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Alliance for Water Efficiency v. Fryer

United States District Court, N.D. Illinois, Eastern Division

January 18, 2017

ALLIANCE FOR WATER EFFICIENCY, Plaintiff,
v.
JAMES FRYER, Defendant.

          Jeffrey Cole Magistrate Judge.

          MEMORANDUM OPINION AND ORDER

         INTRODUCTION

         Mr. Fryer has moved for an award of attorney's fees under §505 of the Copyright Act, totaling $57, 365 for work done on the appeal of this case ($45, 745) and in pursuit of fees ($11, 620), and expenses in the amount of $643.53. [See Dkt. ## 91, 93, 94]. In his companion motion, he is seeking an additional $133, 817.30 in restitution. [Dkt. #96]. To fully understand this case, its history must be reviewed. It is compendiously summarized in Alliance for Water Efficiency v. Fryer, 808 F.3d 1153 (7th Cir. 2015), which reversed this court's decision in Alliance for Water Efficiency v. Fryer, 2015 WL 102166 (N.D.Ill. 2015). It is also discussed below and in the companion Memorandum Opinion and Order dealing with Mr. Fryer's motion for restitution. See Alliance for Water Efficiency v. Fryer, WL (N.D.Ill. 2017). [Dkt. #116].[1]

         I. FACTUAL BACKGROUND

         The Alliance had hired Mr. Fryer, an environmental scientist, to research and write a report on the extent to which water demand elasticity during future droughts would be affected by urban water agencies' conservation programs. The Alliance organized the financing for the study through several sponsors, as well as providing the largest funding contribution itself. When Mr. Fryer submitted his draft report, the Alliance was dissatisfied, as were most of the sponsors - according to the Alliance's complaint. The exception was the California Department of Water Resources (“CDW”). The Alliance wanted the report refocused, while Mr. Fryer did not, and the dispute made its way to federal court in the form of the Alliance's four-count Complaint, which sought relief under the Declaratory Judgment Act and charged Breach of Contract, Unjust Enrichment/Restitution, and Copyright Infringement. [Dkt. #1].

         The Alliance claimed that it had all legal and tangible rights to the study and the report, including an ownership interest in the files and documents relating to the study. In Count IV, the Alliance alleged that Mr. Fryer's report was a “work made for hire, ” and that the Alliance owned the copyright to it.[2] The Alliance claimed that Mr. Fryer had infringed on its copyright by speaking about the report at a public forum/seminar. [Dkt. #5, at ¶¶70-74]. On January 15, 2014, Judge Shadur, whom the Seventh Circuit has called “a jurisdiction-hound, ” Newman-Green, Inc. v. Alfonzo-Larrain R., 854 F.2d 916, 940 (7th Cir. 1988), concluded on his own that there might be a defect in the way diversity jurisdiction had been pled, but that any deficiency probably could be cured. Thus, he issued an ex-parte order giving the plaintiff the opportunity to cure the allegations of diversity jurisdiction. [Dkt. ##3, 4]. Nothing was said about Count IV or subject matter jurisdiction under the Copyright Act.[3]

         Thereafter, on January 17, 2014, the plaintiff filed an Amended Complaint alleging diversity jurisdiction in a manner that it was thought would satisfy Judge Shadur's diversity concerns. It was and again charged that the report was “a work for hire” under the Copyright Act. [Dkt. #5]. On February 14, 2014, Mr. Fryer's counsel filed a motion to dismiss in which he charged that there was no diversity jurisdiction and that there was no subject matter jurisdiction under Count IV. [Dkt. ## 7, 8]. Mr. Fryer argued that the Amended Complaint failed to properly allege that the report had been a “work made for hire” because it stated Mr. Fryer was an independent contractor rather than an employee and failed to allege that the parties had a written agreement designating the report as a work made for hire. [Dkt. #8, at 10, 12].

