Goldberg Cohen LLP v. Luv n' care Ltd. et al

Filing 69

MEMORANDUM AND ORDER: granting in part and denying in part 63 Motion to Dismiss; granting in part and denying in part 64 Motion to Dismiss. The motion to dismiss LNC's counterclaims is granted in part and denied in part. The claim-preclusi ve effect of the judgment entered following our decisions in LNC I and LNC II -- as affirmed by the Second Circuit in LNC III -- preclude LNC from relitigating counterclaims 2, 4, and 6 through 20. While claim preclusion does not mandate the dismissa l of amended counterclaims 1 and 3, those claims are barred by the relevant statute of limitations and are not resuscitated under the principles of recoupment codified at CPLR 203(d). Claim preclusion also does not bar amended counterclaims 5 and 21, and the motion is therefore denied as to those claims. The Clerk of the Court is respectfully directed to terminate the motions pending at ECF Nos. 63 and 64. The parties shall appear for a status conference before the Court on October 29, 2018 at 3:45 p.m. SO ORDERED (Signed by Judge Naomi Reice Buchwald on 9/20/2018) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-----------------------------------------X
GOLDBERG COHEN, LLP,
Plaintiff,
MEMORANDUM AND ORDER
- against 16 Civ. 6576 (NRB)
LUV N’ CARE, LTD. and ADMAR
INTERNATIONAL, INC.,
Defendants.
-----------------------------------------X
LUV N’ CARE, LTD. and ADMAR
INTERNATIONAL, INC.,
Counterclaim Plaintiff,
- against GOLDBERG COHEN, LLP, LEE A. GOLDBERG,
and MORRIS E. COHEN,
Counterclaim Defendants.
-----------------------------------------X
NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE
In this family drama masquerading and manifesting itself as
a number of federal court cases, defendants Luv N’ Care, Ltd. and
Admar

International,

Inc.

(collectively,

“LNC”)

assert

21

counterclaims against plaintiff Goldberg Cohen, LLP (GC) and its
two name partners, Lee A. Goldberg and Morris E. Cohen, alleging
legal malpractice, breach of contract, and other assorted causes
of action in response to GC’s claims arising out of the legal
services

that

GC

rendered

to

LNC

in

an

earlier

litigation.

Counterclaim defendants move to dismiss under Rule 12(b)(6) of the
1

Federal Rules of Civil Procedure.

As we will explain, the motion

is granted in part and denied in part.
I.

Background
We

recite

only

briefly

the

facts

as

presented

in

LNC’s

counterclaim allegations, as the focus of the parties’ dispute is
not the factual sufficiency of LNC’s counterclaims.

Rather, they

primarily dispute issues of claim preclusion and statutes of
limitations,

and

we

accordingly

devote

more

effort

to

the

procedural history of the case.
A.

Cohen and GC Come to Represent LNC

LNC is a manufacturer of baby products.
ECF No 60.

Am. Countercl. ¶ 28,

Cohen, a nephew of LNC’s founders, is an attorney, as

is Goldberg. Am. Countercl. ¶¶ 5-6, 15.

Cohen has represented LNC

in most of its intellectual property matters since graduating from
law school, and has done so while affiliated with a number of
different law firms.

Am. Countercl. ¶ 20.

One such firm was

Shiboleth LLP, where Cohen held an “of counsel” position.
Countercl. ¶ 48.

Am.

LNC retained Cohen and Shiboleth in 2008 to

represent it in a number of cases, including in a suit against
Walgreens. 1

Am. Countercl. ¶ 49.

In 2010, during the pendency of the Walgreen action, Goldberg
and Cohen formed GC. Am. Countercl. ¶¶ 20, 25. 2 GC and LNC entered

1

Luv n’ Care, Ltd. v. Walgreen Co., No. 08 Civ. 4457 (S.D.N.Y.).
Goldberg and Cohen filed notices of change of address in the Walgreen
action, identifying GC as their firm, on August 24, 2010. See 08 Civ. 4457 ECF
Nos. 116, 117.
2

2

into a retainer agreement on August 1, 2010, under which GC agreed
to represent LNC in a number of LNC’s intellectual property matters
-- including the then-ongoing Walgreen action -- in exchange for
the

weekly

payment

contingency fees.

of

a

fixed

amount

as

well

as

specified

See Retainer Agreement, ECF No. 63-1.

Other

matters handled by GC for LNC included two cases in Louisiana State
Court and a subsequent action in federal court in the Eastern
District of Texas against Jackel International 3; a suit against
Philips Electronics in the Eastern District of Texas 4; a suit
against Royal King Infant Products Co. in the Eastern District of
Texas 5 (collectively, the “Jackel litigations”); a suit against
Toys “R” Us in this district; 6 and two inter partes review (IPR)
proceedings

before

the

Patent

Trial

and

Appeal

Board

(PTAB)

involving U.S. Patent No. 617,465 (the ‘465 Patent) and U.S. Patent
No. 634,439 (the ‘439 Patent).

See Answer at 14-16, ECF No. 60;

Am. Countercl. ¶ 293.
The relationship between LNC and GC apparently soured over
the course of these representations, and the Retainer Agreement
was terminated in September 2014, after having been in effect for

3 Luv N’ Care, Ltd. v. Jackel Int’l Ltd., No. 10-1891 (La. 4th Jud. Dist.
Ct., Ouachita Parish); Luv N’ Care, Ltd. v. Jackel Int’l Ltd., No. 13-1437 (La.
4th Jud. Dist. Ct., Ouachita Parish); Luv N’ Care, Ltd. v. Jackel Int’l Ltd.,
No. 2:14-CV-00855 (E.D. Tex.).
4 Luv N’ Care, Ltd. v. Koninklijke Philips Elecs. N.V., No. 2:11-cv-512
(E.D. Tex.).
5 Luv N’ Care, Ltd. v. Royal King Infant Prods. Co., No. 2:10-cv-461 (E.D.
Tex.).
6 Luv N’ Care, Ltd. v. Toys “R” Us, Inc., No. 12 Civ. 228 (S.D.N.Y.).

