ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS

JOHN A. MENDEZ, District Judge.

This matter is before the Court on Defendants Automated Gaming Technologies, Inc. ("AGT"), John R. Prather, and Robert Magnanti's (collectively "Defendants") Motion to Dismiss (Doc. #68) the sixth and seventh causes of action in Plaintiff Keith R. Clayton's ("Plaintiff") Third Amended Complaint ("TAC") (Doc. #60).1 Plaintiff filed an opposition (Doc. #90) and Defendants replied (Doc. #94).

I. FACTUAL ALLEGATIONS AND PROCEDURAL BACKGROUND

The Third Amended Complaint states seven causes of action against Defendants: (1) restitution after rescission of the software contract, (2) breach of the software contract, (3) common count for goods delivered, (4) breach of employment contract, (5) common count for labor and services, (6) fraud, and (7) copyright infringement.

AGT is a Nevada corporation that develops and sells software and hardware for the cash processing industries. TAC ¶¶ 4, 10. Prather is the executive vice-president and secretary at AGT, and Magnanti is the president of AGT. Id. ¶¶ 5-6. Plaintiff is a computer programmer and a designer and author of computer software. Id. ¶ 10.

In September 2009, AGT hired Plaintiff as the Executive Vice President of its Systems Department. TAC ¶ 32. AGT and Plaintiff executed a written employment agreement ("First Employment Agreement"). In April 2010, Plaintiff and AGT entered into a subsequent employment agreement ("Second Employment Agreement"), amending and superseding the First Employment Agreement. Id. ¶ 33, Exh. A. In 2010, Plaintiff entered into an oral contract with AGT ("Software Sale Agreement") to sell it certain software that he had created, called an Administrative Application ("Admin App"). TAC ¶¶ 11-13.

Plaintiff alleges that in the period from August to mid-September 2009, and in the First Employment Agreement, Prather and Magnanti, on behalf of AGT, promised they would pay 1.5% of gross profits from the Systems division and give Plaintiff 1% of AGT's stock after each year of employment. TAC ¶ 49. Subsequently, Prather and Magnanti renegotiated the terms of Plaintiff's employment in March 2010, representing and promising to Plaintiff additional compensation from AGT. Id. ¶¶ 50-53. The substance of these representations was included in the Second Employment Agreement. Plaintiff further alleges that starting in August 2009, through early 2010, Defendants made repeated representations that they would buy and pay for the Admin App. Id. ¶¶ 55-56. Eventually, these promises and the specific terms of the deal were included in the Software Sale Agreement. Plaintiff is the owner of the copyright for the Admin App. Id. ¶ 67. The Admin App was used as the foundation for developing certain software for AGT, including "Currency Banking Management System" software ("CBMS software") and Biometric software. Id. ¶ 16, 68.

Plaintiff filed the First Amended Complaint (Doc. #1-A) on March 29, 2013, alleging five causes of action against AGT arising from the Employment Agreements and the Software Sale Agreement. AGT removed the case to this Court and brought a Motion to Dismiss for Lack of Personal Jurisdiction and/or Improper Venue or in the alternative to Transfer Venue (Doc. #7) to the District of Nevada. Plaintiff filed an unopposed counter-motion for leave to file the Second Amended Complaint (Doc. #18). AGT's motion was dismissed in its entirety (Doc. #29), and Plaintiff was given leave to file the Second Amended Complaint (Doc. #30). The Second Amended Complaint was deemed filed by this Court as of July 10, 2013 (Doc. #30); it added, in relevant part, allegations of a subsequent version of the Employment agreement. On September 21, 2013, Plaintiff filed a motion for leave to file the Third Amended Complaint (Doc. #41), which added claims for copyright infringement and promissory fraud against then-existing defendant, AGT, as well as against newly named defendants Prather and Magnanti. Plaintiff also filed a motion to dismiss (Doc. #37) AGT's Counterclaim (Doc. #34). The Court granted both motions (Doc. #59). The current motion to dismiss was filed on January 6, 2014 and seeks dismissal of the sixth and seventh causes of action in the Third Amended Complaint.

II. OPINION

A. Request for Judicial Notice

Plaintiff requests the Court judicially notice (Doc. #91) two copies of the First Employment Agreement.

