Free Lodged Proposed Document - District Court of Arizona - Arizona

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Peter D. Baird (001978) [email protected] Robert H. McKirgan (011636) [email protected] Richard A. Halloran (013858) [email protected] Kimberly A. Demarchi (020428) [email protected] Lewis and Roca LLP 40 North Central Avenue Phoenix, Arizona 85004-4429 Facsimile (602) 734-3746 Telephone (602) 262-5311 Attorneys for POST Integrations, Inc., et al. George C. Chen (019704) [email protected] Bryan Cave LLP Two North Central Avenue, Suite 2200 Phoenix, AZ 85004-4406 Tel: (602) 364-7367 Fax: (602) 364-7070 Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc.

William McKinnon [email protected] 800 East Ocean Boulevard, Unit 501 Long Beach, California 90802-5449 Nicholas J. DiCarlo (016457) [email protected] DiCarlo Caserta & Phelps PLLC 6750 East Camelback Road, Suite 100-A Scottsdale, Arizona 85251 Attorneys for Plaintiff MTSI and Third Party Defendant Gene Clothier

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA Merchant Transaction Systems, Inc., ) ) Plaintiff, ) vs. ) ) Nelcela, Inc., et al., ) Defendants. ) ) And Related Counterclaims, Cross-Claims, ) ) and Third-Party Claims. )

No. CIV 02-1954-PHX-MHM THE JOINT PARTIES' MOTION FOR PARTIAL SUMMARY JUDGMENT ON NELCELA'S CLAIMS OF COPYRIGHT INFRINGEMENT, CONVERSION, AND AIDING AND ABETTING TORTIOUS CONDUCT

The Lexcel Parties (Lexcel, Lexcel Solutions, Carl Kubitz, and Flora Kubitz), POST Parties (POST Integrations, Ebocom, Mary Gerdts, and Douglas McKinney), and MTSI Parties (Merchant Transaction Systems, Gene Clothier, and Tone Clothier) (collectively "the Joint Parties") move for summary judgment on Nelcela's counterclaims and cross-claims alleging copyright infringement and conversion 1 and on the Nelcela Parties' third-party claims alleging aiding and abetting of copyright infringement and

Nelcela et al.'s First Amended Answer, Counterclaims, Cross-Claims and Third-Party 26 Claims (Dckt. 83) ("Nelcela Counterclaim Against MTSI & POST") at 17-19, Counts One and Two; id. at 37-39, Counts Three and Four; Nelcela et al.'s Answer, 27 Counterclaim Against Lexcel, Inc. and Lexcel Solutions, Inc., and Third-party Complaint Against Carl Kubitz and Flora "Pete" Kubitz (Dckt. 399) ("Nelcela Counterclaim Against 28 Lexcel") at 11-14, Counts Two and Four.
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conversion.2 Summary judgment is appropriate on these claims because the jury has found that Nelcela does not own the so-called "Nelcela Merchant System." Absent ownership, the Nelcela Parties cannot prevail on their claims of infringement or conversion. This Motion is supported by the following Memorandum of Points and Authorities and the accompanying Separate Statement of Facts. MEMORANDUM OF POINTS AND AUTHORITIES On September 30, 2006, this Court ruled that "Based upon the undisputed similarities between the Lexcel 2001 software, MTSI software and Nelcela software the Court finds that as a matter of law that they are substantially similar beyond the possibility of random chance and that copying took place." (Separate Statement of Facts ("SOF") ¶ 1). The case then proceeded to trial to determine who copied from whom. The jury determined that Nelcela copied the software from Lexcel, and entered its verdict that Lexcel owns the software. (SOF ¶ 3). The jury's verdict that Lexcel, rather than Nelcela, owns the software is dispositive of Nelcela's claims against the Joint Parties for copyright infringement and conversion. I. THE JOINT PARTIES ARE ENTITLED TO SUMMARY JUDGMENT ON NELCELA'S CLAIMS OF COPYRIGHT INFRINGEMENT AND CONVERSION "To establish copyright infringement, the holder of the copyright must prove both valid ownership of the copyright and infringement of that copyright by the alleged infringer." Entertainment Research Group, Inc. v. Genesis Creative Group, Inc., 122 F.3d 1211, 1217 (9th Cir.1997), cert. denied, 523 U.S. 1021 (1998). Here, the jury has determined that Nelcela does not own the "Nelcela Merchant System." (SOF ¶¶ 3, 5-8). Absent ownership, Nelcela cannot establish its copyright infringement claims against any of the Joint Parties. Entertainment Research Group, 122 F.3d at 1217. Likewise, Nelcela's lack of ownership also defeats its claims of conversion. "`Conversion is an intentional exercise of dominion or control over a chattel which so
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Nelcela Counterclaim Against MTSI & POST, Counts One and Two (Dckt. 83 at 5052); Nelcela Counterclaim Against Lexcel, Count Three (Dckt. 399 at 12-13). 2
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seriously interferes with the right of another to control it that the actor may justly be required to pay the other the full value of the chattel.'" Miller v. Hehlen, 209 Ariz. 462, 472, ¶ 34, 104 P.3d 193 (Ariz.App. 2005) (quoting RESTATEMENT (SECOND) TORTS § 222A(1)). Here, Nelcela had no right to control the "Nelcela Merchant System." Rather, Nelcela copied that software from the Lexcel Software without Lexcel's consent, in violation of the U.S. Copyright laws. See 17 U.S.C. § 106. As the jury has found, Lexcel, not Nelcela, owns the software, and thus has exclusive rights to control the software. Id. Absent the right to control the software, Nelcela cannot pursue claims for alleged conversion of the software. Miller, 209 Ariz. at 472 ¶ 34. Summary judgment is also warranted on Nelcela's conversion claims because the Joint Parties have not deprived Nelcela of possession of the software. Id. As shown by the exhibits marked at trial, Nelcela continues to this day to possess a copy of the "Nelcela Merchant System" software. (SOF ¶ 9). What Nelcela alleges in its conversion claims is not disruption of possession of the software, as required for a claim of conversion, but rather copying of the software, which falls outside the realm of a claim of conversion. Specifically, Nelcela claims that (a) Lexcel "`licensed' Nelcela's copyrighted software to others, including Post, without paying and/or compensating Nelcela for the copyrighted software"; (b) MTSI licensed software to POST "without properly paying Nelcela and/or compensating Nelcela in any way for the copyrighted software it legally owns"; (c) MTSI and POST have "modified the Nelcela copyrighted software"; and (d) MTSI and POST have "use[d] the software to process credit card transactions." (SOF ¶¶ 10-12). These allegations involve the exclusive rights of copyright holders to modify, license, and copy the software, e.g., 17 U.S.C. § 106, and therefore are governed exclusively by the U.S. Copyright laws. 17 U.S.C. § 301(a). Thus, Nelcela's conversion claims fail because Nelcela does not own the software. Entertainment Research Group, 122 F.3d at 1217. Accordingly, the Joint Parties are entitled to summary judgment on Nelcela's claims of copyright infringement and conversion. 3
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II.

