Manhattan Review LLC et al v. Yun et al

Filing 110

REPORT AND RECOMMENDATION re: 79 MOTION to Dismiss the Second Amended Complaint filed by Manhattan Enterprise Group LLC; 76 MOTION to Dismiss Second Amended Complaint filed by Tracy Yun; 93 MOTION for Leave to Fi le Third Amended Complaint filed by Manhattan Review LLC, Joern Meissner; 81 MOTION to Dismiss the Second Amended Complaint filed by Christopher Kelly. For the reasons set forth above, I recommend that the defendants' motion to dismiss the Second Amended Compolaint (Docket nos. 76, 79, and 81) be granted and that the plaintiffs' motion for leave to file a third amended complaint (Docket no. 93) be denied. Pursuant to 28 U.S.C. § 636 (b) (1) and Rules 72 , 6(a), and 6(d) of the Federal Rules of Civil Procedure, the parties shall have fourteen (14) days to file written objections to this Report and Recommendation. Such objection shall be filed with the Clerk of the Court, with extra copies delivered to the Chambers of the Honorable Lewis A. Kaplan, Room 2240, 500 Pearl Street, New York, New York 10007, and to the Chambers of the undersigned, Room 1960, 500 Pearl Street, New York, New York 10007. Failure to file timely objections will preclude appellate review. (Objections to R&R due by 4/24/2017.) (Signed by Magistrate Judge James C. Francis on 4/10/2017) Copies Transmitted this Date By Chambers. (anc)

16 Civ. 102, 2016 WL 6330474, at *1-2 (S.D.N.Y. Aug. 15, 2016).
In March 2005, Dr. Meissner and Ms. Yun formed Manhattan Review,
a test-preparation business for the Graduate Management Admission
Test (“GMAT”).

(Second Amended Complaint (“SAC”), ¶¶ 16, 20).

Manhattan Review is a Delaware Corporation with its principal place
of business in New York.

(SAC, ¶¶ 1 21).

Mr. Kelly, an attorney

admitted to practice in New York, represented Dr. Meissner and Ms.
Yun in the creation of Manhattan Review, drafting an Operating
Agreement and filing the necessary paperwork for Manhattan Review
to do business in New York.
In

December

2011,

(SAC, ¶ 23).

following

“several

heated

exchanges”

between Ms. Yun and Dr. Meissner “rooted, in part, in [Ms.] Yun’s
misinterpretation of their personal relationship,” Ms. Yun took
steps to shut down Manhattan Review and establish a competitor
without Dr. Meissner’s consent.

(SAC, ¶¶ 38, 44).

She emptied

most of the money out of Manhattan Review’s bank account and
transferred two of its trademarks to herself.

(SAC, ¶¶ 50-52).

On December 30, 2011, she executed a Certificate of Cancellation
of Manhattan Review, which she filed with the Delaware Secretary
of State on January 3, 2012.

(SAC, ¶ 53).

Mr. Kelly allegedly

knew about Ms. Yun’s plans to shut down Manhattan Review and gave
her legal advice on how to misappropriate its assets and transfer
its trademarks to herself.

(SAC, ¶¶ 74-84, 90-91).

2

On January 3, 2012, Ms. Yun created Manhattan Enterprise Group
LLC, a Delaware corporation that she wholly owned.

(SAC, ¶¶ 4,

55). She immediately commenced operations as Manhattan Elite Prep,
using

Manhattan

Review’s

assets,

intellectual

trademarks, phone numbers, and employees.

property,

(SAC, ¶¶ 56-57, 59).

She directed Manhattan Review’s clients to Manhattan Elite Prep,
“blatantly copied” Manhattan Review’s logo, and marketed and sold
Manhattan Review’s copyrighted materials.

(SAC, ¶¶ 59-61).

Since

January 2012, Ms. Yun and Manhattan Elite Prep have continued to
sell books, prep materials, and study guides that use Manhattan
Review’s trademarks and copyrighted materials.

(SAC, ¶¶ 97-103).

Manhattan Review asserts ten causes of action in the Second
Amended Complaint: (1) breach of fiduciary duty (against Ms. Yun);
(2)

breach

of

contract

(against

Ms.