Generally, the Court may not consider material beyond the pleadings in ruling on a motion to dismiss for failure to state a claim. The exceptions are material attached to, or relied on by, the complaint so long as authenticity is not disputed, or matters of public record, provided that they are not subject to reasonable dispute. E.g., Sherman v. Stryker Corp., 2009 WL 2241664, at *2 (C.D. Cal. 2009) (citing Lee v. City of Los Angeles, 250 F.3d 668, 688 (9th Cir. 2001) and Fed. R. Evid. 201).

The First Employment Agreement is clearly relied on in the complaint and its authenticity is not disputed. Accordingly, the Court grants Plaintiff's request for judicial notice.

B. Discussion

Defendants' Motion to Dismiss targets the sixth and seventh causes of action in the Third Amended Complaint. Defendants contend the claims for fraud and copyright infringement do not meet even the most liberal pleading requirement, and thus cannot withstand this motion filed pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. MTD at p. 2.

1. Fraud

Defendants contend Plaintiff's claim for fraud must fail because the allegations of the Third Amended Complaint do not meet the heightened pleading requirements imposed by Rule 9(b). MTD at p. 6.

Under either Nevada or California law, the elements of a claim for fraud are: (1) a false representation, (2) defendant's knowledge of its falsity, (3) intent to induce reliance, (4) justifiable reliance, and (5) resulting damages. See Small v. Fritz Companies, Inc., 30 Cal.4th 167, 173 (2003); Nelson v. Heer, 123 Nev. 217, 225 (2007). Averments of fraud must be accompanied by the who, what, when, where, and how of the misconduct charged. Vess v. Ciba, 317 F.3d 1097, 1106 (9th Cir. 2003); Fed. R. Civ. Proc. 9(b).

Defendants contend that the Third Amended Complaint is completely devoid of any specific facts and details and thus fails to meet the heightened standard. MTD at pp. 6-8. They argue the allegations are vague, referring to "representations" made by Defendants without details as to their content or timing. Defendants also argue the claim should fail because Plaintiff has failed to adequately allege that Defendants knew their representations were false or that they had no intent to perform at the time the representations were made.

Plaintiff responded in the Opposition that the details of the false representations underlying his fraud claim are explicitly contained in the agreements themselves. Plaintiff states that the allegations regarding the negotiations prior to the contracts being formed "supply but a background" to the agreements entered into by the parties; the agreements themselves supply the "specific content of the false representations." Opp. at pp. 11-12.

In their Reply, Defendants admit that they misunderstood the claim as arising from the negotiations prior to the agreements, rather than being based on the promises and representations specifically contained in the agreements. Reply at p. 2. They argue that Plaintiff has now clearly articulated that the false representations underlying the fraud claim are those promises made in the agreements themselves. Defendants contend that the claim is therefore barred by the economic loss doctrine. The Court agrees and because it does not believe that additional briefing on the issue is necessary, grants Defendants' motion on this ground.

"[T]he economic loss doctrine is designed to maintain a distinction between damage remedies for breach of contract and for tort. The term "economic loss" refers to damages that are solely monetary. . . . The economic loss doctrine provides that certain economic losses are properly remediable only in contract." Giles v. Gen. Motors Acceptance Corp., 494 F.3d 865, 873 (9th Cir. 2007). The economic loss doctrine has been applied to bar fraud claims where "the damages plaintiffs seek are the same economic losses arising from the alleged breach of contract." Multifamily Captive Group, LLC v. Assurance Risk Managers, Inc., 629 F.Supp.2d 1135, 1146 (E.D. Cal. 2009); see also Foster Poultry Farms v. Alkar-Rapidpak-MP Equip., Inc., 868 F.Supp.2d 983, 991-92 (E.D. Cal. 2012); Alvarado Orthopedic Research, L.P. v. Linvatec Corp., No. 11-CV-246-IEG (RBB), 2011 WL 3703192, at *3 (S.D. Cal. 2011). "Quite simply, the economic loss rule `prevent[s] the law of contract and the law of tort from dissolving one into the other.'" Robinson Helicopter Co., Inc. v. Dana Corp., 34 Cal.4th 979, 988 (2004) (quoting Rich Products Corp. v. Kemutec, Inc., 66 F.Supp.2d 937, 969 (E.D. Wis. 1999)).

