Law Offices of Donald W. Hudspeth, P.C.
Brian K. Stanley, of counsel (SBN 004619) Janae A.
Perry-Meier (SBN 031519) 3200 N. Central Avenue, Suite 2500
Phoenix, Arizona 85012 · 602-265-7997 Court@AzBusLaw.Com
Attorneys for eUnify Defendants
In the United States District Court For the District of Arizona
Michael J. Magnotta, directly and derivatively on behalf of iColligo, LLC,
Steven A. Serra et ux., et al.,
defendants’ Response to Motion to Remand
Memorandum in Response
1. Scope of Copyright Preemption
a. Controlling Statutes
On and after January 1, 1978, all legal or equitable rights that are equivalent to any of the
exclusive rights within the general scope of copyright as specified by section 106 in works of
authorship that are fixed in a tangible medium of expression and come within the subject matter of
copyright as specified by sections 102 and 103, whether created before or after that date and
whether published or unpublished, are governed exclusively by this title. Thereafter, no
person is entitled to any such right or equivalent right in any such work under the common law or
statutes of any State.
17 U.S.C. § 301 (a).
The district courts shall have original jurisdiction of any civil action arising under any Act of
Congress relating to … copyrights … . No State court shall have jurisdiction over any claim for
relief arising under any Act of Congress relating to … copyrights.
28 U.S.C. § 1338 (a).
b. When does a case or claim “arise under” the Copyright Act?
The Second Circuit’s learned discussion of district court jurisdiction of cases “arising under”
various federal statutes in T. B. Harms Co. v. Eliscu, 339 F.2d 823 at 825-27 (2nd Cir. 1964) reflects that court’s consideration of federal jurisdiction of “copyright claims
apparently not involving infringement.” That discussion is preceded by the observation that
“the undoubted truth that a claim for infringement ‘arises under’ the Copyright Act does not
establish that nothing else can.” 339 F.2d at 825. If this “undoubted truth” applies,
there is no need to consider the more recondite aspects of the “T.B. Harms test.” Thus,
once a claim is identified as being effectively a claim for the alleged infringement of a right
created by the Copyright Act, it must be recognized as a claim of federal, and exclusively federal,
Under 17 U.S.C. § 106 (a), the owner of copyright under U.S.C. Title 17 has the exclusive right “to
reproduce the copyrighted work in copies,” or to authorize such reproduction. “Copyright in a
work created on or after January 1, 1978, subsists from its creation,” 17 U.S.C. § 302 (a), and so
the copying of such a work, without authorization by the copyright owner, infringes the owner’s
rights as created by the Copyright Act. If the wrong complained of by a plaintiff is revealed
as consisting of such a copying, then to that extent his action must be classed as one for
infringement of copyright, and thus one “arising under” the Copyright Act.
2. “Conversion” of Copyrightable Intellectual Property
In the digital millennium, an “original” and its “copy” alike consist of a sequence of electric or
magnetic charges and as such are wholly indistinguishable. If both descend from the initial
creative act of a human author, it is pointless to debate their degrees of descent – practically, or
for purposes of copyright law:
“Copies” are material objects … in which a work is fixed by any method now known or later developed,
and from which the work can be perceived, reproduced, or otherwise communicated, either directly or
with the aid of a machine or device. The term “copies” includes the material object … in which
the work is first fixed.
17 U.S.C. § 101. As the Ninth Circuit recognized over a quarter-century ago, the use of
computer software “necessarily includes the loading of the software into the computer’s random
access memory (‘RAM’) by” the user. Despite its impermanent nature, the copy “loaded into RAM”
is a copy, the unauthorized making of which infringes the copyright owner’s exclusive § 106
rights. MAI Systems Corp. v. Peak Computer, Inc., 991 F.2d 511, 517-18 (9th Cir. 1992), cert. dismissed 510 U.S. 1033 (1994).
Given the § 101 definition of “copies” as including the object “in which a work is first fixed,” for copyright purposes there is no such thing as an “original.” This corresponds well
with digital reality, for today, when a programmer completes the final version of the source code of
software – what would correspond most nearly to an “original,” as traditionally understood – it is
almost always “fixed” as a series of charges or impulses residing on a hard disk drive or other
non-volatile storage device attached to some computer, though not necessarily the one with which the
programmer is directly interacting. (For that matter, the same could probably be said of the
last draft of most novels.) The series of charges or impulses is a “copy” under the Copyright
Act, and has usefulness of any kind, only because there exists a machine or device with the aid of
which the software so stored can be perceived, reproduced, or otherwise communicated.