3

about four years.

Am. Countercl. ¶ 70.

The tortured saga of this

case and the related case, captioned Luv N’ Care, Ltd. v. Goldberg
Cohen, LLP, No. 15 Civ. 9248 (S.D.N.Y. filed Nov. 23, 2015), then
began.
B.

LNC’s First Case Against GC

LNC filed the related case on November 23, 2015.

LNC alleged

“claims of legal malpractice arising out of four matters in which
they were represented by GC, Goldberg, and Cohen” -- the Jackel
litigations, the Philips litigation, the Royal King litigation,
and the Toys “R” Us litigation.

Luv N’ Care Ltd. v. Goldberg

Cohen, LLP (LNC I), No. 15 Civ. 9248, 2016 WL 4411419, at *2-3
(S.D.N.Y. Aug. 18, 2016).
LNC’s initial complaint asserted three claims.

Claim 1

alleged legal malpractice based on GC’s failure to “timely include
allegations related to a certain line of hard-top cups for children
produced by [the defendant]” in the Jackel litigations.
*2.

Id. at

Claim 2 alleged legal malpractice based on Cohen’s failure to

withdraw a disclaimer made in connection with a certain patent
that resulted in LNC losing the Philips litigation over five
derivative patents.

Id. at *3.

Claim 3 alleged legal malpractice

based on GC’s failure to “timely seek recovery of attorney’s fees”
in the Royal King litigation.
GC,

Goldberg,

and

Id.

Cohen

filed

pre-motion

letters

in

anticipation of a motion to dismiss, and we sua sponte granted LNC
4

leave to file an amended complaint prior to GC’s motion.
22, 2015 Order, 15 Civ. 9248 ECF No. 16.

See Dec.

LNC filed an amended

complaint on January 5, 2016, see 15 Civ. 9248 ECF No. 18, which
added two claims, Claims 4 and 5, each alleging legal malpractice
“in connection with [GC’s] defense of two patents” at issue in the
Toys “R” Us litigation, the ‘465 patent and the ‘439 patent, by
“adopt[ing] a flawed strategy of seeking to amend the challenged
patents rather than attack on the merits the potential grounds for
invalidation” in inter partes review (IPR) proceedings between the
Patent Trial and Appeal Board (PTAB).

LNC I, 2016 WL 4411419, at

*3.
GC moved to dismiss all five claims, and we granted the motion
in its entirety in an August 18, 2016 Memorandum and Order.
id. at *1.

See

We held that under New York’s choice-of-law rules,

LNC’s claims accrued in Louisiana and were subject to Louisiana’s
statutes of limitations (in addition to New York’s) under section
202 of the New York Civil Practice Law and Rules (CPLR 202).
at *5.

Id.

Under Louisiana law, all of LNC’s claims were untimely

under the applicable one-year statute of limitations and threeyear statute of repose codified at section 9:5605 of the Louisiana
Revised Statutes, and were therefore dismissed.

Id. at *6-7.

The

Clerk of the Court entered judgment consistent with LNC I on August
19, 2016.

15 Civ. 9248 ECF No. 50.

5

C.

GC Commences This Case

The same day judgment was entered in LNC I, August 19, 2016,
GC initiated this action against LNC.

As we explained in an

earlier memorandum and order in this action, GC “performed legal
services for LNC . . . from 2010 until 2014, including representing
LNC in a number of lawsuits involving intellectual property and
other commercial claims,” including the Jackel actions.

Goldberg

Cohen, LLP v. Luv N’ Care, Ltd. (GC I), No. 16 Civ. 6576, 2017 WL
3891688, at *1 (S.D.N.Y. Aug. 18, 2017), ECF No. 51.

GC alleged

“that it and LNC had a retainer agreement . . . providing that
[GC] would provide legal services, including representation in
certain litigation matters, to LNC in exchange for a combination
of weekly fees and contingency payments,” id., and that LNC,
broadly, had failed to compensate GC as provided for under the
agreement (and a subsequent oral modification thereof).
GC’s complaint asserts six claims.

First, GC advances a

breach of contract claim, contending LNC had agreed to pay 20
percent of any recovery in the Jackel litigations and subsequent
litigation against Jackel’s affiliates but had paid only 15 percent
and that LNC had paid only a portion of the $2.25 million in weekly
fees for the Jackel litigations.

Compl. ¶¶ 114-30, ECF No. 1.

Second, GC asserts an unjust enrichment for the value of its
services rendered in the Jackel litigations.

Compl. ¶¶ 131-38.

Third, GC contends that LNC negligently dropped the Explora line
6

of

cups

from

settlement

the

Jackel

proposal,

which

actions

and

deprived

GC

rejected
of

its

settlement proceeds and harmed GC’s reputation.
54.

a

subsequent

share

of

the

Compl. ¶¶ 139-

Fourth, GC alleges breach of the implied covenant of good

faith and fair dealing based on LNC’s handling of the Jackel
settlement. Compl. ¶¶ 155-62. Fifth, GC pleaded an account stated
claim as to the amounts owed it for the Jackel litigations.
¶¶ 163-68.

Compl.

Finally, GC asserts that LNC’s attorneys violated

section 487 of the New York Judiciary Law by making frivolous
malpractice allegations (in LNC’s initial suit) and making false
declarations

to

the

Court,

“all

of

which

are

part

of

LNC’s

deceitful and collusive attempts to evade payment to GC for GC’s
services in the Jackel case.”

