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Xereas v. Heiss

United States District Court, District of Columbia

March 27, 2013

JOHN XEREAS, Plaintiff,
v.
MARJORIE HEISS, et al., Defendants

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[Copyrighted Material Omitted]

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For JOHN N. XEREAS, Plaintiff: Harlan Lee Weiss, Irwin H. Liptz, Leonard Julian Koenick, KIVITZ & LIPTZ, LLC, Bethesda, MD; W. Todd Miller, BAKER & MILLER PLLC, Washington, DC.

For MARJORIE A. HEISS, GEOFFREY O.S. DAWSON, RIOT ACT DC, LLC, Defendants: Alec P. Rosenberg, LEAD ATTORNEY, Joshua Allen Fowkes, ARENT FOX LLP, Washington, DC.

For SQUIID, INC., Defendant: Timothy Ryan Clinton, LEAD ATTORNEY, CLINTON & PEED, PLLC, Washington, DC.

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MEMORANDUM OPINION AND ORDER

RICHARD W. ROBERTS, United States District Judge.

Plaintiff John Xereas brings this action against Marjorie Heiss, Geoffrey Dawson, Riot Act D.C., LLC (" the LLC" ), and Squiid, Inc., alleging claims of trademark infringement, unfair competition, conversion, breach of contract, breach of the implied duty of good faith and fair dealing, fraudulent inducement, conspiracy, tortious interference, unjust enrichment, a violation of the Anti-Cybersquatting Consumer Protection Act (" ACPA" ), 15 U.S.C. § 1125(d), and defamation. The defendants moved to dismiss eight of Xereas's counts in the amended complaint under Federal Rule of Civil Procedure 12(b)(6) for failure to state claims for relief. The claims of breach of the implied duty of good faith and fair dealing against Dawson and Heiss, unjust enrichment against the LLC and cyber-squatting against Dawson, Heiss and the LLC are adequately pled, and the motion to dismiss will be denied as to those claims but granted as to the remaining challenged claims.

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BACKGROUND

In 2005 and 2009, Xereas registered a group of domain names using the Riot Act comedy name, including " riotactcomedy.com." Am. Compl. ¶ ¶ 14, 23. He conducted his entertainment business for years using those names. Id. ¶ ¶ 18-19, 23. In May 2010, Xereas, Dawson and Heiss agreed to launch a new comedy club in Washington, D.C. called the Riot Act Comedy Club. Id. ¶ 30. Xereas, Dawson and Heiss executed an Operating Agreement and, in November 2010, an Amended Operating Agreement to establish the LLC. Id. ¶ ¶ 32-35, Ex. 13, Am. and Restated Operating Agreement of Riot Act DC, LLC (" Am. Operating Agreement" ). After forming the LLC, Dawson, Heiss and Xereas created a Business Plan. Id. ¶ ¶ 36-38, Ex. 14, Business Plan for Start Up Business for Riot Act Comedy Theater (" Business Plan" ). Starting in December 2010, Xereas served as the club's general manager and worked in a variety of roles in preparing for the club's opening and thereafter. Id. ¶ ¶ 38, 44, 48. In January 2011, the LLC hired Squiid to create a website for Xereas's domain name " riotactcomedy.com." Id. ¶ 40. In November 2011, Xereas completed paying his $100,000 capital contribution to the LLC. Id. ¶ 45, 54. Dawson and Heiss agreed to compensate Xereas at an annual salary of $42,000 starting in December 2011. Id. ¶ 56. In January 2012, Dawson and Heiss removed Xereas from his management role and, without Xereas's knowledge or approval, instructed Squiid to revise the domain name registration information for " riotactcomedy.com" to transfer ownership of the domain names to the LLC. Id. ¶ ¶ 58, 60.

In March 2012, Xereas filed his complaint, and later, he filed an eleven-count amended complaint which includes claims of unlawful conversion and an ACPA violation against all defendants, id., Counts IV, X; unjust enrichment claims against Dawson, Heiss and the LLC, id., Count IX; and breach of contract, breach of the duty of good faith and fair dealing, fraudulent inducement, conspiracy to defraud, tortious interference, and defamation claims against Dawson and Heiss, id., Counts V-VIII, XI. [1] Dawson, Heiss and the LLC moved to dismiss under Rule 12(b)(6) for failure to state a cause of action the unlawful conversion, breach of contract, fraudulent inducement, conspiracy to defraud, tortious interference, unjust enrichment, ACPA, and defamation claims. Squiid moved to dismiss under Rule 12(b)(6) for failure to state a cause of action the unlawful conversion and ACPA claims against Squiid.

DISCUSSION

In considering a motion to dismiss under Rule 12(b)(6) for failure to state a claim, a court accepts well-pleaded factual allegations in the complaint as true and interprets them in the light most favorable to the plaintiff. Howard Univ. v. Watkins, 857 F.Supp.2d 67, 71 (D.D.C. 2012) (citing Warren v. District of Columbia, 353 F.3d 36, 39, 359 U.S. App. D.C. 179 (D.C. Cir. 2004)). The motion to dismiss may be granted where facts alleged in the complaint " do not raise a right to relief above the speculative level, or fail to state a claim to relief that is plausible on its face." Henok v. Chase Home Finance, Civil Action No. 12-335 (RWR), 922 F.Supp.2d 110, 2013 WL 525696, at *4 (D.D.C. Feb. 13, 2013) (internal quotation marks omitted).

