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Reinicke v. Creative Empire LLC

United States District Court, S.D. California

August 6, 2014

CREATIVE EMPIRE LLC, dba MANGOLANGUAGES.COM, a Michigan limited liability company; and DOES 1-10, inclusive, Defendant

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For Almut Reinicke, Plaintiff: James D Crosby, LEAD ATTORNEY, Klinedinst PC, San Diego, CA.

For Creative Empire LLC, a Michigan Limited Liability Company, doing business as, Defendant: Elliot B Gipson, Gregory A. Fayer, Minh Zhen Kuo, LEAD ATTORNEYS, Fayer Gipson LLP, Los Angeles, CA.

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HON. GONZALO P. CURIEL, United States District Judge.

Before the Court is Defendant Creative Empire, LLC's motion for summary judgment. (Dkt. No. 41.) Plaintiff filed an opposition, (Dkt. No. 44), and Defendant replied. (Dkt. No. 46.) A hearing was held on August 1, 2014. (Dkt. No. 47.) James Crosby, Esq. and Jamie Riderbeck, Esq. appeared on behalf of Plaintiff and Minh Zhen Kuo, Esq. and Elliot Gipson, Esq. appeared on behalf of Defendant. Based on the arguments, briefs, supporting documentation, and the applicable law, the Court GRANTS Defendant's motion for summary judgment.

Procedural Background

On June 11, 2012, Plaintiff Almut Reinicke (" Plaintiff" or " Reinicke" ) filed a complaint against Defendant Creative Empire LLC d/b/a (" Defendant" or " Mango" ) alleging causes of action for copyright infringement, conversion and quantum meruit as to the Work incorporated into Mango 2.0. (Dkt. No. 1.) On October 23, 2012, the case was transferred to the undersigned judge. (Dkt. No. 10.) On January 24, 2013, the Court granted in part and denied in part Defendant's motion to dismiss for failure to state a claim and granted in part and denied in part Defendant's motion for a more definite statement. (Dkt. No. 15.) On February 21, 2013, Plaintiff filed a first amended complaint alleging causes of action for copyright infringement and quantum meruit. (Dkt. No. 16.)

On May 9, 2014, Defendant filed a motion for summary judgment. (Dkt. No. 41.) Plaintiff filed an opposition on June 13, 2014. (Dkt. No. 44.) Defendant filed a reply on June 27, 2014. (Dkt. No. 46.)

Factual Background

Mango provides online language learning services through the Internet. Mango began as Creative Empire, LLC which was formed in 2004 as an e-commerce company selling niche products over the internet. The company relaunched in 2007 as, its focus being the development of an internet-based language learning system. Mango began development of its first online language learning product, Mango 1.0, in 2006/2007.

Mike Goulas (" Goulas" ), Mango's Director of Product Development, was in charge of managing the development of Mango 1.0 and recruiting foreign language developers to create the language content that would be incorporated into Mango's software. Goulas used a website such as and to recruit Mango 1.0 language developers which included Plaintiff. After working on a small translation project for Mango, Goulas retained Plaintiff to develop the German language course for Mango 1.0. Because

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Mango had not yet generated any revenues, there was very little money available to compensate the language developers, so Mango offered to compensate in the form of a royalty based on the " net sale of all Source Language to Target Language courses." (Dkt. No. 41-4, Goulas Decl., Ex. A ¶ 8.)

On February 5, 2007, the parties executed a Commission Agreement (" Agreement" ) governing Plaintiff's work on Mango 1.0. (Dkt. No. 41-4, Goulas Decl., Ex. A.) Under the Agreement, Plaintiff developed 100 German lessons for Mango 1.0. Mango 1.0 launched on September 1, 2007 with 100 lessons in 12 different languages.

The Commission Agreement provided a commission structure based on the " net sale of all Source Language to Target Language courses during the period from Commission Start Date to Commission End Date. (Dkt. No. 41-4, Goulas Decl., Ex. A ¶ 8.) In exchange, the Language Developers waived the $18,000 fee for service. (Id. ¶ 7.) The commission percentage was as follows: 10% for the first year, 7% for the second year, and 5% for the third year. (Id. ¶ 2.) The Termination Fee was set at $56,000 which meant that at any time prior to the Commission End date, Mango had the right to terminate its obligation to pay further commission to the Developers by paying the termination fee. (Id. ¶ 10.) In the agreement, the developers assigned full copyright ownership over all content to Mango. (Id. ¶ 5.)

