Three Point Shot - March 2013

by Proskauer Rose LLP

Reversal of Fishy Court Opinion Gives Boat Crew Another Chance to Reel in a Million-Dollar Prize

When the crewmembers of the fishing boat, the Citation, finally hand-lined aboard a record-setting 883-pound, 14-foot-long blue marlin after a three-hour long battle in federal waters off the coast of North Carolina, it was as if they had hauled in a waterlogged treasure chest filled with over $900,000—the first place prize of the 2010 Big Rock Blue Marlin Tournament in which they were competing.

No other fish caught in the tournament came close. An elated Captain Eric Holmes said, “To catch a fish this big … it’s something. It really is. We got lucky and it’s good to be lucky.”  

But unfortunately for Captain Holmes and his crewmates, their three-hour long tussle was only the precursor to a courtroom prizefight that is now nearly three years in the making.

It seems they weren’t that lucky after all.

As the Citation journeyed back to the tournament weigh station with the blue marlin, First Mate Peter Wann reviewed the Tournament Rules. Rule 9 stated that the “North Carolina Division of Marine Fisheries will require a [coastal] recreational fishing license for anyone participating in fishing aboard a vessel” and that participants are responsible for “knowing all state and federal regulations.” Unsure of whether he possessed a valid coastal license, Wann whipped out his laptop and purchased one online before the Citation reentered state waters.

The license Wann purchased on board the Citation would soon become an albatross around his neck. Crystal Coast Tournament, the operator of the tournament, learned during routine polygraph tests of Captain Holmes and Wann (required by Tournament Rule 17) that Wann did not possess a valid coastal license at the time the blue marlin was hooked. The Tournament Rules Committee and Board of Directors determined that Wann’s failure to have a valid coastal license was a violation of the Tournament Rules and disqualified the Citation and its catch.

Black Pearl Enterprises, which owned the Citation, and its managing members filed a lawsuit in the North Carolina Superior Court against Crystal Coast Tournament and others seeking to overturn the disqualification. During the proceedings, the plaintiffs discovered that presiding Judge John E. Nobles, Jr. and defendants’ counsel, Claud R. Wheatley, III, were buddies. Black Pearl filed a motion for Judge Nobles to recuse himself based on Wheatley’s testimony that he and Judge Nobles practiced law together for a number of years and vacationed together multiple times after the plaintiffs filed their complaint and while the case was pending. Judge Nobles heard the motion himself and denied it, finding that there was no evidence that his objectiveness was compromised. As to the merits of the case, Judge Nobles applied a test requiring evidence of fraud, bad faith, or arbitrariness to overturn the decision of a tournament committee and torpedoed the case on summary judgment, ruling in favor of the defendants on all counts.

The Citation plaintiffs wasted no time in appealing the decision to the North Carolina Court of Appeals, which affirmed Judge Nobles’s trial court decision in its entirety in Topp v. Big Rock Foundation, Inc.

All was not lost, however. Judge Robert C. Hunter wrote a dissenting opinion advocating the reversal of Judge Nobles’s ruling for two reasons. First, Judge Nobles should have referred the motion to another judge for an independent hearing because it would be reasonable to question the impartiality of his ruling based on Wheatley’s testimony. Second, summary judgment was inappropriate because, based on the facts presented, the decision to disqualify the Citation and its catch from the tournament was arguably an arbitrary one resulting in a breach of the contract between the plaintiffs and Crystal Coast Tournament.

Judge Hunter opined that by paying the tournament entry fee of $18,025 and catching the largest blue marlin in the tournament, the plaintiffs had essentially entered into a contract with Crystal Coast Tournament for the prize money—a contract that Crystal Coast Tournament could only be excused from in the event of the plaintiffs’ material breach. According to the Tournament Rules, disqualification is not required when a boat breaches one of the Rules; Rule 20 merely states that a boat “may be disqualified” in such cases.  Judge Hunter interpreted the discretion of the Rules Committee and Board of Directors to imply that they must consider whether a violation of the rules is material and what penalty is warranted. If a violation is insignificant, some penalty short of disqualification may be appropriate. If Wann’s failure to possess a coastal license were not a significant violation of the Rules, Judge Hunter reasoned, it would not excuse the defendants from their obligations under the contract, which included refraining from arbitrary disqualifications. The plaintiffs’ violation of the tournament rules did not afford them any competitive advantage. Further, Judge Hunter noted, Wann acquired a coastal license before reentering state waters with the blue marlin. Therefore, Judge Hunter concluded, the Citation’s disqualification raises a genuine issue of material fact as to whether the decision of the Rules Committee and Board of Directors was arbitrary and therefore a breach of the parties’ contract.