Compl. ¶ 171; see Compl. ¶¶ 169-

73.
D.

LNC’s Post-Judgment Motions and Appeal

On September 15, 2016 -- after GC filed its complaint in this
action, but before LNC answered -- LNC moved to amend the judgment
in LNC I pursuant to Rule 59(e) of the Federal Rules of Civil
Procedure.

As relevant here, the motion sought two forms of

relief: (1) clarification that LNC I’s dismissal of LNC’s claims
was not an adjudication on the merits, and (2) leave to amend to
file a second amended complaint.

15 Civ. 9248 ECF No. 53.

LNC

also timely appealed, on September 16, 2016, the judgment entered
in LNC I.

15 Civ. 9248 ECF No. 54.
7

Because LNC had also moved to

amend the judgment, the Second Circuit stayed LNC’s appeal pending
our resolution of that motion.

15 Civ. 9248 ECF No. 55.

The proposed second amended complaint that LNC sought leave
to file contained 17 claims. 7
Civ. 9248 ECF No. 59-1.

See Proposed Second Am. Compl., 15

In addition to the five claims asserted

in LNC’s first amended complaint, the proposed amended complaint
asserted three additional claims styled as breach of fiduciary
duty (Claims 6 through 8); one additional claim of fraudulent
concealment (Claim 9); seven additional claims styled as breach of
contract (Claims 10 through 16); and one additional claim seeking
a declaratory judgment of no liability (Claim 17).
We denied LNC’s post-judgment motion in a November 10, 2016
Memorandum and Order.

See Luv N’ Care Ltd. v. Goldberg Cohen, LLP

(LNC II), No. 15 Civ. 9248, 2016 WL 6820745 (S.D.N.Y. Nov. 10,
2016).

As to LNC’s request that we clarify our dismissal was not

an adjudication on the merits, we reaffirmed that, under New York
law, “a dismissal on statute of limitations grounds ‘is considered
to be on the merits, precluding relitigation of that issue in a
subsequent action,’” id. at *3 (quoting Meegan S. v. Donald T., 64
N.Y.2d 751, 752 (1984)); see also Bray v. N.Y. Life Ins., 851 F.2d
60, 64 (2d Cir. 1988) (“New York treats a dismissal on statute of
limitations grounds as a final judgment on the merits for res

7 Perhaps tellingly, LNC included the case number of this case, No. 16
Civ. 6576, on its proposed amended complaint and not the case number of the
case in which it was actually filed, No. 15 Civ. 9248.

8

judicata purposes.”), and held in unambiguous terms that LNC I
“constitutes an adjudication on the merits” under New York law,
LNC II, 2016 WL 6820745, at *3. 8

As to LNC’s post-judgment request

for leave to amend, we held that further leave to amend was
unwarranted, as LNC had previously had ample opportunity to amend
the complaint in the face of GC’s limitations-based arguments.
See id.

LNC amended its notice of appeal to include this decision,

too, and the Second Circuit resumed its consideration of LNC’s
appeal thereafter.
E.

15 Civ. 9248 ECF No. 61.

LNC’s First Set of Counterclaims

LNC answered GC’s complaint in this case while its motion to
amend the judgment and appeal were pending.

ECF No. 11.

LNC also

included five counterclaims based on 18 theories of liability in
its answer, identifying not only GC but also Goldberg and Cohen
individually

as

defendants.

These

counterclaims

largely

paralleled the claims that LNC advanced in the second amended
complaint that it sought leave to file in the related action
following our issuance of LNC I (and for which leave was denied in
LNC II).

The first counterclaim, styled breach of fiduciary duty,

advanced theories of (a) fraudulent billing practices, (b) failure
to disclose information during the Walgreen action, and (c) the
making of false representations to the state court presiding over

8 We noted then that LNC “make[s] this application to avoid the preclusive
effect of [LNC I] in a related lawsuit filed by Goldberg Cohen pending in this
Court.” LNC II, 2016 WL 6820745, at *3.

9

the

Jackel

action

--

the

previously sought to offer.

same

three

theories

that

LNC

had

The second counterclaim alleged

fraudulent inducement (again mirroring the proposed second amended
complaint).

The third counterclaim, styled breach of contract,

advanced the same seven theories previously offered: (a) the
withholding of an improperly large share of settlement proceeds
obtained in the Jackel litigations; (b) the withholding of an
improperly large share of settlement proceeds obtained in the
Cudlie litigation 9; (c) the withholding of weekly advances made
above a $1.25 million cap set forth in the Retainer Agreement; (d)
the assignment of work to local counsel beyond the scope permitted
by the Retainer Agreement; (e) the refusal to pursue an appeal of
the PTAB decision invalidating the ‘465 patent to the Federal
Circuit; (f) the refusal to file certain breach of contract and
patent infringement claims following the dismissal of the second
Jackel action; and (g) the refusal to file suit against Inzone. 10
The fourth counterclaim, styled “equitable recoupment,” offered
six theories of legal malpractice: the same five alleged in the
initial complaint that we dismissed in LNC I (and were reoffered
in the proposed second amended complaint for which leave to file
was denied in LNC II), as well as an additional theory: GC’s
failure to discern the full extent of the defendants’ infringing

9

The pleadings present no details regarding the Cudlie litigation.
The pleadings also present no details regarding the potential litigation
against Inzone.
10

10

sales and profits in the Walgreen action.

Finally, LNC asserted

the same claim for declaratory judgment offered as the final claim
in its proposed second amended complaint.
After LNC filed its answer and its numerous counterclaims,
the parties exchanged a number of pre-motion letters anticipating
a number of motions.
contemplated

a

Rule

ECF Nos. 12-18.
12(b)(6)

motion

GC, Goldberg, and Cohen
to

dismiss

a

number

of

counterclaims, while LNC contemplated a Rule 12(c) motion for
judgment on the pleadings.

