Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

TD Ameritrade, Inc. v. Matthews

United States District Court, D. Alaska

July 16, 2018

TD AMERITRADE, INC., TD AMERITRADE HOLDING CORPORATION, INC., TD AMERITRADE IP COMPANY, INC., and TD AMERITRADE SERVICES COMPANY, INC., Plaintiffs,
v.
JAMES RICHARD MATTHEWS, Defendant.

          ORDER RE PENDING MOTIONS

          SHARON L. GLEASON UNITED STATES DISTRICT JUDGE.

         Before the Court at Docket 80 is Plaintiffs' (collectively, “TD Ameritrade”) Motion to Dismiss. Defendant James Matthews filed an opposition to the motion at Docket 82 and TD Ameritrade filed a reply at Docket 83. Mr. Matthews also filed a Motion to File Surreply at Docket 88 and a Motion to Strike and for Reconsideration at Docket 90. Oral argument was not requested and was not necessary to the Court's decision. Based on the foregoing, the Motion to Dismiss will be granted in part and denied in part, the Motion to File Surreply will be granted, and the Motion to Strike and for Reconsideration will be denied.

         LEGAL STANDARD

         When reviewing a Rule 12(b)(6) motion, a court considers only the pleadings and documents incorporated into the pleadings by reference, as well as matters on which a court may take judicial notice.[1] “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'”[2] A claim is plausible on its face “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[3] Thus, there must be “more than a sheer possibility that a defendant has acted unlawfully.”[4] A court “accept[s] factual allegations in the complaint as true and construe[s] the pleadings in the light most favorable to the nonmoving party.”[5]

         When a motion to dismiss for failure to state a claim is granted, a court “should freely give leave when justice so requires.”[6] But leave to amend is properly denied as to those claims for which amendment would be futile.[7] “Leave to amend may also be denied for repeated failure to cure deficiencies by previous amendment.”[8]

         BACKGROUND

         The underlying facts of this case are well known to the parties and are set forth in the Court's prior order on TD Ameritrade's first motion to dismiss at Docket 62. The pertinent facts as alleged in Mr. Matthews' Corrected Second Amended Answer and Counterclaims (“SAAC”) are briefly summarized as follows:

In early 2012, Mr. Matthews became aware of TD Ameritrade's thinkorswim applications program interface (“API”).[9] On or about April 11, 2012, Mr. Matthews received access to a live, unfunded, user-modifiable investment account with TD Ameritrade.[10] This allowed him access to TD Ameritrade's thinkorswim API, which enabled him to create a self-directed trading environment.[11] Mr. Matthews alleges he created analytical tools expressly permitted by thinkorswim.[12] He alleges users were encouraged to practice with the API and were encouraged to devise their own software programs and modify software routines that were not locked.[13] However, in his SAAC, Mr. Matthews also alleges that he has not “claimed that any of the source code created by him . . . was based upon a modification of any code or software from any TD Ameritrade website or trading platform, nor was it in any manner derived from any of TD Ameritrade's software.”[14] Mr. Matthews obtained a copyright registration for the computer code effective June 28, 2012.[15]

         Mr. Matthews attaches an unsigned licensing agreement he maintains that he downloaded from TD Ameritrade's website in March 2017, and asserts that it “is substantially the same” as the one in effect in May 2012.[16] He alleges that he had no agreement with TD Ameritrade that precluded him from filing for copyright protection for software created by him “in connection with the TD Ameritrade website and software.”[17]He alleges that the primary purpose of the Client Agreement was to govern stock trading activity and that the Court must determine “what, if any licensing agreement existed between the parties” and then the Court “must reconcile all such agreements which cannot be done as a matter of a pleading.”[18]

         Mr. Matthews alleges that on May 27, 2012, TD Ameritrade perpetrated a cyber attack against Mr. Matthews' computer, destroying his hard drive controller and copying his routines.[19] He maintains that “[a]ll or most of the software stolen by thinkorswim had a copyright notice imbedded by Matthews that clearly identified Matthews, and his claim to copyright.”[20] Mr. Matthews alleges that TD Ameritrade continues to use, provide, and permit others to use Mr. Matthews' copyrighted code.[21]

         On June 27, 2016, TD Ameritrade filed its Complaint, alleging causes of action for declaratory judgment, cancellation and release of claimed nonconsensual common law lien, and injunctive relief.[22] On September 9, 2016, TD Ameritrade filed a First Amended Complaint, alleging the same causes of action as the original complaint.[23]