Judge Hunter’s opinion by itself did not win the day for the Black Pearl, but it did open the door to a successful appeal to the state’s highest court. On January 25, 2013, the Supreme Court of North Carolina hooked into the reasoning of Judge Hunter’s dissenting opinion and remanded the case for a new trial.

The tides may be turning for the Citation crew as it pushes off from shore once again, with the hope that, this time, the court will take its bait.

Don’t Eat the Yellow Snow

Arizona Snowbowl, a ski resort in Flagstaff, Arizona, recently became the first ski resort to make artificial snow entirely out of treated wastewater. The snow-coated slopes may mean more winter skiing in the Arizona desert, but now skiers have an additional mogul to look out for –- yellow snow! It took years of legal battles to clear the slopes for the snow-making effort. The Snowbowl ski resort is located in the San Francisco Peaks, on land considered sacred by local Native American tribes. Back in 2005, after a lengthy environmental review, the U.S. Forest Service approved Snowbowl’s plans to produce artificial snow from recycled wastewater. These plans were not universally well-received.

When Three Point Shot last reported on this controversy in November 2009, a 2005 lawsuit brought by the Navajo Nation had just been put to rest. The Navajo Nation claimed that Snowbowl’s plans to coat the mountains in recycled sewage water violated the religious rights of plaintiff Indian tribes. But an en banc panel in the Ninth Circuit rejected the spiritual significance argument. The Navajo Nation also claimed on appeal that the Forest Service’s study of the risks posed by ingesting wastewater snow was inadequate, but the panel found that issue had not been properly raised at the district court level. The U.S. Supreme Court thereafter declined to review the case.

At the time of our November 2009 report, a new legal battle against the Forest Service and Arizona Snowbowl was just getting underway. Soon after the end of the Navajo Nation case, the Navajo Nation’s attorney filed an environmentally-focused challenge to Snowbowl’s expansion plans on behalf of the Save the Peaks Coalition. This litigation made the same environmental claims that the Ninth Circuit found were not properly raised in the Navajo Nation case. In response, the Forest Service and Arizona Snowbowl argued that Save the Peaks waited too long to bring its claim.

The Save the Peaks case hit an ice patch when the district court found that not only had Save the Peaks improperly delayed its claims, but the Forest Service had, in fact, satisfied its environmental obligations. In a February 2012 opinion, the Ninth Circuit upheld the lower court’s environmental ruling and declared the Save the Peaks case “a gross abuse of the judicial process.” The appeals court pointed out that several of the Save the Peaks plaintiffs were associated with and solicited money to support the organizations involved in the Navajo Nation litigation. It viewed the Save the Peaks case as substantially the same claims brought by substantially the same plaintiffs represented by the same attorney. In fact, as the panel pointed out, “a statement on the Save the Peaks Plaintiffs website even calls Navajo Nation ‘our prior court case.’” In June 2012, the appeals panel went so far as to order personal sanctions against Save the Peaks’ attorney for his bad faith actions, although that order was withdrawn without explanation in August 2012.

An additional suit challenging Arizona Snowbowl’s proposed snowmaking practices was filed by the Hopi tribe in November 2012, claiming that the sewage snow may harm an endangered plant. That case did not pick up speed, however, and was withdrawn in December 2012.

At long last, after nearly a decade of opposition, Snowbowl was free to produce wastewater snow. On December 24, 2012, that’s just what it did. But, to everyone’s horror, the snow came out yellow. Snowbowl maintains that the unpleasant surprise was caused by rusty pipes, but perhaps it’s all downhill from here.