GC filed a further pre-motion letter,

contemplating a motion for partial summary judgment on a number of
its claims, as plaintiff, against LNC.
Inundated with pre-motion letters and responses, the Court
held a conference on January 19, 2017.

We concluded, with the

assent

GC

of

the

parties,

that

allowing

to

proceed

on

its

contemplated motion for partial summary judgment was proper.

See

Jan. 19, 2017 Hr’g Tr. 44:13-45:4, ECF No. 29.

By contrast,

counterclaim defendants’ contemplated motion to dismiss certain of
LNC’s counterclaims could “not be resolved sooner than the Second
Circuit may resolve the appeal” taken from LNC I and LNC II, and
that any such motion would await the Second Circuit’s decision on
the appeal.

Jan. 19, 2017 Hr’g Tr. 44:7-11.

We emphasized, at

the time, that GC, Goldberg, and Cohen were “allowed to move to
dismiss a claim before they answer it.”

11

Jan. 19, 2017 Hr’g Tr.

14:3-4. 11 GC did move for partial summary judgment, which we denied
in an August 18, 2017 Memorandum and Order.

See GC I, 2017 WL

3891688.
F.

The Second Circuit’s Affirmance of LNC I and LNC II

Three days later -- August 21, 2017 -- the Second Circuit
resolved LNC’s appeal from our decisions in LNC I and LNC II.

See

Luv N’ Care Ltd. V. Goldberg Cohen, LLP (LNC III), 703 F. App’x 26
(2d Cir. 2017) (summary order).
The Second Circuit concluded, as a threshold matter, that
LNC’s claims accrued in Louisiana such that Louisiana statutes of
limitations were properly applied under the borrowing rule of
section 202 of the New York CPLR.

Id. at 28.

Turning to the five

claims that LNC asserted, the Second Circuit held that LNC’s first
claim (based on GC’s failure to include allegations related to an
additional product line in the Jackel litigation) was time-barred
under section 9:5605 of the Louisiana Revised Statutes, id. at 2930,

and

that

LNC’s

remaining

claims

(relating

to

alleged

malpractice in the Philips litigation, Royal King litigation, and
the two IPR proceedings concerning patents at issue in the Toys
“R” Us litigation) were time-barred regardless of whether article

11

Apparently forgetting that we had enunciated this basic observation as
to how Rule 12 of the Federal Rules of Civil Procedure operated, LNC sought the
entry of default against GC, Goldberg, and Cohen. See ECF No. 40. As we noted
in striking the Clerk of the Court’s subsequent entry of default, LNC’s attempt
was “an abusive waste of the time of [GC] and the Court.” May 11, 2017 Order,
ECF No. 46.

12

3492 of the Louisiana Civil Code or section 9:6505 of the Louisiana
Revised Statutes applied, id. at 30.
Finally, turning to our decision in LNC II, the Second Circuit
held that we properly exercised our discretion in LNC II in denying
LNC yet another opportunity for leave to amend, id. at 31.
mandate issued to this court on September 15, 2017.

The

See 15 Civ.

9248 ECF No. 62.
G.

LNC’s Second Set of Counterclaims

One

might

reasonably

have

expected

the

Second

Circuit’s

decision in LNC III, affirming our decisions in LNC I and LNC II,
would be the end of the line for LNC’s counterclaims in this
action. 12

Apparently not, as the conduct of the parties in these

cases has been nothing if not short on reason.

Shortly after the

issuance of LNC III, LNC initiated a letter exchange where it
purported

to

note

that

GC

had

failed

to

timely

answer

its

counterclaims -- despite the understanding reached during the
January 19, 2017 conference and our subsequent order of May 11,
2017 specifically noting that “a plan for the management of this
case was established with the concurrence of all parties that did
not contemplate plaintiff’s answering defendant’s counterclaims.”

12

Indeed, counsel for LNC noted that “it may be to the Court’s benefit
to schedule in a decision by the Second Circuit before investing too much
judicial resource in these motions, because if the Court of Appeals were to
send the case back, it would certainly affect very dramatically the claims in
this case.”
Jan. 19, 2017 Hr’g Tr. 12:7-9.
The Second Circuit’s ruling
affirming the judgment entered following LNC I, of course, has an equally
significant effect.

13

May 11, 2017 Order, ECF No. 46.

We reminded the parties, in a

letter dated September 13, 2017, ECF No. 59, of those occurrences
in the not-so-distant past.

LNC was given ten days in which to

amend its answer and counterclaim, and GC would move to dismiss
afterwards.
LNC amended its answer and counterclaim on September 22, 2017,
ECF No. 60, the number of counterclaims having increased (again)
from 18 to 21.
theories

The amended counterclaims advanced the same 18

offered

in

LNC’s

initial

counterclaims,

but

recharacterized two of its fiduciary duty claims: the claim based
on Cohen’s improper billing practices was recast as a conversion
claim (Amended Counterclaim 1), and the claim based on false
representations to the Jackel state court was recast as an abuse
of process claim and broadened to include false representations to
multiple courts, including this one (Amended Counterclaim 5).

LNC

also asserted three new claims: (1) a breach of contract and
fiduciary duty claim premised on GC’s failure to return files after
termination of the Agreement (Amended Counterclaim 2); (2) a breach
of fiduciary duty claim based on Cohen’s improper delegation of
work to Shiboleth (Amended Counterclaim 3); and (3) a catchall
malpractice claim for as-yet undiscovered instances of malpractice
(Amended
followed.

Counterclaim

14).

The

See ECF No. 63.

14

motion

under

consideration

II.

Discussion
We

first

consideration

set
of

forth

the

the

pending

legal
motion

standards
before

governing

turning

to

our
their

application to LNC’s counterclaims here.
A.

Legal Standards
1.