In their Notice of Removal, Defendants cited a number of authorities for the proposition that a
conversion claim will be preempted by the Copyright Act if the plaintiff has alleged the unlawful
retention of intellectual property rights rather than the unlawful retention of a tangible object
embodying the work. The closest Plaintiff comes to addressing these authorities is his
discussion of an unreported decision of this Court, rendered on July 28, 2009 in the case of Merchant Transaction Sys., Inc. v. Nelcela, Inc., No. CV 02-1954-PHX-MHM. Even assuming
Plaintiff’s citation of this unpublished decision were appropriate, it would provide scant support
for Plaintiff’s position, at best. To begin with, the cited decision quotes Firoozye v.
Earthlink Network, 153 F.Supp. 2d 1115 (N.D. Cal. 2001) with approval twice: first, for the
proposition that, to avoid preemption, “the ‘extra element’ required by state law [must] change the
nature of the action so that it is qualitatively different from a copyright infringement claim,” and
second, observing that “while a claim for conversion typically involves tangible property and thus
may be immune from preemption, where a plaintiff is only seeking damages from a defendant’s
reproduction of a work – and not the actual return of a physical piece of property – the claim is
Moreover, in its July 28, 2009 unreported decision the Merchant Transaction Sys. court
expressly reaffirmed its unpublished decision of March 18, 2009, precluding a conversion claim as
preempted by the Copyright Act:
Conversion claims with respect to intellectual property arise from the reproduction, copying and
misuse of a work … and are “clearly equivalent to [those of] a copyright claim.” Thus, to the extent
that Nelcela alleges the conversion of copyrightable or otherwise noncopyrightable intellectual
property contained within the Nelcela software, the conversion claim is preempted by the Copyright
Finally, even the quote from Merchant Transaction Sys. which Plaintiff presents has been
artfully manipulated. Plaintiff’s quote contains an ellipsis between “distribution” and “In
addition.” That ellipsis conceals the mysteriously omitted sentence, explaining the court’s
holding that one of the conversion claims there presented was not preempted:
But here, MTSI’s conversion claim “requires [MTSI] to demonstrate that [the Nelcela Parties]
wrongfully obtained possession over a specific piece of property,” i.e., the MTSI software.
Slip decision 4:6-8. The paragraphs of Plaintiff’s Motion for Partial Summary Judgment
describing what Defendants purportedly “converted” and how they did this (quoted in the Notice of
Removal at 3:4-13 and quoted again on page 7 of this Memorandum, below) make it clear that what was
allegedly taken is a copy of the ICS software as it was stored on one or more Amazon Web Services
(“AWS”) servers and that Defendant Steve Serra accomplished this “taking” by making or causing the
making of such copy.
Plaintiff argues that Serra did this in order to “steal” from iColligo, while Serra explains that
prior to these actions – a distorted version of which is presented in the paragraphs of the Motion
for Partial Summary Judgment quoted in the Notice of Removal – under the original AWS account (with
respect to which his own company eUnify and not iColligo was identified as the AWS customer) AWS was
billing for servers used by both iColligo and Serra’s separate corporation, eUnify.
Anticipating the likely appointment of a receiver for iColligo, Serra caused the creation of a new
AWS account, this one with iColligo as the identified customer, and the removal of the iColligo
servers and their associated stored data to this account. The result was the segregation of
the iColligo servers and data from the eUnify servers and data, which was obviously a convenience
for iColligo’s receiver as well as for eUnify’s management.
As is the case whenever electronically stored information is “moved,” what actually happened is that
ESI stored at location A was copied to location B and then deleted from location A. Once the operation was completed it would be impossible to tell whether it was the
iColligo servers or the eUnify servers or both that had been replicated. What is significant
for purposes of the matter at hand (the application of the Merchant Transaction Sys. decision
of 07/28/2009, including the sentence mysteriously omitted from Plaintiff’s quote, to the case at
bar) is that there is no possible room for a suggestion that Serra “wrongfully obtained possession
over” the software in order to cause it to be replicated. Although it is not mentioned in the
two paragraphs of the Motion for Partial Summary Judgment quoted in the Notice of Removal (and
quoted again on page 7 of this Memorandum, below) elsewhere in that paper it is made abundantly
clear that Serra was and was acting as the manager of iColligo. There were to begin with AWS
servers supporting iColligo’s operation with a copy of the ICS object code only because Serra, as
iColligo’s manager, had made the arrangements. What is certain is that the ICS source and
object code, as in use in 2016, were created by and in the possession of eUnify personnel, despite
Plaintiff’s disputed claim to contributory authorship of an earlier version.
