Unpublished Disposition, 934 F.2d 324 (9th Cir. 1989)

MEMORANDUM^* 

Hong Kong TV Video Program, Inc. ("HKTV") distributes Cambodian language videotapes for rental to the public. Some of these tapes were offered for rental at the May Kong Market & Video Rental ("May Kong Market"). HKTV sued May Kong Market, the individual owners of May Kong Market and Meng Taing (collectively "defendants") for copyright infringement. HKTV contended defendants' rental of tapes acquired by Meng Taing from HKTV (the "HKTV tapes") and Hoang's Video in San Jose (the "San Jose tapes") violated the copyright owner's rights under 17 U.S.C. § 106. The district court entered an order of summary judgment in HKTV's favor as to the San Jose tapes and awarded HKTV $19,500 in damages. It also awarded $4,214.38 as partial payment of HKTV's reasonable attorney fees pursuant to 17 U.S.C. § 505 and as a sanction under Rule 11. After a bench trial, the district court denied relief as to the HKTV tapes. We affirm in all respects.

FACTS

HKTV is the exclusive United States licensee of HK-TVB International Limited ("HK-TVB"). Pursuant to its license, HKTV leases Cambodian language videotapes owned by HK-TVB to retail vendors for rental to the public. Defendants offered for rental approximately 265 of these videotapes at the May Kong Market.

Defendants obtained the videotapes in question from two different sources. First, defendants acquired tapes pursuant to a distribution agreement entered into between Meng Taing and HKTV. A single paragraph printed on the lease invoices sets out the provisions of the distribution agreement:

ACCEPTANCE OF THE VIDEOTAPES CONFIRMS YOUR AGREEMENT TO THE FOLLOWING TERMS AND CONDITIONS:

The copyright and the audio visual program of these tapes is owned by TELEVISION BROADCASTS, LTD. (HK-TVB) of Hong Kong. The videotapes are LEASED to you for RENTAL purposes only at the above-restricted address for personal home viewing only, within the state of the above address. Copying of these programs shall be cause for immediate termination without notice. This LEASE expires October 31, 1986. HK-TVB videotapes under this or any other lease shall be subject to erasure upon expiration or termination of this lease. Any breach of any of the above terms and conditions will terminate this Lease.

This paragraph constituted the only written agreement entered into between Meng Taing and HKTV.

Notwithstanding the apparently clear import of the quoted language, defendants offered proof that HKTV agreed to several oral modifications of the written agreement. For example, the lease invoice provides for rental to the public "only at the above-restricted address...." The only address listed on the lease invoice is Meng Taing's home address, but both parties now acknowledge the agreement did not limit rental of the HKTV tapes to Meng Taing's home. In addition, HKTV admits that, due to clerical error, the lease expiration date included in the agreement is incorrect--the correct date is November 24, 1986. Meng Taing alleges the parties orally modified other provisions of the agreement as well. We need not resolve these factual disputes to resolve this appeal.

Meng Taing also acquired tapes from Hoang's Video in San Jose. Hoang's Video obtained its tapes from HKTV pursuant to the same lease invoice agreement quoted above. Defendants have offered no substantial evidence to suggest HKTV and Hoang's Video orally modified their lease invoice agreement.

HKTV sued defendants for copyright infringement under 17 U.S.C. § 106. HKTV contended the rental of the HKTV tapes out of the May Kong Market violated the provisions of the agreement entered into between HKTV and Meng Taing. Similarly, HKTV argued that the San Jose tapes could be rented to the public only at Hoang's Video in San Jose and that their "sublease" to defendants for rental at the May Kong Market in Oakland violated the provisions of the original lease agreement. HKTV did not include Hoang's Video as a defendant in this suit.