         Mr. Matthews filed an answer to the First Amended Complaint on January 4, 2017. He asserted counterclaims and sought injunctive relief for copyright infringement.[24] On March 20, 2017, Mr. Matthews filed a First Amended Answer to the Amended Complaint, which also included eight counterclaims: three claims for copyright infringement; an alleged violation to Alaska's Unfair Trade Practices Act; two claims for breach of contract and breach of the implied covenant of good faith and fair dealing; trespass on real property; and a demand for accounting.[25] TD Ameritrade filed a motion to dismiss Mr. Matthews' counterclaims.[26] On October 25, 2017, this Court granted TD Ameritrade's Motion to Dismiss, allowing Mr. Matthews to file an amended answer allowing counterclaims only as to the copyright infringement claims and the breach of an unspecified contract and an associated implied covenant of good faith and fair dealing claim.[27] All other counterclaims were dismissed with prejudice.[28] On November 29, 2017, Mr. Matthews filed his SAAC, which now alleges that he did not use TD Ameritrade's trading software to create his copyrighted source code.[29] TD Ameritrade seeks dismissal of the SAAC.

         DISCUSSION

         Mr. Matthews' SAAC alleges four counterclaims: a copyright infringement claim in violation of 17 U.S.C. § 101 et seq.; a claimed violation of 17 U.S.C. §§ 1201 and 1202; a claim seeking injunctive relief on claims one and two; and a claim for breach of contract and the implied covenant of good faith and fair dealing.[30] TD Ameritrade again moves to dismiss each counterclaim for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6).

         1. Motion at Docket 90[31]

         Mr. Matthews asserts that the Court cannot consider the terms of the Client Agreement in determining whether he is a valid copyright owner because he did not incorporate the Client Agreement into his counterclaims.[32] He claims that this failure to incorporate requires the Court to either disregard the Client Agreement or convert the motion to dismiss to a motion for summary judgment.[33]

         “[A] court may consider material which is properly submitted as part of the complaint on a motion to dismiss without converting the motion to dismiss into a motion for summary judgment.”[34] “If the documents are not physically attached to the complaint, they may be considered if the documents' authenticity is not contested and the plaintiff's complaint necessarily relies on them.”[35] The Client Agreement was filed by TD Ameritrade in the record at Docket 4-3 as Exhibit C to TD Ameritrade's Complaint.[36] In Mr. Matthew's SAAC, he “admits that the papers attached as Plaintiffs' Exhibit C were sent to TD Ameritrade, and refers the Court to the contents thereof[.]”[37] Moreover, Mr. Matthews specifically refers to the Client Agreement in his SAAC.[38] Mr. Matthews does not contest the authenticity of the Client Agreement and relies on its contents in his SAAC. Therefore, the Motion to Strike at Docket 90 will be denied and the Court will consider the Client Agreement in ruling on the Motion to Dismiss without converting the motion to one for summary judgment.[39]

         At Docket 90, Mr. Matthews also asks this Court to reconsider its October 2017 order on TD Ameritrade's first motion to dismiss. The Court will deny that aspect of the motion because it is untimely.[40]

         2. Motion to Dismiss

         a. Copyright Infringement

         Mr. Matthews' copyright infringement counterclaim alleges that his copyrighted source code was misappropriated by TD Ameritrade without his permission.[41] TD Ameritrade asserts that the Client Agreement precludes Mr. Matthews from having a valid copyright in the source code because his source code is a derivative work of TD Ameritrade's thinkorswim applications program interface (“API”).[42]

         The Court's previous order stated as follows:

Although Mr. Matthews alleges that he has obtained a copyright registration for his code, TD Ameritrade points to the Client Agreement to rebut the presumption of the copyright's validity. Mr. Matthews acknowledges he signed and agreed to the terms of the Client Agreement, which states that “[m]y use of [TD Ameritrade's] Services will not confer any title ownership interest, or intellectual property rights to me.” The agreement also expressly prohibits Mr. Matthews from creating derivative works: “I will not . . . create derivative works from, distribute, redistribute, display, sell or transfer, or create derivative products from the Services.” Thus, even if Mr. Matthews obtained a copyright registration for work he claims is original and novel, he appears to be precluded from obtaining a copyright of any derivative works by the terms of the Client Agreement.[43]

         To the extent Mr. Matthews seeks to pursue a counterclaim for copyright infringement for code that is a derivative work of TD Ameritrade's source code, he is precluded from doing so, because the Client Agreement specifically prohibits Mr. Matthews from creating a derivative work and it is undisputed that he signed and agreed to its terms.[44]

         However, Mr. Matthews' SAAC maintains that the source code he created and copyrighted is not a derivative work of TD Ameritrade.[45] He makes the following allegations in his SAAC:

