Loss Prevention Works, LLC v. March Networks,Inc. et al
Filing
105
OPINION AND ORDER re: (81 in 1:10-cv-07616-DLC) MOTION for Attorney Fees and Costs filed by March Networks,Inc. The defendants' March 11 motion for attorneys' fees and sanctions is denied, but their April 1 motion for attorneys fees and costs is granted. The Clerk of Court shall enterjudgment for the defendants in the amount of $1,113,741.71 and close this case. (Signed by Judge Denise L. Cote on 11/21/2011) (jar)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
LOSS PREVENTION WORKS, LLC
:
Plaintiff,
:
:
-v:
:
MARCH NETWORKS, INC. and MARCH NETWORKS, :
CORP.,
:
Defendants.
:
:
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APPEARANCES:
For Plaintiff:
Gary H. Fechter
McCarter & English, LLP
245 Park Avenue, 27th Floor
New York, NY 10167
Scott S. Christie
Jonathan Short
Mark H. Anania
McCarter & English, LLP
Four Gateway Center
100 Mulberry Street
Newark, NJ 07102
Lucian Ulmet
J.C. Neu & Associates
318 Newman Springs Road
Red Bank, NJ 07701
Steven Glen Mintz
Terrence William McCormick
Mintz & Gold LLP
470 Park Ave. South, 10th Fl. North
New York, NY 10016
For Defendants:
Robert D. Goldstein
10 Civ. 7616 (DLC)
11 Civ. 0816 (DLC)
OPINION & ORDER
J. William Cook
Aime Dempsey
Nicholas S. Allison
Epstein Becker & Green, P.C.
250 Park Avenue
New York, NY 10177
DENISE COTE, District Judge:
On March 11, 2011, March Networks, Inc. (“MNI”) and March
Networks Corporation (“MNC”) (collectively, “defendants”) filed
a motion (the “March 11 Motion”) for attorneys’ fees and
sanctions pursuant to 28 U.S.C. § 1927 on the grounds that a
complaint filed by Loss Prevention Works, LLC (“LPW”) on
February 7 was filed in “bad faith and for the purpose of
unreasonably and vexatiously multiplying the proceedings between
the parties.”
On April 1, defendants moved (the “April 1
Motion”) pursuant to the parties’ contract to recover the
attorneys’ fees and costs they incurred while defending against
a separate complaint filed by LPW on October 5, 2010.
For the
reasons stated below, defendants’ March 11 Motion is denied but
its April 1 Motion is granted.
BACKGROUND
In December 2009, MNI sold its Data Investigation Services
(“DI services”) business line to LPW.
accomplished through two transactions:
This sale was
(1) the December 21,
2009 Transaction Agreement (“the Transaction Agreement”); and,
(2) the December 31, 2009 Teaming Agreement (the “Teaming
2
Agreement”).
The Transaction Agreement included a provision
titled “Attorney’s Fees,” which provides, in relevant part:
In the event of any litigation or action to enforce
the terms and conditions of this Agreement, the
prevailing party shall be entitled to recover from the
nonprevailing party all fees and costs of such
enforcement, including without limitation, filing
fees, arbitrator fees, mediator fees, attorneys and
other legal fees and costs, consultant fees, and costs
of collection.
(Emphasis supplied.)1
Additionally, as part of LPW’s acquisition of the DI
Services business, MNI gave LPW an exclusive license to use a
software application called Extreme Loss Prevention (the “ELP
Software”).
The ELP Software is a program that analyzes point
of sale (“POS”) transaction data collected from retail store
cash registers and identifies trends and patterns from this data
to generate a report identifying suspicious transactions that
might be indicative of employee theft or misconduct.
On October 5, 2010, LPW filed a complaint against
defendants MNI and MNC2 (the “First Action”) and simultaneously
sought a temporary restraining order.
All of LPW’s claims in
the First Action stemmed from its allegation that MNI breached
the Transaction and Teaming Agreements and unlawfully competed
1
The Teaming Agreement did not include an attorneys’ fees
provision.
2
MNC was never served and therefore was dismissed pursuant to an
Order dated March 1, 2011.
3
with LPW by upgrading its Retail Transaction Investigator
(“RTI”) software, thereby preventing LPW from entering into a
contract with Dunkin Brands, Inc. for use of the ELP Software.
Specifically, LPW brought six claims against MNI for:
(1)
breach of the Transaction Agreement; (2) breach of the Teaming
Agreement; (3) breach of the implied covenant of good faith and
fair dealing; (4) tortious interference with prospective
business relations; (5) unfair competition; and, (6) permanent
injunctive relief.
Rather than acting on LPW’s application for a TRO, with the
consent of the parties, the Court treated LPW’s request as a
motion for a preliminary injunction and the parties were
instructed to propose a schedule for expedited discovery and a
preliminary injunction hearing.
Pursuant to an Order entered on
October 19, discovery was to close on October 29 and a hearing
would be held on November 15.
On October 21, however, LPW
requested that discovery be extended.
This would have required
an adjournment of the preliminary injunction hearing.
opposed that request.
