February 5, 2021 - This Week at the Ninth

This Week at the Ninth: Floral Prints and Janitors

This week, we take a look at one Ninth Circuit decision addressing how to assess damages among multiple copyright infringers, and another examining the implications of changes in California law governing the distinction between independent contractors and employees.

DESIRE, LLC v. MANNA TEXTILES, INC.
The Court holds that the Copyright Act does not authorize multiple statutory damages awards for infringing one protected work where a single infringer is jointly and severally liable with all other infringers.

Panel: Judges Wardlaw, Bennett, and Sessions (D. Vermont), with Judge Bennett writing the opinion.  Judge Wardlaw concurred in part and dissented in part.

Key Highlight: “When the defendants have infringed more than one work, a plaintiff may seek additional awards of statutory damages. Likewise, additional groups of jointly and severally liable defendants may be subject to separate awards of statutory damages, but only if no defendant in a group (as to which a separate award is sought) is jointly and severally liable with a member of another group.”

Background: L.A. fabric supplier Desire purchased a floral print textile design from Cake Studios, Inc.  Desire registered the design with the U.S. Copyright Office in June 2015.  A few months later, Top Fashion bought four yards of the fabric and secured a garment order from a clothing retailer.  But when Top Fashion and Desire disagreed on the fabric’s price, Top Fashion showed the design to rival supplier Manna, which passed it along to an independent designer, who in turn gave the design to a Chinese textile manufacturer with instructions to modify it.  Manna registered the resulting pattern, which the Chinese manufacturer claimed was altered “30-40%” from the original, with the Copyright Office in December 2015.  Manna then began selling the altered design to various manufacturers, which used it to create garments sold by various clothing retailers.

Desire sued Manna, the manufacturers, and the retailers for copyright infringement.  The district court granted partial summary judgment for Desire, concluding that it owned a valid copyright entitled to broad protection, and that there were no triable issues of fact as to Desire’s ownership of the initial design or Manna’s and others’ access to it, but that there remained issues of triable fact as to whether the altered design was substantially similar to the original, and whether defendants willfully infringed. The court also held that if Desire prevailed, it would be entitled to up to seven different statutory damages awards with joint and several liability imposed on Manna and each different configuration of manufacturer and retailer that sold infringing garments. 

A jury then found that Manna, Top Fashion, and one other defendant—manufacturer ABN—willfully infringed the initial design, and that two other defendants—manufacturer Pride & Joys and retailer 618 Main—innocently infringed.  The jury awarded Desire statutory damages totaling $480,000, and the district court divided that liability under its pre-trial ruling as follows: $150,000 against Manna alone; $150,000 against ABN (jointly and severally with Manna); $150,000 against Top Fashion (jointly and severally with Manna); $20,000 against Pride & Joys (jointly and severally with Manna); and $10,000 against 618 Main (jointly and severally with Pride & Joys and Manna).

Result: The Ninth Circuit affirmed in part, reversed in part, and vacated the judgment awarding Desire multiple awards of statutory damages.  The Court began by affirming the district court’s determinations at summary judgment that Desire owned a valid copyright and that the original design was entitled to broad copyright protection.  Although the design was similar to other floral prints, Desire owned the copyright because the design was created with at least a “modicum of creativity” using original imagery, not copied from some other source. The design was also entitled to broad protection “because the flowers and the arrangement of those flowers are stylized and not lifelike, the Subject Design was an original creation, and there is a wide range of expression for selecting, coordinating, and arranging floral elements in stylized fabric designs.”

But the Ninth Circuit concluded that the district court erred by permitting multiple statutory damages awards.  The problem was not with joint and several liability, the Court said, because the district court had correctly concluded that each upstream infringer caused a separate category of downstream infringements, and thus damages could be apportioned among the different sets of infringers under general principles of joint and several liability.  But that did not end the inquiry.  Section 504(c)(1) of the Copyright Act permits an owner to recover “an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally.”  That language foreclosed multiple awards on the facts of this case.  Because “’an award’ clearly means one award,” and Manna was jointly and severally liable with every other defendant, Desire was entitled to only one statutory damage award per work.  The Court rejected the argument that “all defendants must be jointly and severally liable” with each other for the statute’s single statutory damages award limitation to kick in because it was contrary to the statute’s plain meaning and ran afoul of the rule against superfluity.  “Requiring complete joint and several liability among all defendants would render the word ‘any’ [in ‘for which any two or more infringers are liable jointly and severally’] superfluous, or alternatively, would rewrite the statute to impose a single award only where ‘all infringers are liable jointly and severally.’”  That conclusion was not contrary to the Ninth Circuit's prior decision in Columbia Pictures Television v. Krypton Broadcasting of Birmingham, where the Court had considered similar arguments in a case involving multiple works.  The Court also reasoned that Desire’s proposed interpretation of the Copyright Act would produce absurd results by shielding Manna from multiple awards if it acted in concert with all downstream infringers, but not if each acted separately, and by authorizing astronomical damages in comparison to the infringers’ actual profits.  Finally, the Court concluded that its interpretation was most consistent with the Copyright Act’s goal of providing adequate compensation for infringement without giving copyright owners a windfall.

