Devil's Advocate, LLC v. Zurich American Insurance Company ( 2016 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-1048
DEVIL’S ADVOCATE, LLC; JOHN W. TOOTHMAN,
Plaintiffs - Appellants,
v.
ZURICH AMERICAN INSURANCE COMPANY,
Defendant - Appellee.
Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria. T. S. Ellis, III, Senior
District Judge. (1:13-cv-01246-TSE-TRJ)
Argued: September 21, 2016 Decided: November 22, 2016
Before WILKINSON and FLOYD, Circuit Judges, and Irene M. KEELEY,
United States District Judge for the Northern District of West
Virginia, sitting by designation.
Affirmed by unpublished per curiam opinion.
ARGUED: John William Toothman, Great Falls, Virginia, for
Appellants. Kelly Marie Lippincott, CARR MALONEY P.C.,
Washington, D.C., for Appellee. ON BRIEF: Sarah W. Conkright,
CARR MALONEY P.C., Washington, D.C., for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
Devil’s Advocate, LLC, and John W. Toothman (“Appellants”)
sued Zurich American Insurance Company (“Zurich”) for breach of
contract, unjust enrichment, conversion, unauthorized use of
name, trademark infringement, and copyright infringement. After
the district court dismissed all of their claims, Appellants
timely appealed. 1 Finding no error, we affirm the judgment of the
district court.
I.
Appellant John W. Toothman is a lawyer and the founder of
Devil’s Advocate, a consulting firm that provides expert
testimony regarding the reasonableness of legal fees. In 2008,
Appellee Zurich became embroiled in a coverage dispute in state
court in Harris County, Texas (the “Texas litigation”). 2 On
October 12, 2010, Blair Dancy, a lawyer representing Zurich in
the Texas litigation, contacted Toothman about serving as an
expert witness regarding the reasonableness of the attorneys’
1 The district court’s orders, the hearing transcripts, and
the docket do not indicate whether it dismissed the claims with
prejudice. For our purposes, we assume that the district court
dismissed those claims with prejudice and affirm as such.
2 See Sterling Chemicals, Inc. v. Zurich American Insurance
Co., et al., Cause No. 2008-09808 (234th Jud. Dist. Ct., Harris
Cty., Tex.)
2
fees billed by defense counsel in the case. Toothman responded
by email, indicating his availability and attaching a copy of a
blank form billing agreement (“Billing Agreement”), his resume,
and additional information about Devil’s Advocate’s services.
The Billing Agreement included no fee terms, leaving several
blank spaces where the parties could later insert such terms
should they reach an agreement. Neither Dancy nor anyone else
representing Zurich signed the Billing Agreement.
Less than a month later, on November 2, 2010, Dancy asked
Appellants to provide a proposal for services to include review
of billing records and other pertinent information relevant to
the disputed defense fees, as well as providing potential trial
testimony. Toothman responded with an email proposal
(“Proposal”), which stated: “Assuming we review at least $4
million in bills (fees and expenses) and the bill formats are
consistent with the sample bill you provided, we are quoting a
fee for your project of 2.1% of the gross amount of the fees we
would review and report upon.” J.A. 314. Further, it made plain
that “[t]his proposal is preliminary, prior to our engagement
and full review of available information.” J.A. 315. Toothman
did not include a completed Billing Agreement with his email.
Toothman contacted Dancy two days later to determine if he
had received the Proposal. After confirming that he had, Dancy
3
informed Toothman that “[t]he client’s mulling it over.” J.A.
322. Toothman followed up four days later, on November 8, 2010,
with an email inquiring whether there had been “[a]ny word yet
from Zurich” regarding the Proposal. J.A. 294-95; J.A. 322.
No later than November 19, 2010, Dancy informed Toothman by
telephone that Zurich would not accept the Proposal because the
parties still needed to negotiate the price of the proposed
services. Dancy also notified Toothman that, because the
deadline for designating experts had passed, Zurich needed leave
of court to designate him as an expert witness. Dancy explicitly
stated that such designation was a condition precedent to
Zurich’s acceptance of Toothman’s Proposal. Ultimately, although
Toothman continued to negotiate his fee with Dancy, the parties
never reached an agreement.