Yun);

(3)

trademark

infringement, unfair competition, and false designation of origin
in violation of 15 U.S.C. § 1225(a) (against Ms. Yun and Manhattan
Elite Prep); (4) unfair competition (against Ms. Yun and Manhattan
Elite Prep); (5) infringement in violation of New York statutory
and common law (against Ms. Yun and Manhattan Elite Prep); (6)
aiding and abetting breach of fiduciary duty (against Mr. Kelly);
(7

&

8)

copyright

infringement

or

contributory

copyright

infringement (against all defendants); and (9 & 10) fraudulent
conveyance (against Ms. Yun and Manhattan Elite Prep).
104-165).

(SAC, ¶¶

The Second Amended Complaint contains an additional
3

cause of action in which Dr. Meissner asserts each of those claims
derivatively on Manhattan Review’s behalf.
B.

(SAC, ¶¶ 166-175).

State Court Action

On March 7, 2012, Dr. Meissner commenced an action in New
York

State

Supreme

Court

asserting

individual

claims

and

derivative claims on behalf of Manhattan Review against Ms. Yun
and

Manhattan

Elite

Prep.

(Defendant

Christopher

Kelly’s

Memorandum of Law in Support of His Motion to Dismiss the Second
Amended Complaint (“Kelly Memo.”) at 6; Defendant Tracy Yun’s
Memorandum of Law in Support of Motions to Dismiss Plaintiffs’
Second

Amended

Complaint

(“Yun

Memo.”)

at

6;

Plaintiffs’

Memorandum of Law in Opposition to Defendants’ Motions to Dismiss
(“Pl. Memo.”) at 8).

On July 6, 2015, the court granted partial

summary judgment to Ms. Yun and Manhattan Elite Prep, dismissing
all of Dr. Meissner’s derivative claims on the ground that he
lacked the capacity to sue on behalf of Manhattan Review because
he did not “successfully file a petition with Delaware’s Court of
Chancery to nullify or rescind the Certificate of Cancellation.” 1

1

In making this determination, the court relied on the First
Department’s decision in Otto v. Otto, which held that in order to
bring derivative claims on behalf of a Delaware corporation after
the filing of a certificate of cancellation, a plaintiff must bring
a “successful action seeking the nullification of the certificate
of cancellation” in the Delaware Chancery Court. 110 A.D.3d 620,
620, 974 N.Y.S.2d 54, 55 (1st Dep’t 2013). Otto, in turn, relied
on the Delaware Chancery Court’s decision in Matthew v. Laudamiel,
which held that
4

(Meissner v. Yun, Index No. 650913/2012, at 6 (N.Y. Sup. Ct. July
6, 2015), attached as Exh. C to Declaration of Tracy Yun dated
Dec. 1, 2016 (“Yun Decl.”); Proposed Third Amended Complaint
(“Proposed TAC”), attached as Exh. A to Declaration of Thomas P.
Higgins dated Jan. 6, 2017, ¶¶ 121-122).
Shortly thereafter, Dr. Meissner sought to revive Manhattan
Review as a Delaware corporation.

On July 30, 2015, he paid

Manhattan

and

Certificate

Review’s
of

past

Correction

due

fees

pursuant

to

charges
the

and

filed

Delaware

a

Limited

Liability Company Act, Del. Code Ann. tit. 6, § 18-211, attesting
that the Certificate of Cancellation filed by Ms. Yun was not
authorized by Manhattan Review.
August

3,

2015,

the

(Proposed TAC, ¶¶ 123-124).

Delaware

Secretary

of

Certificate of Good Standing to Manhattan Review.
¶ 126).

State

issued

On
a

(Proposed TAC,

On August 12, 2015, Dr. Meissner filed a motion to renew,

correct, and vacate the July 6 Order based on Manhattan Review’s
newly restored status as an entity in good standing in Delaware.
(Memorandum of Law in Support of Plaintiff’s Motion for Renewal

after the filing of a certificate of cancellation,
[claims on behalf of a corporation] must be brought in
the name of the LLC by a trustee or receiver appointed
under [Del. Code Ann. tit. 6,] § 18–805, or directly by
the LLC or derivatively by its members after reviving
the LLC by obtaining revocation of its certificate of
cancellation.
C.A. No. 5957, 2012 WL 605589, at *21 (Del. Ch. Feb. 21, 2012).
5

and Related Relief at 2-3, Meissner, Index No. 650913/2012 (N.Y.
Sup. Ct. Aug. 12, 2015), attached as Exh. D to Yun Decl.; Proposed
TAC, ¶¶ 125-26).