Rule 12(b)(6) Motions

On a motion to dismiss under Federal Rule of Civil Procedure
12(b)(6),

we

accept

as

true

all

factual

allegations

in

the

complaint and draw all reasonable inferences in the plaintiff’s
favor.

ATSI Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 98

(2d Cir. 2007).

“To survive a motion to dismiss, a complaint must

contain sufficient factual matter, accepted as true, to ‘state a
claim to relief that is plausible on its face.’”

Ashcroft v.

Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).

In deciding the motion, the

Court may consider exhibits attached to the complaint and documents
incorporated by reference into the complaint.

Fed. R. Civ. P.

10(c); Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir.
2002).

We may also take judicial notice of the public docket

sheets in the litigations that are the subject of counterclaimants’
malpractice claims.

See Mangiafico v. Blumenthal, 471 F.3d 391,

398 (2d Cir. 2006).
“A court may consider a [claim preclusion] defense on a Rule
12(b)(6) motion to dismiss when the court’s inquiry is limited to
15

the

plaintiff’s

therein,

and

complaint,
materials

documents

attached

appropriate

for

or

incorporated

judicial

notice.”

TechnoMarine SA v. Giftports, Inc., 758 F.3d 493, 498 (2d Cir.
2014).

“The burden is on the party seeking to invoke [claim

preclusion] to prove that the doctrine bars the second action.”
Brown Media Corp. v. K&L Gates, LLP, 854 F.3d 150, 157 (2d Cir.
2017).

Similarly, a court may consider a statute of limitations

defense on a Rule 12(b)(6) motion to dismiss “if the defense
appears on the face of the complaint.”

Staehr v. Hartford Fin.

Servs. Grp., 547 F.3d 406, 425 (2d Cir. 2008); see Ghartey v. St.
John’s Queens Hosp., 869 F.2d 160, 162 (2d Cir. 1989).

The

defendant also bears the burden of proving that an applicable
statute of limitations has expired.

Bano v. Union Carbide Corp.,

361 F.3d 696, 710 (2d Cir. 2004).
2.

Claim Preclusion

Issue preclusion and claim preclusion are ‘two separate and
distinct wings of preclusion law.”

N. Assur. Co. of Am. v. Square

D Co., 201 F.3d 84, 87 n.2 (2d Cir. 2000). “Different rules and
restrictions apply to each doctrine, and although some courts fail
to distinguish between the two, it is important . . . to be
cognizant of their distinctiveness.”

Burgos v. Hopkins, 14 F.3d

787, 789-90 (2d Cir. 1994) (citations omitted).

Broadly speaking,

issue

“bars

preclusion,

or

collateral

estoppel,

successive

litigation of an issue of fact or law actually litigated and
16

resolved in a valid court determination essential to the prior
judgment, even if the issue recurs in the context of a different
claim.”

Wyly v. Weiss, 697 F.3d 131, 140 (2d Cir. 2012) (internal

quotation marks omitted).

“Under the doctrine of res judicata, or

claim preclusion, a final judgment on the merits of an action
precludes the parties or their privies from relitigating issues
that were or could have been raised in that action.”

Flaherty v.

Lang, 199 F.3d 607, 612 (2d Cir. 1999) (internal quotation marks
omitted) (emphasis omitted).
Here,

we

are

concerned

with

claim

preclusion, 13

and

the

question arises whether federal principles of claim preclusion or
New York principles of claim preclusion apply in this diversity
case.

“[F]ederal common law governs the claim-preclusive effect

of a dismissal by a federal court sitting in diversity.”

Semtek

Int’l Inc. v. Lockheed Martin Corp., 531 U.S. 497, 508 (2001).
most

cases,

however,

we

are

to

“adopt[],

as

the

In

federally

prescribed rule of decision, the law that would be applied by state
courts in the State in which the federal diversity court sits.”

13 We use the terms “claim preclusion” and “issue preclusion” throughout,
as the term “res judicata” is often used to refer to both doctrines of claim
preclusion and issue preclusion. See, e.g., Ryan v. N.Y. Tel. Co., 62 N.Y.2d
494, 500 (1984) (describing issue preclusion as “a narrower species of res
judicata”); see also 18 Charles A. Wright et al., Federal Practice & Procedure
§ 4402 (3d ed.) (Westlaw 2018).

17

Id. 14

We

accordingly

apply

the

claim

preclusion

principles

recognized under New York law.
In New York, “[t]he doctrine of [claim preclusion] precludes
a party from litigating a claim where a judgment on the merits
exists from a prior action between the same parties involving the
same subject matter.”
(internal

quotation

Josey v. Goord, 9 N.Y.3d 386, 389 (2007)
marks

omitted).

“Under

New

York’s

transactional approach to the rule, ‘once a claim is brought to a
final

conclusion,

all

other

claims

arising

out

of

the

same

transaction or series of transactions are barred, even if based
upon different theories or if seeking a different remedy.’”

Id.

at 389-90 (quoting O’Brien v. City of Syracuse, 54 N.Y.2d 353, 357
(1981)).

That is, claim preclusion “applies not only to claims

actually litigated but also to claims that could have been raised
in the prior litigation.”
269 (2005).

In re Estate of Hunter, 4 N.Y.3d 260,

“Afterthoughts or after discoveries” -- even when

“understandable and morally forgivable” -- “are generally not
enough to create a right to litigate anew.”
N.Y.2d 24, 28 (1976).

Reilly v. Reid, 45

As the New York Court of Appeals has

explained, this “‘transactional’ approach to [claim preclusion] is
arguably

broader

than

the

principles

adopted

by

the

federal

14 The Supreme Court acknowledged in Semtek, however, that “[t]his federal
reference to state law will not obtain, of course, in situations in which the
state law is incompatible with federal interests.” 531 U.S. at 509. There is
no suggestion that this case represents one of those situations, and indeed,
both parties argue that New York claim preclusion principles apply.