         Before the motion to dismiss was responded to by the plaintiff or ruled on by Judge Shadur, the parties asked him to refer the matter for a settlement conference. He did so on February 21, 2014. [Dkt. #16]. When the parties were again before Judge Shadur on February 26, 2014, he denied that portion of Mr. Fryer's motion to dismiss for lack of personal jurisdiction, and he entered and continued the portion of the motion that had argued that the court lacked jurisdiction under the Copyright Act. [Dkt. #20]. The parties were before me on February 28, 2014, asking that I set a settlement conference. [Dkt. #21]. The settlement conference proceeded less than two weeks later on March 13, 2014. On that day, the parties reached a settlement, and their lawyers stated the material terms on the record. It was agreed that contract formation had occurred that day, that there was a binding settlement agreement, and that the ultimate execution of the contemplated written agreement was not a precondition to contract formation. [Dkt. #26 See also Dkt. #48]. Under their agreement, if the parties could not agree on a written document, what was read into the record on the 13th would serve as the settlement agreement. That same day, the parties also consented in writing to my jurisdiction. [Dkt. # 25].

         When the Alliance put its version of the agreement in writing, however, Mr. Fryer refused to sign, although he admittedly agreed with many of its provisions. The same was true of the Alliance. The Alliance's stance was that Mr. Fryer had agreed on the 13th that he couldn't name certain organizations without their prior permission as it would falsely suggest that his separate report (for himself and CDW) had the Alliance's imprimatur, when it did not. Alliance for Water Efficiency, 808 F.3d at 1157. Mr. Fryer's position was that under the settlement on the 13th he had not agreed to exclude the funders (other than the Alliance), and it was his prerogative to credit those who had provided funding and data. An exchange of drafts and counterdrafts followed, but “complete written agreement was never reached . . . [leaving] the March 13 exchange as the definitive settlement.” Alliance for Water Efficiency v. Fryer, 808 F.3d at 1155.

         The Alliance filed a motion to enforce its version of the settlement agreement, which was, in effect, a request for a mandatory injunction. Resolution Trust Corp. v. Ruggiero, 994 F.2d 1221, 1225 (7th Cir. 1993). There followed briefing and argument on the scope of the settlement reached on the 13th and the effect of the ensuing meetings and drafts. In the end, I concluded - erroneously as it turned out - that the settlement read into the record on March 13th contained an implied term that Mr. Fryer would not include references in his report to PAC members who had not first contacted him and expressed a desire to participate in his report. Alliance for Water Efficiency v. Fryer, 2105 WL 102166, at **6-8 (and footnotes); [Dkt. #48]. He did not dispute that he had agreed in the settlement agreement not to mention the Alliance in his contemplated report.

         On October 27, 2014, following a telephone conference with the parties, it was agreed that nothing in the March 13th settlement agreement or the ensuing orders precluded Mr. Fryer from making reference in his separate report to the fact that Santa Rosa and/or one or more members of the PAC contributed data to Mr. Fryer's study. [Dkt. #52]. After some additional haggling about the Santa Rosa data, I concluded and the parties agreed that further discussion would not be productive, and the parties were instructed to comply with the terms set forth in the Memorandum Opinion and Order of January 7, 2015. [Dkt. #62].

         On January 7, 2015, form AO 450, captioned Judgment In A Civil Action, was filed with the clerk of court dismissing the case. [Dkt. #62]. Mr. Fryer appealed. [Dkt.#63].

         At oral argument, the Seventh Circuit pointed out that although injunctive relief was contemplated, there was no document that complied with Fed.R.Civ.P. 65(d)(1). The parties then returned here and obtained a self-contained order that complied with the Court's concerns and Rule 65. Alliance for Water Efficiency, 808 F.3d at 1155. [See Dkt.#85]. The parties then returned to the Court of Appeals, which determined that Mr. Fryer and the Alliance had not come to a mutual accord on a final written agreement, and therefore that what was read into the record by them on March 13, 2014, was the operative settlement agreement - as the parties had agreed. Alliance for Water Efficiency, 808 F.3d at 1157. The Seventh Circuit vacated the injunction “because it contains terms on which the parties have not agreed.” Id.

