United States District Court, S.D. New York
August 9, 2004.
LOGICOM INCLUSIVE, INC. d/b/a LOGICOM, INC., STEPHEN BORIOTTI and RICHARD ROSEN, Plaintiffs,
W.P. STEWART & CO., WILLIAM P. STEWART, JOHN C. RUSSELL, EDWARD BUTLER and ROCCO MaCRI, Defendants.
The opinion of the court was delivered by: CHARLES HAIGHT, District Judge
MEMORANDUM OPINION AND ORDER
This case involves a dispute over ownership and use of two
computer programs. Plaintiff Logicom Inclusive, Inc. ("Logicom")
along with individual plaintiffs Stephen Boriotti and Richard
Rosen allege that defendants W.P. Stewart & Co., Inc. ("WPS"),
William P. Stewart, John C. Russell, Edward Butler, and Rocco
Macri infringed their exclusive rights under the Copyright Act of
1976, 17 U.S.C. § 101, et seq. (the "Copyright Act" or the
"Act") to create derivative works of the programs. Plaintiffs
also bring state and common law actions for conversion, unjust
enrichment, and malicious interference with contract rights.
Defendants move to dismiss plaintiffs' complaint pursuant to
Fed.R.Civ.P. 12(b)(6), for failure to state a cognizable
claim. Defendants also move pursuant to Fed.R.Civ.P. 12(b)(5)
to dismiss plaintiffs' complaint against individual defendants
Stewart, Russell, and Macri for insufficiency of service of
process. Plaintiffs oppose these motions and cross-move to amend
the Summons and Complaint to add W.P. Stewart & Co., Ltd. and
Stefan Stefanowski as defendants. and to extend the time to effect service of process. This Opinion
resolves all motions.
I. PARTIES AND JURISDICTION
Logicom is a software development and services company
incorporated and with its principal place of business in the
State of New York. Boriotti is a resident of New York and
Logicom's president. Rosen is also a New York resident and serves
as Logicom's treasurer.
WPS is a publicly traded financial services firm, incorporated
and with its principal place of business in the State of New
York. William P. Stewart is WPS's president, John C. Russell its
chief executive officer, Edward Butler its chief information
officer, and Rocco Macri its chief financial officer. All are New
Subject matter jurisdiction over the case is conferred by
28 U.S.C. § 1338(a), which gives federal courts original
jurisdiction over civil actions arising under the Copyright Act,
and 28 U.S.C. § 1367(a), granting district courts supplemental
jurisdiction over state and common law claims that form part of
the same case or controversy as the underlying federal action.
Venue lies in the Southern District of New York under
28 U.S.C. § 1391(b), as all defendants reside therein.
For purposes of this motion, Plaintiff's well-pleaded
allegations of fact will be taken as true, in accordance with the
standard of review for a motion to dismiss. See Papasan v.
Allain, 478 U.S. 265, 283 (1986). In addition, in accordance
with the standards set forth in Part III, infra, I also take
judicial notice of the public documents identified at the end of
From 1985 to March 2003, WPS hired Logicom as an independent
contractor, to develop and service the software infrastructure
upon which WPS managed its business. During the course of this 18
year history, plaintiffs created and developed approximately a
dozen software programs, tailored to WPS's specific needs.
Though Logicom had been conducting business since 1985, it was
first incorporated, as "Logicom, Inc.," in October 1990. On March
23, 1994, Logicom was dissolved by State proclamation for failure
to pay state franchise taxes. According to Rosen, neither he nor
Boriotti were aware of their company's dissolution until early
2003. In the meantime, the individual plaintiffs continued in
good faith, to conduct business, file corporate tax returns, and
pay franchise taxes. Plaintiffs also received official state
correspondence addressed to Logicom after the corporation had
In 1995, plaintiffs created the two software programs at issue
in this case. Entitled "Order Entry System" and "VisualTrader"
(the "computer programs" or "programs"), both were tailored for
WPS's business. These programs were not registered with the
United States Copyright Office until 2002.
During the course of their business relationship, plaintiffs
made "regular, even daily" modifications to their programs. These
modifications were necessary for the programs to be of value to
defendants' changing needs. Some of these modifications were made
by Boriotti and Rosen themselves. At other times, Logicom hired
independent contractors to make these software adjustments and
perform other services on site at WPS. One such independent
contractor plaintiffs hired was Stefan Stefanowski.
The relationship between the parties remained amicable until
2001, when WPS's auditors, aware that there was no formal
contract between the companies, urged defendants to enter into
such a contract. By November 2002 various WPS officers, including
Butler and Macri, entered into negotiations with plaintiffs for a
licensing arrangement that would allow WPS to access Logicom's source code and modify its software, and a possible WPS buyout of
Logicom's contracts with its subcontractors, including
Stefanowski. As these negotiations were taking place, plaintiffs
obtained Certificates of Registration from the United States
Copyright Office for the computer programs, Order Entry System
and Visual Trader, both dated December 20, 2002. Meanwhile,
defendants also attempted to replace Logicom's software with
alternative software developed by other companies, but were
unsuccessful in those efforts.
Negotiations continued through January and February 2003,
between Boriotti, Rosen, and Logicom's counsel for the
plaintiffs, and Butler and Macri and WPS's counsel for the
defendants. By February 2003, the parties reached a tentative
Shortly thereafter, Russell, who evidently did not take part in
the negotiations, informed the plaintiffs that he had rejected
this agreement. Likewise, Stewart notified the plaintiffs that
the terms of agreement negotiated by Butler and Macri were a
"mistake," and that another arrangement would need to be worked
out, under which WPS could acquire greater rights to Logicom's
software. Finally, on March 9, 2003, WPS terminated its
relationship with Logicom, and Macri, under orders given by
Russell, directed Logciom personnel to leave the WPS premises.
Between April 1999 and March 2003, WPS had paid Logicom
approximately $70,000 a month for its services.
For several weeks after they had been terminated, Boriotti and
Rosen received pager alerts triggered by Logicom's software
running on WPS computers. The software had been programmed to
send pager alerts to plaintiffs when encountering conditions
which required modification. Due to these pager alerts,
plaintiffs became aware of the fact that defendants continued to
modify plaintiffs' software even after terminating their
relationship with plaintiffs. Plaintiffs further suspected that defendants had hired Stefanowski to service the
programs and had obtained proprietary knowledge and passwords
from him to get access to the source code.
Sometime in early 2003, plaintiffs finally became aware that
their company had been dissolved, when a lender to whom they
applied for a line of credit brought it to their
attention.*fn1 When plaintiffs initiated action to reinstate
their corporate charter, they discovered that the name Logicom,
Inc. was already in use by another company. Consequently, they
changed their name to "Logicom Inclusive, Inc." On May 5, 2003,
the State of New York reinstated plaintiffs' corporate charter
under this new name.
