Horowitz v. 148 S. Emerson Assocs. LLC

• Decision Date: 20 April 2018
• Docket Number: August Term, 2017,No. 16-3912-cv,16-3912-cv
• Citation: 888 F.3d 13
• Parties: Mark HOROWITZ, Plaintiff, Montauk U.S.A., LLC, Plaintiff-Appellant, v. 148 SOUTH EMERSON ASSOCIATES LLC, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

888 F.3d 13

Mark HOROWITZ, Plaintiff,

Montauk U.S.A., LLC, Plaintiff-Appellant,

v.148 SOUTH EMERSON ASSOCIATES LLC, Defendant-Appellee.

No. 16-3912-cv

August Term, 2017

United States Court of Appeals, Second Circuit.

ARGUED: OCTOBER 5, 2017

DECIDED: APRIL 20, 2018

Michael Bowe, Kasowitz Benson Torres & Friedman LLP, New York, NY, for Plaintiff-Appellant.

James M. Catterson, Arnold & Porter Kaye Scholer, LLP, New York, NY (Michael Burrows, Greenberg Traurig, LLP, New York, NY, on the brief), for Defendant-Appellee.

Before: WALKER, RAGGI, and HALL, Circuit Judges.

John M. Walker, Jr., Circuit Judge:

Plaintiff-Appellant Montauk U.S.A., LLC ("Montauk") appeals from (i) the district court's dismissal without prejudice of its Lanham Act claims and motion for preliminary injunction under the "first-filed" rule, and (ii) the district court's order, pursuant to Fed. R. Civ. P. 41(d), that Montauk pay the costs, including attorneys' fees, that Defendant-Appellee 148 South Emerson Associates LLC ("Associates") incurred in responding to a previous action Montauk brought against Associates in Georgia state court that Montauk voluntarily dismissed. Central to Montauk's appeal is the contention that Associates, a limited liability company, should have been held in default because Associates could not litigate through a partial owner who lacked derivative litigation rights under New York law.

Because New York law allows for derivative representation on the facts presented, we conclude at the outset that the district court correctly rejected Montauk's request to hold Associates in default. We nevertheless vacate the district court's dismissal of Montauk's complaint and preliminary injunction motion in favor of a first-filed federal Georgia action because the Georgia suit has been transferred to the Eastern District of New York, so the reasoning behind the first-filed ruling no longer pertains. We affirm the district court's award of costs under Rule 41(d), including attorneys' fees, incurred by Associates in the Georgia state action. Consequently, we AFFIRM in part, VACATE in part, and REMAND for further proceedings.

BACKGROUND¹

This case is one in a series of bitterly contested suits adjudicating rights associated with The Sloppy Tuna, a restaurant in Montauk, NY. See App'x 707–09. In this installment, Montauk, the holding company for intellectual property associated with The Sloppy Tuna, and Montauk's alleged manager, Mark Horowitz, sued Associates, the owner and operator of The Sloppy Tuna, claiming that Associates' use of Montauk's trademarks violates various provisions of the Lanham Act.

The individual players at the heart of the suit, Drew Doscher, Michael Meyer, Stephen Smith, and Michael Meagher, are former business partners at The Seaport Group, a Wall Street investment firm. They and their respective entities share a long history, the relevant parts of which we discuss below.

In 2010, Doscher pioneered the idea for The Sloppy Tuna while working at The Seaport Group and sought out as partners and investors then-colleagues Meyer, Smith, and Meagher. Doscher thereafter formed Montauk, a Georgia limited liability company of which he always has been the sole member. Doscher created Montauk as a vehicle to hold The Sloppy Tuna's intellectual property and to license that intellectual property to Associates for use at the restaurant.

In March 2011, Doscher, Meyer, Smith, and Meagher together formed two New York limited liability companies: (i) Associates, to own and operate The Sloppy Tuna; and (ii) 148 South Emerson Partners, LLC ("Partners"), to purchase the property on which The Sloppy Tuna would operate. Following various ownership disputes not relevant here, the stakeholders in The Sloppy Tuna consist of: (i) Montauk, with Doscher as the sole 100% partner; (ii) Associates, with Meyer and Doscher as 50% partners; and (iii) Partners, with Doscher, Meyer, Smith, and Meagher each as 25% partners.

In May 2011, The Sloppy Tuna opened for business. At that time, Montauk, wholly owned and controlled by Doscher, began to successfully register several trademarks specifically designed for The Sloppy Tuna with the United States Patent and Trademark Office. See App'x 42, 44–49. According to the complaint, Montauk subsequently permitted Associates to use those trademarks for The Sloppy Tuna subject to an oral licensing agreement. App'x 11, 36; see also App'x 234. The parties operated under this arrangement for several years, during which time the restaurant enjoyed considerable success.

