Opinion
19-CV-03363 (ALC) (VF)
09-16-2022
MARKY'S MARTIAL ARTS, INC. d/b/a KILLEARN LAKES TAEKWONDO Plaintiff, v. FC ONLINE MARKETING, INC., d/b/a FCOM, Defendant.
TO THE HONORABLE ANDREW L. CARTER, JR., United States District Judge
AMENDED REPORT AND RECOMMENDATION
VALERIE FIGUEREDO, United States Magistrate Judge
Plaintiff Marky's Martial Arts, Inc. d/b/a Killearn Lakes Taekwondo (“Marky's Martial Arts”) commenced this action against Defendant FC Online Marketing, Inc. d/b/a FCOM (“FCOM”), asserting claims for misappropriation of trade secrets, breach of contract, and unjust enrichment. Plaintiff moved for entry of default judgment, and to date, Defendant has not appeared or otherwise defended against this action. For the reasons that follow, I respectfully recommend that default judgment be entered against Defendant and that the Court award Plaintiff damages as calculated below.
This Amended Report and Recommendation amends the prior Report and Recommendation (ECF No. 47) in response to a letter submitted by Plaintiff's counsel on September 15, 2022 (see ECF No. 48), informing the Court of the location of certain relevant exhibits, appended to a prior motion made by Plaintiff. Such an amendment is permitted pursuant to Federal Rule of Civil Procedure 60(a), which allows the Court to, by motion or on its own, “correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment, order, or other part of the record.” Fed. R. Civ P. 60(a). The only amendments to the prior Report and Recommendation made here pertain to attorney's fees and costs. See infra pp. 23-37.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff commenced this action on April 15, 2019. See Compl., ECF No. 1. Plaintiff is a martial arts school located in Tallahassee, Florida, that services customers from both Florida and Georgia. See Id. ¶¶ 1, 5-6; Declaration of Blaine Marky (“Marky Decl.”) ¶ 7, ECF No. 33-1. In order to grow its business, Plaintiff hired Defendant, an internet marketing and website design company that “only markets its services to companies that specialize in teaching taekwondo.” Compl. ¶¶ 2, 8-12, 15-16. Plaintiff hired Defendant to build it a website, and “optimize” that website, to attract additional students. Id. ¶¶ 2, 10, 12, 15-16; Marky Decl. ¶ 10. The parties entered into a Subscription Membership Agreement (the “Subscription Agreement”) in 2016, which required Defendant “to preserve Plaintiff's trade secret and confidential information” (as defined in the agreement) “in perpetuity.” Compl. ¶¶ 15-16, 21-24; Marky Decl. ¶ 10. In January 2018, Plaintiff discovered that Defendant was selling the exact website it sold Plaintiff to Plaintiff's competitors, and consequently notified Defendant of its intent to terminate the Subscription Agreement. Compl. ¶¶ 31-32; Marky Decl. ¶ 14. Plaintiff terminated the Subscription Agreement in February 2018. Compl. ¶ 33; Marky Decl. ¶ 14.
In July 2018, Plaintiff received messages from existing and prospective customers seeking to unsubscribe from Plaintiff's website and services. Compl. ¶ 34. After an investigation, Plaintiff discovered that Defendant had sold Plaintiff's client list (which included 750 customers) to Plaintiff's competitors, including one of Plaintiff's main competitors, Tiger Rock. Id. ¶¶ 3537; Marky Decl. ¶¶ 15, 17, 19-21. In August 2018, Plaintiff confronted Defendant and Defendant admitted that it had sold the customer list. Compl. ¶¶ 37-38. Subsequently, Defendant “continue[d] to sell Plaintiff's customer list, among other information, to Plaintiff's competitors.” Id. ¶ 39. According to Plaintiff, it had “implemented a number of steps to prevent its competitors from obtaining its customer list,” including password protecting the list so that it could only be accessed by those within Plaintiff's management team and requiring third parties who seek to access the list to sign an agreement imposing a duty not to disclose the list. Id. ¶¶ 40-42. Accordingly, the Complaint asserts claims for misappropriation of trade secrets under federal and state law, id. ¶¶ 36-42, 44-67, as well as breach of contract and unjust enrichment claims, id. ¶¶ 68-78.
Defendant was served with the Complaint on June 7, 2019, and proof of service was filed on June 26, 2019. See ECF No. 6. On September 11, 2019, following Defendant's failure to appear and to answer or otherwise respond to the Complaint, Plaintiff moved for an entry of default against Defendant. ECF No. 7. The following day, the Clerk of Court entered a Certificate of Default. ECF No. 11. On September 23, 2019, Plaintiff filed a Motion for Default Judgment pursuant to Federal Rule of Civil Procedure 55. ECF Nos. 12-13. That same day, the Honorable Andrew L. Carter, Jr. issued an Order to Show Cause as to why default judgment should not be entered; Defendant was required to respond by October 7, 2019. ECF No. 14.
On January 8, 2020, the action was referred to the Honorable Debra C. Freeman for the purpose of conducting an inquest on damages upon Defendant's default. ECF No. 20. On October 22, 2020, Plaintiff filed an Application for Default Judgment and an accompanying affidavit. ECF No. 25. On June 22, 2021, Judge Freeman entered an order informing Plaintiff that its inquest submissions were inadequate to support an award, but affording Plaintiff “one final opportunity” to be heard on the matter at a conference on July 13, 2021. See ECF No. 29. A conference with respect to the pending damages inquest was held before Judge Freeman on July 13, 2021, and Plaintiff filed a supplemental submission in support of its damages application on July 23, 2021. See ECF No 33. In addition, Blaine Marky (owner and operator of Marky's Martial Arts) submitted a declaration in support of Plaintiff's damages submission, which appends and references various documents, including client lists, the subscription agreement with Defendant, and records of Plaintiff's profits. These documents support Plaintiff's calculation of damages. See ECF Nos. 36-1 to 36-6. To date, Defendant has not appeared or otherwise defended this action.
DISCUSSION
I. Default Judgment
Federal Rule of Civil Procedure 55 governs judgments against a party that has failed to plead or otherwise defend itself in an action. Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 6566 (2d Cir. 1981). Rule 55 requires a two-step process for an entry of a default judgment. Priestley v. Headminder, Inc., 647 F.3d 497, 504-05 (2d Cir. 2011). First, upon notification from the moving party, the court clerk enters a default of the party who failed to defend. Id. (citing Fed.R.Civ.P. 55(a)). Second, once the clerk issues a certificate of default, the moving party may apply for entry of default judgment pursuant to Rule 55(b). Id. at 505.
A default constitutes an admission of all well-pleaded factual allegations in the complaint, and those allegations that pertain to a defendant's liability are deemed true. Greyhound Exhibitgroup, Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992); Cotton v Slone, 4 F.3d 176, 181 (2d Cir. 1993) (explaining that “factual allegations are taken as true in light of the general default judgment”); Union of Orthodox Jewish Congregations of Am. v. Royal Food Distribs. LLC, 665 F.Supp.2d 434, 436 (S.D.N.Y. 2009) (citation omitted). However, plaintiffs are not entitled to a default judgment as a matter of right merely because the opposing party is in default. Finkel v. Universal Elec. Corp., 970 F.Supp.2d 108, 118 (E.D.N.Y. 2013). Plaintiff bears the burden to demonstrate that its uncontroverted allegations, without more, establish the defendant's liability on each asserted cause of action. La Barbera v. Fed. Metal & Glass Corp., 666 F.Supp.2d 341, 348 (E.D.N.Y. 2009).