18

courts.”

Ins. Co. of the State of Pa. v. HSBC Bank USA, 10 N.Y.3d

32, 38 n.3 (2008). 15
3.

Recoupment

Section 203(d) of the New York Civil Practice Law and Rules
(CPLR 203(d)) “codifies the doctrine of equitable recoupment.” 16
118 E. 60th Owners, Inc. v. Bonner Props., Inc., 677 F.2d 200, 203
(2d Cir. 1982).

Specifically, under CPLR 203(d), “[a] defense or

counterclaim is not barred if it was not barred at the time the
claims asserted in the complaint were interposed, except that if
the

defense

or

counterclaim

arose

from

the

transactions,

occurrences, or series of transactions or occurrences, upon which
a claim asserted in the complaint depends, it is not barred to the
extent of the demand in the complaint notwithstanding that it was
barred at the time the claims asserted in the complaint were
interposed.”

N.Y. C.P.L.R. § 203(d).

Put differently, “claims and defenses that arise out of the
same transaction as a claim asserted in the complaint are not
barred by the Statute of Limitations, even though an independent
action by defendant might have been time-barred at the time the
action was commenced.”

Bloomfield v. Bloomfield, 97 N.Y.2d 188,

15

Accordingly, LNC’s reliance on a number of cases addressing federal
principles of claim preclusion, including this Court’s decisions in Mezzacappa
Bros., Inc. v. City of New York, No. 03 Civ. 223, 2003 WL 22801429 (S.D.N.Y.
Nov. 24, 2003) (analyzing whether claims advanced under 42 U.S.C. § 1983 were
subject to claim preclusion), is unpersuasive.
16 Prior to July 1, 1992, section 203(d) was codified at section 203(c).
See 1992 N.Y. Sess. Laws ch. 216, § 1.

19

193 (2001) (citing N.Y. C.P.L.R. § 203(d)).

“The provisions of

CPLR 203(d) allow a defendant to assert an otherwise untimely claim
which arose out of the same transactions alleged in the complaint,
but only as a shield for recoupment purposes, and does not permit
the defendant to obtain affirmative relief.” Carlson v. Zimmerman,
63 A.D.3d 772, 774 (2d Dep’t 2009) (quoting DeMille v. DeMille, 5
A.D.3d 428, 429 (2d Dep’t 2004)); see also Cal. Capital Equity,
LLC v. IJKG, LLC, 151 A.D.3d 650, 651 (1st Dep’t 2017) (“If proved,
the

counterclaim

recoupment

could

purposes,

be

but

used

defensively

[defendant]

could

as

a

not

shield

for

obtain

any

affirmative relief, such as disgorgement.”).
“New York courts have generally required a tight nexus between
claim

and

counterclaim

before

section

203(d)

will

save

a

counterclaim from an otherwise-applicable statute of limitation.”
Macaluso v. U.S. Life Ins. Co., No. 03 Civ. 2337 (GEL), 2004 WL
1497606, at *7 (S.D.N.Y. July 2, 2004); see also Distribuidora de
Discos Karen C. por A. v. Universal Music Grp., Inc., No. 13 Civ.
7706 (JPO), 2017 WL 1019697, at *6 (S.D.N.Y. Mar. 15, 2017); Estate
of Mantle v. Rothgeb, 537 F. Supp. 2d 533, 544 (S.D.N.Y. 2008)
(Wood, J.).

The claim and counterclaim must therefore share

substantially overlapping facts in order for the counterclaim to
fall within the ambit of CPLR 203(d).

For example, even when the

same contract is at issue, the Fourth Department has “refused to
allow a counterclaim to proceed pursuant to section 203[(d)] where
20

the action concerned nonpayment of monies due under a contract and
the counterclaim involved alleged overpayments of monies due in
earlier years of the contract.”

Prospect Grp., Inc. v. Kirby, No.

91 Civ. 3390 (PKL), 1992 WL 400732, at *12 (S.D.N.Y. Dec. 23, 1992)
(citing Rochester Health Network, Inc. v. Rochester Hospital Serv.
Corp., 123 A.D.2d 509 (4th Dep’t 1986)); see also Distribuidora de
Discos, 2017 WL 1019697, at *6 (acknowledging that “both claims
implicate

the

inapplicable

[same

because

contract],”
the

claims

but

holding

“will

section

involve

203(d)

development

of

different facts and relate to different time periods and different
actions by the parties”).
B.

Application

Having set out the framework guiding our analysis, we turn to
its application to the 21 counterclaims that LNC asserts.
We note at the outset the profound tension between LNC’s
arguments
recoupment.

as

to

claim

preclusion

and

its

arguments

as

to

LNC must argue not only that its counterclaims are

not part of the same transaction or series of transactions that
were at issue in LNC I for claim preclusion purposes, but also
that its counterclaims are part of the same transaction (under the
Retainer Agreement) for purposes of rendering them timely under
the recoupment provisions of CPLR 203(d).
irreconcilable.

21

These arguments are

Incredibly -- in both the “extraordinary” and “not credible”
senses of the word -- LNC argues that CPLR 203(d) resuscitates
claims barred by claim preclusion because it “makes no distinction
between claims barred under the Statute of Limitations or res
judicata.”

[LNC Opp’n 1 n.1.]

at least three reasons.

This argument is unpersuasive for

First, Bloomfield held in unambiguous

terms that, under CPLR 203(d), “claims and defenses that arise out
of the same transaction as a claim asserted in the complaint are
not barred by the Statute of Limitations.” 97 N.Y.2d at 193
(emphasis added).

Second, this holding is consistent with the

title of CPLR 203 being “Method of computing periods of limitation
generally”

(emphasis

added).