In an email update dated November 16, 2010, Dancy advised
Toothman that the court in Texas had postponed the trial and
pre-trial conference in the litigation, a development that
impeded Zurich’s ability to amend its expert designation to
include Toothman. Toothman responded to this news on November
19, 2010: “Just checking in. I’m assuming this may be shut down
for some time, but the more time we can spend on the review, the
better.” J.A. 408-09. Also on the 19th, Dancy served opposing
counsel in the Texas litigation with Zurich’s proposed amended
4
expert designation naming Toothman. Thereafter, in an email
dated December 2, 2010, Toothman acknowledged that Zurich had
not yet hired him. J.A. 296; J.A. 410 (“I’ll be careful, if I
ever get hired.”).
The next day, Dancy filed an amended motion for a Rule 166 3
pretrial conference in the Texas litigation, seeking leave to
amend Zurich’s expert designation and attaching the amended
designation naming Toothman.
Toothman was aware that Zurich needed court approval of his
late designation before it could accept Appellants’ Proposal. In
a December 8, 2010, email to Dancy, Toothman confirmed that,
although Zurich had provided his name to the court, he knew he
had not yet been retained to perform any work under the
Proposal.
On December 13, 2010, Toothman again emailed Dancy,
advising him that “[i]n case this thing goes forward,” the total
amount of legal fees he had received for review was just under
$3.5 million, a difference of $500,000 from the $4 million
originally estimated in the Proposal. J.A. 297; J.A. 422. The
next day, he acknowledged to Dancy that Zurich had neither
3
Rule 166 of the Texas Rules of Civil Procedure provides
that the Court may conduct pre-trial conferences to, among other
reasons, take up pending motions.
5
accepted the Proposal nor retained him: “[I]s there any way to
make sure Zurich’s ready to go right after the hearing, e.g., by
approving our agreement and cutting the initial check?” J.A.
297; J.A. 428.
Finally, on December 29, 2010, Toothman sent Dancy the
following email: “Attached is the paperwork to get this project
going once you decide what to do. . . . We would start as soon
as we received the signed agreement and initial payment.” J.A.
297; J.A. 430. Attached was a Billing Agreement listing a flat
fee of $69,233.82, based on 2.0% of the gross amount of fees and
expenses subject to review, estimated by Toothman to be at least
$3.4 million. This was the first Billing Agreement submitted by
Toothman that included a specific fee estimate. Also attached
was an invoice totaling $34,616.91, purportedly representing
one-half of the estimate. Dancy never signed this Billing
Agreement and denies ever agreeing to its terms.
On January 13, 2011, Toothman emailed Dancy, claiming
“[payment of the full fee was triggered when Zurich designated
me as its expert on December 3, 2010.” J.A. 433. He also
attached an account statement, with two invoices totaling
$69,233.82. Dancy called Toothman on January 17, 2011, to
discuss the email and invoices, but Toothman terminated the
call. Zurich then concluded that it could not work with Toothman
6
and withdrew its request for leave to designate him as an expert
witness in the Texas litigation. It confirmed this to Toothman
in a letter dated January 17, 2011. J.A. 438-40.
Toothman and Devil’s Advocate responded by suing Zurich in
the Circuit Court for Fairfax County, Virginia in February 2011.
Several days prior to trial, however, they voluntarily dismissed
their claims pursuant to Virginia’s nonsuit statute. Later, on
October 7, 2013, they sued Zurich in the Eastern District of
Virginia, alleging claims of breach of contract, unjust
enrichment, conversion, unauthorized use of name, trademark
infringement, and copyright infringement.
The district court granted in part Zurich’s motion to
dismiss the complaint pursuant to Fed. R. Civ. P. 12(b)(6),
dismissing Appellants’ claims for unjust enrichment, conversion
(except as to Toothman’s name and reputation), unauthorized use
of name, trademark infringement, and copyright infringement
(except as to Toothman’s resume). It later denied Appellants’
motions for reconsideration and to amend their complaint.
Finally, after the conclusion of discovery, it granted Zurich’s
motion for summary judgment on all remaining claims.
II.
Appellants challenge the district court’s dismissal of
several of their claims for failure to state a claim, its
7
dismissal on summary judgment of their remaining claims, and its
denial of leave to amend their complaint. We review de novo the
district court’s dismissal for failure to state a claim, for
which we accept the pleaded facts as true. King v. Rubenstein,
825 F.3d 206, 214 (4th Cir. 2016). To survive dismissal, the
complaint “must contain ‘enough facts to state a claim for
relief that is plausible on its face.’” Id. at 214 (quoting Bell
Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)).