3. The Nature of the Rights Plaintiff Seeks to Vindicate
a. Plaintiff’s Newly Revealed Contentions.
The iColligo software was historically hosted on an AWS account ending in 4354 and paid exclusively
by iColligo. (SOF ¶ 78.) On July 19, 2016, Serra opened a new AWS account ending in 5419, deposited
a copy of iColligo’s software on the 5419 account, removed iColligo’s name from the servers on the
original 4354 account, and purported to turn over iColligo’s AWS account to the Receiver. (SOF ¶
79.) In actuality, Serra provided the Receiver with access to the “dummy” 5419 account and
commandeered the 4354 account for himself. (SOF ¶ 80.)
… To this day, Serra exercises exclusive control over iColligo’s software and continues to “license”
its use on behalf of eUnify for a fee of no less than $30,000 every month. (SOF ¶ 82.)
Motion for Partial Summary Judgment (f. 06/22/2018) 13:1-7, 10-12.
Since Defendant Serra “deposited a copy of [the ICS] software on the 5419 account” and then turned
that account over to the iColligo receiver, there is only one thing that could give Serra (speaking
broadly enough to include eUnify, the corporation of which he is the sole shareholder) “exclusive
control over” that software – the corporation’s ownership of the copyright, which is evidenced by a
certificate of registration. However, the truth is that the receiver never made any use of the
copy of the software provided to him, and that this was probably not because he was concerned about
violating eUnify’s copyright. In any event, it is irrelevant which of these indistinguishable
electronic copies of the software Serra is accused of misappropriating. Whichever set of
servers – those for the use of which AWS charges its account 4354 or those for the use of which AWS
charges its account 5419 – may house the copy which Plaintiff purports to find offensive, there is
no “extra element” that changes the nature of the action so that it is qualitatively different from
a copyright infringement claim.
To determine whether a plaintiff’s state-law claim seeks to assert rights that are equivalent to
those protected by the Copyright Act, a court must analyze the elements of the state-law cause of
action to see if the right defined by state law may be abridged by an act which in and of itself
would infringe one of the exclusive rights in the Act. Conversely, if there is an “extra element”
that is required in place of or in addition to the acts of reproduction, performance, distribution,
or display in order to constitute a state-law cause of action, and the “extra element” required by
state law changes the nature of the action so that it is qualitatively different from a copyright
infringement claim, the state-law claim is not preempted.
Firoozye v. Earthlink Network, 153 F.Supp.2d 1115, 1125 (N.D. Cal. 2001).
In Arizona, “[C]onversion is any act of dominion wrongfully exerted over another’s personal property
in denial of or inconsistent with his rights therein.” Shartzer v. Ulmer, 85 Ariz. 179,
333 P.2d 1084, 1088 (1959). Where the personal property in question is intangible and is
actually a composition which exists and has ever existed only as a unit of electronically stored
information – a unit which can only be used, indeed, whose content can be known only through the
generation of a copy – a claim for the “conversion” of such property seeks to assert rights that are
equivalent to those protected by the Copyright Act.
b. Plaintiff’s Requests for Relief.
Plaintiff demands summary judgment for “[c]onversion against defendants Serra and eUnify, with an
order to return iColligo’s property and the amount of damages to be determined following a damages
hearing.” Motion for Partial Summary Judgment f. 06/22/2018, 1:24-26. In so doing he
continues his tactic of speaking of the software as if it were a tangible chattel and iColligo’s
ownership of that chattel were established. He also complains that Serra (actually, eUnify)
exercises control over the copies of the software retained by it and continues to license their use
(specifically, to Defendant appLega, LLC) for a substantial monthly fee. MPSJ 13:10-12.
Since Plaintiff himself states that the software was copied to an AWS account that was turned over to
the iColligo receiver, what can Plaintiff as iColligo’s representative mean by demanding the
“return” of this “property”? Plaintiff defeated the appLega Defendants’ suggestion of
exclusive federal jurisdiction by insisting that he complains because Defendants “literally took …
the actual software. … It is akin to a thief stealing someone’s actual book, not making an
unauthorized copy of someone’s book” and citing a Colorado case from the report of which it cannot
be determined exactly what the defendant was found to have taken or how, but which held the
defendant liable with the words
In the case of a novel, for example, a writer prepares an original manuscript of the work. If another
person exercises control over that manuscript under circumstances constituting civil theft under
Colorado law, he or she would be liable for theft of the manuscript … .