MNI
In an October 25 conference call, LPW
withdrew its motion for a preliminary injunction in exchange for
MNI’s consent to an expedited trial on the merits.
By Order
dated November 12, discovery was set to end on January 26, 2011,
and the trial to begin on February 14.
4
On February 1, 2011, a week before the final pretrial
conference for the First Action was scheduled to take place, LPW
filed a letter application for an extension of discovery to
investigate a second MNI product, VideoSphere, which it alleged
also competed with ELP.
At a conference convened on February 3,
the Court first held that the allegations in the First Action
were limited to the RTI product.
Second, absent the consent of
the defendants, the Court exercised its discretion to preclude
LPW from amending its complaint or extending discovery to
advance an argument that the Court found would “transform the
case.”
In so ruling, the Court acknowledged that
plaintiff could file a separate lawsuit
theoretically, if they have Rule 11 ability to do so,
and so the defendants might face a second piece of
litigation. I don’t know if they will or won’t. And
it may be in their interest not to.
In response, defense counsel indicated that he was so
“absolutely desirous of moving forward on the existing schedule”
for the First Action that he and his clients were “willing to
take the risk that another lawsuit will be brought.”
On February 7, just days before the trial of the First
Action was set to begin, LPW filed a second complaint, restating
the claims asserted in the First Action but adding a claim for
“unjust enrichment” (the “Second Action”).
The Second Action
differed from the First Action in one material respect.
Whereas
the First Action alleged that MNI’s modifications to the RTI
5
software violated its obligations to LPW, the Second Action
contended that MNI’s VideoSphere portfolio of products breached
these same commitments.
LPW also brought a motion to
consolidate the two related actions.
Citing the reasons given
on-the-record at the February 3 conference, the Court denied the
motion to consolidate at the Final Pre-Trial Conference for the
First Action, held on February 8.
The jury trial of the First Action took place between
February 16 and March 1, 2011.
On February 24, at the close of
LPW’s case in chief, the Court granted MNI’s motion for a
directed verdict and dismissed LPW’s claim for breach of the
implied covenant of good faith and fair dealing, and LPW
voluntarily withdrew its claims against MNI for tortious
interference with prospective business relations and unfair
competition.
On March 1, the jury returned a verdict in favor
of LPW on its two breach of contract claims in the amount of
$5.8 million.
The Court, however, granted MNI’s request for a
directed verdict.
The Court set a schedule for the filing of
post-trial motions, but the only motions filed were the instant
motions for an award of attorneys’ fees and a motion to extend
the time to appeal.
Currently, there are two motions for attorneys’ fees
pending before this Court.
First, on March 11, MNI filed a
motion to recover attorneys’ fees and sanctions in connection
6
with the filing of the Second Action, pursuant to 28 U.S.C.
§ 1927 (the “March 11 Motion”).3
withdrew the Second Action.
On April 1, LPW voluntarily
Second, on April 1, in accordance
with a scheduling order dated March 1, MNI filed a post-trial
motion to recover the attorneys’ fees and costs associated with
the First Action (the “April 1 Motion”) under the “Attorneys’
Fees” provision of the Transaction Agreement.
The March 11 and
April 1 Motions became fully submitted on May 13 and April 27,
respectively.
DISCUSSION
I.
The March 11 Motion
Defendants move for attorneys’ fees and sanctions in
connection with the Second Action pursuant to 28 U.S.C. § 1927,
which provides in pertinent part:
Any attorney or other person admitted to conduct cases
in any court of the United States . . . who so
multiplies the proceedings in any case unreasonably
and vexatiously may be required by the court to
satisfy personally the excess costs, expenses, and
attorneys' fees reasonably incurred because of such
conduct.
28 U.S.C. § 1927 (emphasis supplied).
Section 1927 only applies
to attorneys or those authorized to practice before the courts.
3
Defendants also moved to dismiss the Second Action pursuant to
Rule 12(b)(6), Fed. R. Civ. P. This motion is moot since the
complaint was subsequently withdrawn. The Court, however,
retains jurisdiction to decide MNI’s motion for attorneys’ fees
and sanctions. Perpetual Securities, Inc. v. Tang, 290 F.3d
132, 141 (2d Cir. 2002).
7
Salovaara v. Eckert, 222 F.3d 19, 35 n.13 (2d Cir. 2000).
A
court may sanction counsel pursuant to § 1927 “only when there
is a finding of conduct constituting or akin to bad faith.”
State Street Bank & Trust Co. v. Inversiones Errazuriz Limitada,
374 F.3d 158, 180 (2d Cir. 2004) (citation omitted).
The
standard for sanctioning counsel pursuant to § 1927 is the same
standard for imposing sanctions pursuant to a court's inherent
authority:
a finding of “clear evidence that (1) the offending
party's claims were entirely without color, and (2) the claims
were brought in bad faith -- that is, motivated by improper
purposes such as harassment or delay.”
Eisemann v. Greene, 204
F.3d 383, 396 (2d Cir. 2000) (citation omitted).