THE JOINT PARTIES ARE ENTITLED TO SUMMARY JUDGMENT ON NELCELA'S CLAIMS OF AIDING AND ABETTING COPYRIGHT INFRINGEMENT AND CONVERSION A claim of aiding and abetting tortious conduct requires proof, among other

things, that a primary tortfeasor committed a tort that caused injury to the plaintiff. Wells Fargo Bank v. Arizona Laborers, Teamsters and Cement Masons Local No. 395 Pension Trust Fund, 201 Ariz. 474, 485 ¶ 34, 38 P.3d 12 (2002). Here, this element is missing. As explained in the previous Section, the Joint Parties have not engaged in copyright infringement or conversion, so there was no tort that could be aided or abetted. Consequently, Nelcela cannot establish its claims of aiding and abetting. Wells Fargo, 201 Ariz. at 485 ¶ 34. Accordingly, summary judgment should be entered in favor of the Joint Parties on these claims. III. THE JOINT PARTIES' PENDING MOTION TO STRIKE The Joint Parties have pending before this Court a Motion to Strike Nelcela's Affirmative Defenses, Counterclaims, and Third-Party Complaint (Dckt. 410) which asks the Court to strike and/or dismiss all of Nelcela's claims against the Lexcel Parties, including, but not limited to, Counts Two, Three, and Four of Nelcela's Counterclaims and Third-Party Complaint against the Lexcel Parties (Dckt. 399 at 11-14; Dckt. 410 at 27), which are the subject of this Motion. If the Court grants the Joint Parties' Motion to Strike, then the Court does not need to address the relief requested by the Lexcel Parties in this Motion. Alternatively, the Court may grant the Lexcel Parties' requested relief based on this Motion and the Joint Parties' Motion to Strike (Dckt. 410). IV. CONCLUSION For the foregoing reasons, this Court should enter summary judgment in favor of the Lexcel, POST, and MTSI Parties and against the Nelcela Parties on Nelcela's claims of copyright infringement, conversion, and aiding and abetting.

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RESPECTFULLY SUBMITTED May 17, 2007. BRYAN CAVE LLP By s/ George C. Chen George C. Chen Attorneys for Lexcel, Inc. and Lexcel Solutions, Inc. DICARLO CASERTA & PHELPS PLLC Nicholas J. DiCarlo and LAW OFFICES OF WILLIAM McKINNON By s/ William McKinnon William McKinnon Attorneys for Merchant Transaction Systems, Inc., Gene Clothier, and Tone Clothier CERTIFICATE OF SERVICE I hereby certify that on May 17, 2007, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Merrick B. Firestone, Esq. [email protected] Veronica L. Manolio, Esq. [email protected] RONAN & FIRESTONE, PLC 9300 East Raintree Drive, Suite 120 Scottsdale, Arizona 85260 Attorneys for Defendants Nelcela Incorporated, Alec & Diane Dollarhide, and Len & Helga Terry Campagna Diana Clauser LEWIS AND ROCA LLP By s/ Richard A. Halloran Peter D. Baird Robert H. McKirgan Richard A. Halloran Kimberly A. Demarchi Attorneys for POST Integrations, Inc., Ebocom, Inc., Mary L. Gerdts, and Douglas McKinney

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