The sixth cause of action in the Third Amended Complaint contains a series of paragraphs describing the alleged false representations underlying the claim. TAC ¶¶ 49-56. Plaintiff alleges that the false representations were made during the negotiations of the two employment agreements and the Software Sale Agreement and eventually formed the basis of those agreements. Plaintiff makes clear in his Opposition that the specific content of the false representations made during the contract negotiations is in fact contained in the three agreements. Opp. at pp. 11-12. He downplays any emphasis on the content of the negotiations outside of and prior to the agreements as simply a way to tie Prather and Magnanti to the formation of the agreements containing these representations and to show their knowledge and participation in the formation of the agreements. Id.

"To allow a fraud claim [where the false representations underlying it are those made in the contract itself] would `open the door to tort claims in virtually every case in which a party promised to make payments under a contract but failed to do so.'" Multifamily Captive Group, 629 F. Supp. 2d at 1146 (quoting Intelligraphics, Inc. v. Marvell Semiconductor, Inc., No. C07-02499 JCS, 2009 WL 330259, at *17 (N.D. Cal. 2009)). The Court finds Plaintiff's fraud claim is merely a restatement of his contract claims in the form of a tort claim. The economic loss doctrine must be applied to bar such a claim. See id.; Giles, 494 F.3d at 880; Foster Poultry Farms, 868 F. Supp. 2d at 991-92.

Accordingly, Defendants' Motion to Dismiss the sixth cause of action for fraud is GRANTED. Because Plaintiff has clearly indicated that the specific content of the false representations was included in the agreements themselves, the claim cannot be amended to state a viable cause of action for fraud. Therefore the claim is dismissed with prejudice.

2. Copyright Infringement

Defendants contend Plaintiff's copyright infringement claim should be dismissed because it fails to adequately allege a required element, copying, and even if it did, the allegations as a whole do not meet even the most liberal pleading standard. MTD at pp. 9-11.

To demonstrate copyright infringement, a plaintiff must prove two elements: (1) "ownership of a valid copyright" and (2) "copying of constituent elements of the work that are original." Twentieth Century Fox Film Corp. v. Entm't Distrib., 429 F.3d 869, 876 (9th Cir. 2005).

It appears that, for purposes of their Motion to Dismiss, Defendants have conceded the first element. MTD at p. 9. However, they argue Plaintiff has failed to plead the requisite copying to establish a copyright infringement claim. Defendants contend the CBMS and Biometric software, which Plaintiff identifies as sources of infringing material, are "works made for hire" and thus cannot serve as the basis for Plaintiff's copyright infringement claim because AGT is the owner of the software. MTD at p. 10. Therefore, they argue, the copyright infringement claim fails as a matter of law.

A "work made for hire" is "a work prepared by an employee within the scope of his or her employment." 17 U.S.C. § 101. Defendants argue the CBMS and Biometric software were made while Plaintiff was an employee of AGT in the scope of that employment. Plaintiff argues the CBMS and Biometric software are derivative works and that AGT has no rights to them because AGT unlawfully used Plaintiff's copyrighted Admin App in developing it. Opp. at p. 18-19.

A "derivative work" is a "work based upon one or more preexisting works." 17 U.S.C. § 101. However, "protection for a work employing preexisting material in which copyright subsists does not extend to any part of the work in which such material has been used unlawfully." Id. § 103(a). Therefore, regardless of whether AGT may be considered the "author" or owner of the CBMS and Biometric software, it does not own or have rights in the Admin App ("the preexisting material in which copyright subsists") if that material was used unlawfully. Id.; see U.S. Auto Parts Network, Inc. v. Parts Geek, LLC, 692 F.3d 1009, 1015-16 (9th Cir. 2012). Taking the allegations in the Third Amended Complaint as true, the CBMS and Biometric software are derivative works using the Admin App as their foundation (TAC ¶ 68); AGT's use of the Admin App was unlawful and thus AGT is liable for any improper use of it (TAC ¶¶ 69-70).

Defendants further argue that even if improper copying has been alleged, the Third Amended Complaint fails to allege sufficient facts relating to what acts and during what time Defendants infringed upon the copyright. MTD at p. 11. Defendants claim the allegations include nothing more than bare assertions and legal conclusions.

