurisdiction, must examine theirsubject matter jurisdiction throughout the pendency of
every matter before them." (citation and quotation marks omitted)); see also United
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States V. Meacham, 650 Fed. App'x 639, 640 (10th Cir. 2016) ("Without a live case or

controversy throughout all stages of litigation, we lacksubject matter jurisdiction.").
B. Count II: Implied License in lOS

In Count II, Plaintiff asks the Court to enter a declaratory judgment holding that

the LOI did not grant Wohlsen an implied license to use the lOS after the dissolution of
the parties' relationship. (Mem. 0pp. Mot. Dismiss 6-7.)

"The existence of an implied nonexclusive license ... constitutes an affirmative

defense to an allegation of copyright infringement." Thomas M. Gilbert Architects, P.C.
V. Accent Builders &Developers, LLC, 377 Fed. App'x 303,306 (4th Cir. 2010)

(unpublished opinion) {Q^o\\n%Nelson-Salabes, Inc. v. Morningside Dev., LLC, 284 F.3d
505, 514 (4th Cir. 2002)). Therefore, a determination regarding whether Defendant has

an implied license to continue to use the lOS subsequent to the termination ofthe LOI is
necessarily predicated onAdvanceTEC possessing some underlying substantive right to

bring a claim for copyright infringement. See Centennial Life Ins. Co. v. Poston, 88 F.3d
255, 256-57 (4th Cir. 1996) ("The Federal Declaratory Judgment Act provides that
district courts may declare the rights and other legal relations of any interested party
seeking such declaration whether or not further reliefis sought.. .. [A] declaratory

judgment action is appropriate when thejudgment will serve a useful purpose in
clarifying and settling the legal relations in issue, and ... when it will terminate and
afford relief from the uncertainty, insecurity, and controversy giving rise to the
proceeding.") (internal citations and quotation marks omitted).
However, Plaintiff conceded during oral argument that a claim for copyright
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infringement—or any other issue arising out of copyright law—^was not before the Court
because it had not pleaded such an action. (See also Mem. 0pp. Mot. Dismiss 2 ("This
case concerns contractual rights"; "Those rights emanate from contract law").)

Due to Plaintiffs representation that "thepurpose of the declaratory reliefsought
in this case is to avoid either party committing [a breach of the LOI] and to allow the

parties to resume business with a complete understanding oftheir rights and obligations"
(id. at 8), the Court finds that Plaintiff has insufficiently pleaded that there is "immediacy
and reality to warrant issuance of a declaratory judgment" concerning a hypothetical
affirmative defense to a hypothetical copyright infringement action. Volvo Constr, 386
F.3d at 592 (internal quotation marks and citations omitted).
Therefore, Count II will be dismissed.
C. Defendant's Continued Use of the lOS

The core relief that Plaintiffappears to be seeking is a determination of the parties'

rights in the lOS subsequent to the termination of the LOI. Therefore, the sole question
that remains before the Court is whether Wohlsen's continued use of the lOS constitutes
a breach of the LOI.

AdvanceTEC's representations during oral argument and in its Response to

Defendant's Motion to Dismiss support this conclusion. And framing the issue in this

manner comports with Plaintiffs Complaint, where it asks the Courtto enter an Order
declaring that: (a) "The Executed LOI does not grant Wohlsen any right to continue to
use the Instruments of Service or the information contained in them following

termination of the Executed LOI"; and (b) "Neither Wohlsen nor any party that has
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received any or all of the Instruments of Service from or through Wohlsen has any right
to use the Instruments of Service or the information contained in them for any purpose."

(Compl. fl 42(bHc).)

Consequently, the Court will assess whether it has the ability to grant the relief
Plaintiff is seeking by examining the four comers of the fully integrated LOI, "which is
the express and exclusive statement of the parties' agreement with respect to the
Instruments of Service." (Id. ^ 45; see also id. H42 ("The Executed LOI expressly states
that it is the entire agreement between the parties.").)

