By Robert T. Sturgeon

In LGS Architects, Inc. v. Concordia Homes Of Nevada, 9th Circuit (January 11, 2006), the 9th Circuit reversed the district court’s denial of a motion for preliminary injunction. LGS, an architecture firm, had provided four copyrighted plans for Concordia’s construction of a development known as Arbor Glens I. LGS and Concordia entered into a Licensing Agreement, based on the standard American Institute of Architects’ form, which provided that the plans could only be used on the specific project unless Concordia obtained written authorization from LGS and paid an appropriate re-use fee. Without first obtaining written consent, Concordia tendered at least a portion of the required re-use fee and proceeded to build Arbor Glens II using the four floor plans provided by LGS. After Arbor Glens II was completed and sold out, LGS filed suit seeking an injunction requiring Concordia to cease using the plans and to return them to LGS.

Initially, Concordia sought to moot the appeal by submitting a declaration that it had no intention of using the plans any further. However, the 9th Circuit noted that such a voluntary declaration does not moot an appeal unless it is absolutely clear that the alleged wrongdoing could not recur.

The Court then reviewed the merits of the injunction. Initially, in a copyright case, a party seeking a preliminary injunction is only required to prove the probability of success on the merits. The other required element for an injunction, the threat of irreparable harm, is presumed in copyright infringement cases. Because Concordia did not dispute that LGS was the owner of valid copyrights in the four plans, the only question for the Court was whether Concordia exceeded the scope of the license.

The Court had little trouble concluding that the plain language of the licensing agreement only permitted Concordia to use the four plans on the first phase of its project. Without written consent, Concordia simply could not proceed with the second phase of the project using LGS’ plans. The Court also rejected Concordia’s claim that LGS had breached the covenant of good faith and fair dealing. Concordia claimed that LGS had breached the covenant by failing to provide written authorization for the additional use. The Court raised, without deciding, the preliminary question of whether such a covenant can even be implied in a licensing agreement. However, even assuming it was, the Court found that Concordia had not presented any evidence that it had fully tendered the re-use fee that was required by the Agreement. Because Concordia had not demonstrated satisfaction of this pre-requisite to further use of the plans, the Court concluded that LGS had not violated the covenant of good faith and fair dealing in failing to authorize the additional use.

While the Court’s decision is straightforward and largely dictated by what appear to be fairly clear contract provisions, this case highlights the need for builders and design professionals to carefully consider future use of plans during the initial planning for a project. If a builder intends to construct a project in multiple phases, it should ensure that any licensing agreement it has with its design professionals permits the use of any plans for each phase, or at least a mechanism for obtaining such authorization. If the agreement does not give the builder those options, the builder could find themselves in a difficult position if it wants to maintain the continuity of the development from one phase to the next. In addition, for the design professional, they must ensure that the fees they are being paid are sufficient to compensate them if additional phases or use of their plans is anticipated. If the right to continued or future use of floor plans and design documents is not resolved by the parties in advance, the seeds of the dispute have been sown. Being cognizant of these potential issues in advance gives both sides the opportunity to clearly address the issue before it becomes a dispute.

For more information please contact Robert Sturgeon. Robert Sturgeon is a senior attorney in the Construction, Environmental, Real Estate and Land Use Litigation practice group in the firm’s Los Angeles office.