IN RE FONTAINEBLEAU LAS VEGAS HOLDINGS, LLC (S.D.Fla. 7-14-2010)

KENNETH M. KARAS, District Judge:

Plaintiffs bring this case alleging copyright infringement, hot news misappropriation, fraud, breach of contract, unfair competition, and unjust enrichment in connection with Defendants' use of Plaintiffs' BanxQuote National Average Money Market and CD rates. Defendants move to dismiss the case in its entirety. For the reasons given herein, Defendants' Motion to Dismiss is granted in part and denied in part.

I. Background

A. Factual Background

For the purposes of this Motion to Dismiss, the Court accepts the allegations in the Second Amended Complaint ("SAC") as true. Plaintiffs Norbert Mehl ("Mehl") and BanxCorp do business as BanxQuote. (SAC ¶¶ 1-2.) BanxQuote publishes "database compilations and market research performance ind[ices] known as BanxQuote National Average Money Market and CD rates" ("BanxQuote Indices"). ( Id. ¶ 21.) Plaintiffs describe the BanxQuote Indices as systematic compilations of selected banking, mortgage, and loan data that "are frequently used as original benchmarks to measure the rates and performance of the U.S. banking and mortgage markets." ( Id. ¶¶ 33-34, 36.)

Plaintiffs allege that Defendant Costco Wholesale Corporation ("Costco") entered into an agreement with Defendant Capital One Financial Corporation through its subsidiaries (collectively, "Capital One") to provide a co-branded direct banking service that offered high yield savings accounts ("HYSAs") and certificate of deposit accounts ("CDs") to Costco's members. ( Id. ¶¶ 19-20.) On January 28, 2004, Capital One and BanxCorp entered into a limited, non-transferable license agreement (the "License Agreement") commencing on January 12, 2004 with automatic annual renewals. ( Id. ¶ 89.) The License Agreement permitted Capital One to access and use, for limited purposes, the BanxQuote Indices and the data contained therein. ( Id. ¶¶ 89-91.) Plaintiffs allege that at the time Capital One entered into this agreement, it was acting on behalf of Costco (without disclosure), and that Capital One breached the License Agreement by redistributing the BanxQuote Indices to Costco in order to benefit the co-branded banking services. ( Id. ¶¶ 88, 93.) Plaintiffs allege that they would not have entered into the License Agreement had they known of Capital One's intentions. ( Id. ¶ 95.) Finally, Plaintiffs allege that data from the BanxQuote Indices have been distributed by Capital One and Costco in "direct mail, print advertisements, newspaper advertisements, websites, and marketing presentations" from December 2003 to December 2008. ( Id. ¶¶ 95-96, 98.) B. Procedural Background

Plaintiffs, proceeding pro se, filed their Complaint on February 25, 2009, and filed an Amended Complaint on March 25, 2009. After retaining counsel, Plaintiffs filed the SAC on September 2, 2009.

Plaintiffs allege seven causes of action. The two federal causes of action are Count One, which alleges copyright infringement based upon Defendants' improper use of the BanxQuote Indices ( id. ¶¶ 106-16), and Count Three which alleges violation of the Digital Millennium Copyright Act ("DMCA"), based on allegations that when Defendants copied the BanxQuote Indices they altered or removed the copyright management information BanxCorp had associated with the data, ( id. ¶¶ 126-33). The remaining causes of action arise under New York law. Count Two alleges hot news misappropriation of the time-sensitive data contained in the BanxQuote Indices. ( Id. ¶¶ 117-25.) Count Four alleges fraud based on allegations that Defendants materially misrepresented their intentions with respect to their use of the BanxQuote Indices pursuant to the License Agreement. ( Id. ¶¶ 134-43.) Count Five alleges breach of contract against Capital One only, based on the alleged distribution to, and use of the BanxQuote Indices by, Costco in violation of the License Agreement. ( Id. ¶¶ 144-51.) Count Six alleges unfair competition based on allegations that Defendants' use of the BanxQuote Indices gave Defendants an unfair competitive advantage both in terms of decreased web traffic at Plaintiffs' websites, and in terms of direct competition in providing HYSAs and CDs. ( Id. ¶¶ 121, 152-57.) Finally, Count Seven alleges unjust enrichment based on allegations that Defendants received value due to their wrongful use of the BanxQuote Indices. ( Id. ¶¶ 158-61.) Defendants' Motion to Dismiss was fully submitted as of December 10, 2009. The Court held oral argument on May 11, 2010.

II. Discussion

A. Standard of Review

"On a Rule 12(b)(6) motion to dismiss a complaint, the court must accept a plaintiff's factual allegations as true and draw all reasonable inferences in [the plaintiff's] favor." Gonzalez v. Caballero, 572 F. Supp. 2d 463, 466 (S.D.N.Y. 2008); see also Ruotolo v. City of New York, 514 F.3d 184, 188 (2d Cir. 2008) ("We review de novo a district court's dismissal of a complaint pursuant to Rule 12(b)(6), accepting all factual allegations in the complaint and drawing all reasonable inferences in the plaintiff's favor." (internal quotation marks omitted)). "In adjudicating a Rule 12(b)(6) motion, a district court must confine its consideration to facts stated on the face of the complaint, in documents appended to the complaint or incorporated in the complaint by reference, and to matters of which judicial notice may be taken." Leonard F. v. Isr. Disc. Bank of N.Y., 199 F.3d 99, 107 (2d Cir. 1999) (internal quotation marks omitted).

Plaintiffs submitted a document entitled "Plaintiffs' Affidavit of Norbert Mehl in Opposition to Defendants' Motion to Dismiss" with their Memorandum of Law. (Dkt. No. 29.) As the Court indicated in its memorandum endorsement of Defendants' letter of December 10, 2009 (Dkt. No. 30), because the affidavit is not mentioned in the SAC, the Court will not consider the affidavit in resolving Defendants' Motion to Dismiss. (Dkt. No. 30.)

The Supreme Court has held that "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the `grounds' of his `entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (internal citations omitted) (second alteration in Twombly).

Instead, the Court has emphasized that "[f]actual allegations must be enough to raise a right to relief above the speculative level," id., and that "once a claim has been stated adequately, it may be supported by showing any set of facts consistent with the allegations in the complaint," id. at 563. A plaintiff must allege "enough facts to state a claim to relief that is plausible on its face." Id. at 570. If Plaintiffs "have not nudged their claims across the line from conceivable to plausible, their complaint must be dismissed." Id. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense. But where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged — but it has not `show[n]' — `that the pleader is entitled to relief.'" Ashcroft v. Iqbal, 129 S.Ct. 1937, 1950 (2009) (internal citation omitted) (quoting Fed.R.Civ.P. 8(a)(2)) (alteration in original).

B. Federal Law Causes of Action

Defendants argue that Counts One (copyright infringement) and Three (DMCA violation) fail to state a claim. (Mem. of Law in Supp. of Defs.' Mot. to Dismiss ("Defs.' Mem.") 3; SAC ¶¶ 106-16, 126-33.)

1. Count One: Copyright Infringement

There is no disagreement as to the elements Plaintiffs must establish to state a claim for copyright infringement. (Defs.' Mem. 3; Pls.' Mem. of Law in Opp'n to Defs.' Mot. to Dismiss ("Pls.' Mem.") 4.) "`To prevail on a claim of copyright infringement, the plaintiff must demonstrate both (1) ownership of a valid copyright and (2) infringement of the copyright by the defendant.'" Cameron Indus., Inc. v. Caravan, Ltd., 676 F. Supp. 2d 280, 283-84 (S.D.N.Y. 2009) (quoting Yurman Design, Inc. v. PAJ, Inc., 262 F.3d 101, 109-10 (2d Cir. 2001)); see also Porto v. Guirgis, 659 F. Supp. 2d 597, 608 (S.D.N.Y. 2009) (requiring "`ownership of a valid copyright, and [] copying of constituent elements of the work that are original'" (quoting Williams v. Crichton, 84 F.3d 581, 587 (2d Cir. 1996))); Lewinson v. Henry Holt Co., 659 F. Supp. 2d 547, 559 (S.D.N.Y. 2009) (same) (quoting Feist Publ'ns, Inc. v. Rural Tel. Serv. Co., 499 U.S. 340, 361 (1991)); R.F.M.A.S., Inc. v. Mimi So, 619 F. Supp. 2d 39, 51 (S.D.N.Y. 2009) (requiring ownership of a valid copyright and "`unauthorized copying of the copyrighted work'" (quoting Jorgensen v. Epic/Sony Records, 351 F.3d 46, 51 (2d Cir. 2003))). The second element is further broken down into two components: "[t]o establish infringement, the copyright owner must demonstrate that `(1) the defendant has actually copied the plaintiff's work; and (2) the copying is illegal because a substantial similarity exists between the defendant's work and the protect[a]ble elements of the plaintiff's.'" Eyal R.D. Corp. v. Jewelex N.Y., Ltd., 576 F. Supp. 2d 626, 641 (S.D.N.Y. 2008) (quoting Yurman Design, 262 F.3d at 110); see also Cameron Indus., 676 F. Supp. 2d at 284 (same); Psihoyos v. Nat'l Geographic Soc'y, 409 F. Supp. 2d 268, 273 (S.D.N.Y. 2005) (same) (quoting Knitwaves, Inc. v. Lollytogs Ltd., 71 F.3d 996, 1002 (2d Cir. 1995)); Maharishi Hardy Blechman Ltd. v. Abercrombie Fitch Co., 292 F. Supp. 2d 535, 553 (S.D.N.Y. 2003) (same).