In the fall of 2008, Mango began developing a variety of ideas and products. Plaintiff was interested in creating a higher quality product and negotiations regarding compensation for Mango 2.0 began. Plaintiff wanted more favorable terms than her original Commission Agreement. (Dkt. No. 41-4, Goulas Decl. ¶ 9; Dkt. No. 44-1, Reinicke Decl. ¶ ¶ 14, 15.) During discussions, Mango was amenable to Plaintiff's demand for the proposed commission of 10% and term length of five years, but they disagreed over one item, the amount of the buyout payment. (Dkt. No. 41-4, Goulas Decl. ¶ 10; Dkt. No. 44-1, Reinicke Decl. ¶ 15.) Plaintiff sought a buyout amount of $93,333 over five years.[1] Mango was willing to pay $75,000 for a buyout provision for Mango 2.0. No contract was ever executed or signed and discussions regarding commissions ended in early 2009.

From January to May 2009, while Plaintiff sent emails to Goulas to inquire about resuming negotiations about the buyout provision, no negotiations regarding the buyout provision were held. (Dkt. No. 44-1, Reinicke Decl. 19-24; Exs. B-E.) During this time, Plaintiff began work on Mango 2.0. (Id. ¶ 18.)

On June 10, 2009, Goulas called and informed Plaintiff that Mango no longer agreed to the new five year contract for Mango 2.0. (Dkt. No. 41-4, Goulas Decl. ¶ ¶ 28, 29; Dkt. No. 44-1, Reinicke Decl.¶ ¶ 25, 26.) Instead, Goulas said that Mango would pay $25 per hour for a total of four hours for each lesson. (Id.) She declined to accept the offer and that she would rely solely on her Mango 1.0 commission and not work on Mango 2.0 anymore. (Dkt. No. 41-4, Goulas ¶ 30; Dkt. No. 44-1, Reinicke ¶ 26.) Later, the same day, she wrote an email where she said she thought " long and hard about this." (Dkt. No. 44-1, Reinicke Decl., Ex. H.) She wrote " [e]ven though we were under the impression for months we'd be getting 10%

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for 5 years. Oh well, okay, you changed my mind." (Id.) Her reasoning is that whatever work she puts into Mango 2.0 would help her own commission on Mango 1.0. (Id.) Since she was still promised commission on Mango 1.0 for an additional two years plus compensation for her hourly work on Mango 2.0, any improvement to Mango's product slate would drive overall sales of Mango 1.0. (Dkt. No. 44-1, Reinicke Decl. ¶ 27.) In June 2009, she agreed to a rate of $25 per hour for five hours per chapter. (Dkt. No. 45-3, Perakis Decl. ¶ 4; Dkt. No. 41-5, Kuo Decl., Ex. A, Almut Depo. at 89:23-90:8.)

In early August 2009, Mango halted production of the originally conceived Mango 2.0 project. The foreign language developers were instructed to abandon their current lessons and create brand new chapters according to a set of guidelines entitled " Traveling Tom." The teachers were given a 10 chapter unit outlines for Traveling Tom to govern the development of the chapters. Mango 2.0 would break down into about 10 chapters. Steven Perakis took over as Project Manager during the summer of 2009. (Dkt. No. 45-3, Perakis Decl. ¶ 2.)

Plaintiff submitted her first Traveling Tom lesson for Mango 2.0 in mid-late September 2009. During this time, she repeatedly emailed Mango throughout August and September to express her frustration over the failed commission negotiations and to ask for compensation for the time spent in fall 2008 on the discarded projects.

The next time that the issue of compensation came up was in October 2009. On September 30, 2009, Perakis emailed Plaintiff because no additional chapters had been submitted beyond lesson one. (Dkt. No. 44-1, Reinicke Decl., Ex. K at REINICKE000042.) Plaintiff responded that she was not satisfied with her current compensation and would not work on any other chapters without additional compensation. (Id. at REINICKE 000043.) Perakis responded and offered her $25 per hour for a total of 6 hours per chapter, an increase of 1 hour. (Id. at REINICKE000044.) She refused and wrote that she has put in more than 10 hours per lesson and her normal hourly rate is $40 for non-medical/general translation. (Id. at REINICKE000044.) She wrote, " I am open for either a new commission percentage as we had been promised last year, or another suggestion from your side." (Id.) Perakis responded stating that Mango was unable to pay her going rate and Mango had begun looking for a new German language developer. (Dkt. No. 43-3, Perakis Decl., Ex. G.) In response, she indicated that she would consider working again if Mango matched other German developers' rates. (Id.)

