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Design Basics LLC v. Campbellsport Building Supply, Inc.

United States District Court, E.D. Wisconsin

June 7, 2016

DESIGN BASICS LLC, Plaintiff,
v.
CAMPBELLSPORT BUILDING SUPPLY, INC.; BERLIN BUILDING SUPPLY, INC.; KIEL BUILDING SUPPLY, INC.; DREXEL, INC., DREXEL BUILDING SUPPLY, INC.; JOEL M. FLEISCHMAN also known as JOEL C. FLEISCHMAN, and ALBERT J. FLEISCHMAN, Defendants and Counterclaim-Defendants, and WILSON MUTUAL INSURANCE COMPANY, Intervenor Defendant and Counterclaimant.

          DECISION AND ORDER

          HON. RUDOLPH T. RANDA U.S. District Judge

         Plaintiff Design Basics LLC, owner of copyrighted building plans, alleges that the Defendants, competitors in the home design industry, have infringed on 64 of its copyrighted plans. The Defendants counterclaim that the copyrights are invalid. Design Basics’ motions for costs and for partial summary judgment on its copyright claims (ECF Nos. 128, 134) and the Defendants’ motion for summary judgment dismissing Design Basics’ claims (ECF No. 129) are ready for resolution and addressed herein.

         MOTION FOR COSTS

         Design Basics asserts that the Defendants should compensate investigators John C. White, John M. Pratt, and Norman Barnard as experts for time spent preparing for and participating in depositions taken by the Defendants. (ECF No. 128.) The Defendants assert that Design Basics has not provided legal authority to support its claim for additional compensation beyond the mileage reimbursement and $40 witness fees previously paid to the investigators.

         The Federal Rules of Evidence distinguish between lay and expert testimony. Lay testimony is evidence consisting of opinions or inferences "rationally based on the witness’s perception, " Fed.R.Evid. 701(a), whereas expert testimony is that evidence founded on "scientific, technical, or other specialized knowledge." Fed.R.Evid. 702(a). In the context of criminal investigations, Seventh Circuit case law has discussed lay and/or expert testimony of investigators. See, e.g., United States v. Rollins, 544 F.3d 820, 832-33 (7th Cir. 2008); United States v. Oriedo, 498 F.3d 593, 603 (7th Cir. 2007). When testimony involves only an investigator’s "own personal observations and perceptions derived from [the] particular case" at hand, the testimony is lay testimony. Rollins, 544 F.3d at 833. However, when an investigator’s testimony is not "limited to what he observed in [a given] search or to other facts derived exclusively from [the] particular investigation" at issue, and instead involves the investigator bringing his "wealth of experience . . . to bear on those observations, " the testimony is expert testimony. Oriedo, 498 F.3d at 603.

         Design Basics listed the investigators as potential lay witnesses; they were not identified as experts. Design Basics has not established that its investigators should be deemed expert witnesses. Consequently, its motion for costs (ECF No. 128) is denied.

         SUMMARY JUDGMENT AND PARTIAL SUMMARY JUDGMENT MOTIONS

         The Defendants assert that Design Basics’ action should be dismissed as a sanction due to its spoliation of evidence by intentionally destroying files that would have established the authorship of the copyrighted building plans. Alternatively, the Defendants assert that some claims should be dismissed for lack of evidence or because the infringements predate the effective date of the Digital Millennial Copyright Act (DMCA), 17 U.S.C. § 1202.

         Design Basics requests partial summary judgment finding that it is the owner of valid copyrights in the 64 works at issue in this litigation. It maintains that eleven affirmative defenses should be dismissed.

         Summary Judgment Standard

         Summary judgment is appropriate only "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Summary judgment should be granted when a party that has had ample time for discovery fails to "make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial." Id. If the moving party establishes the absence of a genuine issue of material fact, the non-moving party must demonstrate that there is a genuine dispute over the material facts of the case. Id. at 323-24. The Court must accept as true the evidence of the nonmovant and draw all justifiable inferences in his favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Summary judgment is appropriate only "where the factual record taken as a whole could not lead a rational trier of fact to find for the non-moving party." See Bunn v. Khoury Enters., Inc., 753 F.3d 676, 682 (7th Cir. 2014) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986)). On cross-motions for summary judgment, the Court assesses whether each movant has satisfied the requirements of Rule 56. See Cont’l Cas. Co. v. Nw. Nat’l Ins. Co., 427 F.3d 1038, 1041 (7th Cir. 2005); see also Laskin v. Siegel, 728 F.3d 731, 734 (7th Cir. 2013).