To determine whether a motion for default judgment is warranted, courts within this District consider three factors: (1) whether the defendant's default was willful; (2) whether the defendant has a meritorious defense to plaintiff's claims; and (3) the level of prejudice the nondefaulting party would suffer as a result of the denial of the motion for default judgment. Guggenheim Capital, LLC v. Birnbaum, 722 F.3d 444, 455 (2d Cir. 2013) (applying these factors in review of lower court's grant of a default judgment).
Here, Plaintiff has satisfied the two-step procedural requirements of Rule 55 by obtaining a certificate of default and moving for the entry of default judgment. See ECF. Nos. 7, 11-13, 25, 33. Additionally, all three of the foregoing factors weigh in Plaintiff's favor. Defendant's failure to make an appearance and to respond to either Plaintiff's Complaint or motion for default judgment are indicative of Defendant's willful conduct. See Am. All. Ins. Co. v. Eagle Ins. Co., 92 F.3d 57, 60 (2d Cir. 1996) (noting that courts in this Circuit look for evidence of bad faith or more than mere negligence to satisfy the willfulness standard); Fermin v. Las Delicias Peruanas Rest., Inc., 93 F.Supp.3d 19, 31 (E.D.N.Y. 2015) (reasoning that “a defendant's failure to respond to the complaint is sufficient to demonstrate willfulness”). Defendant cannot assert any meritorious defenses to Plaintiff's claims because it has failed to appear in this action. Fermin, 93 F.Supp.3d at 31 (reasoning that a meritorious defense cannot be established where the defendant has not filed an answer). And Plaintiff will be prejudiced if denied the ability to seek judgment by default because Plaintiff will have no alternative legal redress to recover damages. See id.
In the event of a defendant's default, the Court accepts as true the well-pleaded allegations in the complaint as to liability, but not for purposes of determining damages. See City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 128 (2d Cir. 2011); Union of Orthodox Jewish Congregations of Am., 665 F.Supp.2d at 436 (“When the Court enters a default judgment, as regards liability it must accept as true all of the factual allegations of the complaint, but the amount of damages are not deemed true.”) (internal citations, alterations, and quotation marks omitted). Thus, even when a defendant has defaulted, a substantive analysis of the alleged claims is required to determine whether the plaintiff may be awarded damages, and proof of damages is required. Flaks v. Koegel, 504 F.2d 702, 707 (2d Cir. 1974). Damages must be proven by a plaintiff with sufficient evidence to establish the amount sought “with reasonable certainty.” Trustees of Local 813 Ins. Trust Fund v. Rogan Brothers Sanitation Inc., No. 12-CV-6249 (ALC) (HBP), 2018 WL 1587058, at *5 (S.D.N.Y. 2018) (citing Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109 F.3d 105, 111 (2d Cir.1997)). Such an inquiry requires the court to: (1) “determin[e] the proper rule for calculating damages on . . . a claim,” and (2) “assess[ ] plaintiff's evidence supporting the damages to be determined.” Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999).
“Where a defendant has never appeared in an action, a court may base its determination of damages solely on the plaintiff's submissions.” Trustees of Local 813 Ins. Trust Fund, 2018 WL 1587058, at *5 (citing Fustok v. ContiCommodity Servs., Inc., 873 F.2d 38, 40 (2d Cir. 1989); see also Lenard v. Design Studio, 889 F.Supp.2d 518, 527 (S.D.N.Y. 2012) (“Where a defaulting defendant has not made any submission on a damages inquest, the Court must assess whether the plaintiff has provided a sufficient basis for the Court to determine damages.”). Federal Rule of Civil Procedure 55(b)(2) “allows but does not require” the district court to hold a hearing on the damages amount when conducting an inquest. Bricklayers and Allied Craftworkers Local 2, Albany, N.Y. Pension Fund v. Moulton Masonry & Const., LLC, 779 F.3d 182, 189 (2d Cir. 2015) (“[T]he court may conduct such hearings or order such references as it deems necessary and proper.”) (internal quotation marks and citation omitted). The court need not hold a hearing so long as “a review of detailed affidavits and documentary evidence” establishes a basis for the damages specified in the default judgment. See Cement & Concrete Workers Dist. Counsel Welfare Fund v. Metro Foundation Contractors Inc., 699 F.3d 230, 234 (2d Cir. 2012).
In its submission to support an award of damages, Plaintiff does not in any way address its claims for breach of contract and unjust enrichment. Because Plaintiff appears to be seeking damages for only its misappropriation of trade secret claims, I do not address liability and damages as it pertains to the other claims in the Complaint.
To state a claim for misappropriation of trade secrets under the Defend Trade Secrets Act (“DTSA”), “a plaintiff must plausibly allege that (1) it possessed a trade secret, and (2) the defendant misappropriated the trade secret.” ExpertConnect, L.L.C. v. Fowler, No. 18-CV-4828 (LGS), 2019 WL 3004161, at *3 (S.D.N.Y. July 10, 2019) (citing 18 U.S.C. § 1836(b)(1)). Here, the factual allegations in the Complaint sufficiently allege both elements, and thus establish Defendant's liability for misappropriation of trade secrets under federal law.
The Complaint also asserts a claim for misappropriation of trade secrets under New York law. However, Plaintiff's submissions only seek damages pursuant to Defendant's violation of the DTSA. Regardless, the requirements for demonstrating the misappropriation of a trade secret under the DTSA and New York law are substantially similar. See Free Country Ltd. v. Drennen, 235 F.Supp.3d 559, 565 (S.D.N.Y. 2016) (“The requirements for showing a misappropriation of a trade secret are similar under [New York] state and federal law.”); see also North Atl. Instruments, Inc. v. Haber, 188 F.3d 38, 43-44 (2d Cir. 1999) (“Under New York law, a party must demonstrate: (1) that it possessed a trade secret, and (2) that the defendants used that trade secret in breach of an agreement, confidential relationship or duty, or as a result of discovery by improper means.”). And in any event, recovery under both federal and state law for such claims is not permitted. See Syntel Sterling Best Shores Mauritius Ltd. v. TriZetto Grp., Inc., 15-CV-211 (LGS) 2021 WL 1553926, at *7 (S.D.N.Y. Apr. 20, 2021) (following jury determination that party was entitled to $284,855,192 for the DTSA misappropriation claim and $142,427,596 for the New York trade secret misappropriation claim, the jury was directed to “award a single compensatory damages figure that would not result in multiple recoveries for the same injury and awarded $284,855,192 in compensatory damages.”).
Under the DTSA, the term “trade secret” includes “all forms and types of financial, business, scientific, technical, economic, or engineering information” if (1) “the owner thereof has taken reasonable measures to keep such information secret” and (2) “the information derives independent economic value . . . from not being generally known to, and not being readily ascertainable through proper means by, another person who can obtain economic value from the disclosure or use of the information.” 18 U.S.C. § 1839(3). Although the Second Circuit has not expressly articulated a specificity requirement, district courts in this Circuit routinely require that a plaintiff plead its trade secrets with sufficient specificity to inform a defendant of what it is alleged to have misappropriated. Elsevier Inc. v. Doctor Evidence, LLC, No. 17-CV-5540, 2018 WL 557906, at *4 (S.D.N.Y. Jan. 23, 2018) (collecting cases).