After discovery had closed, HKTV moved for summary judgment. The district court granted HKTV's motion insofar as it related to the San Jose tapes and set the case for a bench trial to calculate damages and to determine liability regarding the HKTV tapes. After a bench trial, the court awarded HKTV $19,500 in statutory damages for the San Jose tapes violations. Regarding the HKTV tapes, the court found that HKTV was estopped from enforcing the copyright against the defendants. The court also awarded HKTV $4,214.38 as reasonable attorney fees pursuant to 17 U.S.C. § 505 and as a sanction under Rule 11.

Defendants appeal from the order granting summary judgment for the San Jose tapes, the order denying defendants' motion for a new trial, the district court's failure to award defendants their attorney fees, the award of attorney fees to HKTV and the imposition of Rule 11 sanctions. Defendant Meng Taing also appeals the district court's denial of his motion to amend his answer. Richard Jaress, defendants' trial attorney, appeals the district court's imposition of Rule 11 sanctions against him. HKTV cross appeals from that portion of the district court's order that denied summary judgment for the HKTV tapes, the finding regarding estoppel in the bench trial and the district court's award of only a part of the attorney fees requested by HKTV.

DISCUSSION

A. HKTV's Motion for Summary Judgment as to the San Jose Tapes

HKTV's complaint alleges defendants violated 17 U.S.C. § 106 by renting videotapes acquired from Hoang's Video. Defendants stipulated to all elements necessary to make out this claim of copyright infringement except one. Defendants insist their rental of the tapes did not violate the terms of the nonexclusive licensing agreement entered into between Hoang's Video and HKTV (the "Hoang agreement"). That is, defendants contend Hoang's Video had the authority to distribute tapes for rental to the public.

When reviewing a grant of summary judgment, we occupy the same position as the trial court. M/V American Queen v. San Diego Marine Const. Corp., 708 F.2d 1483, 1487 (9th Cir. 1983). Review is de novo. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 629 (9th Cir. 1987). "On summary judgment the inferences to be drawn from the underlying facts contained in [the movant's] materials must be viewed in the light most favorable to the party opposing the motion." United States v. Diebold, Inc., 369 U.S. 654, 655 (1962). Doubts as to the probative value of the evidence must be resolved against the moving party.

HKTV offered in support of its motion the declaration of Stephen Kow, the Vice-President and Chief Executive Officer of HKTV. Defendants did not object to the admissibility of this declaration. Kow stated in his declaration that he had examined the relevant business records and had spoken with his staff, and concluded that Hoang's Video was never given the "right to redistribute video cassettes to other dealers. Its only right was a dealer to the public for home use purposes only." Defendants proffered no evidence that contradicted the Kow declaration. Thus, there remained no genuine issue of material fact for the court to resolve, and the district court properly granted HKTV's motion for summary judgment.

B. Meng Taing's Attempt to Amend His Answer and Assert Compulsory Counterclaims

After discovery had closed, and one month before the trial began, defendant Meng Taing moved for leave to amend his answer to assert compulsory counterclaims against HKTV for breach of contract, intentional and negligent misrepresentation and unfair trade practices. The district court denied the motion. Regarding the breach of contract counterclaim, the court stated that "such an amendment would potentially expose plaintiff to liability for all of defendant's lost profits from the Bay Area video market." Order Denying Motion to Amend, Jan. 27, 1989, p. 2. It concluded that, " [h]aving to defend against such liability would clearly prejudice plaintiff at this late date in the litigation, less than one month before trial and after close of discovery." As to the other counterclaims, the court concluded HKTV would be unduly prejudiced if amendment were allowed. Id. at 3.

A trial court's denial of a Rule 13(f) motion is reviewed for abuse of discretion. Ralston-Purina Co. v. Bertie, 541 F.2d 1363, 1367 (9th Cir. 1976). Rule 13 requires that counterclaims, if any, be asserted at the time a responsive pleading is filed. Rule 13(f) supplements this general rule:

When a pleader fails to set up a counterclaim through oversight, inadvertence, or excusable neglect, or when justice requires, he may by leave of court set up the counterclaim by amendment.