We also review de novo the district court’s decision to
grant summary judgment, applying the same legal standards that
guided the district court. Hoschar v. Appalachian Power Co., 739
F.3d 163, 169 (4th Cir. 2014). Thus, “we view the facts and draw
all reasonable inferences in the light most favorable to the
non-moving party.” Hoschar, 739 F.3d at 169 (quoting Glynn v.
EDO Corp., 710 F.3d 209, 213 (4th Cir. 2013)).
Finally, we apply an abuse of discretion standard when
reviewing the district court’s decision to deny Appellants’
motion for leave to amend their complaint. We turn now to each
of Appellants’ claims and address them in order.
A.
We begin with the district court’s dismissal of Appellants’
claim for unjust enrichment pursuant to Fed. R. Civ. P.
12(b)(6). In order to state a claim of unjust enrichment under
8
Virginia law, a plaintiff must sufficiently allege that “(1) he
conferred a benefit on [the defendant]; (2) [the defendant] knew
of the benefit and should have reasonably expected to repay [the
plaintiff]; and (3) [the defendant] accepted or retained the
benefit without paying for its value.” Schmidt v. Household Fin.
Corp., II, 661 S.E.2d 834, 838 (Va. 2008). A plaintiff “must
plead facts showing that it actually conferred a benefit.”
Odyssey Imaging, LLC v. Cardiology Assoc. of Johnston, LLC, 752
F.Supp.2d 721, 725 (W.D. Va. 2010) (emphasis added).
Appellants’ complaint contained only conclusory allegations
regarding actual benefits conferred on Zurich. Indeed, the only
benefits alleged were items and services Appellants provided
free of charge during the proposal process. Appellants,
moreover, were fully apprised that Zurich intended to use some
of that material in an effort to amend its expert witness
designation, and that approval of the amended designation was a
condition precedent to Zurich’s acceptance of their Proposal.
Appellants’ assertion that the mere use of their names
could promote a better settlement for Zurich is wholly
speculative and one that, in any case, Zurich could not have
realized, having withdrawn its motion to designate Toothman as
an expert before settling the Texas litigation. We therefore
conclude that the allegations in Appellants’ complaint fail to
9
state a plausible claim for unjust enrichment. Twombly, 550 U.S.
at 570; Rubenstein, 825 F.3d at 214.
B.
The district court dismissed Appellants’ state law claims
against Zurich for unauthorized use of Devil’s Advocate’s
corporate name and Toothman’s personal name. Virginia Code §
8.01-40(A), in pertinent part, provides:
Any person whose name, portrait, or picture is used
without having first obtained the written consent of
such person, or if dead, of the surviving consort and
if none, of the next of kin, or if a minor, the
written consent of his or her parent or guardian, for
advertising purposes or for the purposes of trade,
such persons may maintain a suit in equity against the
person, firm, or corporation so using such person’s
name, portrait, or picture to prevent and restrain the
use thereof; and may also sue and recover damages for
any injuries sustained by reason of such use. . . .
A corporate entity is not a “person” for purposes of the
Virginia statute. The language of § 8.01-40(A) plainly includes
only natural persons, as demonstrated by its discussion of the
ramifications of the death of the aggrieved person. See also
Silver Ring Splint Co. v. Digisplint, Inc., 567 F.Supp.2d 847,
855 (W.D. Va. 2008) (“Although the term ‘person’ in a statute
may often refer to both natural persons and corporations, the
text of § 8.01–40 makes clear that this statute applies only to
natural persons.”). Accordingly, Appellants’ claim against
10
Zurich for unauthorized use of Devil’s Advocate’s corporate name
cannot proceed.
Toothman’s claim for the unauthorized use of his personal
name similarly fails. “[A] name is used for advertising purposes
when it appears in a publication which, taken in its entirety,
was distributed for use in, or as part of, an advertisement or
solicitation for patronage of a particular product or service.”
Town & Country Properties, Inc. v. Riggins, 457 S.E.2d 356 (Va.
1995); see also WJLA-TV v. Levin, 564 S.E.2d 383, 395 (Va. 2002)
(quoting Riggins and similarly holding that use of a name for
non-advertising purposes does not implicate § 8.01-40(A)).