The Complaint sufficiently identifies the trade secret at issue here-namely, Plaintiff's customer list. Specifically, Plaintiff alleged that Defendant “sold” Plaintiff's customer list of “750 clients” to Plaintiff's competitors. Compl. ¶¶ 36-38. The Second Circuit has held that “[a] customer list developed by a business through substantial effort and kept in confidence may be treated as a trade secret . . ., provided the information it contains is not otherwise readily ascertainable.” Haber, 188 F.3d at 43-46 (internal quotation marks and citation omitted) (affirming district court's finding that plaintiff's “list of client contacts was a protectable trade secret” and collecting cases finding the same); Pure Power Boot Camp, Inc. v. Warrior Fitness Boot Camp, LLC, 813 F.Supp.2d 489, 517 (S.D.N.Y. 2011) (concluding that plaintiff's client list “not only contains confidential and commercially sensitive information, but also constitutes a protectable trade secret”); FMC Corp. v. Taiwan Tainan Giant Indus. Co., 730 F.2d 61, 63 (2d Cir. 1984) (per curiam) (reversing, as clearly erroneous, a district court's finding that a client list was not a trade secret); Thus, Plaintiff's allegations concerning Defendant's misappropriation of its customer list are sufficiently specific to adequately plead the existence of a trade secret.
The Complaint also adequately alleges that Plaintiff took reasonable steps to protect its trade secret-the customer list. See 18 U.S.C. § 1839(3). Plaintiff alleged that it “implemented a number of steps to prevent its competitors from obtaining its customer list,” including: (1) password protecting the list so that only individuals within Plaintiff's management team could access it; and (2) requiring any “[t]hird parties, like Defendant, who are not within Plaintiff's management team,” to sign a non-disclosure agreement before accessing the list. Compl. ¶¶ 4042. Additionally, the Subscription Agreement between Plaintiff and Defendant defined “confidential information” and “trade secret” to include Plaintiff's customer list. See id. ¶¶ 1516, 18, 21-25.
Plaintiff's customer list was not readily available, accessible, or known to those outside of Plaintiff's business, was only shared with those on Plaintiff's management team, and Plaintiff took reasonable measures to protect the information, including requiring signed agreements to safeguard its confidential information and trade secrets. See Shamrock Power Sales, LLC v. Scherer, No. 12-CV-8959 (KMK), 2015 WL 5730339, at *27 (S.D.N.Y. Sept. 30, 2015) (finding client information constituted a “protectable trade secret[ ]” because evidence showed that the information at issue was not readily available, was shared with employees only on a need-to-know basis, and that Plaintiff signed agreements with manufacturers to safeguard the information). Plaintiff thus took substantial measures to protect the secret nature of its customer list, as is required to plead a plausible claim for misappropriation of trade secrets. See Syntel Sterling Best Shores Mauritius Ltd. v. Trizetto Grp., No. 15-CV-211 (LGS) (RLE), 2016 WL 5338550, at *6 (S.D.N.Y. Sept. 23, 2016) (finding that the holder of a trade secret took “reasonable measures to keep the information secret by making those who use it subject to confidentiality provisions and limitations, and only making it accessible through strictly controlled servers.”); Paz Sys., Inc. v. Dakota Grp. Corp., 514 F.Supp.2d 402, 408 (E.D.N.Y. 2007) (finding that information constituted a trade secret because it “was not known outside of [plaintiff's] business” and plaintiff “had numerous safety measures in place to guard” against disclosure).
Moreover, the Complaint plausibly pleads that Plaintiff's client list “derive[d] independent economic value” by remaining secret. See 18 U.S.C. § 1839(3). Plaintiff alleged that it “obtains economic value” from the customer list, that its customer list “is highly valuable,” and that it “devoted substantial resources, time, and investment in developing and using its” customer list. Compl. ¶¶ 50-51. Indeed, Plaintiff hired Defendant to optimize its website specifically to improve its ability to attract potential clients. Id. ¶¶ 10, 12, 15-16. Plaintiff further claims that its customer list is “not common knowledge to anyone outside of Plaintiff's management” and that it “would take a considerable amount of time, effort, and expense to duplicate this information.” Id. ¶ 51.
What's more, the economic value of the customer list is evidenced by the fact that Defendant was able to sell the list to Plaintiff's competitors. Id. ¶¶ 36-39. Taken as a whole, these allegations sufficiently allege that Plaintiff's customer list derived economic value and was “valuable in part because [it was] secret.” See ExpertConnect, 2019 WL 3004161, at *3; Shamrock, 2015 WL 5730339, at *26 (concluding that list of “Customer Contacts” held “independent economic value for [Plaintiff] because it was not publicly available, and without maintaining control of its customer information . . . someone . . . could use that information to steal the business.”); see also Medidata Sols. v. Veeva Sys., No. 17-CV-589, 2018 WL 6173349, at * 4 (S.D.N.Y. Nov. 26, 2018) (the complaint plausibly alleged that the trade secrets at issue derived independent economic value from being secret when the plaintiff “spent a great deal of time and money . . . developing its technology”); Gen. Sec., Inc. v. Commercial Fire & Sec., Inc., No. 170-CV-1194, 2018 WL 3118274, at *2 (E.D.N.Y. June 25, 2018) (the complaint plausibly pled independent economic value when the plaintiff kept the trade secrets at issue “on a secure computer accessible only to employees”).
Furthermore, under the DTSA, a complaint must plead that the defendant misappropriated a trade secret either (1) by acquiring it through improper means, or (2) by disclosing or using it without consent. AUA Private Equity Partners, LLC v. Soto, No. 17-CV-8035, 2018 WL 1684339, at *4 (S.D.N.Y. Apr. 5, 2018) (citing 18 U.S.C. § 1839(5)). “Improper means” can involve “theft . . . [,] breach[,] or inducement of a breach of a duty to maintain secrecy,” 18 U.S.C. § 1839(6)(A), including breach of a contractual agreement not to disclose or disseminate information, Broker Genius, Inc. v. Zalta, 280 F.Supp.3d 495, 510-11 (S.D.N.Y. 2017). The Complaint alleged that Defendant misappropriated Plaintiff's client list by breaching the confidentiality provision in the Subscription Agreement.
According to Plaintiff, Defendant “had a duty to keep Plaintiff's confidential information and trade secrets intact and not to use, exploit, or disclose such information other than for the benefit of Plaintiff.” Compl. ¶ 53; see also id. ¶ 24. Defendant nevertheless “admitted” to Plaintiff that it “had sold Plaintiff's customer list to Plaintiff's competitors.” Id. ¶ 38. Those allegations are sufficient to plead that Defendant misappropriated Plaintiff's trade secret through its unauthorized disclosure. See, e.g., Syntel, 2016 WL 5338550, at *6 (DTSA counterclaim was adequately pled when the defendants alleged that the plaintiff, “without their consent, downloaded . . . [files] from their Customer Exchange . . . and used it for . . . [their] own . . . financial gain, unrelated to its service of . . . [defendants'] clients, in breach of the [Master Service Agreement]'s prohibition on each party using the other's confidential information for its own benefit.”).
In short, the Complaint plausibly pleads that Defendant sold Plaintiff's confidential customer list, a trade secret, directly to its competitors without Plaintiff's consent and in breach of the Subscription Agreement. It thus adequately alleges a claim under the DTSA, and establishes Defendant's liability for damages for misappropriation of trade secrets.