         Relevant Facts[1]

         Since the early 1980s, Design Basics, an Omaha, Nebraska home plan design company, has created, marketed, published and licensed the use of architectural works. Sometime after its inception, the business was established as a corporation, Design Basics, Inc. In 2009, the business was purchased by Patrick Carmichael and Myles Sherman, who created DBI Holdings, LLC, a Nebraska limited liability company. They merged DBI with Design Basics, Inc. and restructured the business into the Plaintiff limited liability corporation, which owns all assets of the previously separate pre-merger entities, including all intellectual property of Design Basics, Inc. Design Basics owns copyrights in certain home plans/designs published in various nationally-circulated home-design catalogs.[2]

         The Defendants sell raw building materials such as shingles, siding, windows, lumber, flooring, cabinets and trim to building contractors, retailers and their clients, and they employ draftspeople for residential home designs. The Defendants have five Wisconsin locations - Brookfield, Kiel, Campbellsport, Berlin, and Wrightstown.

         Since it was founded, Design Basics has been a major national publisher of plan catalogs and no-cost magazine-styled promotional mailers in which its copyrighted works are marketed. Before the advent of the World Wide Web, Design Basics was the nation’s largest publisher of home plan catalogs, allowing customers to order catalogs by phone or by direct purchase in many home improvement stores and lumberyards across America. Since the popularity of the World Wide Web, Design Basics’ plans have been widely disseminated throughout the United States.

         In 1996, Design Basics launched a website, www.designbasics.com. However, not all its copyrighted plans were added to the website until 1998 or 1999. Design Basics maintains the website to advertise and market all of its copyrighted works by publishing designs in user-friendly and easily accessible online storefront. Determination of the precise date that any particular plan was added to Design Basics website is not possible. The works shown in Design Basics’ home design catalogs and its website display its copyright management information (CMI), giving notice to customers and potential customers that Design Basics owns those copyrighted plans.

         In 1988, Design Basics designated an architectural work the "Trenton, " and registered it with the United States Copyright Office on August 18, 1988.[3] In 1989, Design Basics designated an architectural work the "Rosebury, " and registered it with the United States Copyright Office on October 11, 1989.

         In copyright litigation prior to January 2010, Design Basics produced copies of its original design files in discovery and was aware that its original design files would be relevant information in any copyright infringement litigation. Design Basics knew that defendants in such lawsuits have a legitimate interest in seeing original design files to confirm authorship and originality and that it would be in its best interest to preserve those files.

         In January 2010, Design Basics was replacing the flat roof of its main facility. The melting of large snowfall accumulation on that roof, followed by a heavy rainfall, created undue pressure and compromised the roof’s integrity, resulting in a severe breach of the roof/ceiling and damaging the facility’s contents.

         Janie Murnane, Design Basics’ chief financial officer, oversaw the clean-up process. Design Basics retained Terracon Consultants, Inc. to perform an assessment of the general health of the building, and Murnane served as liaison to Tarracon’s industrial hygienist, Randy Milbrath. Milbrath told Murnane that any porous materials such as cellulose (paper, cardboard, etc.) that had been wet should be removed from the building because they could negatively impact the air quality.

         Milbrath also told Murnane that if the banker boxes (which contained the original authorship records) were allowed to sit for 48 hours or longer, there was a greater likelihood that mold would grow, and spread through the building.

         In an effort to clear the building, Design Basics moved all the water-damaged files/boxes out so that the water extraction company could remove standing water from the building and the mold inspection company could assess and test designated areas of the facility. Affected files/boxes were relocated based on the severity of damage. The most salvageable files were moved to a garage and warehouse so that staff could sort through their contents. The most damaged files were moved to Design Basics’ previous Customer Call Center. Murnane was not aware that Design Basics’ original authorship records were stored in cardboard banker boxes marked with "customer change order" numbers and bearing dates indicating that their contents were at least five years old.

