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The Business Torts Reporter (ISSN 1520-7064) is published monthly by Aspen Publishers, 76 Ninth Avenue, New York, NY 10011. Subscription price $705.00 per year. No part of this journal may be reproduced in any form by microfilm, xerography, or otherwise, or incorpo- rated into any information retrieval system, without the written permission of the copyright owner. Printed in U.S.A. POST MASTER: Send address changes to Business Torts Reporter, 701 McKinney Circle, Frederick, MD 21704.

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IN THE COURTS

The US Supreme Court clarifies the application of laches to claims of copyright infringement.

Petrella v. Metro-Goldwyn-Mayer, Inc., No. 12–1315 (U.S. S. Ct. May 19, 2014). A district court and the Ninth Circuit Court of Appeals erred in treat- ing laches as a complete bar to a copyright holder’s infringement suit against Metro-Goldwyn-Mayer, Inc. (MGM) because the action was com- menced within the bounds of the stat- ute of limitations, the US Supreme Court has held. The decision potentially has broad application beyond suits for copyright infringement, because the Court clarified that laches should not be applied to any legal claim filed

within the statutorily prescribed stat- ute of limitations.

Frank Petrella (Frank) and boxing champion Jake LaMotta collaborated in creating a screenplay of the box- er’s storied career. The screenplay was registered in 1963, with Frank listed as the sole author. In 1976, MGM acquired the motion picture rights to the screenplay—rights stated by the parties as being “exclusiv[e] and forever, including all periods of copyright and renewals and extensions thereof.” MGM released the motion picture Raging Bull in 1980—which was based on Frank’s screenplay—and immediately registered a copyright in the film. Frank lived to see the movie released, and passed away in 1981.

In 1990, the US Supreme Court decided Stewart v. Abend, which held

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that “if an author who has assigned her rights away dies before the renewal period, then the assignee may continue to use the original work [to produce a derivative work] only if the author’s successor transfers the renewal rights to the assignee.” (Internal quotation marks omitted).1 Petrella’s daughter, Paula Petrella (Paula) concluded that, because of the Supreme Court’s ruling in Stewart, she had a potential claim for copyright infringement against MGM (who continues to promote and rerelease Raging Bull in new media). Paula hired an attorney, who renewed the copyright in the screenplay in 1991. In 1998, seven full years after filing for renewal of the screenplay’s copyright, Paula’s attorney informed MGM that she had renewed the copyright to that work. Paula then demanded that MGM pay roy- alties because Raging Bull was a deriva- tive work based on Frank’s screenplay. MGM refused. The parties then began a long process of wrangling over who owned the copyright. Nine years later, in January, 2009, Paula filed a copyright infringement suit in California, alleging that MGM violated her copyright in the 1963 screenplay by using, producing, and distributing Raging Bull the movie, a work she described as derivative of the 1963 screenplay. Because of the three- year statute of limitations, Paula limited her requested recovery to MGM’s profits from the alleged infringement occurring on or after January, 2006.

MGM moved for summary judgment based on laches. According to MGM,

Paula’s 18-year delay unreasonably and unfairly prejudiced it. Paula countered that there was a simple justification for her failure to pursue her copy- right infringement claims earlier: Until recently, the film had not made any money. The district court agreed with MGM, holding that laches barred the copyright claims because Paula had unreasonably delayed by not filing her claim until 2009 and MGM was preju- diced by the delay. The Ninth Circuit affirmed the dismissal of the suit based on laches. The appeals court noted that “[i]f any part of the alleged wrongful con- duct occurred outside of the limitations period, courts presume that the plain- tiff’s claims are barred by laches.” One judge on the appeals panel concurred only grudgingly, however, concluding that laches in copyright cases was an “entirely … judicial creation,” and one notably “in tension with Congress’ [man- dated statute of limitations].”2 Paula appealed, and the US Supreme Court granted certiorari to resolve a conflict among the federal circuits over how to apply the equitable defense of laches to copyright infringement cases.3

Statute of Limitations for Copyright Claims

Under the Copyright Act, a copy- righted work published before 1978 is protected for an initial period of 28 years, which may be extended for a renewal period of up to 67 years. Works created after 1978 generally are pro- tected from the date of creation until

1 Stewart v. Abend, 495 U. S. 207, 220-221 (1990).

2 The Ninth Circuit’s decision is Petrella v. Metro-Goldwyn-Mayer, Inc., 695 F.3d 946 (9th Cir. 2012).

3 See Lyons Partnership LP v. Morris Costumes, Inc., 243 F. 3d 789, 798 (4th Cir. 2001); Chirco v. Crosswinds Cmtys., Inc., 474 F. 3d 227, 233 (6th Cir. 2007); Jacobsen v. Deseret Book Co., 287 F. 3d 936, 950 (10th Cir. 2002); New Era Publ’ns Int’l v. Henry Holt & Co., 873 F. 2d 576, 584-585 (2d Cir. 1989) (approaches vary widely across circuits).