         Prior to its discussion on the scope of the March 13 settlement agreement, the Seventh Circuit addressed the question of jurisdiction, saying: “Fryer contends that this injunction creates a prior restraint that violates the First Amendment. Before we tackle that subject, however, we must decide whether the suit is properly in federal court.” Alliance for Water Efficiency, 808 F.3d at 1156. If there had been no independent jurisdictional basis for AWE's suit, dismissal, the Seventh Circuit said, rather than adjudication of the appeal would have been the appropriate action. Cf. Blue Cross Blue Shield v. American Express, 467 F.3d 634 (7th Cir. 2006); Lynch, Inc., 279 F.3d at 491-92. But the Amended complaint properly pled diversity jurisdiction, and that the Court of Appeals said rendered the suit “independently within federal jurisdiction, even if the original suit would have failed on the merits or should have been dismissed.” Alliance for Water Efficiency, 808 F.3d at 1157.

         Why the parties decided to settle, and why they settled under the terms they did on March 13 is unknown. The Seventh Circuit did not even hazard a guess. It merely noticed that settlements involve “compromise” in which no one gets all of what it wants. Alliance for Water Efficiency, 808 F.3d at 1157. Since Judge Shadur had deferred the Alliance's response to and his consideration of the Fryer motion to dismiss Count IV for failure to state a claim, the Alliance had not responded to it. The case was in the earliest stages of the pleadings, and no discovery had been taken. Thus, nothing supports Mr. Fryer's tendentious speculation that the Alliance settled because it knew it ultimately was going to lose on the merits of its suit. It is as likely that Mr. Fryer settled because he feared what the evidence would reveal as it is that the Alliance settled out of fear of defeat or exposure that its suit was frivolous. All that can be said with certainty is, as the Court of Appeals pointed out, “instead of defending, Fryer struck a bargain with the Alliance.” 808 F.3d at 1157.

         If we assume that one purpose of the fee-shifting provision in §505, like that in other fee shifting statutes, is “to deter the bringing of lawsuits without foundation” and that like them, §505 should be interpreted as allowing fees whenever the plaintiff's “claim was frivolous, unreasonable, or groundless, ” CRST Van Expedited, Inc., 136 S.Ct. 1642, 1652, it cannot be said on this record that Mr. Fryer is a prevailing party within the meaning of the Copyright Act. He won in the Court of Appeals on the construction to be given to a settlement agreement, not on an issue that advanced the Act's goals or because there was any decision or evidence that Count IV would ultimately be found frivolous or groundless.

         The Court of Appeals' concern with how Count IV was pled was jurisdictional, for absent jurisdiction the case would have to be dismissed. Jurisdiction is a matter to be taken quite seriously. See e.g., Tisza v. Communications Workers of America, 953 F.2d 298, 300 (7th Cir. 1992) (“Jurisdiction is the first question in every case.”). See also In re UAL Corp., 408 F.3d 847, 849 (7thCir.2005)(“Appellate jurisdiction is the initial question.”); Sonii v. General Elec. Co., 359 F.3d 448, 449 (7th Cir. 2004); Lucille v. City of Chicago, 31 F.3d 546, 548 (7th Cir. 1994)(“Although McCall-Bey v. Franzen...held that a district court may not enforce a settlement agreement unless there is an independent basis of federal jurisdiction, the district judge did not discuss this initial hurdle ... ‘Enforcement of [a] settlement agreement...is more than just a continuation or renewal of the dismissed suit, and hence requires its own basis of jurisdiction.'”).

         After determining that there was jurisdiction because diversity had been sufficiently pled, the Court of Appeals turned to the “merits, ” on which it promised brevity. The Court vacated the injunction “because it contains terms on which the parties have not agreed.” 808 at 1157. The “injunction [went] beyond what the parties agreed [to] on March 13, 2014. It takes the Alliance's later drafts as if they were a signed contract, which they aren't. On March 13 Fryer promised to remove the Alliance's name from his report. He did not promise to omit the sponsors' names.” 808 F.3d at 1157.