On October 28, 2015, the court rejected Dr.

Meissner’s motion on the ground that he “failed to demonstrate
that a Certificate of Good Standing is the equivalent of nullifying
or revoking the Certificate of Cancellation under Delaware Law.” 2
(Meissner, Index No. 650913/2012 (N.Y. Sup. Ct. Oct. 28, 2015),
attached as Exh. E to Yun Decl.; Proposed TAC, ¶ 127). Dr. Meissner
has appealed the July 6 and October 28 Orders to the Appellate
Division, First Department (Proposed TAC, ¶ 129), which has not
rendered a decision as of this writing.

2

The Second Amended Complaint does not mention anything about
the state court action.
The Proposed Third Amended Complaint
references the state court’s decisions concerning Dr. Meissner’s
capacity to sue but does not allege anything about the filing of
the state court complaint. Still, I may take judicial notice of
all of the state court documents without converting the defendants’
motion to dismiss or the plaintiffs’ motion for leave to amend
into a summary judgment motion. See Graham v. Select Portfolio
Servicing, Inc., 156 F. Supp. 3d 491, 502 n.1 (S.D.N.Y. 2016) (“In
deciding a motion to dismiss under Rule 12(b)(6), a court can take
judicial notice of court documents.”); Bentley v. Dennison, 852 F.
Supp. 2d 379, 382 n.5 (S.D.N.Y. 2012) (“The Court takes judicial
notice of the administrative and state court documents submitted
by the defendants . . . because the facts noticed are not subject
to reasonable dispute and are capable of being verified by sources
whose accuracy cannot be reasonably questioned.”). The state court
documents are publicly available on the New York State Courts’
website at http://iapps.courts.state.ny.us/iscroll/index.jsp.
6

C.

The Instant Motions

The defendants move to dismiss the Second Amended Complaint
on the following grounds: (1) the doctrines of res judicata and
collateral estoppel bar the plaintiffs’ claims; (2) the plaintiffs
lack capacity to sue; (3) the claims against Ms. Yun and Manhattan
Elite Prep for trademark infringement are deficiently pled; and
(4) the claims against Mr. Kelly for aiding and abetting breach of
fiduciary duty and copyright infringement are both time-barred and
deficiently pled.

In connection with their motions to dismiss,

the defendants seek an award of attorneys’ fees and costs under
the Copyright Act, 17 U.S.C. § 505, and the Lanham Act, 15 U.S.C.
§ 1117.
The

plaintiffs

move

for

leave

to

file

a

third

amended

complaint, which adds a cause of action against Mr. Kelly for
breach of fiduciary duty but otherwise alleges the same causes of
action as the Second Amended Complaint.
220).

The

Proposed

Third

Amended

(Proposed TAC, ¶¶ 138Complaint

also

contains

information about the state court action (Proposed TAC, ¶¶ 121130).
Legal Standards
A.

Motion to Dismiss

To survive a motion to dismiss under Rule 12(b)(6) of the
Federal

Rules

of

Civil

Procedure,

“a

complaint

must

contain

sufficient factual matter . . . to ‘state a claim to relief that
7

is plausible on its face.’”

Ashcroft v. Iqbal, 556 U.S. 662, 678

(2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570
(2007)).

The court’s charge in ruling on a 12(b)(6) motion “is

merely to assess the legal feasibility of the complaint, not to
assay the weight of the evidence which might be offered in support
thereof.” GVA Market Neutral Master Ltd. v. Veras Capital Partners
Offshore Fund, Ltd., 580 F. Supp. 2d 321, 327 (S.D.N.Y. 2008)
(quoting Eternity Global Master Fund Ltd. v. Morgan Guaranty Trust
Co. of New York, 375 F.3d 168, 176 (2d Cir. 2004)).

The court

must construe the complaint in the light most favorable to the
plaintiff, “taking its factual allegations to be true and drawing
all reasonable inferences in the plaintiff’s favor.”

Harris v.

Mills, 572 F.3d 66, 71 (2d Cir. 2009).
B.