In their original complaint, plaintiffs allege four causes of
action against defendants, as follows: Count I states a claim
against defendants for willful infringement of plaintiffs'
copyrights in the software programs "Order Entry System" and
"Visual Trader" in violation of the Copyright Act. Count II is a
claim for conversion based on defendants' wrongful possession of
programs and conversion of the programs to their own use. Count
III is a claim for unjust enrichment, and alleges that a
constructive contract existed between Logicom and WPS which
defendants breached by appropriating Logicom's software for its
own use. Count IV states a claim for malicious interference with
Logicom's consulting contract with Stefanowski. Plaintiffs'
proposed amended complaint seeks to add a fifth cause of action
against Stefanowski for breach of contract, thereby adding him as
a party defendant.*fn2 Finally, defendants request the Court to take judicial notice
under Federal Rule of Evidence 201 of the following public
documents, on file with the State of New York:
Certificate of Incorporation of Logicom, Inc., dated
October 17, 1990;
Dissolution by proclamation, dated March 23, 1994,
and Annulment of Dissolution, dated May 8, 2003; and
Certificate of Amendment, dated May 8, 2003, changing
corporation's name from Logicom Inc. to Logicom
III. STANDARD OF REVIEW
On a motion to dismiss a complaint under Rule 12(b)(6) for
failure to state a claim upon which relief can be granted, the
trial court's function "is merely to assess the legal feasibility
of the complaint, not to assay the weight of the evidence which
might be offered in support thereof." Geisler v. Petrocelli,
616 F.2d 636
, 639 (2d Cir. 1980); see Ricciuti v. N.Y.C. Transit
Authority, 941 F.2d 119
, 124 (2d Cir. 1991). "[T]he issue is not
whether a plaintiff will ultimately prevail but whether the
claimant is entitled to offer evidence to support the claims."
Scheuer v. Rhodes, 416 U.S. 232
, 236 (1974). The district court
should grant a Rule 12(b)(6) motion "only if it is clear that no
relief could be granted under any set of facts that could be
proved consistent with the allegations." Hishon v. King &
Spalding, 467 U.S. 69
, 73 (1984) (citing Conley v. Gibson,
355 U.S. 41
, 45-46 (1957)).
Except in certain circumstances, consideration of a motion to
dismiss the complaint must focus on the allegations contained on
the face of the complaint. See Cortec Industries, Inc. v. Sum
Holdings, L.P., 949 F.2d 42, 47 (2d Cir. 1991), cert. denied,
112 S.Ct. 1561 (1992); Kramer v. Time Warner, Inc.,
937 F.2d 767, 773 (2d Cir. 1991). On a motion to dismiss, a district court
must accept plaintiff's well-pleaded factual allegations as true,
Papasan, 478 U.S. at 283, and the allegations must be
"construed favorably to the plaintiff." LaBounty v. Adler,
933 F.2d 121, 123 (2d Cir. 1991). "[A] Rule 12(b)(6) motion to dismiss need not be granted nor denied in
toto but may be granted as to part of a complaint and denied as
to the remainder." Decker v. Massey-Ferguson, Ltd.,
681 F.2d 111, 115 (2d Cir. 1982).
In considering a motion to dismiss pursuant to 12(b)(5) for
insufficiency of service of process, "a Court must look to
matters outside the complaint to determine whether it has
jurisdiction." Darden v. DaimlerChrysler N. Am. Holding Corp.,
191 F. Supp.2d 382, 387 (S.D.N.Y. 2002). "Conclusory statements
that a defendant was properly served are insufficient to overcome
a defendant's sworn affidavit that he was never served with
process." Howard v. Klynveld Peat Marwick Goerdeler,
977 F. Supp. 654, 658 (S.D.N.Y. 1997), aff'd, 173 F.3d 844 (2d Cir.
1999). When a defendant raises a 12(b)(5) challenge to the
sufficiency of service of process, "the plaintiff bears the
burden of proving its adequacy." Preston v. New York,
223 F. Supp.2d 452, 466 (S.D.N.Y. 2002).
Finally, Fed.R.Evid. 201(b) allows the Court to take judicial
notice of facts "not subject to reasonable dispute" that are
either "(1) generally known within the territorial jurisdiction
of the trial court or (2) capable of accurate and ready
determination by resort to sources whose accuracy cannot
reasonably be questioned." Courts may take notice of "the
contents of relevant public disclosure documents . . . required
by law to be filed" and "are relevant not to prove the truth of
their contents but only to determine what the documents stated."
Kramer v. Time Warner, Inc., 937 F.2d 767, 774 (2d Cir. 1991).
I will first address plaintiffs' federal claim for copyright
infringement, followed by plaintiffs' state law claims. Third I
will consider the sufficiency of service of process, and lastly,
plaintiffs' request to amend the complaint.
A. Federal Copyright Claim
1) Are plaintiffs' copyrights valid?
To bring a claim for copyright infringement, a plaintiff must
establish, first, the existence of a valid copyright, and second,
that the defendant has infringed the copyright. Whimsicality,
Inc. v. Rubie's Costume Co., 891 F.2d 452, 455 (2d Cir. 1989).
Defendants' first allegation is that plaintiffs do not hold valid
copyrights in the two computer programs at issue in this case.
a. Seven-year hiatus
Plaintiffs have certificates of registration for the two
computer programs at issue in this case. Copies of the
certificates have been attached to plaintiffs' complaint. Both
certificates identify 1995 as the "year in which the creation of
this work was completed," and identify the author as "Logicom,
Inc." The sections in which the author is to list the "Date and
Nation of First Publication" have been left blank. Finally, both
certificates are dated December 20, 2002.
At first blush, plaintiffs' certificates of registration of the
two computer programs would appear to establish the validity of
plaintiffs' copyrights. However, 17 U.S.C. § 410(c) states:
In any judicial proceedings the certificate of a
registration made before or within five years after
first publication of the work shall constitute prima
facie evidence of the validity of the copyright and
of the facts stated in the certificate. The
evidentiary weight to be accorded the certificate of
a registration made thereafter shall be within the
discretion of the court.
Defendants argue that since the programs were not registered
until 2002, seven years after the programs were completed, the
certificates have been stripped of their presumptive validity.
They further argue that this shifts the burden to plaintiffs to
establish the validity of their copyright ownership, a burden
which, defendants contend, they have failed to meet. In response, plaintiffs assert that the seven year gap between
the "completion" of plaintiffs programs and the date of
registration is misleading. In fact, plaintiffs argue, both
programs received "major overhauls" as recently as 2002 and
Following plaintiffs' logic, the actual
"completion date" for each program as they currently exist
falls within the statutorily assigned five-year period, and
therefore the certificates of registration deserve to be
considered prima facie evidence of the validity of the two
Plaintiffs' response to defendants' allegation may have taken
them out of the frying pan and into the fire. For it leads one to
ask: precisely which versions of the programs are the
certificates of registration protecting? Both certificates state
that the respective programs were completed in 1995. Defendants
assert therefore that post-1995 versions of the programs have
not yet been registered with the U.S. Copyright Office. If this
is so, then plaintiffs may not be entitled to proceed with their
action until proper registration has been completed.*fn4
Plaintiffs criticize defendants' suggestion as unworkable,
noting that there are no standards for determining at what point
a software program has been modified enough to call for a new
copyright registration. ("However extensively the programs were
modified from time to time, they remain the same programs, with
the same names or titles, and serving the same purposes as their
original versions." Plaintiff's Reply Memorandum in Support of
Cross Motion, at 1.) While plaintiffs may be correct in that assertion, these same
principles lead to the conclusion that the "major overhauls" to
the computer programs made between 1999 and 2002 do not narrow
the seven-year gap between the date of completion and date of
registration. Plaintiffs cannot have it both ways. Just as there
are no standards for determining when a party must re-register
copyrightable material after a new version has been made, there
are no standards for determining when a new or revised version
resets the five-year clock for purposes of § 410(c) copyright
There is a second and perhaps more fundamental problem
concerning the § 410(c) presumption of copyright validity. The
statute requires that a court begin its countdown five years
after first publication of a copyrightable work. Therefore, an
underlying question must be whether plaintiffs' computer programs
have been "published" at all. For reasons stated below, I find
that they have not.