Steward Software Co. v. Kopcho, 266 P.3d 1085, 1088 (Colo. 2011), quoted in Plaintiff’s
Opposition to Applega Defendants’ Motion for Partial Judgment on the Pleadings f. 11/07/2017 at
7:16-19. Only Plaintiff knows exactly what he meant when he referred to the “literal taking”
of the “actual software,” but his argument certainly suggested that he intended to prove the
physical asportation and detention of a tangible chattel, an argument which, he correctly pointed
out, is not inconsistent with the bare words of the conversion count of the (Second) Amended
Plaintiff’s Motion for Partial Summary Judgment, however, revealed that there was no physical taking
nor any tangible chattel, but rather the objects of Defendants’ alleged misdeeds were electronic
copies, and the “taking” was accomplished by Defendant Steve Serra, either by having the software
copied to a virtual server and then (nefariously?) turning over control of the server to the
iColligo receiver, or by leaving copies on servers that remained in the control of eUnify. If
any rights that iColligo may have in the software (a work of authorship that comes within the
subject matter of copyright) have been infringed by the making, existence or use of these copies,
they must clearly be equivalent to rights within the general scope of copyright. See 17 U.S.C.
§ 301 (a).
What can iColligo’s representative (the Plaintiff) mean by demanding the “return of its
property”? By his own account, iColligo has “its property,” unless something has
happened to the copy which Plaintiff describes as having been “deposited on” a server that was then
put under the control of the iColligo receiver. And if something has happened to that copy,
all Defendants could possibly do for iColligo would be to make another one; there is no tangible
chattel to “deliver.” Undoubtedly, what Plaintiff actually wants is for Defendants to stop
using (i.e., stop copying) the copies of the software which they now possess. Again, if
iColligo has any right to demand this, it is a right “equivalent to rights within the general scope
It would be idle to deny that Defendants were from the outset suspicious of Plaintiff’s
characterization of his conversion claim and doubted that the retention of a tangible object would
ever be shown. On their faces, however, the initial complaints, original and amended, were not
inconsistent with Plaintiff’s “tangible chattel” characterization of his conversion counts, and so
the cases stated by these pleadings were not removable. The true nature of the conversion
claim, and that because of it the case was or had become removable, could not be ascertained until
Plaintiff served his pending Motion for Partial Summary Judgment.
Other aspects of the Motion to Remand may be addressed briefly. Plaintiff correctly observes
that 28 U.S.C. § 1446(b)(2)(a) requires that all defendants join in or consent to the removal
of an action. It is not clear to what purpose he observes, also correctly, that the Defendant
Estate of Anthony M. Serra, Deceased, did not join but rather consented. (As for his reference
to Arizona ER 4.2, Plaintiff should know that Comment  to that Rule expressly states that
notwithstanding the Rule, “parties to a matter may communicate directly with each other.”)
As for the question whether the Defendants lacked an objectively reasonable basis for seeking
removal, Defendants respectfully submit that it would be in the interest of judicial economy to
address that question if there is occasion to do so after the Motion to Remand is decided, and
hereby seek leave to brief this issue if and when Plaintiff’s Motion may be granted.
DATED: August 10, 2018.
LAW OFFICES OF DONALD W. HUDSPETH, PC
By: /s/Brian K.
Attorneys for eUnify Defendants
Udall Shumway PLC
By: /s/Joel E.
Attorneys for appLega Defendants
Kadish & Anthony Law Group
By: /s/Stephen J.
Attorneys for Employee Defendants
A true copy of the foregoing was served upon the following, by mailing and emailing, on August 10,
Ms. Kate Benveniste Mark A. Nadeau, Esq. DLA Piper LLP 2525 E. Camelback Rd., Suite 1000 Phoenix, AZ
85016-4245 firstname.lastname@example.org email@example.com Attorneys for Plaintiff
Ms. Victoria L. Buchinger Dickinson Wright 1850 N. Central Ave., Suite 1400 Phoenix, AZ 85004
firstname.lastname@example.org Attorneys for Def. Estate of Anthony Serra
Arrington Michelle Arrington Legal Secretary