Zurich’s use of Toothman’s name, in either a court filing
or email to opposing counsel, does not constitute advertising.
Nor did Zurich use Toothman’s name in the course of its own
business to buy, sell, or barter its goods or services. Va. Code
§ 8.01-40(A). Indeed, we are unable to discern what additional
legal services Zurich could have intended to solicit by the mere
use of Toothman’s name and conclude Zurich did not violate §
8.01-40(A).
C.
In dismissing Appellants’ trademark infringement claim as
time-barred, the district court applied Virginia’s two-year
limitation period applicable to fraud claims. The Lanham Act,
11
which governs Appellants’ trademark claims, does not specify a
statute of limitations, but rather applies the analogous state
law limitations period. See PBM Products, LLC v. Mead Johnson &
Co., 639 F.3d 111, 121 (4th Cir. 2011)(finding false advertising
claim under the Lanham Act analogous to Virginia fraud law and
subject to two-year limitation). 4
Devil’s Advocate, however, insists that under Virginia law
trademarks and brand names are property subject to a five year
statute of limitations. In Lavery v. Automation Mgmt.
Consultants, Inc., 360 S.E.2d 336 (Va. 1987), a case dealing
specifically with the prohibition in Virginia Code § 8.01-40(A)
regarding the unauthorized use of a person’s name, 5 the Supreme
Court of Virginia held that, where a defendant uses a
plaintiff’s name to bolster its proposal for a contract, a
property right exists in the plaintiff’s name or likeness that
4 See also Teaching Co. Ltd. P’ship v. Unapix Entm’t, Inc.,
87 F. Supp. 2d 567, 585 (E.D. Va. 2000) (stating that the
applicable limitations period for federal and common law
trademark infringement and unfair competition claims is two
years); Unlimited Screw Prods., Inc. v. Malm, 781 F. Supp. 1121,
1125 (E.D. Va. 1991) (“Virginia’s statute of limitations for
fraud most closely resembles federal policy reflected in the
Lanham Act.”).
5 Here, Appellants pressed a separate claim for violation of
§ 8.01-40(A), which, as we have already noted, the district
court properly dismissed.
12
is subject to the five year property claim statute of
limitations. Lavery simply has no bearing on federal trademark
analysis under the Lanham Act. Accordingly, we agree with the
district court’s conclusion that Devil’s Advocate’s trademark
infringement claim is time-barred under Virginia’s two-year
statute of limitations for fraud.
D.
The district court dismissed Appellants’ claim against
Zurich for copyright infringement, finding the Proposal lacked
substantial similarity to the designation filed by Zurich in the
Texas litigation. A plaintiff seeking to recover on a copyright
infringement claim must prove not only that he “owned a valid
copyright and that the defendant copied the original elements of
that copyright,” but also that the “defendant’s work is
‘substantially similar’ to the protectable elements of the
plaintiff’s work.” Building Graphics, Inc. v. Lennar Corp., 708
F.3d 573, 577-78 (4th Cir. 2013) (quotations omitted).
Determining “substantial similarity” involves an analysis
of extrinsic and intrinsic similarity. Humphreys & Partners
Architects, L.P. v. Lessard Design, Inc., 790 F.3d 532, 537-38
(4th Cir. 2015) (citations omitted). We evaluate extrinsic
similarity objectively, looking at “external criteria” to
determine whether the alleged copy is substantially similar to
13
the “protected elements of the copyrighted work.” Id. at 538
(quoting Universal Furniture Int’l, Inc. v. Collezione Europa
USA, Inc., 618 F.3d 417, 435 (4th Cir. 2010)). In contrast, we
consider intrinsic similarity from the “perspective of the
[works’] intended observer,” looking at the “total concept and
feel of the works” to determine whether they are substantially
similar. Id. (quoting Universal Furniture, 618 F.3d at 436).
The district court concluded that Appellants’ copyright
infringement claim failed for lack of substantial similarity.
Although Appellants contend that only a jury may determine the
extrinsic similarity prong, we observed in Copeland v. Bieber
that
. . . a district court may grant a motion to dismiss
or summary judgment under the extrinsic prong alone.
See Universal Furniture, 618 F.3d at 436 (“A court may
grant summary judgment for defendant as a matter of
law if the similarity between the two works concerns
only noncopyrightable elements of the plaintiff’s
work.” (quoting Herzog v. Castle Rock Entm’t, 193 F.3d
1241, 1257 (11th Cir.1999))); see also Lyons, 243 F.3d
at 803 (court decides as a “matter of law” whether
extrinsic similarity exists).