In this case, Defendants concede that Plaintiffs have pled actual copying, and do not contest that, if the works at issue are protectable, Plaintiffs own a copyright. (Defs.' Mem. 3-8.) Instead, Defendants argue that Plaintiffs "have not validly alleged infringement of protectable elements of Plaintiffs' work." ( Id. at 3.)

There are three levels of generality at which Plaintiffs could be alleging copyright infringement. The lowest level of generality is the raw data from which the BanxQuote Indices are created (the "raw data"). The second level of generality is the product of the raw data, i.e. the actual average listed in the BanxQuote Indices (the "final value"). The third level of generality is the arrangement and presentation of the final values (the "arrangement"). Both the final value and the arrangement are, in different ways, compilations, which the Second Circuit has suggested must meet three requirements for copyright protection: "(1) the collection and assembly of preexisting data; (2) the selection, coordination, or arrangement of that data; and (3) a resulting work that is original, by virtue of the selection, coordination, or arrangement of the data contained in the work." Key Publ'ns, Inc. v. Chinatown Today Publ'g Enters., Inc., 945 F.2d 509, 512 (2d Cir. 1991).

To illustrate by way of example, imagine that there are three banks in the world, A, B, and C, which offer interest rates of 4%, 5%, and 6%, respectively, on a given type of account. These facts are the raw data. The average of these rates, 5%, is the final value. The table or graph containing this, and other, final values, is the arrangement.

To advance their Motion, Defendants make two arguments. First, Defendants contend that the raw data and final values are facts, which are not protectable, and not predictions or estimates, which Defendants concede would be protectable. (Defs.' Mem. 4-6.) Second, Defendants claim that "[t]o the extent that Plaintiffs claim [that] Defendants infringed copyright in a compilation, the claim should be dismissed because it is conclusory and implausible," and go on to argue that Plaintiffs have not alleged copyright in the arrangement. ( Id. at 6-8.) Plaintiffs respond by conceding that they do not allege a copyright in the raw data (Pls.' Mem. 3), but argue that they have a copyright in the final values ( id. at 4-9), because the final values are not facts. Plaintiffs make no claim that they have a copyright in the arrangement.

No copyright can exist in facts "because facts do not owe their origin to an act of authorship[,] . . . [and are] not created[,] . . . [but] merely discovered. . . ." Feist, 499 U.S. at 347. However, as originality, which is a constitutional requirement, "remains the sine qua non of copyright," "[f]actual compilations . . . may possess the requisite originality . . . [where] [t]he[] choices as to selection and arrangement . . . are made independently by the compiler and entail a minimum degree of creativity." Id. at 348; see also CDN Inc. v. Kapes, 197 F.3d 1256, 1259 (9th Cir. 1999) ("Discoverable facts, like ideas, are not copyrightable. But compilations of facts are copyrightable where the underlying facts are not.").

The Second Circuit has provided some guidance on how to determine the border between unprotected data and protectable compilations of data in the form of final values. In dicta in New York Mercantile Exchange, Inc. v. IntercontinentalExchange, Inc., 497 F.3d 109 (2d Cir. 2007) (" New York Mercantile"), the Second Circuit was presented with the question of whether settlement prices for futures contracts were facts. Id. at 114. The court described the contracts as follows:

A futures contract requires the delivery of a commodity at a specified price at a specified future time, though most contracts are liquidated before physical delivery occurs. . . . The settlement prices are used to value the open positions. . . . Unlike on a securities exchange, the settlement price may not be the final trade, for two reasons. First, because of the nature of trading, it is not always clear which trade was the closing trade. . . . Second, . . . [f]or the "outer" months, those further from the trading date, there is often little or no trading on a particular day. . . . For high-volume months, settlement prices are based on a formula: "a weighted average of all trades done within the closing range." . . . For low-volume months, the extent of the . . . creative judgment is disputed.

Id. at 110-11 (footnote omitted). The Second Circuit ultimately decided the case on alternative grounds, id. at 115 ("we do not decide whether settlement prices are unoriginal, and instead affirm based on the merger doctrine"), but stated that "there [wa]s a strong argument" that the settlement prices were unprotectable facts, id. at 114, though that argument was weaker for the low-volume months, id. at 116 (stating that if "there is no real market to speak of" in the low-volume months, the settlement prices "appear[] closer to creation, to making predictions of expected values" (internal quotation and ellipsis omitted)). As the New York Mercantile court noted:

For high-volume months, settlement prices are determinations of how the market values a particular futures contract . . . [,] not how the market should value them or will value them. Under this view, the market is an empirical reality, an economic fact about the world. . . . So characterized, there is one proper settlement price; other seemingly-accurate prices are mistakes which actually overvalue or undervalue the futures contract.

Id. at 115 (emphasis in original). Therefore, consistent with the dicta in New York Mercantile, when confronted with raw data that have been converted into a final value through the use of an original formula, the Court should put significant weight on the degree of consensus and objectivity that attaches to the formula. For example, if a scientist knew an object's mass and the force acting upon the object, this raw data could be converted into the object's acceleration due to that force by using the "formula" known as Newton's Second Law of Motion. This use of a formula would merely discover an "empirical reality." On the other hand, "formulae" that purport to identify the best baseball player based on some weighted composition of batting average, on-base percentage, defensive efficiency, and a myriad of other selective factors, are not discovering "empirical realities." The difference lies in the originality of the method used to compile or analyze the data. See Key Publ'ns, 945 F.2d at 513 ("Selection implies the exercise of judgment in choosing which facts from a given body of data to include in a compilation."); Eckes v. Card Prices Update, 736 F.2d 859, 863 (2d Cir. 1984) (holding that the selection of 5,000 "premium cards" out of "18,000 or so different baseball cards" was sufficiently original to be protected under the Copyright Act).

In New York Mercantile, the Second Circuit also engaged in a comparison of the settlement prices at issue, and the "compilation of estimated projections for used car prices" that the Second Circuit held merited copyright protection in CCC Information Services, Inc. v. Maclean Hunter Market Reports, 44 F.3d 61 (2d Cir. 1994). See N.Y. Merc., 497 F.3d at 115 n. 5. The crucial distinction between the two cases was that "[t]he values [in CCC Information Services] were based on assumptions about `average' cars; as these cars did not exist, there could be no actual market to discover." Id. By contrast, "settlement prices can be seen as `pre-existing facts' about the outside world which are discovered from actual market activity." Id. This analysis reinforces the point that when raw data are converted into final values, the final values should not be considered "facts" when the process of conversion contains at least minimal originality as evidenced by estimates or subjective decisions. See CCC Info. Servs., 44 F.3d at 67 (noting, post- Feist, that applying "professional judgment and expertise" to "a multitude of data sources" is sufficient to warrant protection under the Copyright Act).

Of course, the formula chosen can be generally accepted and objective enough to constitute a "fact" without being completely accurate. That is presumably true for settlement prices, and is even true for Newton's Second Law of Motion, which is inaccurate because it fails to consider relativistic effects. See Albert Einstein the Theory of Relativity, http://csep10.phys.utk.edu/astr161/lect/history/einstein.html (last visited May 24, 2010) (lecture from "Astronomy 161" course at the University of Tennessee, Knoxville).

Since New York Mercantile, at least one district court has attempted to navigate the current state of the law, though noting that the point at which raw data have become copyright-able expressions through the use of sufficiently original formulae "has not been fully clarified by the Second Circuit." RBC Nice Bearings, Inc. v. Peer Bearing Co., 676 F. Supp. 2d 9, 21 (D. Conn. 2009). In that case, the court considered "load ratings" of ball bearings, which are measures of the "radial force a particular bearing having known geometric and physical attributes, such as size and quantity of balls, can withstand." Id. at 16 (internal quotation marks omitted). The exact values of the load ratings were "mainly a function of the geometry of the bearing and material, [but also considered] certain other `life factors' enumerated in published industry guidelines . . . [such as] tolerances, material cleanliness, lubrication, hardness, and operating temperature." Id. The plaintiff's strongest argument that the load ratings were not mere facts was that "creativity [wa]s used in developing the load ratings . . . [, because] certain bearing manufacturers use the various `life factors' . . . to adjust their load rating calculations from a standard calculation based only upon the geometrical features of the bearings." Id. at 22. However, the court found that argument unpersuasive in the light of New York Mercantile, because

[w]hile there may be some level of judgment involved in selecting which particular "life factors" to utilize in adjusting the standard load rating calculation, based upon the record before the Court such judgment is very minimal given that the relevant life factors are published in industry guidelines. The level of judgment necessary to calculate the load rating information is undoubtedly no more than that needed to determine the settlement prices at issue in [ New York Mercantile]. . . .

