BANKRUPTCY BULLETIN
Contributing Author: David M. Tanabe, Winthrop & Weinstine, P.A.
In Cornice & Rose International, LLC v. Four Keys, LLC, 2023 WL 5157578 (8th Cir. Aug. 11, 2023), the United States Court of Appeals for the Eighth Circuit (“Eighth Circuit”) applied the doctrine of res judicata to hold the architect’s copyright claims were precluded because the issues were previously litigated in the bankruptcy proceedings for the sale and completion of the building pursuant to 11 U.S.C. § 363 of the Bankruptcy Code.
The Architectural Works Copyright Protection Act of 1990 extended copyright protection to “architectural works,” 17 U.S.C. § 102(a)(8), defined in 17 U.S.C. § 101 as “the design of a building as embodied in any tangible medium of expression, including a building, architectural plans, or drawings.”
Pursuant to § 363, the bankruptcy court entered an order authorizing the sale free and clear of the uncompleted building to the primary construction lender in the chapter 7 liquidation over the objection of the architect. The sale order expressly authorized the completion of the building but also expressly stated that the architect’s intellectual property may not be used without first making arrangement satisfactory to the architect for the use of its intellectual property. Further, the sale order contained an express reservation of rights for the architect to bring copyright infringement claims in the future.
In a motion to reconsider, the architect argued that the bankruptcy court could not authorize completion of the building because the architect’s contract with the debtor for the license to construct the building contained a contingency for full payment. In rejecting the argument on the record, the bankruptcy court described the architect’s interest as a security interest and not a stopping measure based on copyright law.
On appeal, the district court dismissed the appeal as moot holding that the lender bought the building in good faith and the sale was not stayed pending appeal. See § 363(m) (statutory mootness for failure to timely appeal sale to good-faith purchaser). Before exhausting its appeal rights, the architect filed the lawsuit against the lender and its president, along with the new buyer and its builders, wherein the architect brought the following claims: infringement of the architectural works copyright by finishing the building (Count I), declaratory judgment of copyright infringement for any rental or sale of the building without the architect’s permission (Count II), and copyright infringement of technical drawings (Count III).
The district court dismissed Counts I and II holding that the architect failed to allege any copying, the new owner’s right to finish the building was protected from a claim of copyright infringement, and Counts I and II were barred by the doctrine of res judicata (claim preclusion). For Count III, the district court granted summary judgment holding the architect failed to demonstrate substantial similarity necessary for copyright infringement, and the completion of the building was not copyright infringement.
In affirming the district court, the Eighth Circuit applied the doctrine of res judicata to hold that Counts I and II were precluded by the bankruptcy proceedings that resulted in the bankruptcy court’s orders for the sale and completion of the building. Further, the Eighth Circuit held that the sale was a final judgment for § 363(m).
To read the Eighth Circuit’s decision, click here.
Editors-in-Chief:
C.J. Harayda, Stinson LLP
David M. Tanabe, Winthrop & Weinstine, P.A.