"Publication" is defined in the 1976 Copyright Act as
[T]he distribution of copies or phonorecords of a
work to the public by sale or other transfer of
ownership, or by rental, lease, or lending. The
offering to distribute copies of phonorecords to a
group of persons for purposes of further
distribution, public performance, or public display,
constitutes a publication. A public performance or
display of a work does not of itself constitute
17 U.S.C. § 101.
This definition codifies the concepts of limited and general
publication developed under the 1909 Act.*fn5 A "limited
publication" is not considered to have been "published" as that
term is used in the Copyright Act.
Based on the facts as alleged by plaintiffs, deemed to be true
on this motion to dismiss, neither of the two computer programs
in question were the subject of "publications" as statutorily
defined. The programs were created for the limited purpose of
servicing defendants, and in fact were tailored specifically for
defendants' specific business needs. There is no indication that
the programs were or were ever intended to be distributed to the
general public. Rather, in his declaration, Rosen attests that:
Logicom never authorized WPS or any other entity or
individual to reproduce, duplicate, copy, sell or
otherwise disclose or disseminate any portion of any
of the programs or any portion of any of the
operating instructions and user manuals for the
programs which Logicom developed and made available
to WPS personnel.
First Declaration of Richard Rosen, Apr. 27, 2004, at ¶ 18.
See also Ez-Tix, Inc. v. HIT-Tix, 919 F. Supp. 728, 731, 735
(S.D.N.Y. 1996) (holding that program created by plaintiff for
limited use by defendant was "not published" under the Copyright
In these circumstances, the applicability to the case at bar of
§ 410(c)'s presumption of validity is doubtful. According to the
plain text of the statute, any certificate of registration made
"before or within five years after first publication" shall
constitute prima facie evidence of the copyright's validity. The
evidentiary weight accorded the certificate "made thereafter"
lies within the discretion of the trial court. However, nothing
in the Act speaks to what kind of evidentiary weight should be
afforded, prima facie or otherwise, to unpublished works. If,
as I now conclude, § 410(c) does not mandate a presumption of
copyright validity in this case, then the weight, if any, to be
accorded plaintiffs' certificates of copyright falls within my
discretion. c. Logicom's dissolution
Defendants next argue that because the corporation had been
dissolved, Logicom could not have been the proper "author" of the
two computer programs, as is attested in the certificates of
registration. Indeed, Logicom remained a dissolved corporation
that is, a non-entity both when the programs were created in
1995 and when they were registered in 2002. Defendants say it
would be nonsensical that a non-entity could "author" and hold
valid copyrights to proprietary material.
On the other hand, according to their allegations, the
individual plaintiffs believed in good faith to have a viable
corporation, both when the programs were created and when they
were registered in 2003. As Rosen has declared, neither he nor
Boriotti were aware of the corporation's having been dissolved.
During the period of dissolution, they continued in good faith to
conduct business as usual, file corporate tax returns, and pay
franchise taxes, which the state accepted. They also received
official correspondence from the state addressed to the company.
None of Logicom's assets were ever divested during this time,
including the two computer programs.
Once the individual plaintiffs were aware of the dissolution,
they took proper course of action to have the dissolution
annulled. Learning that the name Logicom, Inc., was already in
use by another company, they changed their own corporate name to
Logicom Inclusive, Inc. The State of New York then reinstated the
company without contest.
Under these circumstances, I find that the annulment of
Logicom's dissolution in May of 2003 should have retroactive
effect, so that Logicom was a legal entity capable of authoring
and owning copyright of the two computer programs at issue.
In a case cited by defendants, Foamation, Inc. v. Wedeward
Enterprises, Inc., 947 F. Supp. 1287 (E.D. Wis. 1996), which in
any event I am not required to follow, Foamation, Inc., a manufacturer of foam cheese wedge hats, brought an action against
a rival faux-cheese hat producer. Judge Callahan held that the
manufacturer did not have a valid copyright for two principal
reasons. First, the "likely author" of the cheese wedge hat was
not the manufacturer but third party citizen Amerik
Wojciechowski. See id. at 1297. Second, even if the company
could be entitled to some claim to copyright, that claim was lost
when Foamation, Inc. failed to properly affix copyright notices
on their manufactured cheese wedge hats prior to
Neither of those factors are relevant in the case before me.
Only in dicta did Judge Callahan note, "Even assuming, arguendo,
Foamation were entitled to a copyright, its application would
seem to contain a number of misstatements and omissions. . . .
Foamation, Inc. is listed as the author of the work. That cannot
be, because Foamation, Inc. did not come into legal existence
until July 1993." Id. at 1297 n. 8. By contrast, it is
undisputed that Logicom was properly incorporated on October 17,
1990, prior to the creation of the programs and their
In conclusion, I hold that Logicom, Inc.*fn7 has valid
copyrights in the two computer programs at issue in this case,
for which it may present claims for infringement as stipulated in
§ 411 of the Copyright Act.
2) Does Logicom have rights to Stefanowski's work?
Plaintiffs acknowledge that they did not create the computer
programs alone. Throughout the course of their business
relationship with WPS, they received assistance from independent contractors, included among them the purported defendant
Stefanowski. Defendants argue that plaintiffs did not come to a
binding agreement with Stefanowski that his work would be a work
made for hire. If this is so, then Stefanowski is the author of
his own contributions, and accordingly, entitled under the
Copyright Act to exchange his copyright rights with WPS for due
17 U.S.C. § 201(b) of the Act states:
Works Made for Hire
In the case of a work made for hire, the employer or
other person for whom the work was prepared is
considered the author for purposes of this title,
and, unless the parties have expressly agreed
otherwise in a written instrument signed by them,
owns all of the rights comprised in the copyright.
A work made for hire is defined in 17 U.S.C. § 101 as follows:
A "work made for hire" is
(1) a work prepared by an employee within the scope
of his or her employment; or
(2) a work specially ordered or commissioned for use
as a contribution to a collective work, as part of a
motion picture or other audiovisual work, as a
translation, as a supplementary work, as a
compilation, as an instructional text, as a test, as
answer material for a test, or as an atlas, if the
parties expressly agree in a written instrument
signed by them that the work shall be considered a
work made for hire.
It is undisputed that Stefanowski was not an employee of
Logicom. Thus Logicom must establish the following in order to
determine that Stefanowski's work was a "work made for hire":
a. That Logicom "specially ordered or commissioned"
b. That it did so for use as one of the nine
categories listed in subsection (2) of the
c. And that the parties "expressly agreed in a
written instrument signed by them that the work shall
be considered a work made for hire."
a. Logicom specially ordered or commissioned the work
In Playboy Enterprises, Inc. v. Dumas, 53 F.3d 549, 560-61,
563 (2d Cir. 1995), the Second Circuit held that the "specially
ordered and commissioned" requirement of the 1976 Act has
"essentially the same meaning as" the "instance and expense" test
of its predecessor, the Copyright Act of 1909. It went on to hold that under the test, "the
district court must determine . . . whether Playboy was the
`motivating factor' in the creation of the works." Id.