Id. However, as in New York Mercantile, the court did not rest its decision solely on this ground, and stated that it would reach the same decision even if "the load bearing ratings are expressions rather than facts," because of the court's application of the merger doctrine. Id. at 23. The court's reasoning, therefore, like the reasoning in New York Mercantile, is merely dicta.

Nonetheless, the Court considers the reasoning in New York Mercantile and RBC Nice Bearings as persuasive authority. The key factors uniting these decisions, and distinguishing the results from that in CCC Information Services, are: (1) the raw data used to create the final value were unprotectable facts; (2) the method of converting raw data into the final value was an industry standard, or otherwise widely accepted as an objective methodology; and (3) the final value attempted to measure an empirical reality. When these three things are true, the final value produced from raw data ordinarily is not protected by copyright. In other words, to demonstrate that the final values produced from raw data are protectable by copyright, a plaintiff must demonstrate either that (1) the raw data used to create the final value were protectable; or (2) the method of converting the raw data into a final value was an original (but not necessarily novel) process that is neither widely accepted as objective, nor an industry standard; or (3) the final

value did not attempt to measure an empirical reality. This test captures the Supreme Court's focus on "minimal" originality, as an expression can be copyrighted if minimal originality exists in the raw data, the method of producing the final value, or the object the final value attempts to measure. See CDN, Inc., 197 F.3d at 1259 ("Although the requirement of originality is a constitutional one inherent in the grant to Congress of the power to promote science and the useful arts, the required level of originality is `minimal.'" (quoting Feist, 499 U.S. at 358)). Furthermore, the test captures the Second Circuit's observation that "the exercise of judgment in choosing [] facts" is sufficient to warrant protection under the Copyright Act. Key Publ'ns, 945 F.2d at 513. The plaintiffs in New York Mercantile and RBC Nice Bearings failed this test for the reasons outlined above.

The distinction between original and novel was drawn by the Supreme Court in Feist. See, 499 U.S. at 345 ("Originality does not signify novelty; a work may be original even though it closely resembles other works so long as the similarity is fortuitous, not the result of copying.").

The plaintiff in CCC Information Services passed the test because projected values of hypothetical average cars did not measure an objective reality. See CCC Info. Servs., 44 F.3d at 67 (describing the final value as an "abstract concept"); see also N.Y. Merc., 497 F.3d at 115 n. 5 (emphasizing that the final value in CCC Information Services measured something that "did not exist").

The Court will, therefore, apply this analysis to the SAC. The SAC repeatedly refers to the BanxQuote Indices as "original" and "creative" (SAC ¶¶ 21, 25, 33, 36-37, 55, 107-08, 110), but without underlying facts supporting these conclusions, such statements are not by themselves sufficient. See Twombly, 550 U.S. at 555 (noting that a plaintiff must do more than provide "labels and conclusions"). The SAC also repeatedly refers to the time and expense involved in creating the BanxQuote Indices (SAC ¶¶ 22, 25, 33, 37, 118), but facts can be just as expensive and time consuming to discover as protectable expressions can be to produce. See Eldred v. Ashcroft, 537 U.S. 186, 236 (2003) (noting that the "sweat-of-the-brow view of copyright . . . was emphatically rejected by [the Supreme Court] in 1834"); Feist, 499 U.S. at 359-60 ("[O]riginality, not `sweat of the brow,' is the touchstone of copyright protection. . . ."); Sparaco v. Lawler, Matusky, Skelly, Eng'rs LLP, 303 F.3d 460, 466 (2d Cir. 2002) (noting that "the earlier notion that an author's labor in discovering facts justified giving the author protection against the copying of those facts" has been "repudiate[d]"). Similarly, the SAC repeatedly refers to how authoritative the BanxQuote Indices are (SAC ¶¶ 36, 38, 43), but, if anything, these statements undercut Plaintiffs' case because they suggest that the methodology of the BanxQuote Indices has achieved industry-wide acceptance.

Though at first counter-intuitive, it is actually to be expected that the more acceptance a financial measure obtains (i.e. the more successful it is), the more "fact-like" it becomes. Just as scientific theories start as mere speculation and eventually gain a patina of objectivity, economic indicators that we now rely on, such as CPI, were once just glimmers in the eyes of economists. Compare Inflation, http://www.britannica.com/EBchecked/topic/287700/inflation (last visited May 24, 2010) (outlining four basic theories of inflation, the oldest of which dates back to David Hume in the eighteenth century) with Bureau of Labor Statistics Handbook of Methods, Ch. 17 The Consumer Price Index, at 7-11 (updated June, 2006), available at http://www.bls.gov/opub/hom/pdf/homch17.pdf (outlining the history of the Federal Government's official measurement of inflation starting in 1919).

More concrete, are the various descriptions of the BanxQuote Indices which are scattered throughout the SAC. These include allegations that the BanxQuote Indices are: (1) "original database compilations which required complex custom software development and programming, computer program updates, original selection and arrangement of data, real time database input and output systems, complex algorithms and multiple computer hardware systems, and training" ( id. ¶ 25); (2) the result of "systematically compiling, creating and publishing original works of authorship consisting of extensively researched, highly time-sensitive bank rate databases and ind[ices] for a selected series of banking, mortgage and loan products throughout the United States" ( id. ¶ 33); (3) "selected, coordinated and arranged in a complex and particular manner" ( id. ¶ 34); (4) "original works of authorship consisting of the systematically researched and highly time-sensitive bank rate databases and ind[ices] for a series of banking, mortgage and loan products throughout the United States, collected, selected, coordinated, and arranged in a particular manner" ( id. ¶¶ 55, 110); (5) produced by "compiling thousands of constantly changing interest rates and banking information from discretionary and periodically changing leading banks in all fifty states of the United States at a substantial cost, both monetary and in the form of corporate resources and sophisticated technological infrastructure" ( id. ¶ 118); and (6) "based on thousands of variable interest rates subject to change at any time by the banks, Fed Funds, the U.S. Treasury market, domestic and global money markets, London Interbank LIBOR rates, Eurodollar markets, bond markets, futures markets and foreign exchange markets," ( id. ¶ 119 (footnote omitted)).

As an initial matter, it is clear from these descriptions, that Plaintiffs cannot seek copyright protection based upon the underlying raw data, which consists of unprotectable facts about interest rates charged by certain banks and a variety of economic indicators. These are akin to the actual trade values at issue in New York Mercantile, and the physical characteristics of the ball bearings in RBC Nice Bearings. Therefore, Plaintiffs have failed to establish the requisite originality in the raw data. Similarly, the object of the BanxQuote Indices is to measure, among other things, the "rates paid by investors on negotiable certificates of deposit and high yield savings accounts" (SAC ¶ 42), which is an objective fact about the banking market. This is akin to the attempt to measure the value of settlement prices as they are (not as they should be or will be) in New York Mercantile or the radial strength of ball bearings in RBC Nice Bearings. Therefore, Plaintiffs have failed to establish originality in the object of the final values.

The remaining question, therefore, is whether Plaintiffs have pled sufficient facts to allege "minimal" originality in the method of converting the raw data to the final values. Plaintiffs allege that the method involves "complex algorithms." (SAC ¶ 25.) Alone, this is insufficient. See Sparaco, 303 F.3d at 466 (noting that difficulty in production does not render the product copyrightable). Plaintiffs, understandably, do not wish to reveal the algorithms they use, but they must allege facts about the creation or execution of the algorithms that establish that they are sufficiently original. To this end, Plaintiffs further allege that the methodology was developed "independently." (SAC ¶¶ 34, 37, 55, 110.) This is relevant, as it suggests that the methodology is neither widely used nor an industry standard, but is not sufficient because purely objective methodologies could be developed independently. See N.Y. Merc., 497 F.3d at 114 n. 4 (noting the difference between "independent creation," and "creativity"). Plaintiffs come closer to the mark when they allege that the raw data consist, in part, of "banking information from discretionary and periodically changing leading banks." (SAC ¶ 118.) However, this allegation would not be sufficient to rule for Plaintiffs as a matter of law because, as in both New York Mercantile and RBC Nice Bearings, it is possible to exercise discretion at such a minimal level that no originality enters the process. See Feist, 499 U.S. at 359 ("There remains a narrow category of works in which the creative spark is utterly lacking or so trivial as to be virtually nonexistent. Such works are incapable of sustaining a valid copyright." (internal citation omitted) (emphasis added)). However, Plaintiffs' claim of originality is also bolstered by the list of other factors the BanxQuote Indices consider, namely "thousands of variable interest rates . . ., Fed Funds, the U.S. Treasury market, domestic and global money markets, London Interbank LIBOR rates, Eurodollar markets, bond markets, futures markets and foreign exchange markets. . . ." (SAC ¶ 119 (footnote omitted).) It is possible that this list is simply an abbreviated way of saying that the BanxQuote Indices consider every important financial indicator, but there is no immediately apparent reason why these economic measures were considered and others were omitted (why, for example, the London Interbank Offered Rate (LIBOR) and not the equivalent Japanese (TIBOR) or German (FIBOR) rates?). See N.Y. Times Co. v. Tasini, 533 U.S. 483, 515 n. 12 (2001) ("[S]election alone [can demonstrate] sufficient originality to merit copyright protection." (internal quotation marks omitted)); Feist, 499 U.S. at 348 (noting that compilations "may possess the requisite originality" for copyright protection because, inter alia, "[t]he compilation author typically chooses which facts to include"); Key Publ'ns, 945 F.2d at 512-13 (allowing copyright protection for a work "that is original[] by virtue of the selection, coordination, or arrangement of the data included in the work"). It is also reasonable to infer, given the varied nature of these economic indicators, that a meaningful amount of discretion and subjectivity is required in deciding how to weigh the various indicators and how to combine them into a single final value. It is, therefore, plausible to infer that the BanxQuote Indices do not contain simple mathematical averages, but are instead created through judgment being applied to disparate indicators. Indeed, Plaintiffs allege that they exercise discretion over exactly which values to use from within certain categories of indicators (such as "leading banks"). These allegations are sufficient to get Plaintiffs to first base. See CDN Inc., 197 F.3d at 1260 (finding that the process of publishing wholesale prices of coins was sufficiently original to be copyrightable); Key Publ'ns, 945 F.2d at 513 (concluding that a selection of businesses to include in a directory showed sufficient "exercise of judgment" to be creative and protectable under the Copyright Act); Lipton v. Nature Co., 781 F. Supp. 1032, 1034 (S.D.N.Y. 1992) (concluding, post- Feist, that a compilation of terms of venery from Middle English was protectable under the Copyright Act because, inter alia, there was originality in the selection both of the terms and the translations); Budish v. Gordon, 784 F. Supp. 1320, 1332-33 (N.D. Ohio 1992) (concluding, post- Feist, that a Medicaid planning book, which included tables summarizing selected state laws, was sufficiently original to merit copyright protection).

