Date: 06-04-2002

Case Style: Nelson-Salabes v. Morningside Development, etc., et al.

Case Number: 01-1369

Judge: King

Court: United States Court of Appeals for the Fourth Circuit

Plaintiff's Attorney: Howard Gary Goldberg, GOLDBERG, PIKE & BESCHE, P.C., Baltimore, Maryland, for Appellee.

Defendant's Attorney: Joshua Jacob Kaufman, VENABLE, BAETJER, HOWARD & CIVILETTI, L.L.P., Washington, D.C., for Appellants.

Description: Morningside Development, LLC; Morningside Holdings of Satyr Hill, LLC; and G. Neville Turner (collectively, the "Defendants") appeal a judgment of more than $736,000 entered against them, jointly and severally, following an October 2000 bench trial in the District of Maryland. The Defendants assert multiple contentions of error; however, only their challenge to joint and several liability has merit. As explained below, we otherwise affirm the judgment in favor of Nelson-Salabes, Incorporated ("NSI"), but we vacate and remand the district court's imposition of joint and several liability against Morningside Holdings and Turner.

In the Spring of 1996, the Strutt Group, Incorporated ("Strutt"), a real estate development company operating in Maryland, sought plan- ning assistance from NSI, an architectural firm, for a proposed assisted living facility in Baltimore County, called Satyr Hill Catered Living ("Satyr Hill" or the "Project"). On June 5, 1996, NSI delivered to Strutt a proposed letter agreement under which NSI agreed to develop a schematic building footprint for Satyr Hill.1 Although Strutt failed to execute this proposed agreement, both NSI and Strutt, as the proposed parties thereto, fully performed according to its terms.

During July 1996, Strutt and NSI continued to engage in discus- sions concerning the planning and design of Satyr Hill. On July 24, 1996, NSI delivered to Strutt a second proposed letter agreement out- lining architectural services it would perform for Strutt in the next phase of development of Satyr Hill. This proposed letter agreement provided that NSI would render additional architectural services to Strutt, that it would develop exterior elevations for the Project, and that it would attend a zoning exception hearing before the Baltimore County Department of Permits and Development Management (the "Zoning Board").2 Strutt again failed to execute the proposed agree- ment, but, as with the first proposed agreement, both NSI and Strutt performed according to its terms.

NSI thereafter created four architectural drawings depicting the building footprint, the floor plans, and the exterior elevations of Satyr Hill (the "NSI Drawings"). Strutt's civil engineer then incorporated the NSI Drawings into the development plan for Satyr Hill (the "De- velopment Plan"), which Strutt submitted to the Zoning Board as part of its application for the special zoning exception (the "Zoning Exception"). On April 7, 1997, the Zoning Board granted Strutt's request for the Zoning Exception.

On February 14, 1997, while the Zoning Exception application was pending before the Zoning Board, NSI delivered a third proposed let- ter agreement to Strutt, by which it offered, inter alia, to create for Strutt the design and working drawings for the remaining develop- ment of the Project. This third proposed agreement, which Strutt did not execute, outlined the additional architectural services to be per- formed by NSI on the Project, and it stated that: "If the above is acceptable, we will prepare a Standard AIA Agreement."3 Thereafter, on September 29, 1997, NSI sent Strutt a revised third letter agree- ment along with a "revised AIA Contract for Satyr Hill Catered Liv- ing per our recent discussions." The AIA Contract that NSI, as the architect, delivered to Strutt, as the owner, provided in relevant part that:

[t]he Architect's Drawings, Specifications or other docu- ments shall not be used by the Owner or others on other projects, for additions to this Project, or for completion of this Project by others unless the Architect is adjudged to be in default under this Agreement, except by agreement in writing and with appropriate compensation to the Architect

(emphasis added). As with the earlier proposed agreements, Strutt did not execute either the revised third letter agreement or the revised AIA Contract.

On October 7, 1997, Strutt advised NSI to cease its architectural work on Satyr Hill, stating that Strutt's potential business partner had backed out of the Project and that Strutt lacked sufficient expertise to go forward with it. Strutt then inquired as to whether NSI knew of potential purchasers for the Project, and NSI began to solicit potential buyers on behalf of Strutt. One such potential buyer was G. Neville Turner, the President of an entity known as The Morningside Group, and the managing agent of both Morningside Development, LLC ("Morningside Development") and Morningside Holdings of Satyr Hill, LLC ("Morningside Holdings").4

Turner was interested in being involved in the completion of Satyr Hill for multiple reasons, including: (1) the Zoning Board had already granted the Zoning Exception, and (2) the Zoning Board had already approved the Development Plan. On November 18, 1997, Turner pro- vided Strutt with a letter of intent by Morningside Holdings in con- nection with its proposed purchase of Satyr Hill. At that time, Turner was aware (1) that the NSI Drawings had been incorporated into the Development Plan, and (2) that NSI asserted that any future use of the NSI Drawings required its express consent. Morningside Holdings subsequently agreed to purchase Satyr Hill from Strutt for the sum of $900,000, and the transaction was closed on December 22, 1997.