Leave to Amend

Rule 15 of the Federal Rules of Civil Procedure provides that
courts

should

requires.”

“freely

give”

leave

to

amend

“when

justice

so

Fed. R. Civ. P. 15(a)(2); accord Foman v. Davis, 371

U.S. 178, 182 (1962); Aetna Casualty & Surety Co. v. Aniero
Concrete Co., 404 F.3d 566, 603 (2d Cir. 2005).
standard

is

consistent

with

[the

Second

“This permissive

Circuit’s]

preference for resolving disputes on the merits.’”

‘strong

Williams v.

Citigroup Inc., 659 F.3d 208, 212–13 (2d Cir. 2011) (quoting New
York v. Green, 420 F.3d 99, 104 (2d Cir. 2005)).

The court has

broad discretion over motions to amend, see McCarthy v. Dun &
8

Bradstreet Corp., 482 F.3d 184, 200 (2d Cir. 2007), and may deny
such a motion for any of the following reasons: (1) undue prejudice
to the non-moving party, (2) futility, (3) bad faith or dilatory
motive, (4) repeated failure to cure deficiencies by previous
amendments, or (5) undue delay, United States ex rel. Ladas v.
Exelis, Inc., 824 F.3d 16, 28 (2d Cir. 2016).
Here,

the

defendants

amendment is futile.

argue

solely

that

the

plaintiffs’

Leave to amend should be denied as futile

when the amended pleading would not survive a motion to dismiss
under Rule 12(b)(6).

IBEW Local Union No. 58 Pension Trust Fund

& Annuity Fund v. Royal Bank of Scotland Group, PLC, 783 F.3d 383,
389 (2d Cir. 2015).

Thus, the standard governing leave to amend

is whether the amended pleading states a claim on which relief can
be granted when all facts pled are accepted as true and construed
in the light most favorable to the plaintiff. See Panther Partners
Inc. v. Ikanos Communications, Inc., 681 F.3d 114, 119 (2d Cir.
2012) (citing Iqbal, 556 U.S. at 678-80).

The defendants bear the

burden of demonstrating that the proposed amendment is futile.
See Allison v. Clos-ette Too, LLC, No. 14 Civ. 1618, 2015 WL
136102, at *2 (S.D.N.Y. Jan. 9, 2015).
Discussion
A.

Collateral Estoppel

The

defendants

argue

that

the

doctrines

of

collateral

estoppel and res judicata bar all of the plaintiffs’ claims because
9

of the state court’s rulings that Dr. Meissner lacks capacity to
bring derivative claims on behalf of Manhattan Review. 3

(Kelly

Memo. at 9-11; Yun Memo. at 10-12; Defendant Manhattan Enterprise
Group’s Memorandum of Law in Support of Its Motion to Dismiss the
Second Amended Complaint).
Collateral estoppel prohibits “successive litigation of an
issue of fact or law actually litigated and resolved in a valid
court

determination

essential

to

the

prior

judgment.”

New

Hampshire v. Maine, 532 U.S. 742, 748–49 (2001); see 28 U.S.C. §
1738.

New York law applies to determine the preclusive effect of

a New York state court judgment on a federal action.
Watkins, 101 F.3d 792, 794 (2d Cir. 1996).

Johnson v.

Under New York law,

collateral estoppel bars relitigation of an issue when “(1) the
identical issue necessarily was decided in the prior action and is
decisive of the present action, and (2) the party to be precluded
from relitigating the issue had a full and fair opportunity to
litigate the issue in the prior action.”

In re Hyman, 502 F.3d

61, 65 (2d Cir. 2007); accord Juan C. v. Cortines, 89 N.Y.2d 659,
667, 657 N.Y.S.2d 581, 585 (1997).

“The party invoking collateral

estoppel must demonstrate the identity of the issues . . . and
must establish that the issues were previously decided on the

3

Because I ultimately recommend dismissal of all of the
plaintiffs’ claims based on collateral estoppel, I do not address
res judicata.
10

merits,” while “[t]he party seeking to defeat the application of
the defense has the burden of establishing the absence of a full
and fair opportunity to litigate the issues in the prior action.”
Lefkowitz v. Bank of New York, 676 F. Supp. 2d 229, 271 (S.D.N.Y.
2009); accord Kaufman v. Eli Lilly & Co., 65 N.Y.2d 449, 456, 492
N.Y.S.2d 584, 588 (1985).
A court may apply collateral estoppel to dismiss claims on a
12(b)(6) motion, Graham, 156 F. Supp. 3d at 505, and courts have
applied collateral estoppel to decisions concerning capacity to
sue.