On October, 3, 2009, Plaintiff emailed Goulas to express her frustration and disappointment to Perakis' offer. (Dkt. No. 44-1, Reinicke Decl. ¶ 45, Ex. L; Dkt. No. 41-4, Goulas, Decl. ¶ 17, Ex. H.) Subsequently, Plaintiff and Goulas talked over the telephone on October 9, 2009. (Dkt. No. 44-1, Reinicke Decl. ¶ 47.) In that conversation, Goulas states that Plaintiff asked to rejoin Mango 2.0 on an hourly basis. (Dkt. No. 41-4, Goulas Decl. ¶ 18.) However, according to Plaintiff, they discussed the terms and conditions under which she would return to Mango. (Dkt. No. 44-1, Reinicke Decl. ¶ 47.) She states that Goulas promised that she would get paid for all hours spent on Mango 2.0 without any limit on the number of hours and that he wanted the compensation structure to be " fair" and wanted Plaintiff to move forward with completing Mango 2.0. (Id.) She stated that the only " fair" compensation was a commission based structure and Goulas agreed and they discussed

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a new commission contract for Mango 2.0. (Id.) While he agreed, he said he would work out the details later since he was focused on having the developers complete the first two chapters of Mango 2.0 for its upcoming release. (Id.) Plaintiff states she returned to Mango based on Goulas' promise to give her " fair" compensation in the form of a new commission agreement. (Id. ¶ 48.)

On October 9, 2009, Plaintiff rejoined Mango 2.0 under the new unlimited hour structure. (Dkt. No. 45-3, Perakis Decl. ¶ 14.) On October 9, 2009, Goulas sent out an email describing the new compensation plan to all the language developers. (Dkt. No. 41-4, Goulas Decl. ¶ 19; Ex. I.) Payment would be based on the hours they devote to Mango to include, " all training, developing, editing, reviewing, and communicating." (Id.) Attached to the email was a document entitled " Payment Plan" that detailed the terms under which the foreign language developers were to be paid. (Id., Ex. J.) In October and November 2009, Plaintiff was paid for all hours she billed. (Id. ¶ 17; Dkt. No. 44-2, Reinicke Decl., Ex. N.) Plaintiff was also paid for unpaid hours from the fall of 2008 that she spent on projects that were not used in Mango 2.0 (Dkt. No. 45-3, Perakis Decl. ¶ ¶ 9, 17; Exs. J, K.) Mango 2.0 launched on November 23, 2009, with about 36 languages. Only the first two of Plaintiff's Traveling Tom chapters were available upon launch.

On December 21, 2009, Mango changed its hourly compensation structure when it realized the costs associated with paying the developers on an unlimited hourly basis were astronomical. (Dkt. No. 45-3, Perakis Decl. ¶ 18.) Goulas emailed Plaintiff to inform her that after the first two chapters, compensation would be a flat fee of $300 per chapter. (Dkt. No. 44-1, Reinicke Decl. ¶ 54; Dkt. No. 41-4 Goulas Decl. ¶ 21, Ex. K.) She stated that Goulas never mentioned that Mango was changing the commission agreement they had agreed to in October 2009. (Id.) She wrote back contesting the new compensation plan and proposed adjusting the " old commission percentage" [2] in order to justify the deduction to the hourly rate payment and fairly compensate her for her efforts. (Id. ¶ 56, Ex. P.)

In late January 2010, Plaintiff submitted her timesheet for December 2009 and asked Perakis to clarify the $300/chapter compensation. (Dkt. No. 45-3, Perakis Decl. 20, Ex. L.) Perakis responded that Mango would compensate Reinicke for all time submitted through chapter 3, and from chapter 4 on, she would be paid $300 per chapter plan. (Id.) She accepted the chapter payment from chapter 4 forward. (Id. at MANGO0002465.) Perakis responded that " $300 is conclusion (sic) of everything" to include not only development of the lesson but also " wordification, fragmentation, phonetics, review of audio files, etc." (Id. at MANGO0002465-66.) He also noted that a bonus would be paid following completion of a unit. (Id.)

On January 31, 2010, Plaintiff wrote to Diana McGraw, another foreign language developer, and wrote a long email complaining about the amount in her check and commented " this is the worst paying job ever. . .Why don't they listen to us, again? Why don't they say, okay, we can't pay you for hours but if you do well and we sell more because you do well, you will benefit too, ...

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