III. Plaintiff's Damages
A. Compensatory Damages
Under the DTSA, a Court may award “damages for actual loss caused by the misappropriation of the trade secret,” and “damages for any unjust enrichment caused by the misappropriation of the trade secret that is not addressed in computing damages for actual loss.” Wealth Mgmt. Assocs. LLC v. Farrad, No. 17-CV-1924 (KPF) (HBP), 2019 WL 5725044, at *7-8 (S.D.N.Y. June 21, 2019), report and recommendation adopted, 2019 WL 6497424 (S.D.N.Y. Dec. 3, 2019) (citing 18 U.S.C. § 1836(b)(3)(B)). Where a federal court exercises diversity jurisdiction, state law provides the proper rule for calculating damages. See Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 437 (1996); Hinckley v. Westchester Rubbish, Inc., No. 04-CV-189 (SCR), 2006 WL 2849841, at *4 (S.D.N.Y. Oct. 2, 2006) (“The assessment of damages following entry of a default judgment in a diversity action is governed by state law standards.”) (citing Consorti v. Armstrong World Indus., Inc., 103 F.3d 2, 4 (2d Cir. 1995)).
“In New York, the damages recoverable in tort actions cannot be contingent, uncertain, or speculative; but if the fact is established that the plaintiff has sustained an actionable injury as the direct result of the defendant's wrongful act, [only] reasonable certainty as to the amount of that injury . . . is required.” New York Youth Club v. Town of Harrison, No. 12-CV-7534 (CS), 2016 WL 3676690, at *2 (S.D.N.Y. July 6, 2016) (citation and internal quotation marks omitted; alteration in original). A plaintiff is “not obligated to offer a mathematically precise measure of [its] damages.” Electro-Miniatures Corp. v. Wendon Co., Inc., 771 F.2d 23, 27 (2d Cir. 1985). And where a plaintiff's injury is “not susceptible to exact measurement because of the defendant's conduct, [there is] some latitude to ‘make a just a[nd] reasonable estimate of damages based on relevant data.'” Id. (citing Bigelow v. R.K.O. Radio Pictures, Inc., 327 U.S. 251, 264 (1946)).
Damages for misappropriation of a trade secret may be measured by either a plaintiff's losses or the profits unjustly gained by a defendant through the use of the trade secret. A.F.A. Tours, Inc. v. Whitechurch, 937 F.2d 82, 87 (2d Cir. 1991); Softel, Inc. v. Dragon Med. & Sci. Commc'n, Inc., 891 F.Supp. 935, 942 (S.D.N.Y. 1995), aff'd, 118 F.3d 955 (2d Cir. 1997). The DTSA allows a successful plaintiff to recover its lost profits. Smart Team Glob. LLC v. HumbleTech LLC, No. 19-CV-4873 (AJN) (BCM), 2022 WL 847301, at *8 (S.D.N.Y. Feb. 18, 2022), report and recommendation adopted, 2022 WL 846927 (S.D.N.Y. Mar. 22, 2022) (citing 18 U.S.C. § 1836(b)(3)(B)(i)(I)); see also Syntel, 2021 WL 1553926, at *7 (noting that the DTSA expressly permits the award of actual loss “in the form of lost profits”).
Further, “New York law provides three methods of awarding damages for misappropriation of trade secrets-compensation for plaintiff's losses, an accounting of defendant's profits, or a reasonable royalty.” Farrad, 2019 WL 5725044, at *8 (citing Topps Co. v. Cadbury Stani S.A.I.C., 380 F.Supp.2d 250, 268 (S.D.N.Y. 2005)); Cont'l Indus. Grp., Inc. v. Altunkilic, No. 14-CV-790 (AT) (JLC), 2020 WL 3884312, at *4 (S.D.N.Y. July 1, 2020) (“Lost profits are recoverable under New York law” for misappropriation of trade secrets); see also Twin City Fire Ins. Co. v. Arch Ins. Group, Inc., 39 N.Y.S.3d 144, 146 (1st Dep't 2016) (damages for misappropriation of trade secrets measured by lost profits); Allan Dampf P.C. v. Bloom, 720, 512 N.Y.S.2d 116, 117 (2d Dep't 1987) (“[T]he proper measure of damages for . . . the misappropriation and exploitation of confidential information is the loss of profits sustained by reason of the improper conduct . . . limited to lost profits resulting from the defendant's actual diverting” of customers) (citation and internal quotation marks omitted).
Importantly, although it is permissible for the owner of a business to “express lay opinions regarding the existence and the amount of loss profits” when those opinions are “based [on] personal knowledge,” the owner “must be able to point to objective bases for his opinions.” Ho Myung Moolsan, Co. v. Manitou Mineral Water, Inc., No. 07-CV-7483 (RJH), 2010 WL 4892646, at *10 (S.D.N.Y. Dec. 2, 2010), aff'd, 501 Fed.Appx. 85 (2d Cir. 2012) (citation omitted); see also Washington v. Kellwood Co., No. 05-CV-10034 (SN), 2016 WL 4619207, at *5 (S.D.N.Y. Sept. 6, 2016), aff'd, 714 Fed.Appx. 35 (2d Cir. 2017) (“Owners can give lay opinion evidence only on matters that are within their personal knowledge and experience.”). And while the Second Circuit “has not articulated a clear standard in this regard,” the case law suggests that “at a minimum the witness must be able to point to some sales data.” Ho Myung Moolsan, 2010 WL 4892646, at *10. Thus, although the Court cannot rely only on assertions by Marky, the owner of the business, to estimate lost profits with “reasonable certainty,” Plaintiff attaches and incorporates to Marky's declaration certain documentary support to substantiate its damages calculation, including client lists and records of Plaintiff's business profits collected from “tuition” and “non-tuition” sales to clients. See ECF Nos. 36-1 to 36-6.
With regards to compensatory damages, Plaintiff asserts that it is entitled to $485,856.00, which Plaintiff estimates is the lost profits it suffered as a result of Defendant's misappropriation of its customer list. See ECF No. 33 at 5; Marky Decl. ¶¶ 1, 44. Marky submitted a declaration, stating that he is “familiar with all aspects of Marky's Martial Arts business,” including the “rates” Plaintiff charges for classes and the “annual profits . . . among other financial information” of the business. Marky Decl. ¶ 2. Marky states he operates the business “on a dayto-day basis” and is thus “familiar with its business practices, its operations costs, its legal fees, and other costs of doing business,” as well as the “business loses” due to Defendant's conduct. Id. ¶ 3. Finally, Marky claims that he is familiar with the company's “capacity in terms of the number of students Marky's Martial Arts can teach given the number of teachers it has, the physical space it has available, and the time available to teach its students.” Id. ¶ 4.
In support of its lost-profits calculation Plaintiff submitted the following analysis:
1. Before Plaintiff retained Defendant, Marky's Martial Arts had 319 students. Id. ¶ 5; see also id., Ex. A.
2. From September to December 2016 (during the first 3 months of the parties' agreement), Defendant generated 95 prospective clients for Plaintiff. Those 95 “prospective clients” were individuals who had expressed an interest in taking classes at Markey's Martial Arts, either by scheduling complementary classes or by visiting the studio. Id. ¶ 11. Of those 95 prospective clients, six became clients of Marky's Martial Arts. Id. Stated otherwise, those six individuals signed up for classes, took classes, and paid fees to Marky's Martial Arts. See id. ¶¶ 11-12, Ex. C.