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70 years after the author’s death, the Court explained.4 Section 507(b) of the Copyright Act provides that a civil action must be commenced within three years after the claim accrued. A copyright claim accrues when an infringing act occurs and the statute of limitations runs separately from each Copyright Act violation. An infringer is insulated from liability for infringements of the same work that occurred outside the three year period. However, circuit courts have reached conflicting decisions on the application of the equitable defense of laches to copyright infringement claims brought within the three-year look-back period prescribed by Congress.

Laches is an equitable defense whose application, in the Court’s view, “was, and remains to claims of an equi- table cast for which the Legislature has provided no fixed time limitation.”5 Laches, in contrast to equitable tolling, served as a guide when no statute of limitations controlled the claim, and the defense could not be described as a rule for interpreting a statutory pre- scription; in fact, the Court had previ- ously cautioned courts against invoking laches to bar legal relief. For example, in Holmberg v. Armbrecht, the Court had stated that “[i]f Congress explicitly puts a limit upon the time for enforcing a right which it created, there is an end of the matter,” but “[t]raditionally … , statutes of limitation are not controlling measures of equitable relief.”6

Laches as Bar to Claim for Infringement

MGM argued that laches could bar claims for relief brought before the

expiration of the statute of limitations. According to MGM, laches was available in every civil action to bar all forms of relief. The Court disagreed. “The expan- sive role for laches MGM envisions careens away from understandings, past and present, of the essentially gap-filling, not legislation-overriding, office of laches.” Contrary to MGM’s contentions, the Court observed that it had never applied laches to bar claims for discrete wrongs occurring within the limitations period. Accordingly, the Ninth Circuit had erred in failing to recognize that the copyright statute of limitations takes account of delay. MGM countered that laches should nonetheless be available for copyright claims to prevent a copyright owner from sitting and waiting to see whether an alleged infringer’s investment might bear fruit. The Ninth Circuit certainly faulted Paula for this tactic—citing, as justification for applying laches, Paula’s failure to sue until the film made money. However, there was no requirement for a copyright holder to pursue every pos- sible infringer, the Court noted, explain- ing that there was “nothing untoward about waiting to see whether an infring- er’s exploitation undercuts the value of the copyrighted work, has no effect on the original work, or even comple- ments it.” For example, fan sites often benefit the copyright owner, the Court pointed out. Granting MGM’s motion to dismiss would require copyright owners to sue quickly for seemingly innocuous infringements, lest those infringements eventually grow in magnitude. On the other hand, the statute of limitations and separate-accrual rule allows copy- right owners to wait until a suit is worth

4 17 U. S. C. §§ 304(a), 302(a).

5 See 1 D. Dobbs, Law of Remedies § 2.4(4), p.104 (2d ed. 1993).

6 Holmberg v. Armbrecht, 327 U.S. 392, 395-396 (1946).

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bringing—and avoids the problems of “such litigation profusion.”

Next, MGM asserted that a plaintiff who is overly tardy in bringing suit should be barred from relief because potentially exculpatory evidence might be rendered stale. For example, in the case at bar, Frank had died, and LaMotta was a poor witness on account of his age and his mental condition. This rationale underlay the very existence of statutes of limitations and laches in the first place, MGM asserted. The Court disagreed with this point as well. The potential for evidence being lost due to a copyright owner waiting to sue was at least as likely to affect plaintiffs as it was to disadvantage defendants, and was not a sufficient reason to find such claims barred. Furthermore, the most important evidence—the certificate, the original work, and the allegedly infring- ing work—will not be lost, the Court observed. Finally, the Court noted that the doctrine of estoppel would bar a copyright owner that engages in inten- tionally misleading representations concerning his abstention from suit from bringing infringement claims.7

Although the consequences of a delay in commencing suit may be of sufficient magnitude to warrant curtailment of the relief equitably awardable, no extraordi- nary circumstances existed in this case. Paula notified MGM of her copyright claims before MGM invested in creating a new edition of Raging Bull, and the relief sought would not result in “total destruction” of the film. At most, the circumstances might warrant limiting relief at the remedial stage, the Court believed. Furthermore, the district court could take into account Paula’s delay in determining appropriate injunctive

relief and assessing profits. Finally, the Court noted that MGM’s returns on its investment in Raging Bull in years out- side the three-year statutory window could not be reached by Paula.