789 F.3d 484, 490 (4th Cir. 2015). Therefore, a district court
may properly dismiss a copyright claim in the absence of
substantial similarity.
Our review of the extrinsic nature of the two documents
reinforces the conclusion that they lack substantial similarity.
14
The Proposal discusses Appellants’ conflicts, Toothman’s
familiarity with the parties involved, his academic and
professional experience, an overview of the billing structure,
and some observations on the Texas litigation. The expert
designation, by contrast, generally summarizes the subject
matter on which Zurich’s two experts would testify without
specifying the material about which either intended to opine.
Appellants accuse Zurich of plagiarizing the Proposal, but a
review of the two documents convinces us not only that there is
no substantial similarity, but little if any similarity.
With regard to the intrinsic similarity prong, we find
scant similarity in the “concept and feel” between the Proposal
and the designation Zurich submitted to the Texas court.
Humphreys, 790 F.3d at 538. The former is an offer for services,
covering a variety of topics, the latter a court filing
discussing the subject matter on which Zurich’s two experts
would testify. It is implausible that any intended audience
could view these two documents as intrinsically similar.
E.
Devil’s Advocate’s breach of contract claim fails for want
of any evidence that the parties had the necessary meeting of
the minds to form an enforceable contract. While it concedes the
parties never physically executed a contract, Devil’s Advocate
15
nevertheless argues that Zurich implicitly agreed to the terms
of the Proposal.
In Charbonnages de France v. Smith, 597 F.2d 406, 414-15
(4th Cir. 1979), we concluded that when parties engage in
lengthy, drawn out negotiations, which include a “jumble of
letters, telegrams, acts, and spoken words,” it is for a jury to
decide whether they actually formed a contract. Id. at 415; see
also Restatement (Second) of Contracts, § 20, Comment c. (1981). 6
No “jumble” of contract negotiations occurred in this case, but
rather an unequivocal rejection by Zurich of the Appellants’
Proposal as “unacceptable.” J.A. 353-54. Toothman, moreover,
acknowledged that Zurich “wanted to pay less.” J.A. 373-74.
Consequently, our holding in Charbonnages raises no bar to
summary judgment.
Devil’s Advocate’s contract claim rests solely on its
argument that the use of its name, in either the expert
designation or email to opposing counsel, manifested Zurich’s
6
See also Cabot Oil & Gas Corp. v. Daugherty Petroleum,
Inc., 479 Fed. Appx. 524, 530 (4th Cir. 2012) (unpublished)
(describing the contours of the holding in Charbonnages and
finding that a similar period of negotiations, with a similar
amount of email correspondence, did not constitute a “jumble”
that would preclude summary judgment).
16
assent to the contract. Dancy, however, testified that during a
telephone call in early November he notified Toothman that
Zurich could not retain him until allowed by the Texas Court to
amend its expert designation. Toothman was fully aware of this
condition precedent.
Toothman baldly asserts that this telephone call never
happened, but the evidence in the record is otherwise.
Particularly damning is Toothman’s email of November 8, 2010,
explicitly acknowledging his understanding that although Zurich
had disclosed his name it had not yet retained him: “Naming me
as a witness before we were retained is likely to cause some
issues with Gardere and Voys.” 7 J.A. 425. Toothman, a lawyer,
plainly understood Zurich’s obligation to disclose his name to
the Texas court in order to obtain leave to amend its expert
designation.
Finally, Appellants’ argument that Zurich’s designation
triggered acceptance of the contract is unavailing. The record
is devoid of any evidence, disputed or otherwise, that Zurich
ever assented to a contract in this case.
7 Gardere and Voys were two attorneys involved in the
underlying Texas litigation that led to the billing dispute.
17
F.