Such sanctions
are “proper when the attorney's actions are so completely
without merit as to require the conclusion that they must have
been undertaken for some improper purpose such as delay.”
State
Street Bank, 374 F.3d at 180.
The defendants have not shown by clear evidence that
sanctions and fees under § 1927 should be awarded against LPW’s
attorneys based on their filing of the Second Action.
There is
insufficient evidence that the claims in the Second Action were
so completely devoid of merit that they must have been brought
in bad faith.
When the Second Action was filed, the trial on the First
Action had not yet commenced and LPW had not received any
8
guidance from the jury or the Court concerning the merits of its
claims.
Within a month of the Court’s directed verdict in the
First Action, LPW withdrew the Second Action.
II.
The April 1 Motion
Based on the Attorneys’ Fees provision of the Transaction
Agreement, MNI seeks an award of attorneys’ fees and costs
associated with the First Action in the amount of $946,861.05
and $166,880.66, respectively.
“Under New York law, a contract
that provides for an award of reasonable attorneys’ fees to the
prevailing party in an action to enforce the contract is
enforceable if the contractual language is sufficiently clear.”
Netjets Aviation, Inc. v. LHC Commc’n, LLC, 537 F.3d 168, 175
(2d Cir. 2008).4
Whether a contract is clear or ambiguous is a
question of law.
Lockheed Martin Corp. v. Retail Holdings,
N.V., 639 F.3d 63, 69 (2d Cir. 2011) (New York law).
“It is
well settled that a contract is unambiguous if the language it
uses has a definite and precise meaning, as to which there is no
reasonable basis for a difference of opinion.”
Id.
The Attorneys’ Fees provision of the Transaction Agreement
provides that “[i]n the event of any litigation . . . to enforce
the terms . . . of this Agreement, the prevailing party shall be
entitled to recover from the non-prevailing party all fees and
4
It is undisputed that New York law applies.
9
costs of such enforcement.”
This provision unambiguously
provides that if either of the parties to the contract brings an
action to enforce its terms, the non-prevailing party must pay
the prevailing party’s fees and costs.
It is undisputed that
LPW brought an action to enforce a term of the Transaction
Agreement and that MNI prevailed in the subsequent enforcement
litigation.
Accordingly, under the Transaction Agreement’s
Attorneys’ Fees provision, MNI is entitled to recover its
attorneys’ fees and costs.5
LPW principally contends that it is the only party that
could possibly recover attorneys’ fees under the Transaction
Agreement, since it was the sole party seeking to “enforce” the
contract.
It emphasizes the term “such enforcement” in the
sentence which allows “the prevailing party” to recover fees and
costs “of such enforcement” in the event there is “any
litigation to enforce” the contract.
This argument fails.
The unambiguous contract language allows any prevailing
party, whether the plaintiff or the defendant, to recover fees
in an action like that at issue here.
By defending against
LPW’s meritless claims, MNI incurred “fees and costs” during an
action brought to enforce contractual rights.
New York courts
routinely award prevailing defendants fees and costs in such
5
LPW does not suggest that the amount of the award sought by MNI
is unreasonable.
10
circumstances.
See Residential Holdings III LLC v. Archstone-
Smith Operating Trust, 83 A.D.3d 462, 468 (1st Dep’t 2011)
(defendants the prevailing party entitled to fees and costs in
an action brought to enforce a contract); Kessel Brent Corp. v.
Benderson Prop. Dev., Inc., 68 A.D.3d 1709, 1709 (4th Dep’t
2009) (same).
Thus, even under LPW’s interpretation of the
contract, MNI must prevail.6
Finally, LPW asks that MNI’s application for fees and costs
be held in abeyance until the Second Circuit has heard LPW’s
appeal from the Court’s directed verdict.
denied.
This request is
Rule 54, Fed. R. Civ. P., which requires parties to
file a motion for attorneys’ fees “no later than 14 days after
the entry of judgment,” id., was designed to “minimize the need
for piecemeal litgation” by “enabl[ing] the [district] court to
make its ruling on a fee request in time for any appellate
review.”
Weyant v. Okst, 198 F.3d 311, 314 (2d Cir. 1999)
(citation omitted).
It is appropriate to render this decision
on the merits of the motion so that any appeal from this
decision can be joined with any appeal from the judgment entered
in the First Action.
LPW’s obligation to pay attorneys’ fees
6
The only reported case to which LPW cites is not inconsistent
with this interpretation. Tower Charter & Marine Corp. v.
Cadillac Ins. Co., 894 F.2d 516, 525 (2d Cir. 1990) (party that
defended action entitled to recover attorneys’ fees).
11
and costs in the amount of $l t l13 t 741.71 may be stayed by
posting the appropriate bond at the time it files the appeal.
CONCLUSION
The defendants
t
March 11 motion for attorneys! fees and
sanctions is denied! but their April 1 motion for attorneys!
fees and costs is granted.
The Clerk of Court shall enter
judgment for the defendants in the amount of $l t l13/741.71 and
close this case.
SO ORDERED:
Dated:
New York t New York
November 21t 2011
D ISE COTE
United States District Judge
12
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