3. During 2017, while the Agreement was in effect, Defendant generated 561 additional prospective clients for Marky's Martial Arts. Of those 561 prospective clients, 71 individuals became clients of Marky's Martial Arts. Id. ¶ 13, Ex. C.
4. Between January and February 2018 (when Plaintiff terminated the agreement with Defendant), Defendant generated 98 additional prospective clients for Marky's
Martial Arts. Of those, 26 individuals became actual clients of Marky's Martial Arts. Id.¶ 14.
5. In total, during the term of the agreement between Defendant and Plaintiff (from September 2016 to February 2018), Defendant generated a prospective client list of 754 individuals. Id. ¶ 15. Of those individuals, 103 became clients of Marky's Martial Arts. Id. ¶ 5. Plaintiff was thus able to convert 13.6% of the prospective clients on the list into actual clients of the business. Id. ¶¶ 5, 15; see also id., Ex. B.
6. From tuition for classes, Marky's Martial Arts generated $85.80 in profits per student per month. Id. ¶ 23, Ex. E (tuition sales generated). In addition, Marky's Martial Arts earned a profit of $49.16 per student per month in nontuition purchases (such as fees from uniform purchases and the purchase of other items needed to participate in classes). Id. ¶ 24, Ex. F (non-tuition sales generated). In total, Marky's Martial Arts earned $134.96 in profit per student per month.
7. Marky's Martial Arts thus earned $250,215.84 in total profits over the course of the Agreement, from the 103 individuals that became clients out of the 754 prospective clients generated by Defendant. Id. ¶¶ 29, 31-33, Ex. F.
8. To estimate the profits that it lost from Defendant having sold its client list, Plaintiff assumes that out of the remaining 651 prospective clients on the list, it would have converted 89 into clients of Marky's Martial Arts. Id. ¶¶ 34-35. Plaintiff thus estimates that it would have earned $216,205.92 in profits, if Defendant had not sold the client list and the Agreement continued another 18 months. Id. ¶¶ 36-37. Plaintiff repeats this calculation again for another 18-month period (based on 562 remaining prospective clients), and continues to do so several times until it “voluntarily stop[s] mining the remaining 362 clients so as to avoid going too deep into the future.” In total, Plaintiff calculates that it suffered lost profits in the amount of $485,856.00. Id. ¶¶ 38-44.
To obtain that figure, Plaintiff multiplied the number of individuals that became clients (103) by its total monthly profits per student ($134.96), yielding $13,900.88, and multiplying that number by the number of months the Agreement was in effect (18). Id. ¶¶ 15, 23-24, 28-33.
To obtain the 651 number, Plaintiff subtracts 103 from the 754 prospective clients generated by Defendant over the course of the Agreement. Plaintiff then assumes that out of the 651 potential clients, it would have converted 13.6% into actual clients, yielding 89 new clients. Id. ¶¶ 15, 17-18, 35.
Plaintiff incorrectly calculated the lost profits as $216,207.72. When the number of actual clients (89) is multiplied by the total profits per month per student ($134.96) and that number ($12,011.44) is multiplied by 18 (the length of time, in months, the Agreement existed), the amount of lost profits is $216,205.92.
Plaintiff seeks an award of $485,856.00 in lost profits but it has not established its entitlement to that amount with reasonable certainty. See Schonfeld v. Hilliard, 218 F.3d 164, 172-175 (2d Cir. 2000); see also Am. Fed. Grp., Ltd. v. Rothenberg, 136 F.3d 897, 907 (2d Cir. 1998) (“[T]o recover damages for lost earnings or profits one . . . must prove with reasonable certainty, though not mathematical precision, the amount of the loss.”) (citations omitted) (collecting New York cases); Cramer v. Grand Rapids Show Case Co., 223 N.Y. 63, 68 (1918) (“The owner of an established business may have it in his power to establish with reasonable certainty . . . the daily, monthly or yearly income he derived from” the business before a contract breach, “thereby furnishing a reasonably correct estimate of the nature of the legal injury and the amount of damages which resulted therefrom.”). Although Plaintiff can rely on “past sales” to estimate its lost profits, Washington, 2016 WL 3920348, at *7, Plaintiff assumes that it would continue converting prospective clients into actual clients at the same rate of 13.6% despite having a fixed and diminishing pool of prospective clients from which to draw.
Plaintiff's lost profits calculation is based entirely on the initial list of 754 prospective clients generated by Defendant, from which Plaintiff assumes that it would have continued converting prospective clients into new clients over successive 18-month periods at the same rate as during the term of the Agreement. But Plaintiff offers no basis to support its assumption that it would continue converting prospective clients from that list into new clients at the same rate, even though the number of prospective clients on the list continued to shrink. Plaintiff's calculation does not require it to have replenished the list with new prospective clients from which to draw. Moreover, Plaintiff operates a studio in Tallahassee, Florida that teaches classes of taekwondo-itself a niche sport. It is a business in a fixed geographic area; it is not an online or nationwide business. It is thus reasonable to assume that there exists a fixed pool of potential customers in that geographic area who might be interested in taking taekwondo classes. Plaintiff's ability to attract new customers is thus limited by individuals who are interested in participating in this activity and who also live in close proximity to Plaintiff's studio, so as to be able to take classes.
During the term of the Agreement, Plaintiff generated 107 new clients from a list of 754 prospective clients, resulting in a conversion rate of 13.6%. For those clients, Plaintiff made $134.96 in total profits per month per student. Relying on that past profits figure-and assuming Plaintiff would have attracted 89 new clients from the remaining 651 individuals on the prospective client list-Plaintiff assumes a lost profit amount of $216,205.92, had the Agreement continued for another 18-month period.Although it might be reasonable to assume that Plaintiff would have been able to draw 89 new clients from the 651 individuals remaining on the list, it is pure speculation to assume that Plaintiff could have continued converting individuals from that list into clients at the same 13.6% rate, given that Plaintiff was drawing from the same finite group of individuals. Evidence will support an award of lost profits where the figure is a “just and reasonable inference,” as opposed to “speculation or guesswork.” Renaissance Search Partners v. Renaissance Ltd. LLC, No. 12-CV-5638 (DLC), 2014 WL 4928945, at *5 (S.D.N.Y. Oct. 1, 2014) (citing Autowest, Inc. v. Peugeot, Inc., 434 F.2d 556, 566 (2d Cir. 1970) and quoting Bigelow, 327 U.S. at 264). Because Plaintiff's lost profit calculation beyond the 18-month period that immediately followed termination of the Agreement is speculative, I do not recommend an award of lost profits beyond that period.
That lost profit figure is obtained by multiplying 89 (the number of new clients) by $134.96 (the monthly profit figure per student) and by 18 (the number of months the agreement ran).
I therefore recommend that Plaintiff be awarded $216,205.92 in lost profits.
B. Punitive Damages
Plaintiff also seeks punitive damages under the DTSA. If a trade secret is “willfully and maliciously” misappropriated, the DTSA permits an award of up to twice the amount of actual damages. 18 U.S.C. § 1836(b)(3)(C); Smart Team, 2022 WL 847301, at *10; Altunkilic, 2020 WL 3884312, at *8; see also Softel, 891 F.Supp. at 945-46 (awarding punitive damages for trade secret misappropriation). “As the requirements are similar under the DTSA and New York law, courts often rely on cases discussing New York law to analyze DTSA claims.” Medidata Sol., Inc. v. Veeva Sys., Inc., No. 17-CV-589 (LGS), 2021 WL 467110, at *2 (S.D.N.Y. Feb. 9, 2021).