Thereafter, in January 1998, Turner and NSI met to discuss NSI's future involvement in Satyr Hill. On that occasion, Turner advised NSI that the design of Satyr Hill needed to conform with a prototype established by Morningside Development at other assisted living facilities (the "Prototype"). Turner then informed NSI that it would need to revise the NSI Drawings in order to conform to the Prototype, and NSI indicated that it was willing to make such revisions. After this January 1998 meeting with Turner, NSI became concerned that the Defendants did not intend to continue to utilize it as the architect for Satyr Hill. When Turner confirmed in a later telephone conversa- tion that he was considering other architects, NSI informed Turner that while he could retain and utilize a different architect on the Proj- ect, he had no authority to utilize the NSI Drawings, including the building footprint and exterior elevations which had been incorpo- rated into the Development Plan. On January 26, 1998, in order to confirm its position, NSI's attorney wrote to Turner, as "President [of] The Morningside Group," and advised that the NSI Drawings were not to be utilized without NSI's express written consent.

Turner then decided not to retain NSI for any further architectural services with regard to Satyr Hill. Instead, Morningside Development entered into what was called a "design build" contract with Hamil Commercial, Incorporated ("Hamil") for the construction of Satyr Hill, and Hamil retained a different architectural firm, EDG Archi- tects ("EDG").5 Thereafter, Turner provided Hamil with a copy of the NSI Drawings, as well as with the Development Plan approved by the Zoning Board. In turn, Hamil gave these materials to EDG.

Subsequently, Turner met with EDG and requested that it re-design Satyr Hill to conform to the Prototype. However, he specifically instructed EDG to avoid any modifications to the Development Plan that would necessitate obtaining a new Zoning Exception, because doing so would be both time-consuming and costly. EDG then re- designed Satyr Hill according to Turner's instructions, and EDG's architectural drawings were incorporated into amended development plans for Satyr Hill. The Defendants submitted these amended devel- opment plans to the Zoning Board, advising the Board that the amendments were being made, inter alia, for "minor footprint revi- sions" and "minor changes to architectural elevations of buildings." The Zoning Board approved the amended development plans, and Morningside Development then completed the construction of Satyr Hill.

In July 1998, NSI filed its complaint against the Defendants in the District of Maryland. In an amended complaint filed in March 1999, NSI alleged that the Defendants had infringed upon NSI's copyright6 in the construction of Satyr Hill by copying the footprint and exterior elevations from the NSI Drawings, in contravention of federal copy- right law, i.e., 17 U.S.C. S 501(a).7 After extensive discovery, this case proceeded to trial before the court in October 2000. After receipt of post-trial briefs, the court, by Opinion filed on February 16, 2001, ruled in favor of NSI and against the Defendants. Nelson-Salabes, Inc. v. Morningside Holdings of Satyr Hill, L.L.C., Opinion, No. B- 98-2226 (Feb. 16, 2001) (the "Opinion"). Having found the Defendants liable for copyright infringement, the court then analyzed the question of an appropriate damage award, utilizing the provisions of 17 U.S.C. S 504(b).8

In so doing, the court first denied NSI's claim for actual damages because it was speculative. Opinion at 23. The court, however, after deducting the expenses incurred by the Defendants in the construction of the Project and deducting the Defendants' profit from the personal property (as opposed to the real property) connected with Satyr Hill, concluded that the Defendants had "realized profits attributable to [their] infringement in the amount of $736,037.45."9 Id. at 27. The court therefore entered judgment against the Defendants, jointly and severally, in that specific sum, plus costs. The Defendants filed a timely notice of appeal from the court's adverse rulings, and we possess jurisdiction pursuant to 28 U.S.C. S 1291.

* * *

The Defendants assert that the district court made three principal errors in entering judgment in favor of NSI. First, they contend that the court erred in finding Morningside Holdings liable for copyright infringement with respect to the NSI Drawings. Second, the Defen- dants assert that the court erred in concluding that NSI had not granted them an "implied nonexclusive license" to use the NSI Draw- ings. Finally, they maintain that the court improperly imposed joint and several liability on Morningside Holdings and Turner. We review each of these contentions in turn.

In order to prove copyright infringement, a plaintiff must show that it owns a valid copyright, and it must establish that the defendant engaged in unauthorized copying of the work protected by the copy- right. Towler v. Sayles, 76 F.3d 579, 581 (4th Cir. 1996). In this case, it is undisputed that NSI owns a valid copyright for the NSI Draw- ings. See supra note 6. Furthermore, the Defendants have not appealed the court's determination that Morningside Development and Turner engaged in unauthorized copying of the NSI Drawings. At issue, therefore, is the court's conclusion that Morningside Holdings, the owner of the Project, is liable for copyright infringement with respect to the NSI Drawings.

* * *

Click the case caption above for the full text of the Court's opinion.

Outcome: For the foregoing reasons, we affirm the judgment of the district court, except for its imposition of joint and several liability on Morningside Holdings and Turner, and on that aspect of the appeal we vacate and remand.

Plaintiff's Experts: Unavailable

Defendant's Experts: Unavailable

Comments: None