For example, if the discretion being exercised is merely the choice between using one industry standard list of "leading banks" and another, that would probably be an insufficient exercise of discretion. However, if the leading banks are chosen through a purely subjective assessment of various banks' importance to the global market, that could introduce a sufficient degree of originality into the process as to render the final values protectable.

Obviously, this conclusion says nothing about whether Plaintiffs would survive summary judgment, if Defendants were to seek such at an appropriate time.

Finally, the Court must consider whether copyright protection is barred by the merger doctrine. "[I]deas cannot be copyrighted. Instead, only the manner of an idea's expression is copyrightable." N.Y. Merc., 497 F.3d at 116 (internal quotation, citation, and brackets omitted). "To ensure free access to ideas, courts have applied the merger doctrine such that . . . `expression is not protected in those instances where there is only one or so few ways of expressing an idea that protection of the expression would effectively accord protection to the idea itself.'" Id. at 116-17 (quoting Kregos v. Associated Press, 937 F.2d 700, 705 (2d Cir. 1991)); see also Bus. Mgmt. Int'l, Inc. v. Labyrinth Bus. Solutions, LLC, No. 05-CV-6738, 2009 WL 790048, at *13 (S.D.N.Y. Mar. 24, 2009) (stating that the merger doctrine applies "`where there is only one[,] or so few ways of expressing an idea[, that] protection of the expression would effectively accord protection to the idea itself'" (quoting Genesee Brewing Co. v. Stroh Brewing Co., 124 F.3d 137, 146 n. 6 (2d Cir. 1997)) (internal ellipsis omitted)). "In [the Second] Circuit, [courts] look at the range of possible expressions and consider whether all possible expressions are so `substantially similar' that granting the copyright would bar others from expressing the underlying idea." N.Y. Merc., 497 F.3d at 117 (footnote omitted). New York Mercantile is particularly instructive because it too considered a compound economic indicator expressed in numerical form. In that case, the Second Circuit held that "[t]o survive summary judgment, . . . [the party seeking copyright protection] must demonstrate that the range of possible settlement prices [wa]s broad enough that any possible expression will not `necessarily be substantially similar.'" Id. (quoting Hart v. Dan Chase Taxidermy Supply Co., 86 F.3d 320, 322 (2d Cir. 1996)) (internal quotation marks omitted); see also RBC Nice Bearings, 676 F. Supp. 2d at 23 (requiring "a range of possible variations" in the final value). As already noted, in New York Mercantile the Second Circuit held that the settlement prices were not protectable under the merger doctrine. See N.Y. Merc., 497 F.3d at 117. Plaintiffs will, no doubt, have to confront this issue during discovery and at summary judgment, but the Court cannot say that as a matter of law it is implausible that the BanxQuote Indices are sufficiently subjective that a wide range of potential final values would be possible. Cf. id at 117-18 (urging courts to "exercise considerable care in analyzing merger," which argues in favor of allowing parties to present evidence on this issue, and finding the merger doctrine satisfied because "any settlement price for a particular futures contract would be determined based on the same underlying market facts, [and] any dissension would be exceptionally narrow" (internal quotation marks omitted)); Webloyalty.Com, Inc. v. Consumer Innovations, LLC, No. 04-CV-90, 2005 WL 121796, at *5 (D. Del. Jan. 13, 2005) (denying summary judgment because defendant had failed to "establish that there is a limited, if not

singular, manner to express the [idea at issue]"). Defendants' Motion to Dismiss Count One, therefore, is denied.

The Court is mindful of the fact that calculating the settlement price in New York Mercantile required considering the only information available — the last batch of trades — and coming up with some kind of weighted average. As the court in that case emphasized, however, there was simply no other way of creating a value for the settlement price and, hence, there was a limited range of possible expressions. N.Y. Merc. 497 F.3d at 118. In this case, Plaintiffs allege that the BanxQuote Indices are not a simple weighted average of all the available data, but that they include data points that are indicative but not directly relevant — such as LIBOR rates — and exclude data that is directly relevant but, perhaps, over-representative — such as rates of the non-selected banks. These allegations suggest a larger room for dissension than was present in New York Mercantile, which was decided at summary judgment. Id. at 112-13.

2. Count Three: DMCA

Plaintiffs allege violation of 17 U.S.C. § 1202(b)(1) and (3). (SAC ¶¶ 129-30.) These are sections of the DMCA, which provide:

No person shall, without the authority of the copyright owner or the law —

(1) intentionally remove or alter any copyright management information,

(2) distribute or import for distribution copyright management information knowing that the copyright management information has been removed or altered without authority of the copyright owner or the law, or

(3) distribute, import for distribution, or publicly perform works, copies of works, or phonorecords, knowing that copyright management information has been removed or altered without authority of the copyright owner or the law,

knowing, or, . . . having rea statement, the bankruptcy court did not affirm that the Statutory Lienholders were not entitled to adequate protection. (The bankruptcy court did make such a finding, however, with regard to the retail component, because it found that it was valueless on a "stand-alone basis.")

It is true the Statutory Lienholders have yet to prove that they were entitled to adequate protection. But that is because they have not yet had the opportunity to do so; indeed, that issue will be decided in the adversary proceedings. In accordance with the bankruptcy court's orders, the Statutory Lienholders have filed proofs of claim asserting the amount of their liens and their first-priority priority position. ( See Br. Appellants 15; Appellants' Reply Br. 21 [ECF No. 93]). The Statutory Lienholders were therefore entitled to adequate protection for the value of their interests in the Project. See FED. R. BANKR. P. 3001(f) ("A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.").

On a related note, the Debtors have acknowledged that mechanics' lienholders have filed approximately $615 million in liens against the Project. ( See Emergency Mot. Interim Final Orders ¶ 28; Decl. Karawan ¶ 27 n. 10).

Citing the "highly contentious circumstances" on the issue of priority, the Debtors contend that "neither Nevada law nor the Appellants' proofs of claims justifies [sic] the supposition that they possess firstpriority liens." (Br. Debtors 8 n. 25). The Examiner, for his part, relies on the Term Lenders' filing of an adversary complaint to demonstrate that the issue has been disputed. ( See Br. Examiner 2 n. 3). But neither the "highly contentious circumstances" nor the fact that the issue of priority has been disputed alters the analysis. Once a claimant files a duly executed proof of claim, "the burden is on the objecting party to go forward with evidence establishing the basis of the objection." 3 WILLIAM L. NORTON, JR., NORTON BANKRUPTCY LAW AND PRACTICE § 48:26 (3d ed. 2010). "The court then determines whether the proof has overcome the prima facie case. If the objecting party succeeds, the claimant has the burden of persuasion to prove the validity of the claim by a preponderance of the evidence." Id. Here, neither the Debtors nor the Examiner has cited where in the record an objecting party has put forth evidence establishing its objection. But assuming an objecting party has, the bankruptcy court does not appear to have yet made any determination on such proof. And without such a finding, the Statutory Lienholders would not yet have had an opportunity to prove the validity of their claims.