         Mr. Fryer now insists that the ability to name all the funders in his separate report without their prior permission was the salient event in the case. [Dkt. #105, at 4].[4] Merely because Mr. Fryer says it does not make it so, and a judge is not obligated to credit it because an interested litigant says so. See Schmude v. Tricam Industries, Inc. 556 F.3d 624, 628 (7th Cir. 2009)(Posner, J.)(“Moreover, every judge is aware that many people who do not have a criminal record will lie in a trial when it is to their advantage.”). But even if true, it was not a function of the Copyright Act, but of what his March 13th settlement agreement with the Alliance consisted. Indeed, that crucial fact is largely ignored by Mr. Fryer, even though it is indisputable that the injunction was “vacated because it contains terms on which the parties have not agreed.” Fryer, 808 F.3d at 1157.

         II. THE STATUTORY SCHEME AND PRINCIPLES RELEVANT TO THIS CASE

         A.

         Section 505 of the Copyright Act provides that:

[i]n any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also award a reasonable attorney's fee to the prevailing party as part of the costs.

17 U.S.C. § 505 (emphasis supplied). Importantly, for our purposes, under the plain language of §505, a party - plaintiff or defendant - must be the “prevailing party” in a “civil action under [the Copyright Act]” before a court is obligated to exercise its discretion and decide whether to award fees. The Supreme Court appears to have read §505 as only being applicable in a “copyright infringement action” and only to a prevailing party in such an action. Fogerty v. Fantasy, Inc., 510 U.S. 517, 519 (1994). Congress has included the term “prevailing party” in various fee-shifting statutes, and the Court in another context has said that its approach has been to interpret the term in a consistent manner. CRST Van Expedited, Inc. v. E.E.O.C., 578 U.S., 136 S.Ct. 1642, 1646 (2016).

         Courts cannot ignore “the text of the fee shifting statute” under consideration, any more than they can ignore in other contexts the words chosen by Congress. See CRST, 136 S.Ct. at 1653. Compare Simmons v. Himmelreich, U.S., 136 S.Ct. 1843, 1850 (2016)(courts can't ignore the text of the statute); Octane Fitness, LLC v. ICON Health & Fitness, Inc., U.S., 134 S.Ct. 1749, 1755 (2014)(“Our analysis begins and ends with the text of [the patent act].”); United States v. Natale, 719 F.3d 719, 734 (7th Cir. 2013). Under the explicit language of §505 of the Copyright Act, the section on which Mr. Fryer's motion is based [Dkt. # 91, 94], [5] whether to award fees (even to a prevailing party) - is left to the court's discretion. An exercise of that discretion is guided by the list of non- exclusive discretionary factors discussed in Fogerty. See infra at 24; JCW Investments, Inc. v. Novelty, Inc., 509 F.3d 339, 342 (7th Cir. 2007). That discretion is broad. Kirtsaeng v. John Wiley & Sons, Inc., ___ U.S. ___, 136 S.Ct. 1979, 1988 (2016); United States v. Kluball, 843 F.3d 716 (7th Cir. 2016); Bell v. Lantz, 825 F.3d 849, 852 (7th Cir. 2016). And review of a fee decision is under the lenient and deferential abuse of discretion standard. Dobbs v. DePuy Orthopedics, Inc., 842 F.3d 1045, 1048 (7th Cir. 2016). Deferential review, however, does not give the district court unfettered discretion. It “still bears the responsibility of justifying its conclusions.” Id.

         The Seventh Circuit has explained that:

the two most important considerations in deciding whether to award fees ‘are the strength of the prevailing party's case and the amount of damages or other relief the party obtained. If the case was a toss-up and the prevailing party obtained generous damages, or injunctive relief of substantial ...

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