Under New York law, “[t]o sustain a claim for punitive damages in tort, one of the following must be shown: intentional or deliberate wrongdoing, aggravating or outrageous circumstances, a fraudulent or evil motive, or a conscious act that willfully and wantonly disregards the rights of another.” Don Buchwald & Assocs., Inc. v. Rich, 723 N.Y.S.2d 8, 9 (1st Dep't 2001) (citation omitted). In a trade secrets case, New York law allows the recovery of punitive damages if the defendant's conduct has been sufficiently “gross and wanton.” See A.F.A. Tours, 937 F.2d at 87; Paz, 514 F.Supp.2d at 409 (awarding punitive damages where defendants misappropriated trade secrets in a “particularly egregious” manner); Topps Co., 380 F.Supp.2d at 267 (finding that punitive damages are available for misappropriation of trade secrets without proof of public harm if the defendant's conduct is “gross and wanton”).
Although the amount of punitive damages “need bear no particular relationship to the amount awarded as compensatory damages,” the amount “should bear a reasonable relationship to the wrong committed.” See Softel, 891 F.Supp. at 945 (citing Chlystun v. Kent, 586 N.Y.S.2d 410, 412 (3d Dep't 1992) and other New York cases); see also Manolas v. 303 West 42nd Street Enterprises, 569 N.Y.S.2d 701, 702 (1st Dep't 1991) (setting aside jury award of punitive damages that was 80 times the amount awarded for compensatory damages); Yokley v. Henry-Clark Assocs., 624 N.Y.S.2d 341, 343 (Civ. Ct. Kings Cty. 1995) (reducing jury's award of punitive damages where award exceeded value of building and “vastly exceed[ed] any benefit the defendant could possibly have derived from its wrongful conduct”). “[W]hether to award punitive damages and how much to award are ‘primarily questions which reside in the sound discretion'” of the trial court. Greenbaum v. Handelsbanken, 67 F.Supp.2d 228, 267 (S.D.N.Y. 1999) (quoting Nardelli v. Stamberg, 44 N.Y.2d 500, 503 (1978)); see also Levi v. Commonwealth Land Title Ins. Co., No. 09-CV-8012 (SHS), 2013 WL 5708402, *10 (S.D.N.Y. Oct. 21, 2013) (“Imposition of punitive damages is discretionary, not mandatory.”) (citation omitted).
Plaintiff asserts that it is entitled to punitive damages in the amount of $971,712.00- twice the amount of the compensatory damages ($485,856.00) requested. See ECF No. 33 at 8. Plaintiff terminated its agreement with Defendant because it discovered that Defendant had created for Tiger Rock (Plaintiff's main competitor) the same website that Defendant had created for Plaintiff. Compl. ¶¶ 31-33; Marky Decl. ¶ 14. In addition, Defendant “willfully disclosed . . . all the clients [it] had generated” for Plaintiff to Plaintiff's competitors, including Tiger Rock. Marky Decl. ¶¶ 17, 19. Defendant's sale of Plaintiff's client list to Tiger Rock was particularly “egregious” because Plaintiff had previously informed Defendant that it had experienced “problems with Tiger Rick encroaching on [its] clients.” Id. ¶ 20. Moreover, even after Plaintiff confronted Defendant about its conduct, Defendant continued to sell Plaintiff's client list to Plaintiff's competitors, in violation of its contractual obligation under the Subscription Agreement not to disclose the client list. Compl. ¶¶ 36-39, 53-55; Marky Decl. ¶¶ 19, 21.
Collectively, these allegations are sufficiently “gross and wanton” to permit the recovery of punitive damages. See In re Cross Media Mktg. Corp., No. 06-CV-4228 (MBM), 2006 WL 2337177, at *7 (S.D.N.Y. Aug. 11, 2006) (affirming the imposition of punitive damages for trade secrets misappropriation where defendant exhibited gross and wanton conduct by “taking [customer lists] without permission and then attempting to anonymously auction the[m]”). Additionally, Defendant's default further supports a finding of willfulness. See North Face Apparel Corp. v. Moler, 2015 WL 4385626, at *6 (S.D.N.Y. July 16, 2015) (“[B]y virtue of their default [defendants] are deemed to be willful infringers.”) (citation omitted; alterations in original). By failing to respond to the Complaint or to otherwise participate in this action, Defendant has deprived the Court of any information or records from which to assess its conduct. See Qlay Co. v. 2845131461, No. 20-CV-09778 (JGK) (SDA), 2021 WL 6065801, at *6 (S.D.N.Y. July 30, 2021). I therefore recommend that Plaintiff be awarded punitive damages.
However, “where the amount of actual damages is already significant, an equal amount in punitive damages should be sufficient to accomplish the dual purposes of punishment and deterrence.” Koch v. Rodenstock, No. 06-CV-6586 (BSJ) (DF), 2012 WL 5844187, at *12 (S.D.N.Y. May 9, 2012) (recommending punitive damages award in an amount equal to award of compensatory damages), report and recommendation adopted, 2012 WL 5845455 (S.D.N.Y. Nov. 19, 2012); see also Johnson v. Nextel Commc'ns Inc., 780 F.3d 128, 149 (2d Cir. 2015) (“‘[W]hen compensatory damages are substantial, then a lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the due process guarantee.'”) (quoting State Farm. Mut. Auto Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003)); Altunkilic, 2020 WL 3884312, at *8 (declining to award two times the amount of compensatory damages, and instead awarding punitive damages “in a one-to-one ratio” with compensatory damages); Paz, 514 F.Supp.2d at 409-10 (awarding punitive damages equal to award of actual damages established by lost sales resulting from misappropriation of Plaintiff's trade secrets).
Plaintiff seeks an award of punitive damages in an amount equal to twice the award of compensatory damages. But the award of compensatory damages itself is substantial, and, because of Defendant's default, there is “no evidentiary record to assist the Court in determining whether and in what amount to recommend a discretionary award of exemplary damages.” See Smart Team, 2022 WL 847301, at *10-11 (noting that defendant's default “prevented] plaintiff from developing an evidentiary record” with respect to exemplary damages). I thus adopt the approach employed by other courts and recommend an award of punitive damages equal to the amount of compensatory damages. Because I recommended an award of compensatory damages in the amount of $216,205.92, the award of punitive damages should be the same amount. That amount is sufficient “to serve as a warning that a defendant who has willfully and maliciously misappropriated a plaintiff's trade secret cannot escape an exemplary damages award by defaulting.” See id., at * 11.
C. Prejudgment Interest
Plaintiff does not request an award of prejudgment interest in the Complaint.I thus do not recommend an award of prejudgment interest. See, e.g., Am. Jewish Comm. v. Berman, No. 15-CV-5983 (LAK) (JLC), 2016 WL 3365313, at *9 (S.D.N.Y. June 15, 2016) (plaintiff who failed to include claim for prejudgment interest in demand clause of complaint could not recover such interest as part of default judgment), report and recommendation adopted, 2016 WL 4532201 (S.D.N.Y. Aug. 29, 2016); see also Silge v. Merz, 510 F.3d 157, 160 (2d Cir. 2007); Altunkilic, 2020 WL 3884312, at *9, n.13.