With that settled, the Court returns to the question whether the value of the Statutory Lienholders' interests in the Project was adequately protected. When adequate protection is required under section 364, among other sections, the Bankruptcy Code lists three means by which it may be provided: (1) making cash payments, (2) providing additional or replacement liens, or (3) "granting such other relief . . . as will result in the realization by such entity of the indubitable equivalent of such entity's interest in such property." 11 U.S.C. § 361(3). The Debtors did not make cash payments or provide additional or replacement liens to the Statutory Lienholders. Thus, to have primed the Statutory Lienholders' liens, the Debtors, who bear the burden of establishing adequate protection, see id. § 364(d)(2), must have established that the relief granted to the Statutory Lienholders "will result in the realization by [the Statutory Lienholders] of the indubitable equivalent of [their] interest in such property," id. § 361(3).

The term "indubitable equivalent" takes origin in a passage Judge Learned Hand penned in defining "adequate protection" under a predecessor statute:

It is plain that `adequate protection' must be completely compensatory. . . . [A] creditor who fears the safety of his principal will scarcely be content with [interest]; he wishes to get his money or at least the property. We see no reason to suppose that the statute was intended to deprive him of that in the interest of junior holders, unless by a substitute of the most indubitable equivalence.

Metro. Life Ins. Co. v. Murel Holding Corp. ( In re Murel Holding Corp.), 75 F.2d 941, 942 (2d Cir. 1935). The Hand formula (on adequate protection) may not have been codified in section 361(3) in full, however:

Unlike the Murel case . . . section 361(3) requires only the indubitable equivalent, not the most indubitable equivalence. . . . [C]ollateral need not be replaced with an identical type of collateral. Certainly, a trustee or debtor in possession may substitute tangible collateral for cash collateral or provide a stream of payments to compensate an entity for the declining value of its collateral. The adequacy of protection must be determined on a case by case basis.

COLLIER, supra, ¶ 361.03[4], at 361-18.

Still, though courts applying section 361(3) may not require adequate protection to be "of the most indubitable equivalence," they have required adequate protection to be "completely compensatory," or nearly so. See, e.g., Martin v. United States ( In re Martin), 761 F.2d 472, 476 (8th Cir. 1985) ("[A] debtor, in structuring a proposal of adequate protection for a secured creditor, `should as nearly as possible under the circumstances of the case provide the creditor with the value of his bargained for rights.'" (quoting Crocker Nat'l Bank v. Am. Mariner Indus., Inc. ( In re Am. Mariner Indus., Inc.), 734 F.2d 426, 435 (9th Cir. 1984), overruled on other grounds by United Sav. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988))); Citicorp N. Am., Inc. v. Murray ( In re Chi., Mo. W. Ry. Co.), 109 B.R. 308, 313 (N.D. Ill. 1989) ("Since Congress relied on [Hand's] passage in enacting section 361(3), we may presume that it wished adequate protection to be `completely compensatory.'"); In re Ziegler, 88 B.R. 67, 70-71 (Bankr. E.D. Pa. 1988). That is because ensuring that a creditor receives the value for which it bargained before the debtor had filed for bankruptcy is the principle's raison d'être. See Resolution Trust Corp. v. Swedeland Dev. Grp., Inc. ( In re Swedeland Dev. Grp., Inc.), 16 F.3d 552, 564 (3d Cir. 1994) (en banc); COLLIER, supra, ¶ 361.03[1], at 361-11. In a leading decision on section 361(3), the U.S. Court of Appeals for the Third Circuit, sitting en banc, discussed how adequate protection may be provided thereunder:

[A] proposal depending upon a pre-petition lender having adequate protection, no matter its form, should as nearly as possible under the circumstances of the case provide the creditor with the value of his bargained for rights. Whether protection is adequate depends directly on how effectively it compensates the secured creditor for loss of value caused by the superpriority given to the post-petition loan. In other words, the proposal should provide the pre-petition secured creditor with the same level of protection it would have had if there had not been post-petition superpriority financing.

In re Swedeland Dev. Grp., 16 F.3d at 564 (citation and internal quotation marks omitted).

Here, the value of the Statutory Lienholders' liens against the Project far exceeded the value of the Project. The Debtors were required only to provide adequate protection for the latter, however. See COLLIER, supra, ¶ 361.02[2], at 361-4. That is because "protection is required only for the value of an entity's interest in the property." Id. And the value of an entity's interest in the property means the value of the collateral. See Orix Credit Alliance, Inc. v. Delta Res., Inc. ( In re Delta Res., Inc.), 54 F.3d 722, 728 (11th Cir. 1995) (quoting Timbers, 484 U.S. at 372)). It follows that, to have granted a priming lien to Icahn Nevada for the amount of the DIP facility (which therefore decreased the value of the Statutory Lienholders' interests in the Debtors' assets by the same amount), the Debtors were required to have established that the Statutory Lienholders' interests in the Project were adequately protected.

This appears to be undisputed, although citations to valuations of the Debtors' assets are hardly legion. A May 2009 appraisal estimated the value of the Project at $318.7 million, and Icahn Nevada later bought the Project (if one includes the $51 million DIP facility) for $156 million. At any rate, at least $615 million in mechanics' liens have been filed against the Project. Although it is not entirely transparent from the record, the Court assumes it was the Statutory Lienholders who filed those liens. Therefore, the Statutory Lienholders were undersecured.

The bankruptcy court heard evidence on the matter at a series of hearings, the first of which was with respect to the interim-resort-financing order. There, the Debtors elicited testimony about how the DIP facility provided adequate protection to the Statutory Lienholders and other creditors. According to Howard Karawan, the Debtors' chief-restructuring officer, if the Debtors did not obtain the DIP financing, they would "pretty much shut down." ( See Hr'g Tr. 144:21, Nov. 23, 2009). Karawan testified further that the DIP financing was "a necessity" ( id. 145:9), because it would allow the Debtors to protect the building and allow the Debtors to effect a sale. "Without it . . . I don't believe we have any other option but to walk away from this asset. We have no money, and we have nowhere else to turn, I believe." ( Id. 154:16-19). Deven Kumar, senior vice president of development of Fontainebleau Las Vegas, testified about the harm that could befall the Project without the DIP financing. If there were a "true, direct rain storm" ( id. 168:23), he stated, over 50 percent of the rooms could be damaged ( see id. 169:10), amounting "to about $90 million" ( id. 171:17).

Of all the witnesses, the Examiner testified most pointedly about adequate protection. He stated the DIP facility not only "enhances the ability to conduct the sale process, but . . . it also enhances the value of the assets." ( Id. 189:21-23). On the expenses allocated for the professionals, "there are some professionals that are going to be absolutely necessary to carry out the sale process, and . . . if [the Statutory Lienholders] are in a first priority position, . . . the sale process will directly benefit [them]." ( Id. 190:9-14). On the nearly $18 million repayment of the used cash collateral to the Term Lenders, the Examiner testified:

In my role as examiner, I am bound by the order that was entered in this Court, and one of the things that order indicates is that I must adhere to orders that have previously been entered by this Court, and based on my understanding, there have been orders entered by the Court that directly relate to the property's ability and the estate's ability to get new financing, and any financing that does not provide for the takeout of that cash collateral that has been used cannot be approved by the Court.

So . . . it benefits the estate because . . . there is no other way I can bring money into the estate.

( Id. 190:25-191:14). Above all, "one of the primary forms" of adequate protection is the fact that the Project "is being stabilized and safeguarded from deterioration and damage." ( Id. 208:19-23).

The bankruptcy court approved the DIP facility at the end of the hearing ( see id. 224:18-228:12), and then entered the interim-resort-financing order. The order contained the following findings under the heading "Necessity and Adequate Protection":

The Sale clearly benefits all creditors claiming an interest in the property subject thereof. As the unrefuted testimony at the Interim Hearing amply demonstrates, absent the Sale, the Debtors will have no choice but to abandon their interests in the Project and their other assets subject of the Sale. The testimony at the Interim Hearing also amply demonstrates that the expenses provided for in the Agreed Budget are the reasonable, necessary costs and expenses of preserving the value of the Debtors' assets or disposing of the Debtors' assets pursuant to the Sale. Absent such expenditures, the value of the property would be severely threatened and would decline significantly. Even those costs and expenses which are not directly related to the Sale must be incurred by the Debtors to accomplish the Sale in chapter 11, which, under Section 363 of the Bankruptcy Code, can only be performed by the Debtors (in this case, under the supervision of the Examiner). This includes the repayment of the Used Cash Collateral which, pursuant to prior Orders entered by the Court, is required in order to obtain financing under the DIP Credit Facility. Therefore, the Debtors' estates will suffer immediate and irreparable harm absent approval of the DIP Credit Facility and each of the Debtors' expenditures in accordance with the Agreed Budget. Moreover, in the face of the many bona fide disputes concerning the validity, priority and extent of liens and claims in respect of the Debtors' property, the alternative to the Sale portends protracted litigation during which such property shall go without protection, security or maintenance and be subjected to the risk of catastrophic damage and the accompanying decline in value. Moreover, the ensuing loss of the Debtors' remaining employees will adversely affect continuing management and protection of the Debtors' property and the ability to provide information essential to the preservation of the property after the Debtors' abandonment of its [sic] interests therein. In view of the foregoing, and based on the unrefuted testimony at the Interim Hearing, the Court finds and concludes that the interests of all entities holding liens in any property comprising the DIP Collateral . . . who have not otherwise consented to the DIP Motion are adequately protected as required by Section 364(d) of the [B]ankruptcy Code.