The "written instrument" that plaintiffs rely on to demonstrate
that Stefanowski's work was a work for hire is a consulting
contract signed by Rosen and Stefanowski in January 2002. See
First Rosen Declaration, Exhibit H. It is clear from this
contract that Logicom paid Stefanowski a sum certain for his
work. Logicom also assigned Stefanowski the tasks of making
targeted modifications to the computer programs and performing
other specific services on site at WPS. Given these
circumstances, plaintiffs were clearly the motivating factor
behind the creation of Stefanowski's work. Therefore,
Stefanowski's work meets the "specially ordered or commissioned"
b. Stefanowski's work was for use as part of a "compilation"
To be a "work made for hire" the work in question must also fit
under one of nine categories listed in subsection (2) of the
definition. "Computer program" is not listed as a category.
However, the case law makes clear that nonliteral elements of a
computer program are properly considered a "compilation" insofar
as the concepts of selection, arrangement and organization,
central to the compilation doctrine, are included in the analysis
of a computer program's structure. See Computer Assocs. Int'l,
Inc. v. Altai, Inc., 982 F.2d 693, 711-12 (2d Cir. 1992);
Harbor Software, Inc. v. Applied Systems, Inc., 925 F. Supp. 1042,
1047 (S.D.N.Y. 1996).
Given that narrow definition of "compilation," there may come a
time in this case when the components of the computer programs
will need to be more closely examined and parsed, to remove from
consideration any elements which are excluded from protection.
Plaintiffs might not have a claim to copyright in those aspects
of the programs which Stefanowski created and are not considered
part of the compilation, and damages may need to be reduced
accordingly. At this juncture of the case, however, it is sufficient to find that the
programs can be considered compilations.
c. Parties expressly agreed that Stefanowski's work was a work
Finally, I must determine whether the parties have expressly
agreed that the work shall be considered a work made for hire.
The terms of Logicom's Consultant Contract with Stefanowski
stipulate, inter alia, the following:
6. Ownership. It is understood that Work Product
created by Consultant in furtherance of the services
performed by Consultant to Company under this
agreement shall be the sole property of the Company
for the sole use of the Company and its clients.
Consultant shall not use such Work Product for any
purpose without the written consent of the Company.
If a court of law indicates that such Work Product
shall be owned by Consultant, it is understood that
Consultant shall grant to Company rights to use such
Work Product for itself and its clients without any
additional compensation or consideration by Company
to Consultant. Furthermore, if a court of competent
jurisdiction determines that Consultant is the
rightful owner of such Work Product, then Consultant
warrants to Company that he shall not use or disclose
such Work Product to any other person, without prior
written consent of Company.
This contract was signed by both parties on January of
One year later, Logicom entered into a Consulting
Agreement with another independent contractor, Jan Merek
Pakulski. Unlike its contract with Stefanowski, this contract
expressly uses the phrase "work made for hire" in the Ownership
subsection of the contract:
All work materials developed or provided by
Consultant under this Agreement and any prior
Agreement between the parties hereto shall be deemed
to be work made for hire and owned exclusively by
Pakulski Consulting Contract, ¶ 6. However, Stefanowski's contract stipulates that "the Work
Product created by Consultant . . . shall be the sole property of
the Company for the sole use of the Company and its clients."
Consultancy Contract ¶ 6. Paragraph 5 of the contract also
stipulates, "Consultant shall have no rights relating to such
Work Product unless Company grants Consultant rights to use such
Work Product which shall be evidenced only in writing."
In the Playboy case cited supra, Playboy Enterprises, Inc.
and Special Editions, Ltd. ("Playboy") sought a declaratory
judgment that it was the sole owner of all ownership rights to
works of art created by an artist which appeared in its magazine.
At issue in that case was whether legend endorsements printed on
the back of Playboy's paychecks to the artist established an
express written agreement that the artist's work constituted a
work for hire.
The Second Circuit rejected Playboy's contention that language
stating "By endorsement of this check, payee acknowledges payment
in full for the assignment to Playboy Enterprises, Inc. of all
right, title and interest in and to the following items"
satisfied the requirement of 17 U.S.C. § 101(2) that parties
"expressly agree" in writing that a work shall be considered a
work made for hire. Playboy Enterprises, Inc., 53 F.3d at 560.
Conversely, it found that language stating, "BY ENDORSEMENT,
PAYEE: acknowledges payment in full for services rendered on a
work-made-for-hire basis in connection with the Work named on the
face of this check," did contain language sufficient to meet the
A district court in another circuit has taken Playboy to mean
that in the Second Circuit the inclusion and only the
inclusion of either the phrase "work made for hire" or "work
for hire" can satisfy § 101(2). See, e.g., Armento v. Laser Image, Inc.,
950 F. Supp. 719, 730 (W.D.N.C. 1996) ("The Second Circuit has
indicated that the omission [of the words `work for hire'] is
By contrast, courts in other circuits have found the § 101(2)
requirement satisfied even in the absence of the "work for hire"
language. For instance, the contractual language at issue in
Armento stipulated that the work in question "remain the sole
property of [defendant] The Laser Image, and cannot be reproduced
or used for any other purpose by [independent contractor] Cumulus
without the written consent of The Laser Image." Id. at 722.
The district court held that the language which is closely
analogous to the language in Logicom's contract with Stefanowsky
"was sufficiently express to satisfy § 101(2)." Id. at 732.
Speaking at length on the issue, the court noted that the
legislative history as well as concerns of "enhancing
predictability and certainty of copyright ownership" merited a
less constrictive view of the § 101(2) writing requirement than
seemingly provided for by the Second Circuit in Playboy.
Likewise, the Ninth Circuit noted in Warren v. Fox Family
Worldwide, Inc., 328 F.3d 1136, 1141 (9th Cir. 2003) that "there
is no requirement, either in the [Copyright] Act or the caselaw,
that work-for-hire contracts include any specific wording."
To hold that § 101(2) demands the presence of the phrase "works
for hire" in all would-be work for hire agreements would, to
quote Armento, certainly be a "parsimonious reading" of the
statute. 950 F. Supp. at 731. Moreover, I agree with the view
stated in the leading treatise that this is not what the Second
Circuit commands in Playboy, but rather, that the case "can be
harmonized with the liberal view that appropriately unambiguous
language, even though it lacks the words either `specially
commissioned' or `work-for-hire,' may still suffice to import the
legal result of that doctrine." 1 M. & D. Nimmer, Nimmer on
Copyright, § 5.03[B][b] (2004). Nowhere in Playboy does the Second Circuit mandate that the
words "work for hire" must be used in haec verba. That is
instead an inference based on the Court's interpretation of
language written on the back of different paychecks at issue in
that case. It is true that two of the paychecks at issue in that
case contained the language "work-made-for-hire" while one did
not. Yet this does not necessarily lead to the conclusion that
only contractual language with these "talismanic
words"*fn10 can lead to a work-for-hire relationship.
Clearly there were other factors that the Second Circuit took
into consideration in that case. The terse, two-sentence
contractual language on the back of the paychecks referred to
assignment of interest, a conceptually different notion from
works made for hire under copyright law. Moreover, there was a
question as to whether the parties intended to enter into a
work-for-hire arrangement at all, which was not clarified by the
language of the paychecks. While that particular question lay
more at the heart of the Court's analysis of whether a contract
can be written and signed after the creation of a work, the
uncertainty towards the parties' intent certainly played a role
in the Court's analysis of works made for hire as well.