I. CONVERSION

Xereas's amended complaint alleges that the defendants unlawfully converted

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the " RIOT ACT" and " hireacomic.com" domain names. [2] To state a claim for conversion under D.C. law, the plaintiff must allege " '(1) an unlawful exercise, (2) of ownership, dominion, or control, (3) over the personal property of another, (4) in denial or repudiation of that person's rights thereto.'" Johnson v. McCool, 808 F.Supp.2d 304, 308 (D.D.C. 2011) (quoting Gov't of Rwanda v. Rwanda Working Grp., 227 F.Supp.2d 45, 62 (D.D.C. 2002)); see also Baltimore v. District of Columbia, 10 A.3d 1141, 1155 (D.C. 2011).

Although D.C. courts have not addressed whether internet domain names are intangible or tangible property, [3] domain names are generally considered intangible property. See Kremen v. Cohen, 337 F.3d 1024, 1030 (9th Cir. 2002) (identifying an interest in a domain name as an intangible property right); Famology.com Inc. v. Perot Sys. Corp., 158 F.Supp.2d 589, 591 (E.D. Pa. 2001) (same); but see In re Paige, 413 B.R. 882, 917-18 (Bankr. D. Utah 2009) (stating that a domain name is a type of tangible property), aff'd on other grounds, 685 F.3d 1160 (10th Cir. 2012). [4] Whether D.C. courts would apply the tort of conversion to intangible property is unsettled.

While other courts have concluded that the law of conversion in other jurisdictions may protect electronic data or information, . . . it remains an open question whether District of Columbia law would protect intangible property of this kind, see Kaempe v. Myers, 367 F.3d 958, 963, 361 U.S. App. D.C. 335 (D.C. Cir. 2004) (observing that the District of Columbia courts have provided limited guidance on the protections to be afforded to intangible property); Equity Grp., Ltd. v. PaineWebber Inc., 48 F.3d 1285, 1286, 310 U.S. App. D.C. 434 (D.C. Cir. 1995) (per curiam) (same). Meanwhile, Maryland, to which the District of Columbia courts often look for guidance in the absence of other precedent, . . . does not extend the tort of conversion to cover

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intangible property rights beyond those that " are merged or incorporated into a transferable document[.]"

Council on American-Islamic Relations Action Network, Inc. v. Gaubatz, 793 F.Supp.2d 311, 339-40 (D.D.C. 2011) (internal citations omitted). Maryland law continues to follow directly Section 242 of the Restatement (Second) of Torts (1965) which limits application of the tort of conversion of intangible property rights to those that have been " 'merged or incorporated into a transferable document'" and Maryland courts have not extended the tort of conversion to " 'situations in which the relevant document itself has not been transferred.'" Brass Metal Products, Inc. v. E-J Enters., Inc., 189 Md.App. 310, 984 A.2d 361, 378 (Md. Ct. Spec. App. 2009) (quoting Allied Inv. Corp. v. Jasen, 354 Md. 547, 731 A.2d 957, 965 (1999)) (finding that Maryland law does not recognize the tort of conversion to protect the plaintiff's intellectual property rights in designs or shapes of aluminum railings); see also Joe Hand Promotions, Inc. v. Md. Food & Entm't, LLC, No. CCB-11-3272, 2012 WL 5879127, at *4 (D. Md. Nov. 19, 2012) (granting motion to dismiss for failure to state a claim under Maryland law of conversion of a television broadcast signal because the complaint contains no factual allegation that tangible documents incorporating the plaintiff's intangible property interests were transferred).

Here, the plaintiff alleges that " [a]t the direction of Defendants Dawson and Heiss, . . . Defendant Squiid unlawfully converted the RIOT ACT Domain Names and hireacomic.com domain name by revising the Domain Name Registration information to effectuate the . . . transfer of ownership of the [domain names] from Plaintiff to the LLC[.]" Am. Compl., Count IV, ¶ 89. Xereas relies upon Kremen v. Cohen, 337 F.3d 1024 (9th Cir. 2002), which held that a domain name is within the class of property protected by the tort of conversion. Id. at 1030-35. Kremen reasoned that under California law, a domain name is property capable of being converted because a domain name is a " well-defined interest" similar to " a share of corporate stock or a plot of land," domain name registrants have a " legitimate claim to exclusivity" similar to deeds with plots of land, and domain names are " valued, bought and sold, often for millions of dollars." Id. at 1030. The Kremen court explained that California had rejected the Restatement's requirement that intangible property could be protected only where the intangible rights are " merged in a document[.]" Id. at 1031-1033 (discussing Restatement (Second) of Torts § 242 (1965)).

D.C. courts have not directly addressed this issue, but also have not extended the tort of conversion to intangible property such as domain names, and Maryland courts hold to the Restatement rule limiting the tort of conversion of intangible property to where the property is merged into a document. Gaubatz, 793 F.Supp.2d at 339-40. Xereas has not asserted any basis for his cause of action beyond relying on Kremen which interpreted California law and rejected the Restatement's strict rule that Maryland applies. Kremen, 337 F.3d at 1031-1033. Xereas does not allege that his property interests were merged in any tangible documents which ...


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