(Interim-Resort-Financing Order ¶ E(vi)).

This evidence establishes that the DIP financing was necessary to preserve, and possibly even enhance, the value of the Debtors' assets and to bring the sale to a conclusion. In this regard the record supports the bankruptcy court's findings. But these findings do not support the bankruptcy court's conclusion that the Statutory Lienholders were adequately protected. To the contrary, these findings are somewhat beside the point. Because the Statutory Lienholders were due to be "primed," the inquiry ought to have focused on compensating the Statutory Lienholders for the loss of value of their interests in the Project caused by the priming lien. See In re Swedeland Dev. Grp., 16 F.3d at 564 ("Whether protection is adequate depends directly on how effectively it compensates the secured creditor for loss of value caused by the superpriority given to the post-petition loan." (emphasis added)); COLLIER, supra, ¶ 361.03[5][b], at 361-21 ("The inquiry must evaluate that which is offered as a replacement."). Since the Statutory Lienholders were undersecured, the $51 million priming lien would decrease the value of their interests in the Debtors' assets by the same amount. Before authorizing the Debtors to obtain such credit, the bankruptcy court was therefore required to find that the Statutory Lienholders' resulting decrease in the value of their interests in the Debtors' assets was protected. The Debtors could not simply displace the Statutory Lienholders' liens without doing so. As the quoted language and the testimony at the hearing demonstrate, the bankruptcy court did not make this inquiry or any findings with regard to it. The bankruptcy court clearly erred, therefore, in finding that the Statutory Lienholders were adequately protected.

The cases on which the Debtors and the Examiner rely do not alter this conclusion; to the contrary, they demonstrate that in fashioning adequate protection, courts must seek to compensate a secured creditor for any decrease in the value of its interest caused by the grant of a priming lien or the use of collateral. The Debtors rely on In re Yellowstone Mountain Club, LLC, Nos. 08-61570-11, 08-61571-11, 08-61572-11, 08-61573-11, 2008 WL 5875547 (Bankr. D. Mont. Dec. 17, 2008), for the proposition that "adequate protection is not always a dollar for dollar proposition or even amenable to quantification," (Br. Debtors 23-24). To the extent that is true, the case provides wobbly support at best for the bankruptcy court's finding of adequate protection here. There, the debtors, who were operating an exclusive club that was a "vital component of the local economy of Big Sky, Montana," id. at *2, sought to borrow about $20 million on a priming basis in order to operate the club through the end of the ski season, see id. at *6. Overruling an objection on lack of adequate protection, the bankruptcy court concluded that without the DIP financing the club would "go dark" to the detriment of all creditors, including the objecting creditor. Id. at *9. But with the DIP financing, the debtors would generate "substantially more" in sale proceeds as a going concern than they would if they had sold the club in a "moth ball" sale, i.e., as a shut-down project. Id. at *10-11. In this regard In re Yellowstone Mountain Club resembles these appeals (although the Debtors here were not operating as a going concern).

But unlike these appeals, the debtors there also pledged the sale proceeds of "the premier estate property in all of Europe," id. at *4, a property worth $60 million — four times the amount of the priming lien — and that was unencumbered by the objecting creditor to repay the DIP financing, see id. at *11. Additionally, the secured creditor could in addition demand payment on promissory notes worth about $275 million. See id. "Collection of a mere $20 million on the Promissory Notes would more than offset . . . [the] DIP financing, which DIP financing is maintaining the value of the Debtors' assets. . . ." Id. So although the DIP financing was necessary to preserve or maximize the value of the debtors' assets, the sale proceeds from the European estate and the promissory notes (more than) offset the decrease in the value of the creditor's interest in the debtors' assets caused by the priming lien. Here, in contrast, there is no evidence in the record demonstrating what — if anything — the Debtors could offer the Statutory Lienholders for the decrease in the value of their interests in the assets caused by the priming lien.

For his part the Examiner cites numerous cases, but discusses two at length: MBank Dallas, N.A. v. O'Connor ( In re O'Connor), 808 F.2d 1393 (10th Cir. 1987), and In re Hubbard Power Light, 202 B.R. 680 (Bankr. E.D.N.Y.). In re O'Connor concerns the decrease in value of collateral caused by the use of cash collateral, not by the grant of a priming lien, but the principle of adequate protection applies equally in both kinds of cases. In the case, the debtors sought to use cash collateral in order to drill three gas wells. 808 F.2d at 1395. As adequate protection for the objecting creditor, the debtors "offered replacement liens on the well proceeds and on other unencumbered regular monthly income." Id. That, the Tenth Circuit concluded, was sufficient.

[T]he creditor had a proceeds lien in cash worth $721,600. The Debtors proposed to use the cash thereby reducing the value of the creditor's security interest by $721,600, but in exchange, the Debtors proposed to give the creditor a new proceeds lien in property presently worth over five times that sum.

Id. at 1398 (third emphasis added). In other words, the debtors offered the creditor a lien on property worth well in excess of the decrease in value of the creditor's interest caused by the debtors' use of the cash collateral. Here, the Debtors did not offer the Statutory Lienholders anything new, much less a replacement lien on later-acquired property.

Similarly, in In re Hubbard Power Light, a debtor, that due to an injunction could not operate because of a hazard that needed to be removed from its property, sought $750,000 on a priming basis to clean up the hazard in order to operate as a going concern "worth several million dollars." 202 B.R. at 684. The court overruled a secured creditor's objection that its interest was not adequately protected. After concluding that the value of the creditor's lien was worth next to nothing because of the injunction, the court stated, "any improvement to the Debtor's real property by way of a clean-up sufficient to remove the injunction . . . will greatly improve the value of the collateral upon which [the creditor] has a lien. Therefore, since the clean-up . . . is a condition precedent to the loan, [the creditor] is adequately protected." Id. at 685.

The Court does not find the basis of the court's finding of adequate protection in In re Hubbard Power Light entirely clear. Nevertheless, the value of the debtor's assets would potentially be improved by several million dollars. To the extent, therefore, that the creditor was entitled to adequate protection at all (the court found that the creditor's lien was worth "zero" or "at best" $275,000), the decrease of the value of the creditor's interest caused by the priming lien would be more than offset by the going-concern value of the debtor's assets. See id. at 685. Again, there was no contention here that the decrease in the value of the Statutory Lienholders' interests in the Debtors' assets caused by the priming lien would be offset in any way. And although the Examiner testified that the DIP facility would "enhance[] the value of the assets" (Hr'g Tr. 189:21-23, Nov. 23, 2009), he did not testify that they would be "enhanced" by an amount greater than the decrease caused by the priming lien.

The other cases on which the Examiner relies fare no better. In all but one, any increase in the value of the assets due to the proposed DIP financing offset any decrease caused by a priming lien or use of collateral. See, e.g., Bray v. Shenandoah Fed. Sav. Loan Ass'n ( In re Snowshoe Co.), 789 F.2d 1085, 1090 (4th Cir. 1986) ("[T]he district court's determination of adequate protection for the purpose of allowing the superpriority loan was supported by both an equity cushion and the well-reasoned financial analysis of the trustee. . . ." (emphasis added)); In re 495 Cent. Park Ave. Corp., 136 B.R. 626, 632 (Bankr. S.D.N.Y. 1992) ("[The creditor] will be adequately protected because the infusion of approximately $600,000.00 in improvements from the borrowed proceeds will enhance the value of the property secured by [the creditor's] mortgage by at least the amount of the borrowed proceeds." (emphasis added)); In re Ledgemere Land Corp., 125 B.R. 58, 62-64 (Bankr. D. Mass. 1991) (similar).
Perhaps the best case in support of the finding of adequate protection is In re Devlin, 185 B.R. 376 (Bankr. M.D. Fla. 1995). There, the debtor, who operated a "resort motel" encumbered by a mortgage securing a $2.3 million debt, sought to borrow $123,920 from his mother on a priming basis in order to replace the air-conditioning system. According to the court, replacing the system was necessary to preserve the value of the motel and to maintain ongoing operations, and its replacement was "in the best interest of the Debtor and its estate." Id. at 378. In re Devlin may be distinguished on the ground that changing the air conditioner was necessary to maintain ongoing operations (an inference may be drawn, although it is unclear from the case, that doing so would offset the loan). Here, no ongoing operations were being maintained: the Debtors sought to prime the Statutory Lienholders' liens in order to "stabilize" the Project for a sale. At any rate, whatever the merit of In re Devlin one additional fact of the case is notable: the only party entitled to adequate protection did not oppose the debtor's motion to prime its interests. See id. at 377.