As prudent as it may be, parties need not always use the phrase
"works made for hire" in order to fulfill the demands of the
definition of the phrase under § 101(2). I find that the language
in Stefanowsky's Consultancy Contract sufficiently expresses the
parties' intention to enter into a work for hire agreement.
3) Does WPS have an implied license to use the disputed work?
Defendants contend that based upon the approximately $70,000 a
month WPS paid Logicom for its services from April 1999 to March
2003, a total payment that exceeds $3 million, WPS acquired an
irrevocable nonexclusive license to use the software programs. Ordinarily, to transfer ownership of a copyright parties must
do so by way of a written instrument. However, a nonexclusive
license is "a creation fashioned by the courts for when parties
intend to transfer a copyright, but fail to do so in writing."
Holtzbrinck Publ'g Holdings, L.P. v. Vyne Communications, Inc.,
No. 97 Civ. 1082, 2000 WL 502860 (S.D.N.Y. Apr. 26, 2000), at *4,
citing Graham v. James, 144 F.3d 229, 235 (2d Cir. 1998). Such
a license need not be executed in writing, but may be granted
orally or implied from the conduct of the parties. It is granted
when "(i) a person (the licensee) requests the creation of a
work; (ii) the creator (the licensor) makes that particular work
and delivers it to the licensee; and (iii) the licensor intends
that the licensee copy and distribute his work." Holtzbrinck,
2000 WL 502860, at *4.
There is no indication that Logicom, as licensor, intended to
transfer ownership of its copyrights to defendants, either orally
or through the parties' conduct. Rather, the facts as alleged in
the complaint, which I am bound to accept on this motion to
dismiss, indicate the opposite to be true. According to the
complaint, on or about November 2002, various WPS officers,
including Butler and Macri, initiated negotiations with Boriotti
and Rosen during which they raised the possibility of a licensing
arrangement that would allow WPS to access Logicom's source code
and modify its software as needed. See Complaint ¶ 23.
Negotiations advanced as far as fashioning "the outlines of a
licensing and buyout agreement" by February 2003, but then broke
down short of execution. Id. at ¶ 24, 27. There is no
indication that defendants had obtained a license, implied or
otherwise, to access Logicom's source code and modify its
software prior to the beginning of the negotiations. Therefore,
the failed negotiations evidence the absence either of the
parties' intention to transfer ownership of copyright, or of
Logicom's intention to allow defendants to copy and distribute
its work. I hold that defendants do not have an implied license
to use plaintiffs' work. Holtzbrinck was an action involving a dispute over the
ownership of the copyright in a magazine's website, where the
Court determined that the publisher/plaintiff had an implied
license to use defendant's work. This case differs materially
from Holtzbrinck in several respects. In Holtzbrink, Vyne,
the licensor, already had a prior relationship with Holtzbrinck,
the licensee, where Vyne had created and transferred a website
for a Holtzbrinck subsidiary. In addition, Vyne provided
Holtzbrinck with password access to the copyrighted website, and
placed a copyright notice on the website indicating that
Scientific American, Inc. (of which Holtzbrinck was the parent
company) was the copyright owner, and without reserving any
similar notice of Vyne's claim to ownership. Here, in stark
contrast, only plaintiffs and their subcontractors had password
access to the software, and the copyright notices that were
posted on the logon screens, in the source code, and on the
instructions and user manuals produced for end-users all
identified Logicom as the copyright owner, not defendants.
Finally, in Holtzbrinck, Vyne's sole incorporator, Alan Hall,
admitted in an affidavit to his understanding that Holtzbrinck
would ultimately own the website files. No such admission was
ever made by any of the plaintiffs in the case at bar. While the
history and course of dealings in Holtzbrinck lead to the
conclusion that Vyne "conducted itself in a manner commensurate
with granting Holtzbrinck a nonexclusive implied license," id.
at *5, the parties' conduct in this case does not lead to that
conclusion, and is indeed inconsistent with it.
4) The 17 U.S.C. § 117 exception
On the other hand, if defendants can establish they are owners
of a copy of Logicom's computer software, they may have a
right, under 17 U.S.C. § 117(1), to make modifications to their
copy of Logicom's software "as an essential step in the
utilization" of the programs, even without plaintiffs'
permission. This is an exception to the more general rule in
copyright law that unauthorized input of copyrightable material is an infringing
action. In order to qualify, defendants must show, first, that
they are legitimate owners of copies of plaintiffs' software, and
second, that their adaptations are essential to the utilization
of the computer programs in conjunction with those machines in
which the programs were copied.
Plaintiffs insist that defendants are not legitimate owners
even of copies of the computer software for the plain reason that
they never sold, and defendants never purchased, the programs.
Defendants, meanwhile, contend that they paid for and possess
copies of the registered programs and are therefore rightful
owners of the copies.
Determining whether a party is a rightful owner of a copy of a
proprietary program is not a difficult proposition in the
ordinary circumstance where a consumer purchases a copy of a
computer program whether on a tangible floppy disk or CD-ROM,
or downloading it online thereby becoming simultaneously a
licensee of the program and outright owner of the copy.*fn11
In this case however, Logicom uploaded its software onto WPS
computers, but retained passwords that prevented defendants not
only from obtaining the source code but from making regular,
necessary updates. While defendants paid plaintiffs $70,000 a
month, plaintiffs contend that this money was strictly for their
services rather than for ownership of a copy of their programs.
There is some precedent for ruling that defendants should be
considered to have purchased a copy of plaintiffs' software. In
Aymes v. Bonelli, 47 F.3d 23 (2d Cir. 1995) ("Aymes II") the
facts of which are laid out in more detail in Aymes v. Bonelli,
980 F.2d 857 (2d Cir. 1992) ("Aymes I") defendant hired plaintiff
to create computer programs to facilitate defendant's inventory,
record-keeping, and sales efforts. Plaintiff did most of his
programming in defendant's office, and on defendant's computer.
He was either paid per project or by the hour, and the programs
were tailored to defendant's specific needs. Aymes I, at 859.
For his efforts, plaintiff was paid a total of over $70,000.
Aymes II, at 25. While the programs were registered to the
plaintiff with the U.S. Copyright Office, the Second Circuit
upheld the District Court's holding that the plaintiff "sold the
program" to defendant. Id. at 24, 25 ("Aymes was paid by Island
to design a program specifically for Island's use, and for those
efforts he earned in excess of $70,000. Island, therefore, had a
right to use the program for its own business purpose."). In
those circumstances, the Court of Appeals regarded defendants as
"rightful owners of a copy" of the program, and authorized by §
117(1) to make changes to it which "were necessary measures in
their continuing use of the software in generating their
In Krause v. Titleserv, Inc., 289 F. Supp.2d 316 (E.D.N.Y.
2003), a case somewhat analogous to the instant one, plaintiff, a
computer programming consultant, created over 35 computer
programs for the named defendant, a title service agency. After
their relationship had terminated, plaintiff took the source
codes for two of the programs with him, preventing defendant from
making modifications to the software. While plaintiff was seeking
copyright protection for the programs, defendant managed to
reverse-engineer the programs, thereby obtaining access to the
source codes and modifying the software to its specifications.