In January 2013, however, conflict erupted between the partners and The Seaport Group abruptly ended its relationship with Doscher. See generally Doscher v. Sea Port Grp. Sec., LLC , 832 F.3d 372 (2d Cir. 2016). The record evinces the open and personal hostility between the parties, most especially between Doscher and Meyer. See App'x 629, 631.

On October 18, 2013, amidst this conflict, Montauk and Associates entered into a written license agreement regarding Associates' use of Montauk's Sloppy Tuna marks (the "License Agreement"). App'x 35–41. The License Agreement's stated aim was to "effectively" and "clearly memorialize" Montauk and Associates' pre-existing oral agreement given that the parties "may be suffering from some form of internal disagreement." App'x 36. Horowitz signed on behalf of Montauk, and Doscher, who owned 100% of Montauk and was a 50% partner in Associates, signed the License Agreement on behalf of Associates. Meyer, the other 50% partner in Associates, however, did not sign the License Agreement, which required Associates to pay Montauk for use of the marks, and provided that, upon the termination of the agreement, the license "shall immediately cease, [and Associates] shall immediately discontinue all use of the [m]arks." App'x 37–38. Associates and Meyer have consistently contended that the License Agreement is a sham and is unenforceable.²

In 2014, Doscher, Meyer, Smith, and Meagher, as individuals and through their respective entities, began litigating in various fora numerous issues related to the ownership and operation of The Sloppy Tuna. Pertinent to the issues on appeal are the following four lawsuits, each adjudicating the rights to the intellectual property that is the subject of the instant action.

First , on December 23, 2014, Montauk brought a declaratory judgment action in the Northern District of Georgia against Associates seeking a ruling that Montauk owns the relevant trademarks and that Associates does not. As will be discussed, on August 14, 2017, more than two and one-half years later, the Georgia federal action was transferred to the Eastern District of New York.

Second , on January 29, 2015, Meyer sued Montauk in New York state court alleging that the License Agreement was not a valid arms-length agreement and is therefore void ab initio , which ultimately resulted in the Georgia federal action being stayed. On February 19, 2015, because Doscher and Meyer were deadlocked as co-owners of Associates, the court appointed a temporary receiver (Receiver) for Associates. On March 16, 2016, after Doscher failed to fully comply with the Receiver, the New York state court further ordered that: (i) the Receiver shall take full control of The Sloppy Tuna; (ii) Doscher must surrender all of his restaurant-related property to the Receiver; and (iii) Doscher is "restrained from interfering in any way with the Court-appointed Temporary Receiver in his operation and management of the company." App'x 134. Shortly thereafter, on March 24, 2016, Montauk terminated the License Agreement purportedly because the New York state court's order wrested too much control of the restaurant from Doscher.

Third , on March 24, 2016, Montauk sued Associates in Georgia state court for breach of contract, unjust enrichment, and quantum meruit, relating to Associates' continued use of The Sloppy Tuna marks following Montauk's termination of the License Agreement. Montauk simultaneously moved for a temporary restraining order (TRO) and preliminary injunction (PI). On April 26, 2016, that court, after a hearing, denied the TRO and at the same time suggested that Montauk's filing of that action interfered with the state action in New York in violation of that court's March 16, 2016 order. App'x 588. Two days later, on April 28, 2016, Montauk voluntarily dismissed the state action in Georgia.

Fourth and lastly, on May 31, 2016, Montauk and Horowitz brought the instant action against Associates in the Eastern District of New York. They alleged that Associates' continued use of The Sloppy Tuna marks after termination of the License Agreement violated several provisions of the Lanham Act. Montauk and Horowitz asserted four claims: (i) trademark infringement, 15 U.S.C. § 1114 ; (ii) false designation of origin and unfair competition, 15 U.S.C. § 1125(a) ; (iii) cybersquatting, 15 U.S.C. § 1125(d) ; and (iv) trademark dilution, 15 U.S.C. § 1125(c). Montauk and Horowitz sought recovery only for Associates' use of The Sloppy Tuna marks after March 24, 2016, the date Montauk terminated the License Agreement.

On July 1, 2016, Montauk and Horowitz moved for a TRO and PI in the instant action. That same day, the TRO was denied, and attorneys James M. Catterson and Michael Burrows filed notices of appearance "for Michael J. Meyer, derivatively on behalf of Defendant 148 South Emerson Associates." App'x 220–21. No other counsel appeared for Associates. Days later, Meyer, on behalf of Associates, filed a motion to dismiss, raising three arguments: (i) the complaint must be dismissed under the "first-filed" rule in favor of the earlier-filed and still extant federal action Montauk brought in Georgia; (ii) Montauk and Horowitz failed to state their cybersquatting claim; and (iii) Montauk should be ordered to pay the costs, including attorneys' fees, Associates incurred defending the discontinued state action in Georgia under the anti–forum shopping provision of Fed. R. Civ. P....