See Tycon Tower I Investment Limited Partnership v. John

Burgee

Architects,

No.

95

Civ.

6951,

1999

WL

676007,

at

*9

(S.D.N.Y. Aug. 31, 1999) (“[T]he bankruptcy court correctly found
the state court dismissal for lack of capacity to sue precluded
[the plaintiff’s] assertion of [its] claims in the bankruptcy
proceeding.”); Edens v. Laubach, 838 F. Supp. 510, 514 (D. Kan.
1993) (“We believe the doctrine of collateral estoppel applies to
decisions upon issues such as capacity to sue.”).
1.

Identical Issue

The July 6 Order held that Dr. Meissner lacked capacity to
bring derivative claims on behalf of Manhattan Review. The October
28 Order reached the same conclusion after Dr. Meissner obtained
the Certificate of Good Standing from the Delaware Secretary of
State.

Both orders resulted in the dismissal of Dr. Meissner’s

11

derivative claims. 4

Thus, they both resolved the issue of Dr.

Meissner’s capacity to bring derivative claims on the merits. 5 The
defendants’

motion

to

dismiss

presents

the

same

question

concerning Dr. Meissner’s capacity to sue on behalf of Manhattan
Review 6 on facts that are materially identical to those before the
state court in its October 28 Order.
The

plaintiffs

acknowledge

that

“the

issue

of

Manhattan

Review[’s] [] revival was raised before the [s]tate [c]ourt” in
its October 28 Order.

(Pl. Memo. at 10).

They argue, however,

4

The fact that both orders are currently pending on appeal
does not preclude the application of collateral estoppel.
See
Caldwell v. Gutman, Mintz, Baker & Sonnenfeldt, P.C., No. 08 CV
4207, 2012 WL 1038804, at *8 (E.D.N.Y. March 28, 2012) (“It is
well settled that state-court decisions still have collateral
estoppel effect even though they are pending on appeal.”); Chariot
Plastics, Inc. v. United States, 28 F. Supp. 2d 874, 881 (S.D.N.Y.
1998) (“[C]ollateral estoppel appl[ies] once final judgment is
entered in a case, even while an appeal from that judgment is
pending.”).
5

A box is checked on the October 28 order indicating that it
was a “Non-Final Disposition” rather than a “Disposed” case.
(Meissner, Index No. 6509131/2012 (N.Y. Sup. Ct. Oct. 28, 2015).
The October 28 order, like the July 6 order, did not address Dr.
Meissner’s individual claims, and thus was not a final disposition
of the entire state court action. Accordingly, the fact that the
order indicates that it was a “Non-Final Disposition” should not
be interpreted to stand for the proposition that it did not reach
the merits of Dr. Meissner’s capacity to sue on behalf of Manhattan
Review.
6

Rule 17(b)(3) of the Federal Rules of Civil Procedure
provides that capacity to sue is governed by the law of the state
where the court is located -- in this case, New York. Thus, New
York law governs the question of capacity to sue in this action
and the state court action.
12

that the Order did not address the same question presented by the
defendants’ motion to dismiss in this action because it “[did] not
purport to resolve whether the procedure adopted by Dr. Meissner
[to obtain the Certificate of Good Standing] was proper.”
Memo. at 10).

(Pl.

The plaintiffs point to facts alleged in the

Proposed Third Amended Complaint that were not presented to the
state

court

--

specifically,

that

in

order

to

obtain

the

Certificate of Good Standing, Dr. Meissner filed a Certificate of
Correction with the Delaware Secretary of State and paid Manhattan
Review’s past due fees and charges.

(Pl. Memo. at 10-11; Proposed

TAC, ¶¶ 123-124).
The plaintiffs do not explain why Dr. Meissner failed to raise
these facts with the state court.
insignificant.