Dissenting Opinion

Justice Breyer, joined by Chief Justice Roberts and Justice Kennedy (the dis- sent), dissented from the majority’s opinion, noting that the Court’s decision precludes courts from addressing the inequity of allowing a copyright owner to remain inactive while the proposed infringer spends large sums of money in its use of the work at issue. The dissent noted that, under the majority’s hold- ing, copyright owners could wait until a witness dies who might have proven the existence of understandings about a license to reproduce the copyrighted work, or who might have shown that the plaintiff’s work was in fact derived from older copyrighted materials that the defendant had licensed. Owners might also delay to avoid bargaining with the defendant up front over a license until the defendant invests time, effort, and resources into making the derivative product, making it more likely the owner will obtain favorable licensing terms through settlement. Although long delays do not automati- cally prove inequity, the dissent argued that the possibility requires that courts be allowed to apply laches to bar such inequitable claims. The dissent noted that it was unlikely that the doctrine of equitable estoppel would prevent the inequities that laches seeks to avoid. In the dissent’s opinion, the majority also placed insufficient weight on the rules and practice of modern litiga- tion. Courts frequently have allowed defendants to assert what were formerly

7 See 6 W. Patry, Copyright § 20:58, at 20-110 to 20-112.

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equitable defenses—including laches— in what were formerly legal actions, the dissent noted. There did not seem to be a reason to treat copyright cases any differently by permitting laches to apply to copyright claims seeking equitable relief but not to those seeking legal relief.

Breach of Contract/ Fraud/Fiduciary

Litigation/ Negligence/

Consumer Protection

Montana clarifies the standards by which lenders may be held liable for harm arising from post-lending conduct.

Morrow v. Bank of America, N.A., 2014 MT 117 (Mont. May 7, 2014). The recent foreclosure crisis has engen- dered significant litigation against lenders. Typically, plaintiffs seek to hold their lender accountable for the breach of a duty, fiduciary or otherwise, between bank and customer. These cases are somewhat of a mixed bag, but generally courts disfavor impos- ing liability for breach of duty in tra- ditional “arms-length” creditor-debtor transactions. However, in this case the Montana Supreme Court has clarified that when a bank’s post-lending activity goes beyond the traditional arms-length commercial transaction, it may be held liable for a breach of duty. While the court limited its holding to situations

involving loan modification, the court’s reasoning is equally applicable to other post-lending activity, such as invest- ment advice or project management.

Abraham and Betty Morrow (the Morrows) built a home in 2006 outside of White Sulphur Springs, MT, for their retirement. The home was financed by Quicken Loans for $291,200, with a 15-year loan at 4.99 percent interest rate and monthly payments of $2,301.28. The owner of the loan was Countrywide Home Loans Servicing, LP, and later, by succession, Bank of America (BoA).8 In 2009, the Morrows lost the major- ity of their retirement income when the purchaser of their former busi- ness defaulted on his payments. The Morrows returned to South Carolina to take over management of the business and, for the next three years, they made only intermittent trips back to Montana to visit their retirement home. That same year, in 2009, they began the pro- cess of attempting to refinance the loan on their Montana home under the federal Home Affordable Modification Program (HAMP). In October, 2009, BoA allegedly informed the Morrows that they should intentionally miss the following month’s payment to be eli- gible for loan modification. Accordingly, the Morrows intentionally defaulted on the loan payments. In December, 2009, another BoA employee allegedly informed the Marrows that they were “locked” for a loan modification with trial payments of $1,239.99 per month. The employee further informed the Morrows that they would be required to make these payments for the next

8 Bank of America purchased Countrywide for $2.5 billion in January 2008, in the wake of the mortgage foreclosure crisis and Countrywide’s impending bankruptcy. That deal, which seemed good on paper, has caused nothing but headaches for Bank of America, as amply dem- onstrated by this case. See, e.g., Dan Fitzpatrick, BofA Haunted by Countrywide Deal, WALL ST. J., June 30, 2011, available at http://online.wsj.com/news/articles/SB1000142405270230445 0604576415370910097078 (last visited June 1, 2014).

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