"Virginia law [which governs the interpretation of the LOI] follows the 'plain

meaning' rule, which dictates thatthe contract is construed as written, without adding
terms that were not includedby the parties." Sutherland v. Gordon, 294 Fed. App'x 754,

755 (4th Cir. 2008) (unpublished opinion) (internal quotation marks and citation
omitted); see also PBMNutritionals, LLCv. Lexington Ins. Co., 724 S.E.2d 707, 714
(Va. 2012) ("It is a basic tenet of Virginia law that the courts, when interpreting a
contract, 'construe it as written' and do 'not add terms the parties themselves did not

include.'" (quoting LandmarkHHH, LLC v. Gi Hwa Park, 111 Va. 50, 57 (2009)).
Virginia courts "will not insert by construction, for the benefit of a party, a term not

express in the contract." Lansdowne Dev. Co., L.L.C. v. Xerox Realty Corp., 514 S.E.2d
157, 161 (1999).

It appears to be undisputed that the only reference in the LOI to any rights in the
lOS is a lone provision granting conditional rights to the Owner in the event that it did
not execute a contract with Defendant. (Compl. Ex. C, at 3 ("Should the Owner elect not
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to execute a contract with Wohlsen, all work product produced by AdvanceTEC pursuant

to this Lettershall be the property of, and provided to the Owner.")-) However, the LOI

is silent as to which party would convey those rights. Nevertheless, Plaintiff asserts that
this reference in the LOI "demonstrates that the parties contemplated and addressed the

single circumstance under which AdvanceTEC would be required to transfer rights inthe
Instruments of Service." (Reply Supp. Mot. Prelim. Inj. 11, ECF No. 28.) AdvanceTEC
contends that "because the Executed LOI addresses [the Owner's] rights in the

Instruments of Service, but says nothing about Wohlsen's rights in them, it precludes"

Wohlsen's ability to use them subsequent to the termination of the LOI. {Id. H12.)
While the Court is aware that "under the principle of expressio unius est exclusion

alterius, the omission of a particular covenant or term from a contract reduced to writing
shows an intent to exclude it," Bentley Funding Grp., LLC. v. KS&R Grp., LLC., 609

S.E.2d 49, 56 (Va. 2005) {Q\\m%FirstNat'l Bankv. RoyN. Ford Co., 252 S.E,2d 354,

357 (Va. 1979)), Plaintiffs position that merely referencing a conditional transfer of
rights to a third party implies a reservation of its own rights and a proscription against
Defendant's further use of the lOS is untenable.

The lone provision of the LOI that referenced a hypothetical transfer of rights
made no mention of the rights of the parties to the contract itself. Though Plaintiff may
have made clear that it "intended that Wohlsen's rights to use the [lOS] would terminate
if AdvanceTEC was not selected as the subcontractor" (Compl. ^ 30) and that it desired

to retain the rights to the lOS until construction was complete {id. 116), the Court fmds

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that there is nothing in the Executed LOI to demonstrate that those intentions were ever
perfected in the resulting document.

Consequently, the Court concludes that it lacks any textual basis to grant

Plaintiffs requested relief because there is no provision in the LOI that would place
Wohlsen in breach of the contract should it continue to use the lOS. The Court cannot

impose a restriction requiring Defendant to comply with a new contractual term not
agreed to by the parties. See Lansdowne Dev. Co., 514 S.E.2d at 161.
IV.

CONCLUSION

For the reasons stated above, the Defendant's Motion to Dismiss will be

GRANTED. (ECFNo. 18.) Plaintiffs Complaint for Declaratory Judgment and
InjunctiveReliefwill be DISMISSED WITHOUTPREJUDICE. (ECFNo. 1.)

Plaintiff is granted twenty-one (21) days from the date of entry hereof to amplify
the factual and legal basis on which its claims rest and file an amendedcomplaint, should
it deem it prudent to do so. This case will remain open until then.
An appropriate Order will accompany this Memorandum Opinion.
The Clerk is DIRECTED to send a copy of this Memorandum Opinion to all
counsel of record.

Henry E. Hudson

jaJ

^

United States District Judge

Date:m» f 20l7
Richmond, IjA'

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