"Courts have interpreted these provisions liberally, in line with the Federal Rules' overall goal of resolving disputes, insofar as possible, on the merits and in a single judicial proceeding." Spartan Grain & Mill Co. v. Ayers, 517 F.2d 214, 220 (5th Cir. 1975); see also Ralston-Purina, 541 F.2d at 1367.

Notwithstanding the liberality with which motions to amend are frequently granted, here the district court did not abuse its discretion when it refused to permit Meng Taing to amend his answer. The factual bases for Meng Taing's proposed counterclaims, especially the breach of contract counterclaims, clearly were within Meng Taing's knowledge at the time he filed his answer. Thus, as was the case in Ralston-Purina, 541 F.2d at 1367, "the record on appeal does not reflect any reasonable explanation of this delay [in filing]." Absent such a showing, denial of the motion was proper.

The defendants next contend the district court erred when it denied their motion for a new trial or to alter or amend its partial summary judgment. We review the district court's denial of the motion under an abuse of discretion standard. See Mayview Corp. v. Rodstein, 620 F.2d 1347, 1352 (9th Cir. 1980).

In order to prevail on a motion for new trial, defendants must demonstrate that the district court based its initial ruling on a manifest error of law, manifest error of fact or newly discovered evidence. See Brown v. Wright, 588 F.2d 708, 710 (9th Cir. 1978). Defendants have made no such showing. Defendants simply contended in their motion, and they repeat in this appeal, that they think the district court made the wrong decision. The district court properly denied defendants' attempt to relitigate their case.

D. The Award of Attorney Fees Under 17 U.S.C. § 505

Defendants also appeal from the district court's order awarding HKTV $4,214.38 in attorney fees under 17 U.S.C. § 505. An award of attorney fees under section 505 is reviewed for abuse of discretion.

The Copyright Act authorizes a district court to award attorney fees to the prevailing party. 17 U.S.C. § 505. " [A] showing of bad faith or frivolity is not a requirement of a grant of fees" to a prevailing plaintiff. Original Appalachian Artworks, Inc. v. Toy Loft, Inc., 684 F.2d 821, 832 (11th Cir. 1982) (emphasis omitted), quoted in McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 322 (9th Cir. 1987). Attorney fees are awarded in this context "to encourage the assertion of colorable copyright claims, to deter infringement, and to make the plaintiff whole...." McCulloch, 823 F.2d at 323 (citations omitted). To further these aims, the general rule is that prevailing plaintiffs should recover their fees.

The attorney fee award was also based on a violation of Rule 11 "as a sanction for those actions which wrongfully prolonged this litigation and were taken in apparent bad faith or without a reasonable basis." Order Re Attorney's Fees, Apr. 18, 1989, p. 2. The district court explained:

Prior to [Richard Jaress'] representation of defendants, defendants had stipulated to liability as to all tapes at issue. Mr. Jaress moved to set aside that stipulation on the basis that defendants had a meritorious defense. Mr. Jaress completely failed to present any defense as to the San Jose tapes, meritorious or otherwise. There appears to have been no reasonable basis to set aside the stipulation of liability for the San Jose tapes. Due to Mr. Jaress' apparent bad faith or carelessness, it was necessary for plaintiff to bring a motion for summary judgment, which was essentially unopposed as to the San Jose tapes.

Id. The court awarded attorney fees to HKTV for those hours necessary to bring the motion for summary judgment. The award was made under the authority of Rule 11 and 17 U.S.C. § 505.

We conclude the district court did not abuse its discretion in awarding these fees.

The district court sanctioned under Rule 11 defendants' attorney, Richard Jaress, by making him jointly and severally liable for the award of attorney fees to HKTV. Jaress appeals from this order. We review a challenge to the appropriateness of a Rule 11 sanction under an abuse of discretion standard. Townsend v. Holman Consulting Corp., 914 F.2d 1136, 1143 (9th Cir. 1990) (en banc).