Plaintiff's October 22, 2020 Application for Default Judgment states that “Plaintiff is entitled to prejudgment interest at 9% per year under N.Y. CPLR § 5001(a).” See ECF No. 25 at 8. The Complaint, however, makes no mention of prejudgment interest and only seeks compensatory and punitive damages, attorneys' fees, and costs. See Compl. ¶¶ 58-59, 67, 73, 78.
D. Post-judgment Interest
In a diversity case such as this, post-judgment interest is mandated by federal statute. See 28 U.S.C. § 1961(a) (“Interest shall be allowed on any money judgment in a civil case recovered in a district court.”) (emphasis added); see also Schipani v. McLeod, 541 F.3d 158, 165 (2d Cir. 2008) (“[P]ost judgment interest is governed by federal statute” in diversity cases); Espinoza v. Broadway Pizza & Rest. Corp., No. 17-CV-7995 (RA) (KHP), 2021 WL 7903991, at *14 (S.D.N.Y. Nov. 18, 2021); Altunkilic, 2020 WL 3884312, at *9. Plaintiff is thus “entitled to post-judgment interest on all money awards as a matter of right.” See, e.g., Tacuri v. Nithin Constr. Co., No. 14-CV-2908 (CBA) (RER), 2015 WL 790060, at *12 (E.D.N.Y. Feb. 24, 2015). I thus recommend that Plaintiff receive an award of post-judgment interest, to be calculated from the date the Clerk of Court enters judgment in this action until the date of payment by Defendant, using the federal interest rate set forth in 28 U.S.C. § 1961. See Begum v. Ariba Discount, Inc., No. 12-CV-6620 (DLC), 2015 WL 223780, at *8 (S.D.N.Y. Jan. 16, 2015) (awarding post-judgment interest).
E. Attorney's Fees
The DTSA permits an award of reasonable attorney's fees to the prevailing party. 18 U.S.C. § 1836(b)(3)(D); Smart Team, 2022 WL 847301, at *10. To calculate an award of attorney's fees, courts in this Circuit determine the “reasonable hourly rate,” defined as “the rate a paying client would be willing to pay,” and multiply that rate by the number of hours “reasonably expended” in prosecuting an action. See Arbor Hill Concerned Citizens Neighborhood Ass'n v. County of Albany, 493 F.3d 110, 114-115, 117-18 (2d Cir. 2007), as amended, 522 F.3d 182 (2d Cir. 2008). To be reasonable, the attorney's rate must be “in line with those [rates] prevailing in the community for similar services by lawyers of reasonably comparable skills, experience, and reputation.” Reiter v. MTA N.Y.C. Transit Auth., 457 F.3d 224, 232 (2d Cir. 2006) (citation omitted; alteration in original). Additionally, in assessing whether the number of hours billed by the attorney is reasonable, courts consider “whether, at the time the work was performed, a reasonable attorney would have engaged in similar time expenditures.” Grant v. Martinez, 973 F.2d 96, 99 (2d Cir. 1992) (citation omitted).
The prevailing party bears the burden to produce “contemporaneous time records indicating, for each attorney, the date, the hours expended, and the nature of the work done.” Scott v. City of N.Y., 626 F.3d 130, 133-34 (2d Cir. 2010) (citation omitted); N.Y. Ass'n for Retarded Children v. Carey, 711 F.2d 1136, 1148 (2d Cir. 1983) (holding that a plaintiff must present contemporaneous time records that indicate “for each attorney, the date, the hours expended, and the nature of the work done” to be awarded attorney's fees and costs). District courts exercise “considerable discretion” in awarding attorneys' fees. See D.B. ex rel. S.B. v. New York City Dep't of Educ., No. 18-CV-7898 (AT) (KHP), 2019 WL 6831506, at *1 (S.D.N.Y. Apr. 22, 2019) (internal quotation marks and citation omitted), report and recommendation adopted, 2019 WL 4565128 (S.D.N.Y. Sept. 20, 2019); see also Hensley v. Eckerhart, 461 U.S. 424, 437 (1983); McDaniel v. Cnty. of Schenectady, 595 F.3d 411, 414 (2d Cir. 2010). When awarding attorneys' fees, the court must also “clearly and concisely state reasons supporting the award.” Tackie v. Keff Enters. LLC, No. 14-CV-2074 (JPO), 2014 WL 4626229, at *6 (S.D.N.Y. Sept. 16, 2014) (citation omitted).
Plaintiff was represented by two different law firms in this action-Williams LLP and Johnson & Oole, LLC. Marky Decl. ¶ 49. Plaintiff also seeks an award of attorney's fees for the work performed by R. Scott Callen at Liles Gavin, PA, who advised Plaintiff prior to the initiation of this action. Id. ¶ 48. I address Plaintiff's request for fees as to each firm separately.
First, as to Williams LLP, Plaintiff seeks an award of attorney's fees for the work performed by T. Edward Williams. Plaintiff submits two applications. The first seeks an award of $43,217.07, for work performed by Williams from the date this action was commenced through October 22, 2019. See id. ¶ 49; Declaration of T. Edward Williams in Support of Attorney Fees and Costs (“Williams Decl.”) ¶ 11, ECF No. 35.The second application seeks $12,272.50, for work performed by Williams from October 23, 2019, to July 26, 2021. See Supplemental Declaration in Support of Williams LLP's Invoices (“Suppl. Williams Decl.”) ¶ 2, ECF No. 37.
Plaintiff's declaration seeks $43,217.07. Marky Decl. ¶ 49. In the Williams Declaration, submitted in support of Plaintiff's request for fees, the fee award requested was $43,225.19. See Williams Decl. ¶ 11. For purposes of this Report and Recommendation, I will consider the amount sought in Plaintiff's declaration.
Williams has 12 years of experience, litigating mostly in federal court, in the area of complex commercial litigation. See Williams Decl. ¶¶ 1-2. For his work, he seeks an hourly rate of $425.00. Id. ¶ 3. That hourly rate is reasonable and within the range of reasonable rates charged by other attorneys performing similar work in this District. See, e.g., Farrad, 2019 WL 5725044, at *9-11 (finding “[t]he requested hourly rates of $675.00 [ ], $705.00 [ ] and $585.00 [ ] are reasonable for experienced intellectual property litigators in this District”) (citing Capitol Records, Inc. v. MP3tunes, LLC, No. 07-CV-9931 (WHP), 2015 WL 7271565 at *4 (S.D.N.Y. Nov. 12, 2015) (stating that billing rates from $575.00 to $720.00 per hour for partners was within reasonable range, and $450.00 per hour was “the high end of rates typically approved in this District” for associate attorneys)); accord Owerko v. Soul Temple Entm't, LLC, No. 13-CV-6420 (RLE), 2016 WL 80664 at *2 n.1 (S.D.N.Y. Jan. 7, 2016) (citing cases); see also Sheet Metal Workers' Nat. Pension Fund v. Maximum Metal Manufacturers Inc., No. 13-CV-7741, 2015 WL 4935116, at *10 (S.D.N.Y. 2015) (noting that in this District, “fee rates for experienced attorneys in small firms generally range from $250 to $450 in civil cases”) (citation omitted).
Plaintiff requests an award of $43,217.07, for work performed by Williams up to and including October 22, 2019. The Williams Declaration, dated July 23, 2021, refers to “invoices” and billing records from Williams and notes that those invoices are attached as “Exhibit A.” Williams Decl. ¶ 11. Plaintiff did not submit an Exhibit A as part of the Williams Declaration. Instead, the invoices or contemporaneous billing records from Williams for this time period were submitted on November 10, 2020 as “additional exhibits” to a Motion for Default Judgment filed on October 22, 2020. See ECF No. 27-2.