In this case, Defendant Matthews did not work with the building blocks provided by thinkorswim; instead he created new building blocks for thinkorswim, to accomplish certain goals he wished to achieve, and substantially did achieve[.]
. . .
[N]ever has Matthews' [sic] ever claimed that any of the source code created by him, upon which this action is based, was based upon a modification of any code or software from any TD Ameritrade website or trading platform, nor was it in any manner derived from any of TD Ameritrade's software; and if TD Ameritrade perceives that Matthews did so, then their perception is faulty.
. . .
In addition, none of Matthews['] code was prepared inside TD Ameritrade's website; to the contrary, all of Matthews' code was created on Matthews' own computer system, separate and apart from TD Ameritrade's system[.]
. . .
[N]one of the said software code in which Matthews claims the aforesaid creative and ownership interest was derived from, any software code owned by TD Ameritrade, and/or appearing on any of TD Ameritrade's or TD Ameritrade's thinkorswim website(s)-nor did Matthews ever claim it to be so.[46]

         “A copyright registration is ‘prima facie evidence of the validity of the copyright and the facts stated in the certificate.'”[47] TD Ameritrade nonetheless seeks dismissal of the copyright claims, arguing that Mr. Matthews cannot show he is a valid copyright owner in light of the Client Agreement.[48] “To rebut the presumption of validity, an infringement defendant must simply offer some evidence or proof to dispute or deny the plaintiff's prima facie case of infringement.”[49] TD Ameritrade cites to Bieg v. Hovnanian Enters., Inc., in support.[50] In Bieg, the plaintiff had filed copyright registrations for various drawings, creating a rebuttable presumption of copyright ownership. The district court held that the defendant had rebutted the presumption of validity by “presenting evidence that the drawings were created as ‘works-for-hire'” based on the plaintiff conceding that the drawings were created as “works-for-hire.”[51] However, Bieg was not decided on a motion to dismiss; rather, it was decided on a motion for summary judgment. Mr. Matthews' SAAC states a plausible claim for copyright infringement to the extent it alleges that Mr. Matthews' code was not derived from TD Ameritrade's source code but was instead created on his own computer system, “separate and apart from TD Ameritrade's system”; to this extent, TD Ameritrade's Motion to Dismiss Mr. Matthews' counterclaim for copyright infringement will be denied.

         b. Digital Millennium Copyright Act

         Mr. Matthews' second counterclaim alleges violations under 17 U.S.C. § 1201 and 1202 of the Digital Millennium Copyright Act (“DMCA”). Section 1201(a) provides “[n]o person shall circumvent a technological measure that effectively controls access to a work protected under this title.” TD Ameritrade maintains that Mr. Matthews has failed to state a claim under this section “because Defendant has not pleaded facts supporting a ‘technological measure' as defined by the statute.”[52]

         The Court's prior order provides as follows:

A technological measure effectively controls access to a work if the measure, in the ordinary course of its operation, requires the application of information, or a process or a treatment, with the authority of the copyright owner, to gain access to the work. . . . Mr. Matthews' First Amended Answer and Counterclaims alleges that TD Ameritrade hacked his computer, destroyed Defendant's hard drive controller, and copied the routines he had created. But Mr. Matthews did not allege any facts regarding the security of his hard drive or facts to indicate that his hard drive had encryption technology that was circumvented by TD Ameritrade. Although a hard drive with adequate protections could be a technological measure, Mr. Matthews has failed to allege sufficient facts to push his claim across the line from conceivable to plausible.[53]

         Mr. Matthews' SAAC includes citations to Wikipedia and judicial decisions that discuss various security devices.[54] He then alleges “[t]he protective devices described above were in place at the time of TD Ameritrade's attack.”[55] But the SAAC fails to specifically allege what technological measure(s), if any, Mr. Matthews had on his hard drive at the time of the alleged cyber attack.[56] Accordingly, TD Ameritrade's Motion to Dismiss is granted with regard to this counterclaim. TD Ameritrade argues Mr. Matthews “should not be allowed to amend the pleadings in his Opposition.”[57] TD Ameritrade is correct in that regard, but the Court will grant leave to amend solely to allow Mr. Matthews to allege the specific technological measure(s) on his hard drive at the time of the alleged attack.

         Mr. Matthews also alleges a copyright infringement claim under 17 U.S.C. § 1202 of the Digital Millennium Copyright Act (“DMCA”).[58] The Court's prior order provides, “Ownership of a valid copyright is a predicate to asserting a claim under the DMCA.”[59]As discussed above, Mr. Matthews has now adequately pleaded ownership of a valid copyright. Accordingly, TD Ameritrade's ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.