The district court granted summary judgment to Zurich on
Toothman’s claim for conversion of his name and reputation. 8 To
recover on a claim of conversion under Virginia law, a plaintiff
must establish (1) that he owned or had a possessory right to
the property at the time of the alleged conversion, and (2) that
the defendant wrongfully exercised dominion or control over that
property, thereby depriving plaintiff of its possession. 9
Economopoulous v. Kolaitis, 528 S.E.2d 714, 719 (Va. 2000). A
plaintiff cannot satisfy the second prong where he has consented
to the use of the subject property. See Williams v. Reynolds,
2006 WL 3198968, at *3 (W.D. Va. 2006) (“‘[W]rongful exercise of
dominion or control’ cannot be established where the plaintiff
8 Initially, the district court granted Zurich’s motion to
dismiss the conversion claim as to Devil’s Advocate’s trademarks
or copyrights, but denied it as to Toothman’s name and
reputation. J.A. 180-81. Subsequently, it granted summary
judgment to Zurich on the conversion claim as to Toothman’s name
and reputation. Appellants have failed to address the parts of
the conversion claim dismissed by the district court, and thus
have waived any appeal on those claims. See Locklear v. Bergman
& Beving AB, 457 F.3d 363, 365, n. 2 (4th Cir. 2006).
9 Although Toothman repeatedly argues that his name is a
property right, no one, including the district court, has ever
disputed this. For the purpose of our analysis here, we accept
that courts may consider a name and reputation as property but
need not address whether the mere use of a name by another
somehow deprives the owner of its possession.
18
grants permission to the defendant to possess that property.”).
Indeed, Virginia has long recognized that implied consent is a
bar to conversion claims. See, e.g., Kewanee Private Utilities
Co. v. Norfolk Southern Ry. Co., 88 S.E. 95, 99 (Va. 1916) 10; see
also Restatement (Second) of Torts § 252. The question here is
whether Toothman consented to Zurich’s use of his name and
reputation.
During his deposition, Toothman acknowledged that he knew
Zurich needed the court’s permission to designate him as an
expert in the Texas litigation. J.A. 380. Furthermore, in an
email to Dancy on November 8, 2010, he acknowledged that he had
been “named” before being retained. J.A. 245. Nonetheless, he
insists there is a difference between simply being named by
Zurich and being designated by it as an expert in the Texas
litigation.
This argument is unpersuasive. The manner in which Zurich
disclosed Toothman’s name, whether in an email, a court filing,
discovery designation, or a telephone call is immaterial. The
10 Other jurisdictions also have recognized implied consent
as a bar to a conversion claim. See e.g., Bank of N.Y. v.
Fremont Gen. Corp., 523 F.3d 902, 914 (9th Cir. 2008); Chemical
Sales Co., Inc. v. Diamond Chem. Co., Inc., 766 F.2d 364, 369
(8th Cir. 1985); Lawyers Title Ins. Corp. v. Dearborn Title
Corp., 904 F. Supp. 818, 821 n.2 (N.D. Ill. 1995).
19
fact remains Toothman knew that, in order to obtain permission
to designate him as an expert, Zurich needed to disclose his
name to the court and opposing counsel, and he permitted such
disclosure.
Moreover, despite having knowledge by at least December 8,
2010, that Zurich had disclosed his name, Toothman failed to
object until January 13, 2011. 11 He disputes that he did not
promptly object, claiming that his email to Dancy on December 8
“expresses a lack of consent and outright concern.” Appellants’
Reply Brief at 21 n. 11. We are unpersuaded. Toothman’s
statement, “[n]aming me as a witness before we were retained is
likely to cause some issues with Gardere and Voys,” J.A. 425,
evinces his concern about the effect disclosure of his name
might have on his personal interactions with two of the lawyers
involved in the case, both of whom he expected to see at an
upcoming conference. It is not evidence of lack of consent to
the use of his name.
11 Dancy’s uncontroverted testimony is that Toothman
actually knew from the very beginning of the negotiations that
Zurich had to disclose his name to the court as a condition
precedent to Zurich’s acceptance of the contract.
20
G.
Zurich is also entitled to summary judgment on Toothman’s
claim that it infringed the copyright to his resume. The “fair
use” doctrine allows persons to use copyrighted material in a
reasonable manner without permission. Such use is determined on
a case-by-case basis, using the following four factors set out
in 17 U.S.C. § 107:
(1) the purpose and character of the use, including
whether such use is of a commercial nature or is
for nonprofit educational purposes;
(2) the nature of the copyrighted work;
(3) the amount and substantiality of the portion used
in relation to the copyrighted work as a whole;
and
(4) the effect of the use upon the potential market
for or value of the copyrighted work.