Regardless, these facts are

The question before the state court in its October

28 Order was whether the Certificate of Good Standing could restore
Dr. Meissner’s capacity to sue on behalf of Manhattan Review after
Manhattan Review was dissolved by the filing of the Certificate of
Cancellation.

The particular process Dr. Meissner employed to

obtain the Certificate of Good Standing does not bear on that
question. 7

Therefore, the October 28 Order decided the identical

7

The plaintiffs argue that the allegations concerning that
process present a distinct issue because of a footnote in Matthew
suggesting that there is more than one way for a former member of
an LLC to pursue claims on behalf of the LLC after the filing of
a certificate of cancellation. (Pl. Memo. at 11 (citing Matthew,
2012 WL 605589, at *22 & n.148)).
However, that footnote only
13

issue concerning Dr. Meissner’s capacity to sue that is presented
by the defendants’ motion to dismiss. 8
Next, the plaintiffs argue that even if the July 6 and October
28 orders “impair Dr. Meissner’s capacity to file derivative
claims,” they do not bar Manhattan Review’s direct claims because
“it is not disputed that neither order addressed the ability of
Manhattan Review to file direct claims.”

(Pl. Memo. at 11).

The

plaintiffs are correct that Manhattan Review was not a named party
in the state court action.

Still, this argument is without merit.

contemplates alternative procedures for the nullification of a
certificate of cancellation where, for example, an LLC’s affairs
were not properly wound up. See Matthew, 2012 WL 605589, at *22
& n.148 (explaining that the Chancery Court’s appointment of a
trustee or receiver under Del. Code Ann. tit. 6, § 18-805 “is not
the only way in which former members may pursue an LLC’s claims
after a certificate of cancellation has been filed. For example,
if the Court finds that an LLC’s affairs were not wound up in
compliance with the Delaware Limited Liability Company Act, it may
nullify the certificate of cancellation, which effectively revives
the LLC and allows claims to be brought by and against it.”). It
does not address the ability of a document obtained outside the
Chancery Court -- like a certificate of good standing from the
Secretary of State -- to nullify a certificate of cancellation,
let alone the significance of the particular process used to obtain
the certificate of good standing. The plaintiff has not cited any
authority to this effect.
8

The July 6 Order dealt with a factually distinguishable
situation. At that stage of the litigation, the question before
the state court involved Dr. Meissner’s capacity to sue prior to
the issuance of the Certificate of Good Standing. Thus, the July
6 Order did not address whether the Certificate of Good Standing
could restore Dr. Meissner’s capacity to sue. Accordingly, absent
the October 28 Order, the July 6 Order would not warrant the
application of collateral estoppel.
14

The resolution of Dr. Meissner’s capacity to bring derivative
claims and Manhattan Review’s capacity to bring direct claims turns
on the identical legal question –- namely, whether Manhattan Review
was properly revived by a nullification of the Certificate of
Cancellation.

Where, as here, a certificate of cancellation has

been filed and no trustee or receiver has been appointed under
Del. Code Ann. tit. 6, § 18-805, claims on behalf of a corporation
must be brought either “directly by the LLC or derivatively by its
members after reviving the LLC by obtaining revocation of its
certificate of cancellation.”

Matthew, 2012 WL 605589, at *21.

The state court determined that the Certificate of Good Standing
was not a proper nullification of the Certificate of Cancellation.
That determination is decisive of Manhattan Review’s capacity to
bring direct claims as well as Dr. Meissner’s capacity to bring
derivative claims in this action.
2.

Full and Fair Opportunity to Litigate

A determination of whether a prior action provided a full and
fair

opportunity

to

litigate

“requires

consideration

of

the

realities of the [prior] litigation, including the context and
other circumstances which . . . may have had the practical effect
of discouraging or deterring a party from fully litigating the
determination which is now asserted against him.”

Hickerson v.

City of New York, 146 F.3d 99, 109 (2d Cir. 1998) (alterations in
original) (quoting Ryan v. New York Telephone Co., 62 N.Y.2d 494,
15

501, 478 N.Y.S.2d 823, 827 (1984)).

On his motion to renew,

correct, or vacate the July 6 Order, Dr. Meissner briefed the issue
of whether the Certificate of Good Standing restored his capacity
to sue on behalf of Manhattan Review.

The state court ruled

directly on that issue in the October 28 Order.