The District Court, adopting the Report and Recommendation of the
Magistrate Judge, ruled that this was an acceptable practice
under § 117 because defendant owned a copy of the programs and
adapted them only as an essential step in their utilization. See id., at 317.
There is no indication that the plaintiff in Krause ever
intended to sell copies of his programs to defendant outright.
Rather, plaintiff received in excess of $350,000 in payment,
presumably for performing "numerous services," including
"creating and developing its computer software systems." Id.,
at 318. Nevertheless, the Magistrate Judge found that "at the
very least, [defendant] Titleserv owned a copy of the program."
Here, plaintiffs argue that they had an exclusive right to
possess even copies of the computer programs created for the
defendants' business use. While plaintiffs concede that the
programs were "installed on WPS's computers for use by WPS
employees as end users," Plaintiff's Reply Memo, at 6, they do
not concede defendants' ownership of the source code. It is the
source code which plaintiffs allege is critical in this case
since only by making modifications to the source code can the
programs be of value to defendants.
Whether the defendants at bar rightfully own a copy of
Logicom's software presents a question of substance. However, I
am not prepared to dismiss plaintiffs' complaint on the basis of
that issue. Defendants at bar may have paid plaintiffs a large
sum of money over several years over $3 million. However,
defendants have not yet provided evidence consistent with the
high standard in a motion to dismiss that no relief can be
granted under any set of facts consistent with the allegations
that any portion of this payment was made to purchase a copy of
plaintiffs' software. It is at least conceivable that parties
intended a business relationship where once defendants were no
longer in need of plaintiffs' services, plaintiffs were to take
with them any and all copies of proprietary software, even those
currently existing on WPS's computers. In such a scenario,
defendants do not have ownership rights even to a copy of the
computer program. b. Adaptations and modifications
On the other hand, if defendants can establish rightful
ownership of copies of Logicom's software, they appear to fall
within the § 117 exception. An owner of a copy of a computer
program is authorized to make "another copy or adaptation of that
computer program provided . . . that such a new copy or
adaptation is created as an essential step in the utilization of
the computer program in conjunction with a machine and that it is
used in no other manner." 17 U.S.C. § 117(1).
Plaintiffs argue that this statutory text should be read
narrowly, so that the modifications defendants made to
plaintiffs' programs exceeded the limits of the statute. In
support of their argument, plaintiffs cite the following passage
from the Final Report of the National Commission on New
Technological Uses of Copyrighted Works 32 (July 31, 1978)
Because of a lack of complete standardization among
programming languages and hardware in the computer
industry, one who rightfully acquires a copy of a
program frequently cannot use it without adapting it
to that limited extent which will allow its use in
the possessor's computer.
I have already addressed the issue of whether defendants
rightfully acquired a copy of plaintiffs' programs. With respect
to the boundaries of adaptation, they are not as constrictive as
plaintiffs may believe. This is demonstrated in further passages
of the CONTU Report not cited in plaintiffs' briefs:
The conversion of a program from one higher-level
language to another to facilitate use would fall
within this right [of adaptation], as would the
right to add features to the program that were not
present at the time of rightful acquisition. . . .
Again, it is likely that many transactions involving
copies of programs are entered into with full
awareness that users will modify their copies to
suit their own needs, and this should be reflected
in the law.
CONTU, at 13-14 (emphasis added). Defendants made modifications to the programs that were
essential for their continued business use. There is no evidence
that they distributed the programs to third parties in the course
of doing so. Therefore, I find that the modifications made by
defendants were within the limits of essential utilization
contemplated in the statute.
Plaintiffs argue that Aymes and Krause where similar
modifications were upheld as proper under § 117 are not
analogous because plaintiffs in those cases failed to reserve the
exclusive right to modify the programs they created. Here,
plaintiffs contend that they did retain an exclusive right to
modify the programs, since only they and their subcontractors
knew the passwords that were necessary to gain access to the
programs' source codes.
However, passwords are not enough to establish an exclusive
right to modification. This is clearly demonstrated by Krause,
where, like plaintiffs here, Krause prevented Titleserv from
obtaining access to the source codes for his programs. Titleserv
was able to obtain the source codes, not by acquiring any
passwords from Krause but by successfully reverse-engineering the
programs. Krause, 289 F. Supp.2d at 317. The court held that
Krause had no exclusive right to modify the programs, despite the
presence of source code encryption. This conclusion accords with
the CONTU Report, to which I return once more. According to the
Commission, "Should proprietors feel strongly that they do not
want rightful possessors of copies of their programs to prepare
such adaptations, they could, of course, make such desires a
contractual matter." CONTU at 14. Merely creating password
protection for computer programs is not the equivalent of
engaging in a contractual relationship with another party.
Nonetheless, because defendants have not on the present record
established ownership of copies of the programs, they have also
failed at this stage of the litigation to demonstrate that their actions fall within the § 117 exception.
5) Has Logicom failed to state a claim for the individual
defendants' liability for infringement?
Defendants argue that plaintiffs have failed to state a claim
for the liability of individual defendants Butler, Macri,
Russell, and Stewart for copyright infringement. A corporate
employee can be held personally liable for copyright infringement
"if the officer is a moving, active, conscious force behind [the
defendant corporation's] infringement." Mattel, Inc. v.
Robarb's, Inc., No. 00 Civ. 4866(RWS), 2001 WL 913894, at *8
(S.D.N.Y. Aug. 14, 2001) (citations omitted).
Plaintiffs' complaint and proposed amended complaint allege
that each individual defendant was responsible for inducing
subcontractor Stefanowski to breach his contract with Logicom, in
furtherance of defendants' copyright infringement; that they
instructed Stefanowski to copy, modify, and rewrite the programs,
and teach others how to do so; and that, generally speaking, they
supervised the infringing activity. Plaintiffs also allege that
Stefanowski reported to and was supervised by Butler in carrying
out infringing activity; and that Butler reported to Stewart and
Russell, who both approved of and acted in furtherance to the
infringement. Furthermore, plaintiffs allege both that Macri
directed plaintiffs to leave WPS's premises, in furtherance of
the infringement, and that Macri acted under orders from Russell
in doing so. Finally, plaintiffs note that each defendant had a
financial interest in, and benefitted financially from, the
infringing activity. Plaintiff's Opposition Memo, at 7-8.
Based on the foregoing, I find that plaintiffs have alleged in
detail sufficient to survive a motion to dismiss that each of
Butler, Macri, Russell, and Stewart was a moving, active,
conscious force behind infringement in order to survive this
motion to dismiss. Having concluded that plaintiffs' copyright infringement claim
survives defendants' motion to dismiss, I now address plaintiffs'
state and common law claims.
B. State and Common Law Claims
Section 301(a) of the Copyright Act preempts state statutory
and common law rights that are "equivalent to any of the
exclusive rights within the general scope of copyright as
specified by section 106. . . ." 17 U.S.C. § 301(a). Section 106
affords a copyright owner the exclusive right to reproduce the
copyrighted work, prepare derivative works, distribute copies of
the work, perform the work publicly, and display the work
publicly. State law rights that "may be abridged by an act which,
in and of itself, would infringe one of the exclusive rights'
provided by federal copyright law" are preempted by § 301.
Computer Assocs. Int'l, Inc. v. Altai, Inc., 982 F.2d 693, 716
(2d Cir. 1992). In order for a state cause of action to survive,
it must have an "extra element" beyond mere reproduction,
preparation of derivative works, distribution, performance or
display, that "changes the nature of the action so that it is
qualitatively different from a copyright infringement claim."