"Sanctions [under Rule 11] must be imposed on the signer of a paper if either a) the paper is filed for an improper purpose, or b) the paper is 'frivolous.' " Id. at 1140 (citing Zaldivar v. City of Los Angeles, 780 F.2d 823, 832 (9th Cir. 1986)). The district court seemed to conclude that Jarres' behavior fell into the later category. Given that Jaress moved to set aside the stipulation and then presented no defense as to the San Jose tapes, the district court did not abuse its discretion when it sanctioned Jaress under Rule 11.

F. The District Court's Refusal to Award Attorney Fees to Defendants

The district court denied the defendants' request for attorney fees against HKTV under section 505 of the Copyright Act. We review that decision under an abuse of discretion standard. McCulloch, 823 F.2d at 322.

" [A]n award of attorney's fees to a defendant under section 505 must be predicated on a finding of bad faith or frivolity." McCulloch, 823 F.2d at 322. As noted above, the award of attorney fees to a prevailing plaintiff serves several purposes. The award of fees to a defendant serves only one: "the award represents a penalty for the institution of a frivolous or bad faith suit." Jartech, Inc. v. Clancy, 666 F.2d 403, 407 (9th Cir. 1982), cert. denied, 459 U.S. 826 (1982). Defendants have not met this "bad faith" standard. We conclude that the district court did not abuse its discretion in denying the defendants' request for attorney fees.

G. HKTV's Motion for Summary Judgment as to the HKTV Tapes

HKTV cross appeals from the district court's denial of its summary judgment motion as to the HKTV tapes.

A party resisting a motion for summary judgment need only demonstrate "the possibility of the existence of certain facts from which 'it would be open to a jury ... to infer from the circumstances' " that the moving party has failed to make out its case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986) (quoting Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59 (1970)). Defendants clearly carried this burden. In order to prevail, HKTV needed to prove there existed no outstanding issues of material fact regarding the content of the distribution agreement between HKTV and Meng Taing. HKTV contended Meng Taing had the authority to rent tapes only from the address listed on the lease invoice--his home. Defendants successfully discredited this proposition. At summary judgment, the provisions of the agreement between HKTV and Meng Taing remained murky at best. The motion for summary judgment was properly denied.

The district court, while apparently finding that defendants might have been guilty of copyright infringement, nevertheless estopped HKTV from prosecuting this action as to the HKTV tapes. The court found that the circumstances surrounding the lease of the videotapes to Meng Taing led defendants to believe that they acted in accordance with the terms of the agreement and federal copyright law. HKTV argues that, because it knew nothing of defendants' infringing conduct until well after it occurred, the defense of estoppel did not apply.

We will reverse the district court's factual determination of HKTV's knowledge of the infringing conduct only if it is clearly erroneous. Mayview, 620 F.2d at 1353. HKTV acknowledges the district court applied the correct legal standard for estoppel:

Four elements must be present to establish the defense of estoppel: (1) The party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting the estoppel has a right to believe it is so intended; (3) the latter must be ignorant of the true facts; and (4) he must rely on the former's conduct to his injury.

Hampton v. Paramount Pictures Corp., 279 F.2d 100, 104 (9th Cir. 1960), cert. denied, 364 U.S. 882 (1960). HKTV appeals only from the district court's factual finding as to the first element of this test.

The district court's finding that HKTV knew of the infringing conduct well before the institution of this lawsuit was not clearly erroneous. Pheng Lim's deposition testimony alone supports defendants' contention that HKTV must have been aware of the allegedly infringing conduct concerning the HKTV tapes. Due to the confusion surrounding HKTV's lease of videotapes to Meng Taing, Meng Taing was led to believe he had the authority to rent the HKTV tapes at May Kong Market. HKTV was aware Meng Taing operated under this misconception. HKTV presents no evidence to the contrary. Under these circumstances, we will not disturb the district court's factual determination.

The district court's orders are AFFIRMED. No attorney fees on appeal are awarded to any party, and the parties shall bear their own costs on appeal.