Grades for Football Prospects Copyrightable, But Sports Writer Not Offside in Use

Information about NFL draft prospects is not something that one would normally think of as a literary work, unless perhaps written up by, say, Coach Ernest “Papa” Hemingway. But a federal court recently ruled that grades assigned to NFL draft prospects by a scouting firm are sufficiently creative to warrant copyright protection as a literary work.

The ruling came in an action brought by National Football Scouting, Inc. against Robert Rang, a part-time sports writer who publishes articles about the NFL Draft for defendant Sports Xchange’s Web site. National Football Scouting evaluates college football players and assembles scouting reports for its shareholder members – twenty-one NFL teams. Each report is six pages in length and assigns an overall grade to the player based on how likely that player is to succeed in the NFL. During 2010 and 2011, Rang used eighteen of National’s “Player Grades” in eight of his articles, ignoring a series of cease and desist letters along the way. After National filed suit alleging copyright infringement and trade secret misappropriation, both parties moved for summary judgment, looking to end the ballgame in the first quarter.

Defendants tried sacking National’s copyright claim on the first play by asserting that the Player Grades are not protected by the Copyright Act. The court, however, sided with National in holding that the Player Grades are sufficiently creative to satisfy copyright’s originality requirement. Specifically, the court rejected defendants’ attempt to analogize the Player Grades to the telephone list in the U.S. Supreme Court’s seminal ruling in Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 499 U.S. 340 (1991). In Feist, the Court ruled that a white pages list of names, addresses and telephone numbers were facts that were not sufficiently original to warrant copyright protection. Distinguishing Feist, Judge Ronald B. Leighton found that the Player Grades “are not facts,” but instead “represent National’s opinion, based on its data and its expertise, of a player’s likely success in the NFL.”  National’s weighing of “subjective factors, such as personal character, leadership, and poise” in determining the Player Grades satisfied the minimal degree of creativity required under copyright law.

With National moving the ball down the field, the defendants sent out their “prevent defense” – the fair use doctrine. The statutory fair use doctrine sets forth a list of non-exclusive factors that are examined to determine whether the use is fair and thus protected against an infringement claim. In examining the first factor – the character of the infringing work – the court concluded that the defendants’ undisputed commercial use was outweighed by the fact that Rang, in providing original commentary on the draft prospects of players, had incorporated the Player Grades into a transformative work. Although the scouting reports were unpublished, the second factor – the nature of the copyrighted work – was the only one that bounced National’s way. The third factor “weighed slightly in Rang’s favor” despite the fact that the Player Grade may be considered the “heart” of the copyrighted work; Rang only took a small portion of those hearts (eighteen), the Player Grades have meaning only in the context of comparison to other Grades, and the Grades were not the focal point of Rang’s articles, but rather a small piece of a comprehensive and original analysis on each player.

The court characterized the fourth factor – effect on the market for the copyrighted work – as “undoubtedly the single most important element of fair use.”  This favored Rang, with the court noting that the scouting reports and the articles compete in two distinct markets; the reports are sold to member NFL teams, while the articles are available to the public. Because the reports contain six pages of information for each draft prospect, the court downplayed the fact that some of National’s competitors could see the Player Grades. “Even if National attempted to sell its Scouting Reports to the public at large, Rang’s disclosure of eighteen player grades does not compete directly with the material in the Scouting Reports,” and therefore cannot in any way serve as a market substitute.

In balancing the four factors, the court determined that Rang’s use of the Player Grades as one component to an overall commentary on potential NFL draftees, even though commercial in nature, was sufficiently transformative and therefore would have no effect on the market for National’s reports, even if National decided to sell its unpublished reports to the public. Thus, the court deemed Rang’s use a fair use and granted defendants summary judgment on the copyright infringement claim.

But the game wasn’t over yet.

The teams returned to the field ready to battle over the plaintiff’s second claim – trade secret misappropriation under the Washington version of the Uniform Trade Secrets Act. On this claim, the court found factual issues that precluded the grant of summary judgment specifically, whether the Player Grades have economic value due to their private nature, and whether National reasonably attempted to preserve their secrecy.

We’ll be watching from the stands to see whether National can mount a comeback on the trade secret front.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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