Id. (citations omitted). In order to determine whether a state
law claim meets this standard, the Second Circuit instructs that
I must "determine what plaintiff seeks to protect, the theories
in which the matter is thought to be protected and the rights
sought to be enforced." Id. (citations omitted). An action "will
not be saved from preemption by elements such as awareness or
intent, which alter the action's scope but not its nature." Id.
Count II of plaintiffs' proposed amended complaint alleges that
defendants "are wrongfully in possession of the software programs
and have willfully and without justification converted the
programs to their own use." Amended Complaint, ¶ 79. The tort of conversion involves the wrongful possession of
property, in a manner that deprives its use and possession by the
rightful owner. Insofar as a tort of conversion relates to
interference with the actual tangible (or intangible) good, it
should not be preempted by federal copyright law. However, if a
party seeks damages for unauthorized use by defendants in a
manner that is equivalent with rights protected by § 106, such a
claim is preempted.
This distinction was made clear in Harper & Row, Publishers,
Inc. v. Nation Enters., 723 F.2d 195 (2d Cir. 1983), rev'd on
other grounds, 471 U.S. 539 (1985). At issue in that case were
the memoirs of former President Gerald Ford, which The Nation
Associates, Inc. ("The Nation") obtained from an anonymous
source, and improperly used to publish an article in their
periodical. The Court noted that the plaintiffs' cause of action
for common law conversion, insofar as it related to the
"unauthorized publication" by defendants, was preempted by
copyright law. See id. at 201 ("If unauthorized publication is
the gravamen of their claim, then it is clear that the right they
seek to protect is coextensive with an exclusive right already
safeguarded by the Act namely, control over reproduction and
derivative use of the copyright material. As such their
conversion claim is necessarily preempted.").
In the alternative, plaintiffs suggested it was possession of
the physical manuscript, that is, "the papers themselves" which
"lay at the foundation for their claim." Id. Whatever the value
of the intangible copyrighted material, it is not a stretch of
the imagination to say that the value of the physical pages
themselves would not be high. In any event, the Court held that
even this version of plaintiffs' conversion claim would be
dismissed, for "[m]erely removing one of a number of copies of a
manuscript (with or without permission) for a short time, copying
parts of it, and returning it undamaged constitutes far too
insubstantial an interference with property rights to demonstrate conversion." Id.
Plaintiffs in the case before me also assert that defendants
have wrongfully interfered with their "possession" of the
computer programs. However, a close reading of plaintiffs' second
claim makes clear that it is actually based not on the physical
possession of plaintiffs' programs itself, but defendants'
derivative use of the programs. Thus, ¶ 80 of plaintiffs'
proposed amended complaint reads, "The software programs are
invaluable because their use by defendants enables WPS to
conduct its business" (emphasis added). Plaintiffs' state law
claim for conversion is therefore preempted by the Copyright Act.
2) Unjust enrichment
On its face, plaintiffs' next state law claim is for unjust
enrichment, which defendants contest is preempted by federal law.
Claims for unjust enrichment are generally preempted by copyright
law. See Briarpatch Ltd. L.P. v. Geisler Roberdeau, Inc., No.
99 Civ. 9623 (RWS), 2002 WL 31426207, at *11 (Oct. 30, 2002)
(citing cases). In their proposed amended complaint, plaintiffs
allege that defendants have misappropriated Logicom's software
and used the programs to make derivative works for their own
benefit. An unauthorized exploitation of intangible property in
this manner violates rights protected by the Copyright Act and a
common law claim is therefore preempted. Universal City Studios,
Inc. v. Nintendo Co. Ltd., 615 F. Supp. 838, 857 (S.D.N.Y. 1985)
("It is control over the right to reproduce Donkey Kong that
Universal is alleged to have misappropriated and profitted from,
and this right is the very essence of the copyright protection
embodied in § 106.").
However, plaintiffs allege that the "extra element" in their
unjust enrichment claim that qualitatively distinguishes it from
copyright infringement is a breach of contract by defendants. If this is the case, then Count III of plaintiffs' complaint is not
actually an unjust enrichment claim at all but a claim for breach
of contract. In fact, ¶¶ 85, 86 of plaintiffs' proposed amended
complaint states that a "constructive contracted existed between
Logicom and WPS," which contract WPS has "willfully and without
justification breached . . . by appropriating Logicom's software
to its own use."
Unlike claims for unjust enrichment, state law claims for
breach of contract are generally not preempted by the Copyright
Act. See H.R.Rep. No. 1476, 94th Cong., 2d Sess. 132,
reprinted in 1976 U.S.C.C.A.N. 5659, 5748 ("nothing in the bill
derogates from the rights of parties to contract with each other
and to sue for breaches of contract"). However, the breach of
contract claim must be based on allegations of a contractual
right not existing under copyright law. American Movie Classics
Co. v. Turner Entm't Co., 922 F. Supp. 926, 931 (S.D.N.Y. Apr.
11, 1996), citing National Car Rental System, Inc. v. Computer
Assoc. Int'l, Inc., 991 F.2d 426, 431-33 (8th Cir.), cert
denied, 510 U.S. 861 (1993). While a copyright is a right
against the world, contracts generally only affect their parties,
and so do not create "exclusive rights." Torah Soft Ltd. v.
Drosnin, 224 F. Supp.2d 704, 717 (S.D.N.Y. 2002), citing ProCD,
Inc. v. Zeidenberg, 86 F.3d 1447, 1454 (7th Cir. 1996).
Accordingly, "the extra element that saves a contract claim from
preemption is the promise itself." Architectronics, Inc. v.
Control Systems, Inc., 935 F. Supp. 425, 439 (S.D.N.Y. 1996).
Here plaintiffs allege that a "constructive contract" existed
between the parties. If so, defendants have promised, through a
contract implied in fact, not to make derivative works based on
plaintiffs' computer programs. Since this promise makes
plaintiffs claim qualitatively different from a copyright
infringement claim, plaintiffs' breach of contract claim is not
3) Malicious interference with contract Count IV of plaintiffs' complaint is for malicious interference
with contract. In this circuit, "it is well settled that claims
for tortious interference" based on rights equivalent to those
protected under copyright laws, "are preempted." American Movie
Classics Co., 922 F. Supp. 932. See also Harper & Row
Publishers, Inc. v. Nation Enters., 501 F. Supp. 848, 852-53
(S.D.N.Y. Oct. 21, 1980), aff'd, 723 F.2d 195 (2d Cir. 1983),
rev'd on other grounds, 471 U.S. 539 (1985). Moreover, that a
tortious interference claim requires the plaintiff to plead
additional elements such as awareness and intentional
interference, "undoubtedly because these elements are not
required under the copyright laws, does not automatically
preclude a finding of preemption." Harper & Row. 501 F. Supp. at
What distinguishes claims for tortious interference and breach
of contract is that the latter involves breach of a specific
contractual promise made by defendants. No such promise lies in a
tort for malicious interference. See Architectronics, Inc.,
935 F. Supp. at 439 ("Tort-like copyright infringement claims, unlike
breach of contract claims, do not require a promise by the
defendant to refrain from using protected subject matter.").