         Design Basics destroyed those banker boxes and their contents. When Design Basics destroyed its original design files, [4] they were not scanned onto a computer. Although the original physical drawings were destroyed, Design Basics has produced to the Defendants digital copies of its home plan designs, plan catalogs, web advertisements, and deposit materials submitted to the Copyright Office.

         On May 19, 2010, while marketing its works to previous customers, Design Basics discovered that a Wisconsin home builder, Signature Homes, had been marketing and selling homes which Design Basics asserts are three-dimensional copies of its copyrighted works. Design Basics maintains that Signature’s website shows an "Allister" plan which is a three-dimensional copy of Design Basics’ copyrighted "Ambrose" plan and infringes on Design Basics’ copyright, and that the "Allister" plan contained the notation "Plans copyrighted by: Campbellsport Building Supply."[5] Subsequently, Design Basics sent licensed private investigators to the Defendants’ locations to determine the nature and extent of infringement activities. Design Basics claims the investigation revealed that the Defendants immediately copied three of Design Basics’ works, even while acknowledging that such activity constituted copyright infringement.

         As a result of its inspection of the Defendants’ computer assisted design drawings and blueprints in this action, Design Basics claims that the Defendants have infringed upon an additional 61 of its copyrighted works by copying, [6] advertising, marketing, and distributing accused designs to home builders who have constructed at least 146 houses.[7] Four allegedly infringing works are dated prior to October 28, 1998.

         Design Basics claims that it is the original author of all plans the Defendants allegedly infringed, and it denies that any of its plans were based on any previous works. In discovery Design Basics has denied that it destroyed any documents that relate to or concern this litigation. It states that most of its original design files were destroyed due to the January 2010 water damage, which prevents it from producing the original design sketches for the plans that the Defendants allegedly infringed.

         Spoliation

         Asserting that Design Basics intentionally destroyed information it knew was relevant to this litigation, the Defendants maintain that this action should be dismissed based on spoliation. Design Basics counters that (1) dismissal is an inappropriate sanction for records lost due to a natural disaster; (2) when the records were destroyed it had no duty to preserve them; (3) the Defendants have not been harmed because it has produced sufficient evidence of copyright validity; (4) its conduct does not rise to the requisite level of culpability to warrant dismissal; and (5) Design Basics, LLC v. Jim Marhofer, et al., No. 12-14894 (E.D. Mich. June 15, 2015), relied upon by the Defendants, does not support dismissal.

         Assessing whether spoliation occurred is a two-part inquiry: (1) "[C]ourts have found a spoliation sanction to be proper only where a party has a duty to preserve evidence because it knew, or should have known, that litigation was imminent." Trask-Morton v. Motel 6 Operating L.P., 534 F.3d 672, 681 (7th Cir. 2008); see also Norman-Nunnery v. Madison Area Tech. Coll., 625 F.3d 422, 428 (7th Cir. 2010); (2) a showing of "bad faith" is "a prerequisite to imposing sanctions for the destruction of evidence." Trask-Morton, 534 F.3d at 681. "‘[B]ad faith’ means destruction for the purpose of hiding adverse information." Mathis v. John Morden Buick, Inc., 136 F.3d 1153, 1155 (7th Cir. 1998); see also Bracey v. Grondin, 712 F.3d 1012, 1019 (7th Cir. 2013).

         Sanctions for spoliation may not be imposed simply because evidence was destroyed; instead, such sanctions are appropriate only if the evidence was destroyed for the purpose of hiding adverse information. See e.g., Park v. City of Chi., 297 F.3d 606, 615 (7th Cir. 2002) (citation omitted) ("[T]he crucial element is not that evidence was destroyed but rather the reason for the destruction."). The movant bears the burden to make this showing. Bracey, 712 F.3d at 1019.

         Without citation to authority, the Defendants maintain that in the wake of the water damage, Design Basics had a duty to preserve evidence that was relevant to this lawsuit. The water damage occurred in January 2010. Design Basics was not aware of an infringement relevant to this lawsuit until May 19, 2010 and it did not file this action until May 2013. There is a genuine dispute of material fact regarding when the original design files were destroyed. However, considering the facts in the light most favorable to Design Basics (the nonmovant on the spoliation ...


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