Copyright claims need not be pled with particularity. Perfect 10, Inc. v. Cybernet Ventures, Inc., 167 F.Supp.2d 1114, 1120 (C.D. Cal. 2001). "[C]omplaints simply alleging present ownership by plaintiff, registration in compliance with the applicable statute and infringement by defendant have been held sufficient under the rules." Id.; see also Facebook, Inc. v. Power Ventures, Inc., C 08-5780 JF (RS), 2009 WL 1299698, at *4 (N.D. Cal. 2009); Marvel Enterprises, Inc. v. NCSoft Corp., CV 04-9253RGKPLAX, 2005 WL 878090, at *2 (C.D. Cal. 2005).

The Third Amended Complaint specifically alleges Defendants have infringed on Plaintiff's copyright in the Admin App through its unauthorized direct reproduction and copying of the Admin App as well as through the reproducing, distributing, displaying, and offering for sale of derivate works unlawfully incorporating the Admin App. TAC ¶¶ 67-70. Therefore, Plaintiff has sufficiently alleged a copyright infringement claim.

Defendants cite several cases supporting their contention that these allegations are not enough. However, their reliance is misplaced as many of these cases involve more speculative or vague allegations. For instance, Defendants cite to Universal Surface Tech., Inc. v. Sae-A Trading Am. Corp., CV 10-6972 CASPJWX, 2011 WL 281020, at *6 (C.D. Cal. 2011) where the court dismissed the plaintiff's copyright claim. However, the court made its ruling on standing grounds and even when it considered the allegations in the complaint the court found it alleged "no facts indicating what acts constitute the alleged infringement, and which copyrights have allegedly been infringed." Id. Here, Plaintiff has clearly indicated what copyright has been allegedly infringed and the acts that constitute the infringement.

Accordingly, Defendants Motion to Dismiss the copyright infringement claim as a whole is denied.

Defendants argue that even if the claim is sufficiently alleged against AGT, the complaint lacks factual allegations establishing Prather and Magnanti's individual liability. MTD at p. 12. Defendants cite Berster Technologies, LLC v. Christmas, CIV. S-11-1541 KJM, 2011 WL 5307834 (E.D. Cal. 2011) as support for their contention.

In Berster, the court did dismiss plaintiff's copyright infringement claim against one defendant, EinsteinModz, reasoning plaintiff made nothing more than conclusory references to its involvement in any infringement. Berster, at *9-10. However, in the same paragraph the Berster court found the claims against another defendant, Coy Christmas, an officer of the defendant companies, sufficient. Id. The court stated that the plaintiff's allegations were sufficient to state a copyright violation because they identified the copyright and the allegedly infringing activities, citing a section of the complaint in which the defendant officer is alleged to have improperly sold copyrighted material. Id.

Again, Plaintiff has identified the copyright and the allegedly infringing activities, specifically alleging that Prather and Magnanti personally directed the improper reproducing, distributing, public displaying and selling of Plaintiff's copyrighted Admin App and its derivate works. TAC ¶¶ 70-71. The Ninth Circuit has clearly stated that in the context of copyright law, liability may extend "to cases in which a defendant `has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.'" A&M Records, Inc. v. Napster, Inc., 239 F.3d 1004, 1022 (9th Cir. 2001) (internal citation omitted). Corporate officers may be held personally liable for copyright infringement if they authorize or direct or participate in the unlawful activity, even when acting as agents of the corporation. Bangkok Broad. & T.V. Co., Ltd. v. IPTV Corp., 742 F.Supp.2d 1101, 1114-15 (C.D. Cal. 2010). Plaintiff's allegation that Prather and Magnanti personally directed the infringing activities is enough to allow the claim to proceed.

Accordingly, Defendants motion to dismiss the copyright infringement claim as against Prather and Magnanti is DENIED.

III. ORDER

For the reasons set forth above, the Court GRANTS WITH PREJUDICE Defendants' Motion to Dismiss the Sixth Cause of Action for fraud.

The Court DENIES Defendants' Motion to Dismiss the Seventh Cause of Action for copyright infringement.

IT IS SO ORDERED.