Plaintiffs allege that defendants willfully interfered with
their rights by inducing Stefanowski to disclose proprietary
information to defendants, and work for defendants during the
one-year period following the termination of the contract.
Proposed Amended Complaint ¶ 93. The underlying right that this
claim is based on is plaintiffs' alleged exclusive rights to
modify and make derivative use of the programs. Since these are
equivalent to rights formed in copyright law, plaintiffs' claim
for malicious interference of contract is preempted by copyright
C. Insufficient Service of Process
Defendants move to dismiss the complaint against individual
defendants Stewart, Russell, and Macri for failure to comply with the procedural requirements
for proper service of process. Fed.R.Civ.P. 4, 12(b)(5).
Service of process may be effected pursuant to the law of the
state in which the district court is located, or in which service
is effected. Fed.R.Civ.P. 4(e)(1). In New York, that law is
proscribed in N.Y.C.P.L.R. § 308, subsection 2 of which provides
that service may be made:
by delivering the summons within the state to a
person of suitable age and discretion at the actual
place of business, dwelling place or usual place of
abode of the person to be served and by either
mailing the summons to the person to be served at his
or her last known residence or by mailing the
summons by first class mail to the person to be
served at his or her actual place of business . . .
proof of such service shall be filed with the clerk
of the court designated in the summons. . . .
Defendants allege that Stewart, Russell, and Macri were not
properly served. Defendants allege that plaintiffs failed to
deliver the summons to Stewart's actual place of business,
dwelling place or usual place of abode. Plaintiffs rebut with an
affidavit of service stating that a copy of the summons and
complaint was delivered to Stewart at his personal residence on
March 20, 2004, by delivering copies to a concierge at Stewart's
residence named Pat Carney. Declaration of Gary Sinawski, Exh. H.
Defendants present no evidence rebutting plaintiffs' affidavit of
service, nor do they deny this allegation. Therefore, I find that
Stewart has been properly served.
Defendants also allege that plaintiffs failed to deliver
summons to Russell's actual place of business, dwelling, or usual
place of abode. Plaintiffs present an affidavit of service
indicating that a copy of the summons and complaint was delivered
to Russell's place of business on March 16, 2004, by delivering
copies to a "Michael Stann." Id. I presume that the affidavit
was referring to Michael Stamm, general counsel to WPS, Inc., who
accepted service on behalf of Butler and Macri. However, Stamm asserts that "[t]he process server did not ask me
to accept service for Mr. Russell," Declaration of Michael W.
Stamm, at ¶ 2, and he denies accepting service on Russell's
Finally, defendants assert that Macri was never mailed a copy
of the summons and complaint. Plaintiffs offer no proof that such
copies were mailed to Macri.
Plaintiffs shall provide proper service to Russell and Macri.
They may do so either by rectifying the missteps defendants
allege in their motion or otherwise sufficiently following the
procedures of N.Y.C.P.L.R. § 308 or the federal rules of service
of process. Failure to provide proper service by a time
designated by this Court, will result in a dismissal of the
complaint against defendants Russell and Macri.
D. Plaintiff's Cross-motion to Amend the Summons and Complaint
and for Other Relief
1) Breach of contract claim against Stefanowski
Plaintiffs seek to add Stefanowski as a defendant and add a
claim against him for breach of contract. Defendants assert that
such a claim should be submitted to binding arbitration.
According to ¶ 8 of Logicom's consulting contract with
Any disputes that arise between the parties with
respect to the performance of this contract shall be
submitted to binding arbitration by the American
Arbitration Association, to be determined and
resolved by said association under its rules and
procedures in effect at the time of submission and
the parties hereby agree to share equally in the
costs of said arbitration.
Plaintiffs argue that their breach of contract claim against
Stefanowski should be litigated in a judicial court, despite the
contractual language quoted above, because "willful misconduct of
the sort Stefanowski engaged in is nonarbitrable." Plaintiffs'
Opposition Memo, at 11 fn. 1.
Section 2 of the Federal Arbitration Act (FAA) states that a
"written provision in . . . a contract evidencing a transaction
involving commerce to settle by arbitration a controversy
thereafter arising out of such contract or transaction . . . shall be valid,
irrevocable, and enforceable, save upon such grounds as exist in
law or in equity for the revocation of any contract."
9 U.S.C. § 2. The purpose of the FAA was to "reverse the longstanding
judicial hostility to arbitration agreements that had existed at
English common law and had been adopted by American courts,"
Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26
(1991), and accordingly its provisions manifest "a liberal
federal policy favoring arbitration agreements." Moses H. Cone
Mem'l Hosp. v. Mercury Construction Corp., 460 U.S. 1, 24
Plaintiffs, as the party opposing arbitration, have the burden
"to show that Congress intended to preclude a waiver of judicial
remedies for the statutory rights at issue." Shearson/American
Express, Inc. v. McMahon, 482 U.S. 220, 227 (1987). They have
failed to do so here. They simply state, without any accompanying
support for the position, that a breach of contract claim founded
on "willful misconduct" is a type of claim that Congress intended
to be nonarbitrable.
The terms of the FAA leave little room for the discretion of a
district court judge. By its terms, I shall direct parties to
proceed to arbitration on issues as to which an arbitration
agreement has been signed. While certain, limited federal claims
have been deemed nonarbitrable, there is no precedent for holding
the same for plaintiffs' state law breach of contract claim. See
Dean Witter Reynolds Inc. v. Byrd, 470 U.S. 213, 215, 218 ("§ 2
[of the FAA] require[s] that the District Court compel
arbitration of the state-law claim").
Since plaintiffs have stipulated to resolve contractual
disputes with Stefanowski through arbitration, their motion to
add Stefanowski as a defendant and add a claim against
Stefanowski for breach of contract is denied.
2) Remaining Changes to Summons and Complaint Finally, I grant plaintiffs motion to amend their summons in
the manner proposed, to add "Inc." to "W.P. Stewart & Co.," in
the case caption, to add W.P. Stewart & Co., Ltd., parent company
of WPS, Inc. as a defendant, and make the other changes shown in
the proposed amended complaint with the exception of the changes
sought which I have discussed in Part IV.D.1 of this opinion,
supra. V. CONCLUSION
For the reasons stated above, defendants' motion to dismiss is
denied in part and granted in part. Defendants' motion to dismiss
plaintiffs' federal copyright claim is denied. Defendants' motion
to dismiss plaintiffs' claims for conversion and malicious
interference of contract are granted, as these claims are
preempted by copyright law. Defendants' motion to dismiss
plaintiffs' claim for unjust enrichment is denied. However, leave
is granted to plaintiffs to amend Count III of their complaint to
state a claim for breach of contract. Plaintiffs shall have until
September 30, 2004 to effect personal service upon defendants
Russell and Macri.
Plaintiffs' cross-motion is also denied in part and granted in
part. Plaintiffs' motion to add Stefanowski as a defendant and
add a breach of contract claim against him is denied. All other
portions of plaintiffs' cross-motion is granted.
Plaintiffs are directed to file and serve an amended complaint
consistent with this Opinion not later than August 31, 2004.
Within twenty-one (21) days after perfection of service upon
defendants Russell and Macri, counsel for the parties are
directed to confer with each other and submit to the Court the
proposed discovery plan provided for by Rule 26(f),
Counsel for the parties are directed to attend a status
conference in Room 17C, 500 Pearl Street, at 4:30 p.m. on October
The foregoing is SO ORDERED.