Judge Wardlaw concurred in part and dissented in part.  First, Judge Wardlaw reasoned that because there was no joint and several liability finding at trial or after trial, and the pre-trial order was insufficient, the proper course of action was to remand for the district court to either correct its judgment or determine joint and several liability in the first instance.  Next, Judge Wardlaw disagreed with the majority’s interpretation of Section 504(c)(1).  Under prior Ninth Circuit precedent, she said, “separate statutory damages awards are appropriate when separate downstream infringers are not jointly and severally liable with each other, even though an upstream defendant might be jointly and severally liable with each of them.”  She asserted that conclusion follows from the statutory text because “[r]ead most naturally, ‘any two or more infringers are liable jointly and severally’ means an undetermined number of the infringers who have been held jointly and severally liable,” and the phrase “for which” means “which specific acts of infringement each defendant is jointly and severally liable for, not just that a defendant is jointly and severally liable for some infringement in the case.”  The majority’s contrary conclusion “will have broad implications for copyright litigation in the Ninth Circuit,” Judge Wardlaw warned, because it will encourage “plaintiffs to bring a separate lawsuit against each defendant, maximizing the number of statutory damages awards available while peppering the courts with individual cases that would be more efficiently tried together.” 

VAZQUEZ v. JAN-PRO FRANCHISING INTERNATIONAL, INC.
The Court vacates and remands for the district court to apply California’s new test for determining when an employer-employee relationship is created, while strongly suggesting that the plaintiff “sub-franchisee” janitors were in fact employees of an ultimate controlling franchisor.

The panel:  Judges Gould, Berzon, and Block (E.D.N.Y.), with Judge Block writing the opinion.

Key highlight:  “First, Jan-Pro’s business ultimately depends on someone performing the cleaning. That work is performed solely by the unit franchisees. Thus, Jan-Pro fundamentally depends on a supply of unit franchisees for its business (and, accordingly, requires its regional master franchisees to sell a minimum number of unit franchises). Second, Jan-Pro earns a percentage of the payments that customers pay for cleaning services. . . . It is not simply renting out its trademark and goodwill to independent entities that could use it to perform cleaning services. Rather, Jan-Pro is actively and continuously profiting from the performance of those cleaning services as they are being performed.”

Background:  Jan-Pro provides janitorial services.  It employs a complicated two-tier franchise model in which it contracts with intermediary franchisees, which then subcontract with subsidiary franchisees.  One such subsidiary franchisee—an individual named Giovani Depianti who worked as a janitor—sued in federal district court in Massachusetts, claiming that this multi-level system was a “farce” intended to avoid treating him as an employee and depriving him of applicable minimum wage and overtime protections.  Jan-Pro then sued Depianti in Georgia state court for declaratory relief, where it prevailed.  The Massachusetts district court dismissed Depianti’s action on res judicata grounds, and the First Circuit affirmed.

During the course of these proceedings, three California plaintiffs similarly situated to Depianti also sued Jan-Pro in the same Massachusetts proceeding.  The district courts severed these plaintiffs’ claims and transferred the case to the Northern District of California.  The California district court then granted summary judgment to Jan-Pro, concluding that plaintiffs lacked evidence that Jan-Pro exercised an adequate degree of control over their work. 

Result:  The Ninth Circuit vacated and remanded.  First, the Court rejected the contention that the First Circuit’s decision in the Depianti litigation precluded the plaintiffs’ suit here.  Applying Massachusetts law, the Ninth Circuit deemed res judicata inapplicable because the California plaintiffs were neither parties to the Massachusetts litigation nor in privity with Depianti.  As the Court explained, Massachusetts law limits “privity” to those situations in which the litigating party “understood herself to be acting in a representative capacity or the original court took care to protect the interests of the nonparty,” requirements that had not been met. 

Next, the Court addressed whether it should apply the Dynamex test—set forth by the California Supreme Court in a decision post-dating the district court’s grant of summary judgment—to determine whether plaintiffs were properly classified as independent contractors.  In a prior version of the panel’s opinion, the Court had applied California retroactivity principles to hold that the answer was yes.  Following a rehearing petition, the panel reconsidered and instead certified the question of retroactivity to the California Supreme Court.  The Supreme Court agreed with the panel’s earlier conclusion, holding that “Dynamex applies retroactively to all nonfinal cases that predate the effective date of the Dynamex decision.”  That, the Ninth Circuit held, resolved the question as a matter of state law.  The panel also concluded that this conclusion was consistent with federal Due Process limits, echoing the California Supreme Court’s view that applying Dynamex retroactively would “ensure[] that Plaintiffs can provide for themselves and their families,” protect “the janitorial industry as a whole” by “putting Jan-Pro on equal footing with other industry participants who treated those providing services for them as employees,” and ensure “California will not be burdened with supporting” Jan-Pro’s workers. 

Turning to the merits, the Ninth Circuit observed that Dynamex had expanded the understanding of what it means for a putative employer to “suffer or permit” a putative employee to work, adopting what is known as the “ABC” test.  That test, borrowed from Massachusetts, “requires the hiring entity to establish three elements to disprove employment status: (A) that the worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract for the performance of the work and in fact; (B) that the worker performs work that is outside the usual course of the hiring entity’s business; and (C) that the worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.” 

Because the district court had not applied that test, the Ninth Circuit vacated and remanded.  In doing so, the Court offered a number of observations to guide the district court.  First, the Ninth Circuit emphasized that the standards governing whether an employer is vicariously liable for the torts of its employee are not the same as those governing whether there is an employer-employee relationship for purposes of California’s wage order.  Second, the Ninth Circuit called attention to a pair of decisions that had applied this ABC test to a similar three-tier franchise structure and determined that it created an employment relationship.  Third, the Court noted that plaintiffs might have the best chance of winning summary judgment on the “B” prong of the ABC test, emphasizing that Jan-Pro is (or, at least would seem to be) a cleaning business that necessarily depends on the work of its cleaners.