When formulating adequate protection in connection with post-petition financing on a priming basis, preserving or enhancing the value of collateral must be viewed side-by-side with the decrease in value of a creditor's interest in the property caused by the priming lien. See In re Swedeland Dev. Grp., 16 F.3d at 566 ("[C]ontinued construction based on projections and improvements to the property does not alone constitute adequate protection. Those cases which have considered improvements to be adequate protection have done so only when the improvements were made in conjunction with the debtor's providing additional collateral beyond contemplated improvements." (emphasis added)); COLLIER, supra, ¶ 361.03[5][b], at 361-21. Here, the Debtors and the bankruptcy court focused on preserving the value of the Project for the benefit of all creditors. That goal was worthy and important, and the Court does not question it. But the Debtors did not try to establish, and the bankruptcy court did not find, that the decrease in the value of the Statutory Lienholders' interests therein caused by the priming lien was compensated, replaced, or substituted in any way: to be blunt, the Statutory Lienholders were not adequately protected. The proceedings below failed to account for what a priming lien does. See In re First S. Sav. Ass'n, 820 F.2d 700, 710 (5th Cir. 1987) ("Given the fact that super priority financing displaces liens on which creditors have relied in extending credit, a court that is asked to authorize such financing must be particularly cautious when assessing whether the creditors so displaced are adequately protected." (emphasis added)); COLLIER, supra, ¶ 364.05, at 364-21 ("The ability to prime an existing lien is extraordinary, and in addition to the requirement that the trustee be unable to otherwise obtain the credit, the trustee must provide adequate protection for the interest of the holder of the existing lien." (emphasis added)). Not accounting for the decrease caused by the priming lien was fundamentally at odds with the principle of adequate protection, which must "as nearly as possible under the circumstances of the case provide the creditor with the value of his bargained for rights." In re Swedeland Dev. Grp., 16 F.3d at 564 (internal quotation marks omitted).

* * *

Before the Court moves on, two additional issues on adequate protection must be addressed. The first is whether the bankruptcy court clearly erred in concluding that the leasehold of the Project had "zero value on a stand-alone basis," and, based thereon, concluding that the Statutory Lienholders, who held liens on the leasehold, were not entitled to adequate protection for the priming lien granted to Icahn Nevada in connection with the interim-retail-financing order. Karawan, to be sure, testified that the leasehold had "no value" on an "as-is basis." But he also testified that if the leasehold were sold with the resort debtors' assets — in other words, if the hole in the donut were sold with the donut — then there would be value in the leasehold. It therefore did not follow that the Statutory Lienholders were not entitled to adequate protection on the leasehold. The Statutory Lienholders held liens on both the resort and the retail debtors' assets. If they had foreclosed on both and sold both as the Debtors sold both to Icahn Nevada (that was the reason why the Retail Debtors had filed for bankruptcy in the first place!) they would have realized value on the leasehold. See BLACK'S, supra, at 1586 (defining "value" as "[t]he monetary worth or price of something; the amount of goods, services, or money that something will command in an exchange" (second definition)); see also id. at 1587 (defining "fair market value" as "[t]he price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm's-length transaction"). The Statutory Lienholders were entitled to adequate protection for the value of their interests in the Retail Debtors' assets. The bankruptcy court clearly erred in finding that they were not.

The second pertains to the examiner order. As an initial matter, the Court wishes to make plain the only conclusion that may be made from the papers and the record: the Examiner discharged his duties competently and in accordance with his mandate. Yet the Court cannot affirm the order because the bankruptcy court cited no authority for the proposition that an objection to compensating an examiner on a priming basis is "unimportant." This is especially so where, as here, a bankruptcy court provides no adequate protection for the entity that is being primed. Nor can the Court affirm the order on the Examiner's second ground, which was not the basis of the bankruptcy court's order, that his expenses "are compensable as a surcharge against the Project" under 11 U.S.C. § 506(c). None of the cases he cites supports the proposition that an examiner may avail himself of section 506(c). See Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 6 (2000) (per curium) ("[T]he statute appears quite plain in specifying who may use § 506(c) — `the trustee.' It is true . . . that all this actually `says' is that the trustee may seek recovery under the section, not that others may not. The question thus becomes whether it is a proper inference that the trustee is the only party empowered to invoke the provision. We have little difficulty answering yes." (alteration and footnote call number omitted)); In re Smith Int'l Enters., Inc., 325 B.R. 450, 454 (Bankr. M.D. Fla. 2005) ("The rule following Hartford . . . is that Section 506(c) is a remedy exclusive to the trustee.").

B. Repayment of the Used Cash Collateral

The Statutory Lienholders contend the bankruptcy court erred by authorizing the Debtors, under the financing orders, to repay the cash collateral they had used to the Term Lenders. This is largely because the bankruptcy court had previously erred in granting the Term Lenders priming liens for the use of the cash collateral under the third, fourth, and nonconsensual cash-collateral orders, as well as the first and second supplemental orders. According to the Statutory Lienholders, repaying the Term Lenders "ahead of [them] gives effect to the invalid and avoidable priming liens." (Br. Appellants 21).

It is also because, with regard to the first and second cash-collateral orders, the bankruptcy court erred in authorizing the DIP facility, which in turn granted priming liens to Icahn Nevada, which in turn was the basis for repaying the used cash collateral under the first and second cash-collateral orders. That is because the bankruptcy court did not ensure that the Statutory Lienholders were adequately protected. As counsel for the Statutory Lienholders put it, the Term Lenders refused to consent to the DIP facility because of paragraph 11(e), whereas the Statutory Lienholders refused to consent because of section 364(d). The Statutory Lienholders contend it was error for the bankruptcy court to side with paragraph 11(e) of the cashcollateral orders rather than "what Congress told." (Hr'g Tr. 223:18).

The Statutory Lienholders' chief objection derives from the following "finding," which each disputed cash-collateral order contains in substantially the same form:

Prepetition Debt and Adequate Protection Obligations Deemed to Be Postpetition Debt Secured by Senior Lien Under Section 364(d) of the Bankruptcy Code. Under the Prior Cash Collateral Orders, the Prepetition Secured Parties were granted Adequate Protection Obligations, including Adequate Protection Liens and Superpriority Claims, as protection for the use of Cash Collateral thereunder. . . . Pursuant to the Third Interim Order and the Fourth Interim Order, the Cash Collateral authorized to be used thereunder was deemed to have been repaid to the Prepetition Secured Parties in satisfaction of payment Obligations under the Prepetition Loan Documents, and further deemed to have been reborrowed by the Debtors as postpetition debt, pursuant to section 364(d) of the Bankruptcy Code. . . . Based on the record before the Court, the continued application of such provisions to the Cash Collateral utilized under this Order is likewise appropriate, necessary, and authorized by the Bankruptcy Code.

(Nonconsensual Cash-Collateral Order ¶ F (emphasis added); see also, e.g., supra Part I.A. (quoting Third Cash-Collateral Order ¶ G)). The Statutory Lienholders contend this finding was, at bottom, the product of legal sausage-making that allowed the Debtors to grant priming liens to the Term Lenders under section 364(d) to ease the Term Lenders' concerns about the Debtors' use of the cash collateral. In other words, the Debtors would use (and thereby erode) the cash collateral, but would in exchange provide the Term Lenders with a corresponding first-priority lien in the Debtors' assets (which were subject, the Statutory Lienholders state, to their first-priority liens). According to the Statutory Lienholders, the cash collateral the Debtors allegedly "repaid" and "reborrowed," which allowed the Debtors to take advantage of priming liens available under section 364(d), never actually occurred: rather, the Debtors were simply using cash collateral in which the Term Lenders held a first-priority interest. And section 363, which expressly governs a debtor's use of cash collateral and speaks nothing of priming liens, ought equally to have governed the Debtors' use of the cash collateral here. Section 364(d) was unavailable because it, "by its express terms, applies only to the granting of liens as security for new, postpetition credit authorized by the Court." (Br. Appellants 25).

According to the Term Lenders, the grant of priming liens was authorized because the cash collateral on which the Term Lenders held an undisputed first-priority lien, constituted new, postpetition financing "in substance." (Term Lenders' Opening Br. 9 [ECF No. 78]). The orders, the Term Lenders argue, were consistent with case law and the Guidelines for Motions Seeking Authority To Use Cash Collateral and Motions Seeking Approval of Postpetition Financing of the U.S. Bankruptcy Court for the Southern District of Florida (the "Guidelines"). ( See id. 10-11). Furthermore,

http://www.flsb.uscourts.gov/web_folder/courts_guidelines/Guidelines_for_Motions_Seeking_Authority_to_Use_Cash_Collateral_and_Motions_Seeking_Approval_of_Postpetition_Financing_(CG-7).pdf.

[t]he continued use by the Debtors of cash collateral without affording a priming lien to the Lenders would have provided Appellants with an enormous potential windfall. Had the Debtors been unable to use cash collateral as bridge financing to the DIP Facility and ultimately the sale of the property, the Debtors would have been required to seek post-petition financing from a third party at the outset. Such third party would . . . have insisted on obtaining priming liens to secure that loan. The grant of a priming lien to the Lenders was intended to maintain the status quo, by ensuring that any "new cash" obtained from the Lenders' cash collateral would be returned with the same first priority that it enjoyed prior to its use. In the meantime, Appellants were put in no worse position than would have resulted from the grant of a priming lien to a third party lender.

( Id. 12).