The plaintiffs do

not allege any circumstances that discouraged or deterred Dr.
Meissner

from

fully

litigating

the

issue.

Accordingly,

Dr.

Meissner had a full and fair opportunity to litigate in the state
court action.
Dr.
Manhattan

Meissner’s
Review’s

capacity to sue.

opportunity
opportunity

to

to

litigate

litigate

also

the

satisfied

issue

of

its

In Henik ex rel. LaBranche & Co. v. LaBranche,

another court in this district held that a shareholder’s derivative
claims were barred by collateral estoppel where a state court had
previously ruled that a different shareholder lacked standing to
bring derivative claims because of a failure to make a demand on
the corporation’s board of directors.
82 (S.D.N.Y. 2006).

433 F. Supp. 2d 372, 377-

The court reasoned that while “preclusion

generally should not be imposed upon individuals who themselves
did not have an opportunity to litigate the initial action . . . ,
privity

among

shareholder

plaintiffs

presents

an

atypical

situation” in that “the true plaintiff in this suit and the [prior]
action is the identical corporation.”

Id. at 379-80.

The court

also noted that because “the wrong to be redressed is the wrong
16

done to the corporation . . . , it inevitably follows that there
can be but one adjudication on the rights of the corporation.”
Id. at 380 (quoting Dana v. Morgan, 232 F. 85, 89 (2d Cir. 1916)).
Allowing this litigation to go forward would permit multiple
adjudications to proceed on the rights of Manhattan Review -- the
true plaintiff on Dr. Meissner’s derivative claims in the state
court action.

Indeed, “[t]he general rule is that the corporation

in a derivative suit should be aligned as a plaintiff since it is
the real party in interest.”

Obstfeld v. Schwartz, 621 F. Supp.

2d 87, 93 (S.D.N.Y. 2008) (quoting ZB Holdings, Inc. v. White, 144
F.R.D. 42, 45 (S.D.N.Y. 1992)); cf. Kaplan v. Bennett, 465 F. Supp.
555,

560

(S.D.N.Y.

1979)

(“A

derivative

action

represents

prosecution of a claim belonging not to the individual shareholder
but to the corporation on whose behalf suit is brought.” (citing
Ross v. Bernhard, 396 U.S. 531, 538-39 (1970))).

The fact that

Manhattan Review was not formally aligned as a plaintiff in the
state court action does not change the fact that it was the real
party in interest on Dr. Meissner’s derivative claims in that
action.

Therefore, Dr. Meissner’s opportunity to litigate the

capacity to sue issue in the state court action belonged not only
to Dr. Meissner but also to Manhattan Review.
In sum, both of the required elements to apply collateral
estoppel under New York law are present in this case.

The state

court’s determination that Dr. Meissner lacked capacity to bring
17

derivative

claims

on

behalf

of

Manhattan

Review

bars

the

plaintiffs’ derivative claims and direct claims in this action. 9
As a result, the Second Amended Complaint fails to state a claim
on which relief can be granted, and the Proposed Third Amended
Complaint would not survive a motion to dismiss.
B.

Attorneys’ Fees and Costs

Mr. Kelly seeks an award of attorneys’ fees and costs under
the Copyright Act, 17 U.S.C. § 505 (Kelly Memo. at 18), and Ms.
Yun seeks an award of attorneys’ fees under the Lanham Act, 15
U.S.C. § 1117.

(Yun Memo. at 20-21).

They do not, however,

provide any attorney time records, hourly rates, or documentation
of

costs.

Accordingly,

I

recommend

denying

the

defendants’

application for attorneys’ fees without prejudice to a future
application that includes the information necessary to make a
determination on the defendants’ entitlement to attorneys’ fees
and costs.

9

Although Mr. Kelly was not a party to the state court action,
collateral estoppel bars the claims against him as well. A nonparty to the initial action may invoke collateral estoppel as long
as “the party against whom the doctrine is applied . . . had the
opportunity to litigate the merits of the issue in the prior
action.” Bush v. O.P.E.I.U. Local 153, 499 F. Supp. 2d 571, 573
(S.D.N.Y. 2007). As discussed above, Dr. Meissner had a full and
fair opportunity to litigate the merits of the capacity to sue
issue in the state court action.
18