In Bond v. Blum, 317 F.3d 385 (4th Cir. 2003), where a copy
of a manuscript had been used as evidence in a trial, we noted
that the “primary public purpose” of the Copyright Act was
“induc[ing] release to the public of the products of [the
author’s or artist’s] creative genius.” Id. at 393.
Additionally, we pointed out that “copyright protection does not
extend to ideas or facts even if such facts were discovered as
the product of long and hard work.” Id. at 394. After weighing
the factors of 18 U.S.C. § 107, we concluded that the defendant
had not used the manuscript for monetary gain, and that its use
had no negative impact on its marketability. Consequently, we
21
held that the use of the copyrighted manuscript in a court
proceeding fell within the ambit of fair use. 12 Id. at 395-97.
The factors in Bond weigh heavily in favor of a finding of
fair use here. Toothman’s resume employed no mode of expression,
but merely collected and restated known facts. Zurich’s use was
not for profit or in a traditionally commercial sense. Although
reproduced in its entirety, Toothman’s resume “was not used to
undermine any right conferred by the Copyright Act.” Id. at 396.
Finally, Zurich’s use of the resume did not affect its
marketability. Unlike a manuscript, or other copyrightable works
consumers might actually purchase, there is no market for
Toothman’s resume as such, nor have Appellants credibly argued
otherwise.
12
Several of our sister circuits also have concluded that
use of copyrighted material in court proceedings is fair use.
See e.g., Hollander v. Steinberg, 419 Fed. Appx. 44, 47-48 (2nd
Cir. 2011) (affirming summary judgment on fair use where
attorney sued opposing counsel for filing his essays in a
judicial proceeding); Jartech, Inc. v. Clancy, 666 F.2d 403, 407
(9th Cir. 1982) (affirming fair use where adult films were
copied for use in judicial proceedings, were not made for
subsequent use or enjoyment, and were not for commercial use);
Shell v. DeVries, 2007 WL 324592 (D. Colo. Jan. 31, 2007)
(finding fair use where a portion of a copyrighted website was
used as an exhibit to a motion for attorney’s fees), aff’d 2007
WL 4269047 (10th Cir. 2007).
22
H.
Finally, we conclude that the district court did not abuse
its discretion in denying as futile Appellants’ motion to amend
the complaint. Under Fed. R. Civ. P. 15(a), the directive to
grant leave to amend freely is not simply a suggestion, but
rather a “mandate to be heeded.” Foman v. Davis, 371 U.S. 178,
182 (1962). Leave to amend should be denied “only when” there is
the presence of bad faith, futility, or prejudice to the
opposing party. See Edwards v. City of Goldsboro, 178 F.3d 231,
242 (4th Cir. 1999) (quoting Johnson v. Oroweat Foods Co., 85
F.2d 503, 509 (4th Cir. 1986)).
Although a district court possesses discretion to grant or
deny the opportunity to amend, “an outright refusal to grant the
leave without any justifying reason appearing for the denial is
not an exercise of discretion; it is merely abuse of that
discretion and inconsistent with the spirit of the Federal
Rules.” Foman, 371 U.S. at 182; see also Matrix Capital Mgmt.
Fund LP v. BearingPoint Inc., 576 F.3d 172, 194 (4th Cir. 2009).
Nevertheless, a detailed, explicit explanation of the reasons
for denying leave to amend is not necessary when the reasons are
evident. See Matrix Capital, 576 F.3d at 194.
When it denied Appellants’ motion to amend their complaint
to compensate for deficiencies in the counts dismissed, the
district court noted that “leave to amend would be futile,
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because [Appellants’] proposed amendments to the Complaint add
no new facts that would allow [their] claims to survive a motion
to dismiss.” J.A. 714. Appellants’ attempt to add four
conclusory statements, most of which had previously been alleged
or inferred, and to increase the amount owed under the alleged
contract from $69,233.82 to $84,000.00, added no facts that
would have altered the district court’s earlier dismissal under
Rule 12(b)(6). We have previously held that “[t]here is no error
in disallowing an amendment when the claim sought to be pleaded
by amendment plainly would be subject to a motion to dismiss
under Fed.R.Civ.P. 12(b)(6).” Frank M. McDermott, Ltd. v.
Moretz, 898 F.2d 418, 420-21 (4th Cir. 1990). Accordingly, the
district court did not abuse its discretion.
III.
For the reasons discussed, the judgment of the district
court is
AFFIRMED.
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