Finally,

LNC’s

argument

is

in

significant tension with CPLR 203(d) being a codification of
equitable

principles

of

authority

suggesting

that

recoupment,
allowing

it

and
to

LNC

identifies

assert

claim-barred

claims under the guise of recoupment would be equitable.
E. 60th Owners, Inc., 677 F.2d at 203.

no

See 118

Indeed, it would not be.

Ultimately, there is simply no indication that CPLR 203(d) applies
to anything other than claims barred by an applicable statute of
limitations, and nothing in the text or structure of CPLR 203(d)
suggests that the Legislature, in so enacting, intended to create
a truck-sized loophole to well-established principles of claim
preclusion.

22

1.

Claims Previously Asserted in LNC I

We dismiss at the outset amended counterclaims 16 through 20,
which allege legal malpractice relating to (1) GC’s failure to
seek attorneys’ fees in the Royal King action; (2) GC’s failure to
include a certain product line in the Jackel actions; 17 (3) GC’s
failure to rescind prosecution disclaimers in the Philips action;
(4) the invalidation of the ‘465 patent in an IPR proceeding before
the PTAB; and (5) the invalidation of the ‘439 patent in another
IPR proceeding before the PTAB.

Amended counterclaims 16 through

20 assert the same causes of action as the five claims previously
asserted by LNC in the related case, and these precise claims were
adjudicated on the merits and dismissed in LNC I, with judgment
entered to that effect. 18

These claims, axiomatically, involve the

same “transaction or series of transactions” resolved in LNC I,

17

LNC’s amended counterclaims refer to an excluded line of “Penguin Valve
cup products,” e.g., Am. Countercl. ¶¶ 302, 310, though LNC also refers to “the
Explora/Penguin Valve cup products” at certain points, Am. Countercl. ¶ 317.
Regardless of whether the “Explora” line refers to the same products as the
“Penguin Valve” line, the claim is barred by claim preclusion. Even assuming
that the two descriptors refer to different products and are not a deliberate
attempt by LNC to mislead the Court, there is no reason that a malpractice claim
based on exclusion of the “Penguin Valve” line could not have been asserted at
the same time as LNC’s claim based on the “Explora” line was asserted in the
related case. See LNC I, 2016 WL 4411419, at *2.
18 LNC frivolously contends that the judgment entered following LNC I was
not an adjudication on the merits, our express holding to the contrary in LNC
II, 2016 WL 6820745, at *3, notwithstanding.
LNC’s reliance on Simpson v.
Melton-Simpson, No. 10 Civ. 6347, 2011 WL 4056915 (S.D.N.Y. Aug. 29, 2011), and
our analysis there of claim preclusion under New Jersey law, is wholly
misplaced. New Jersey is not New York, but, as it turns out, New Jersey law
considers a dismissal on statute of limitations grounds an adjudication on the
merits, see id. at *4 (collecting cases); see also Walker v. Choudhary, 40 A.3d
63, 75 (N.J. Super. Ct. App. Div. 2012) -- just as New York law does, see LNC
II, 2016 WL 6820745, at *3.

23

and are therefore dismissed on the basis of claim preclusion.

See

Josey, 9 N.Y.3d at 389-90. 19
2.
Next,

Claims Arising Under the Retainer Agreement
accepting

arguendo

LNC’s

argument

that

the

“fee

arrangement that [GC is] asserting was part of an integrated whole
and cannot be treated in isolation” and that all claims based on
the Retainer Agreement (or the Jackel litigations specifically)
“arose out of the same transaction and occurrence as the asserted
claims” in GC’s complaint here (such that LNC’s claims may be
resuscitated under CPLR 203(d) if time-barred) [LNC Opp’n 1-2],
then all claims based on the Retainer Agreement are also barred
based on claim preclusion.

If these claims arise out of “the same

transaction” for purposes of CPLR 203(d) as LNC argues, they
necessarily arise out of “the same transaction or transactions”
for purposes of claim preclusion.

They are not revived by CPLR

203(d) which, as we have explained, does not resuscitate claims

19

LNC identifies no authority holding that CPLR 203(d) applies in the
context of a case like this one -- when the party seeking to avail itself of
CPLR 203(d) was the plaintiff in a prior suit over the same subject matter, and
we find none. This dearth of authority is unsurprising, given that equitable
recoupment, as codified in CPLR 203(d), is intended to protect an entity who
chooses not to initiate litigation against another entity but subsequently finds
itself sued by that entity. Indeed, we have difficulty imagining a situation
where CPLR 203(d) revives time-barred claims in federal court when there has
been a previous federal suit over the same subject matter between the same
parties. If the party seeking to avail itself of CPLR 203(d) was the plaintiff
in the first action, its counterclaims in the second action will be barred by
claim preclusion. If the party seeking to avail itself of CPLR 203(d) was the
defendant in the first action, its counterclaims in the second action will
either be barred by claim preclusion (if previously raised) or barred as waived
under the compulsory counterclaim rule of Rule 13(a) of the Federal Rules of
Civil Procedure (if not previously raised).

24

that are barred on any basis other than an applicable statute of
limitations, such as claim preclusion.

We accordingly dismiss

amended counterclaims 2, 6, 7, 8, 9, 10, 11, 12, 13, 14, and 15. 20
3.

Amended Counterclaims 1 and 3

Amended counterclaim 1, LNC’s claim for conversion based on
Cohen’s

allegedly

performed

by

fraudulent

Shiboleth

billing

attorneys,

practices

does

not

regarding

arise

out

of

work
the

Retainer Agreement between GC and LNC. Rather, it involves Cohen’s
conduct prior to the signing of the Retainer Agreement and indeed,
prior to the formation of GC in the first instance.

