Tag: business law

Contractual Indemnity Clause May Apply to Direct Action in Bond Offering Snafu; No Joint-Work Copyright Protection for PPM – IL ND

The Plaintiff in UIRC-GSA Holdings, Inc. v. William Blair & Company, 2017 WL 3706625 (N.D.Ill. 2017), sued its investment banker for copyright infringement and professional negligence claiming the banker used the plaintiff’s protected intellectual property – private placement memoranda – to get business from other clients.  The parties previously executed an engagement agreement (“Agreement”) which required the banker to facilitate plaintiff’s purchase of real estate through bond issues.

The banker denied infringing plaintiff’s copyrights and counterclaimed for breach of contract, contractual indemnity and tortious interference with contract.  Plaintiff moved to dismiss all counterclaims.

In partially granting and denying the (12(b)(6)) motion to dismiss the counterclaims, the Northern District examined the pleading elements for joint-author copyright infringement and tortious interference claims and considered the reach of contractual indemnification provisions.

The counterclaiming banker first asserted that it was a joint owner of the private placement documents and sought an accounting of the plaintiff’s profits generated through use of the materials.  Rejecting this argument, the Court stated the Copyright’s definition of a ‘joint work’: “a work prepared by two or more authors with the intention that the authors’ work be merged into inseparable or interdependent parts of a unitary whole.” 17 U.S.C. 101.

To establish co-authorship, the copyright plaintiff must establish (1) an intent to create a joint work, and (2) independently copyrightable contributions to the material.  The intent prong simply means the two (or more) parties intended to work together to create a single product; not that they specifically agreed to be legal co-copyright holders.

To meet the independently copyrightable element (the test’s second prong), the Court noted that “ideas, refinements, and suggestions” are not copyrightable.  Instead, the contributed work must possess a modicum of creativity vital to a work’s end product and commercial viability.

Here, while the counter-plaintiff alleged an intent to create a joint work, it failed to allege any specific contributions to the subject private placement documents.  Without specifying any copyrightable contributions to the documents, the investment firm failed to satisfy the pleading standards for a joint ownership copyright claim.

The court next considered the banker’s indemnification claim – premised on indemnity (one party promises to compensate another for any loss) language in the Agreement. The provision broadly applied to all claims against the counter-plaintiff arising from or relating to the Agreement.  The plaintiff argued that by definition, the indemnity language didn’t apply to direct actions between the parties and only covered third-party claims (claims brought by someone other than plaintiff or defendant).

The Court rejected this argument and found the indemnity language ambiguous.  The discrepancy between the Agreement’s expansive indemnification language in one section and other Agreement sections that spoke to notice requirements and duties to defend made it equally plausible the indemnity clause covered both third-party and first-party/direct actions.  Because of this textual conflict, the Court held it was premature to dismiss the claim without discovery on the parties’ intent.

The court also sustained the banker’s tortious interference counterclaim against plaintiff’s motion to dismiss.  The counter-plaintiff alleged the plaintiff sued and threatened to continue suing one of the counter-plaintiff’s clients (and a competitor of the plaintiff’s) to stop the client from competing with the plaintiff in the bond market.  While the act of filing a lawsuit normally won’t support a tortious interference claim, where a defendant threatens litigation to dissuade someone from doing business with a plaintiff can state a tortious interference claim.

Take-aways:

Contractual indemnity provisions are construed like any other contract.  If the text is clear, it will be enforced as written.  In drafting indemnity clauses, the parties should take pains to clarify whether it applies only to third-party claims or if it also covers direct actions between the parties.  Otherwise, the parties risk having to pay the opposing litigant’s defense fees.

Filing a lawsuit alone, isn’t enough for a tortious interference claim.  However, the threat of litigation to dissuade someone from doing business with another can be sufficient business interference to support such a claim.

Joint ownership in copyrighted materials requires both an intent for joint authorship and copyrightable contributions from each author to merit legal protection.

 

Joint Ventures, Close Corporations and Summary Judgment Motion Practice – IL Northern District Case Snapshot

The featured case is Apex Medical Research v. Arif (http://cases.justia.com/federal/district-courts/illinois/ilndce/1:2015cv02458/308072/52/0.pdf?ts=1447939471)

A medical clinical trials firm sued a doctor and his company for breach of contract and some tort claims when the firm learned the doctor was soliciting firm clients in violation of a noncompete signed by him.

In partially granting and denying a flurry of summary judgment motions, the Illinois Northern District highlights the importance of Local Rule 56 statements and responses in summary judgment practice. Substantively, the court provides detailed discussion of the key factors governing whether a business arrangement is a joint venture and what obligations flow from such a finding.

The clinical trials agreement contemplated that plaintiff would locate medical trial opportunities and then provide them to the doctor defendant.  The doctor would then conduct the trials in exchange for a percentage of the revenue generated by them.  The plaintiff sued when the parties’ relationship soured.

Procedurally, the court emphasized the key rules governing Local Rule 56 (“LR 56”) statements and responses in summary judgment practice:

– LR 56 is designed to aid the trial court in determining whether a trial is necessary; Its purpose is to identify relevant admissible evidence supporting the material facts.  LR 56 is not a vehicle for factual or legal arguments;

– LR 56 requires the moving party to provide a statement of material facts as to which the moving party contends there is no genuine issue;

– The non-moving party must then file a response to each numbered paragraph of the movant’s statement of facts and if it disagrees with any statement of fact, the non-movant must make specific reference to the affidavits and case record that supports the denial;

– A failure to cite to the record in support of a factual denial may be disregarded by the court;

– The non-movant may also submit its own statement of additional facts that require denial of the summary judgment motion;

– Where a non-movant makes evasive denials or claims insufficient knowledge to answer a moving party’s factual statement, the court will deem the fact admitted.

(**2-3)

The court focused its substantive legal analysis on whether the individual defendant owed fiduciary duties to the plaintiff.  Under Illinois law, a joint venturer owes fiduciary duties of loyalty and good faith to his other joint venturer.  So too does a shareholder in a close corporation (a corporation where stock is held in the hands of only a few people or family members) – but only if that shareholder is able to influence corporate policy and management.

The hallmarks of an Illinois joint venture are: (1) an express or implied association of two or more persons to carry out a single enterprise for profit; (2) a manifested intent by the parties to be joint venturers; (3) a community of interest (i.e. joint contribution of property, money, effort, skill or knowledge); and (4) a measure of joint control and management of the enterprise.  (*16).

The most important joint venture element is the joint control (item (4)) aspect.  Here, there were provisions of the parties’ written contract that reflected equal control and management of the clinical trials arrangement but other contract terms reflected the opposite – that the plaintiff could supervise the doctor defendant.  These conflicts in the evidence showed there was a genuine factual dispute on whether the parties jointly controlled and managed the trial venture.

The evidence was also murky as to whether the doctor defendant had enough control over the corporate plaintiff to subject the doctor to fiduciary obligations as a close corporation shareholder.  The conflicting evidence led the court to deny summary judgment on the plaintiffs’ breach of fiduciary duty claim. (**16-17).

Afterwords:

Procedurally, the case presents a thorough summary of the key rules governing summary judgment practice in Illinois Federal courts.  The party opposing summary judgment must explicitly cite to the case record for its denial of a given stated fact to be recognized by the court.

The case also provides useful substantive law discussion of the key factors governing the existence of a joint venture and whether a close corporation’s shareholder owes fiduciary duties to the other stockholders of that corporation.