In each disputed cash-collateral order, the bankruptcy court expressly granted the priming liens to the Term Lenders under section 364, which "authorizes Chapter 11 debtors to obtain secured credit and incur secured debt as part of their reorganization." In re Saybrook Mfg. Co., 963 F.2d at 1495. The Court must therefore determine whether section 364 authorized the bankruptcy court to grant priming liens to the Term Lenders for the Debtors' use of the cash collateral. Under the plain language of the statute, and as interpreted by the Eleventh Circuit, it did not.

Section 364(d)(1) provides in full:

The court, after notice and a hearing, may authorize the obtaining of credit or the incurring of debt secured by a senior or equal lien on property of the estate that is subject to a lien only if —

(A) the trustee is unable to obtain such credit otherwise; and

(B) there is adequate protection of the interest of the holder of the lien on the property of the estate on which such senior or equal lien is proposed to be granted.

(emphasis added).

"By their express terms, sections 364(c) (d) apply only to future — i.e., post-petition — extensions of credit." In re Saybrook Mfg. Co., 963 F.2d at 1495; accord id. ("`Section 364(d) speaks only of the granting of liens as security for new credit authorized by the Court.'" (quoting In re Tenney Vill. Co., 104 B.R. 562, 570 (Bankr. D.N.H. 1989)). The reason for this is clear: "Section 364 provides certain incentives that a trustee or debtor in possession may offer, with court approval, to induce potential lenders to undertake the risks involved in providing post-petition financing to a bankruptcy estate." Tully Constr. Co. v. Cannonsburg Env'l Assocs., Ltd. ( In re Cannonsburg Env'l Assocs., Ltd.), 72 F.3d 1260, 1267 (6th Cir. 1996) (citing Transam. Commercial Fin. Corp. v. Citibank, N.A. ( In re Sun Runner Marine, Inc.), 945 F.2d 1089, 1092 (9th Cir. 1991)). Here, the Term Lenders did not provide future or postpetition extensions of credit; the Debtors, rather, used cash collateral on which the Term Lenders hold a first-priority lien. Nor is the purpose of section 364(d) present in this case. The Debtors were not trying to induce the Term Lenders to undertake risks inherent in providing post-petition financing to the estate; the Debtors, rather, were trying to induce the Term Lenders to consent to the Debtors' use of the cash collateral, maintain the "status quo," or both.

The Debtors, to be sure, were required to provide the Term Lenders with adequate protection for the use of that cash collateral. See 11 U.S.C. § 363(e); COLLIER, supra, ¶ 363.05[2], at 363-37. The reason for this requirement was starkly present here because the Debtors were using the cash collateral for the benefit of all potential creditors, and it was evident early on that if the Term Lenders did not prevail on the issue of priority, the chances of recouping the loss were slim. Nothing in the Bankruptcy Code, however, appears to authorize a bankruptcy court to prime a secured creditor as a kind of adequate protection for the use of cash collateral. Yet that is precisely what the bankruptcy court authorized here.

Even the Debtors admit these priming liens functioned as "additional adequate protection." (Br. Debtors 8).

The Court is unpersuaded by the Term Lenders' arguments to the contrary. The case Unsecured Creditors' Comm. v. Jones Truck Lines, Inc. ( In re Jones Truck Lines, Inc.), 156 B.R. 608 (W.D. Ark. 1992), did not address whether a debtor may grant a lender a priming lien under section 364(d) for the use of cash collateral on which the lender holds an interest. In re Chrysler, LLC, No. 09-50002 (AJG), 2009 WL 1357948 (Bankr. S.D.N.Y. May 4, 2009), which is an "interim cash collateral order" remarkably similar to the disputed cash-collateral orders in this case, indeed provided that "[t]he use of Cash Collateral shall be deemed an extension of credit pursuant to section 364 of the Bankruptcy Code by the First Priority Secured Parties," and provided further that "the First Priority Secured Parties shall be entitled to all of the rights, remedies, privileges and benefits granted in section 364(e) of the Bankruptcy Code." Id. at *7. This order supports the Term Lenders' position, but mainly because what was done in this case had been done before. The court in In re Chrysler cited no authority in support of these rulings. It is wholly unclear, moreover, whether any party objected to them. These cases, in sum, provide thin authority for the legality of the disputed cash-collateral orders, especially when juxtaposed with the language and purpose of section 364(d).

See 156 B.R. at 612 ("The Committee did object below to giving the bank a superpriority claim of administration under 11 U.S.C. § 364(c), but in open court the Committee counsel stated `We got rid of the 364 super lien objection', and that he was pursuing above all an objection to the carve-out instead. That is to say, the Committee was no longer contesting this point." (alteration and citations omitted)).

Further, it is far from clear whether the disputed cash-collateral orders are authorized by the bankruptcy court's Guidelines. The Guidelines require all motions seeking authority to use cash collateral to state prominently any "[p]rovisions that deem prepetition secured debt to be postpetition debt or that use post-petition loans from a prepetition secured creditor to pay part or all of that secured creditor's prepetition debt, other than as provided in 11 U.S.C. § 552(b)." Guidelines pt. II, ¶ (B)(5), at 2. This provision discusses only "deeming" prepetition secured debt to be postpetition debt; it states nothing about whether doing so authorizes a court to grant priming liens reserved to postpetition lenders under section 364(d). Even if it did, however, the Guidelines cannot "prime" the Bankruptcy Code or the Eleventh Circuit's interpretation thereof.

Last, it may be true, as the Term Lenders contend, that if the Debtors did not use the cash collateral on a priming basis, the Debtors would have had to obtain financing from another source on a priming basis anyway. Section 363, which governs the use of cash collateral, and Section 364, which governs the obtaining of credit, are written clearly. Under the latter, priming liens are made available explicitly; under the former, they are not. Without clear authority provided either by the statutes or case law, the Court is hesitant to create what would appear to be an exception to the Bankruptcy Code. But even if the Court were to do so, what is particularly troublesome here is that the Debtors provided the Statutory Lienholders with no adequate protection to preserve the value of their interests — the Debtors provided the Term Lenders with adequate protection in the form of priming liens, but provided nothing to the Statutory Lienholders, whose liens were thereby displaced.

V. CONCLUSION

The Court recognizes the difficulties the parties faced. Fontainebleau Las Vegas was not developing into the intended Fontainebleau Las Vegas at all: a "Tier A" casino-hotel resort that would have been worth more than the steel, concrete, and air-space rights that made up "the Project" it actually was. It was clear early in these proceedings that it might never be. So the parties focused on a sale. Doing so proved difficult, however, due largely to the "pitch fork battle" over "Who's on first?" in which the Statutory Lienholders and the Term Lenders were (and continue to be) engaged. ( See Hr'g Tr. 42:12-13, Mar. 11, 2010).

The Debtors ultimately sold the Project to Icahn Nevada. They did so, in part, through the bankruptcy court's disputed cash-collateral orders, the examiner order, and the financing orders. The bankruptcy court erred in entering these orders over the Statutory Lienholders' objections. First, the bankruptcy court erred by authorizing the Debtors to use the Term Lenders' cash collateral on a priming basis under section 364(d), and further erred by failing to ensure that the Statutory Lienholders' interests were adequately protected. Second, the bankruptcy court erred by authorizing the Examiner to be paid on a priming basis, again without ensuring that the Statutory Lienholders' interests were adequately protected. Last, the bankruptcy court erred by authorizing the Debtors to obtain postpetition financing from Icahn Nevada under section 364(d) — again without ensuring that the Statutory Lienholders' interests were adequately protected.

Writing about the doctrine of equitable mootness, then Judge Alito discussed the ability courts have in fashioning effective relief:

[E]ven if we find that [the doctrine of equitable mootness] is applicable, it does not necessarily dictate that we dismiss the appeal or affirm in its entirety a district court order of dismissal. Rather, we retain the ability to craft, or to instruct the district or bankruptcy courts to craft, a remedy that is suited to the particular circumstances of the case.

In re Cont'l Airlines, 91 F.3d at 571 (Alito, J., dissenting). In the Eleventh Circuit, as in most circuits, a determination of equitable mootness does require dismissal. But these appeals are not moot, equitably or otherwise. The second sentence of this quoted passage, therefore, applies fully here. Consistent therewith and the reasons herein, it is

ORDERED AND ADJUDGED as follows:

1. These appeals are REMANDED to the bankruptcy court. The bankruptcy court must craft a remedy consistent with this Order. At bottom, the financing orders decreased the value of the Statutory Lienholders' interests in the Project by the amount of the priming lien granted to Icahn Nevada. Under those orders, funds were disbursed to the Term Lenders, the Examiner, and other professionals. Although the bankruptcy court cannot recover all the funds, it may and must recover the funds distributed to the Term Lenders, the Examiner, and the professionals pending a determination of the issue of priority — not to exceed any amount the Statutory Lienholders have requested. Any compensation to which the Examiner and other professionals may be entitled must be made in accordance with law. 2. The Term Lenders' Motion to Dismiss [ECF No. 79] is DENIED. 3. Nothing herein affects Icahn Nevada, who is "carved out." 4. This matter is CLOSED. 5. All pending motions are DENIED AS MOOT. DONE AND ORDERED in Chambers at Miami, Florida.