Therefore,

again accepting LNC’s broad characterization of what constitutes
a “transaction” for purposes of our analysis, the claim is not
barred by claim preclusion.

The mere fact that LNC previously

asserted this claim in an amended complaint -- proposed following
the entry of judgment and for which leave to file was never
received, see LNC II, 2016 WL 6820745, at *3 -- is insufficient
for claim preclusion to apply. Amended counterclaim 3, LNC’s claim
for breach of fiduciary duty based on the improper assignment of
work to Shiboleth attorneys and the fraudulent billing practices
underlying amended counterclaim 1, similarly does not arise out of
the Retainer Agreement between GC and LNC and is therefore not
barred by claim preclusion.

20 Amended counterclaim 14 fails for the additional reason that it contains
only speculation and naked legal conclusions as to the existence of additional
malpractice.

25

However, these claims are time-barred under section 9:5605 of
the

Louisiana

Revised

Statutes,

being

a

recharacterized

malpractice claim asserted more than one year from the date on
which the conduct was or should have been discovered and more than
three years after the conduct in question. Section 9:5605 is clear
that all actions “arising out of an engagement to provide legal
services” are subject to its limitations, “whether based upon tort,
or breach of contract, or otherwise.”

La. Rev. Stat. § 9:5605(A)

(emphasis added); see Andre v. Golden, 750 So. 2d 1101, 1104 (La.
Ct. App. 5th Cir. 1999); Carter v. Schott, 707 So. 2d 1048, 1050
(La. Ct. App. 1st Cir. 1998).

LNC argues that it “did not become

aware of Cohen’s double billing practices [or theft] until April
2016” [LNC Opp’n 23; see LNC Opp’n 22], but LNC also plainly
alleges that “in October to December 2014, LNC discovered Cohen’s
fraudulent scheme to falsify the Shiboleth LLP billing records and
fraudulently induce LNC to pay amount [sic] to Shiboleth LLP that
were not owed to Shiboleth LLP,” Am. Countercl. ¶ 44; see also Am.
Countercl. ¶¶ 60, 63. 21

Because LNC did not file any incarnation

of these claims until September 2016 -- almost two years after
their alleged discovery -- they are time-barred.

21
LNC also alleges, at another point, that it “discovered Cohen’s
fraudulent billing scheme in October to December 2015.” Am. Countercl. ¶ 90.
While we have no reason to afford LNC the benefit of any doubt, we nonetheless
do so and assume that this is a typo rather than a deliberate attempt to mislead
the Court. We, however, apply December 2014 as the discovery date.

26

Nor are these claims revived by CPLR 203(d), for two reasons.
First, these claims are based on conduct undertaken by Cohen, as
distinguished from GC (or Goldberg). While Cohen is a name partner
of GC, he is -- despite LNC’s repeated references to “Plaintiff
Cohen” [LNC Opp’n 22] -- not in fact a plaintiff in this action.
These claims naming a non-plaintiff as a counterclaim defendant
cannot be characterized as recoupment -- CPLR 203(d) does not
permit a counterclaim defendant to assert a time-barred claim for
affirmative relief.

Cal. Capital Equity, 151 A.D.3d at 651;

Carlson, 63 A.D.3d at 774.

Second, as LNC acknowledges, the

conduct underlying these claims “took place prior to the Parties
entering into the Retainer Agreement” and does not implicate the
Retainer Agreement [LNC Opp’n 22]; it therefore does not share a
“tight

nexus”

with

the

Retainer

Agreement

litigations that took place thereunder.

and

the

Jackel

The lack of substantial

factual overlap renders CPLR 203(d) inapplicable.

See, e.g.,

Distribuidora de Discos, 2017 WL 1019697, at *6.
4.

Remaining Claims 22

Amended counterclaim 5, LNC’s claim for abuse of process based
on

GC’s

allegedly

false

representations

to

multiple

courts

(including this one) that LNC agreed to increase fees, and amended
counterclaim 21, LNC’s claim seeking a declaration of no liability,

22 We dismiss amended counterclaim 4 as LNC has offered no argument as to
why that claim should not be dismissed. Rather, the only reference to this
claim in LNC’s opposition is an acknowledgement that GC seeks to dismiss it on
claim preclusion grounds. [LNC Opp’n 2.]

27

also are not barred by claim preclusion. Again, the mere inclusion
in a complaint proposed after the entry of judgment, and which was
never filed, is not sufficient to trigger claim preclusion.
again offers no other bases for their dismissal. 23

GC

The motion is

therefore denied as those two claims, though we express no view as
to their merits or their viability moving forward.
III. Conclusion
The motion to dismiss LNC’s counterclaims is granted in part
and denied in part.

The claim-preclusive effect of the judgment

entered following our decisions in LNC I and LNC II -- as affirmed
by the Second Circuit in LNC III -- preclude LNC from relitigating
counterclaims 2, 4, and 6 through 20.

While claim preclusion does

not mandate the dismissal of amended counterclaims 1 and 3, those
claims are barred by the relevant statute of limitations and are
not resuscitated under the principles of recoupment codified at
CPLR

203(d).

Claim

preclusion

also

does

not

bar

amended

counterclaims 5 and 21, and the motion is therefore denied as to
those claims.
The Clerk of the Court is respectfully directed to terminate
the motions pending at ECF Nos. 63 and 64.

The parties shall

23 GC contends, in reply, that amended counterclaim 5 relates to the
Walgreen action and is therefore time-barred. [GC Reply 7.] While amended
counterclaim 6 so relates, amended counterclaim 5 does not. See Am. Countercl.
¶¶ 98-151.

28

appear for a status conference before the Court on October 29,
2018 at 3:45 p.m.
SO ORDERED.

Dated:

New York, New York
September b, 2018

NAOMI REICE BUCHWALD
UNITED STATES DISTRICT JUDGE

29