From the commencement of the case to October 22, 2019, Williams submitted billing records that indicate he performed 83.1 hours of work, for which he seeks fees totaling $43,217.07. In addition, Plaintiff seeks an award of attorney's fees for work performed by Williams from October 22, 2019, to July 26, 2021, in the amount of $12,272.50. See Suppl. Williams Decl. ¶ 2. For this time period, Williams performed 47.7 hours of work. In total, Williams is seeking fees for 130.8 hours of work and a total compensation of $55,489.57.
According to Williams' Supplemental Declaration, Plaintiff actually incurred $20,272.50 in attorney's fees, but Williams provided Plaintiff a discount of $8,000. See Suppl. Williams Decl. ¶ 2.
In support of his application for fees up to October 22, 2019, Williams submitted copies of contemporaneous billing records, which show the date the legal services were performed, provide a description of the services performed, and include the amount of time spent in performance of those services. See ECF No. 27-2 (billing invoices); Williams Decl. ¶ 10 (noting that “the time entries were contemporaneously kept”). Those records indicate that, among other things, Williams drafted and revised the complaint, drafted and revised default judgment submissions and an accompanying affidavit, met with his client to prepare for conferences and hearings, and routinely conducted research and analyzed facts and law in connection with these tasks. See ECF No. 27-2. The billing records thus satisfy the requirement that an award of attorney's fees be based on contemporaneous time records. See Hollander Glass Texas, Inc. v. Rosen-Paramount Glass Co., Inc., 291 F.Supp.3d 554, 562-63 (S.D.N.Y. 2018).
According to his billing records, Williams performed 83.1 hours of work on this matter for the time period leading up to October 22, 2019. See ECF No. 27-2. Over 83 hours is excessive in an action where the defendant never appeared, no discovery ever commenced, and the only motion practice involved unopposed applications for default judgment. And, notably, that does not even represent all of the hours Williams reports to have expended on this matter, as he also claims to have worked an additional 47.7 hours, for a total of 130.8 hours.
A court may exclude “excessive, redundant or otherwise unnecessary hours” from an attorney's fees award calculation, Quarantino v. Tiffany & Co., 166 F.3d 422, 425 (2d Cir. 1999), or may make an across-the-board reduction in the number of hours for which fees will be awarded, see Luciano v. Olsten Corp., 109 F.3d 111, 117 (2d Cir. 1997). And in cases such as this one, where a party seeks attorney's fees following only the filing of a complaint and moving for default judgment, the number of hours expended is generally lower than those expended here. See Bank of Am., N.A. v. Brooklyn Carpet Exch., Inc., No. 15-CV-5981 (LGS) (DF), 2016 WL 8674686, at *10 (S.D.N.Y. May 13, 2016), report and recommendation adopted, 2016 WL 3566237 (S.D.N.Y. June 27, 2016) (finding 70 hours billed to be “notably higher than the amounts found reasonable in other breach-of-contract cases in which a default judgment was entered, after the defendant failed to defend the action” and reducing the hours expended by 20%); Xin Long Lin v. New Fresca Tortillas, Inc., No. 18-CV-3246 (RJD) (RER), 2019 WL 3716199, at *9 (E.D.N.Y. May 1, 2019), report and recommendation adopted, 2019 WL 3714600 (E.D.N.Y. May 28, 2019) (finding that 60 hours of time billed in case that resulted in default judgment was “grossly excessive,” and reasoning that wage-and-hour “cases with a similar procedural posture . . . typically require many fewer attorney hours”); see also John Wiley & Sons, Inc. v. Book Dog Books, LLC, 327 F.Supp.3d 606, 646-47 (S.D.N.Y. 2018) (“Courts often cut the fee award by 30% across the board due to deficiencies found in counsel's billing records.”) (citing cases) (internal quotation marks and citations omitted); Access 4 All, Inc. v. Mid-Manhattan Hotel Assocs. LLC, No. 13-CV-7995 (JMF), 2014 WL 3767009, at *3 (S.D.N.Y. July 31, 2014) (reducing hours by 15% to account for excessive billing).
Merch. Cash & Capital LLC v. Edgewood Grp., LLC, No. 14-CV-03497 (JGK) (DF), 2015 WL 4430643, at *13 (S.D.N.Y. July 2, 2015), report and recommendation adopted, 2015 WL 4451057 (S.D.N.Y. July 20, 2015) (finding that request for fees for 13.3 hours, including a voluntary reduction from 15.1 hours billed, was reasonable in breach-of-contract action in which defendant never appeared); Customers Bank v. Anmi, Inc., No. 11-CV-7992 (AJN) (DF), 2014 WL 842577, at *10 (S.D.N.Y. Jan. 8, 2014), report and recommendation adopted, 2014 WL 842577 (S.D.N.Y. Mar. 3, 2014) (finding 20.6 hours to be reasonable in action arising from default on promissory note, where defendant initially answered the complaint, then failed to defend the action); Diamant v. Dynasto Diamonds and Jewelry Group Corp., No. 04-CV-3844 (GBD) (DF), 2006 WL 728802, at *5 (S.D.N.Y. Feb. 14, 2006), report and recommendation adopted, 2006 WL 728802 (S.D.N.Y. Mar. 20, 2006) (finding 18.91 hours spent on a breach-of-contract case in which a default was entered against defendant to be reasonable); Maldonado v. La Nueva Rampa, Inc., No. 10-CV-8195 (LLS) (JLC), 2012 WL 1669341, at *14 (S.D.N.Y. May 14, 2012) (noting that “the high-end amount of hours” spent on such cases “is no more than 55 hours total”). Jiaren Wei v. Lingtou Zhengs Corp., No. 13-CV-5164 (FB) (CLP), 2015 WL 739943, at *16 (E.D.N.Y. Feb. 20, 2015) (finding 30.6 hours expended by plaintiff's counsel to be reasonable); Callier v. Superior Bldg. Servs., Inc., No. 09-CV-4590 (ILG) (JMA), 2010 WL 5625906, at *7 (E.D.N.Y. Dec. 22, 2010) (awarding 53.71 hours of attorney work with an “across-the-board cut of fifteen percent.”); Said v. SBS Elecs., Inc., No. 08-CV-3067 (RJD) (JO), 2010 WL 1265186, at *9 (E.D.N.Y. Feb. 24, 2010) (awarding 41.35 hours instead of 165.4 hours sought in case in which defendant defaulted); Wicaksono v. XYZ 48 Corp., No. 10-CV-3635 (LAK) (JCF), 2011 WL 2022644, at *3 (S.D.N.Y. May 2, 2011) (awarding 54.4 hours of attorneys' fees in case in which defendant defaulted).
Here, the hours expended by Williams may be higher because the Court held multiple hearings or conferences in this matter throughout the process of obtaining a default judgment. But 83.1 hours-which, again, only represents a portion of the total time Williams indicates he expended in this matter-is excessive given the nature and posture of this case. For example, the billing records indicate that Williams attended a “telephone conference” before the Court on September 27, 2019, which lasted between 6 minutes and 12 minutes. See ECF No. 27-2 at 12 (billing 0.2 hours for the 9/27/19 hearing). Yet, the billing records also indicate that Williams spent 8.9 hours preparing Plaintiff for this telephone conference over a period of two days. Id. Plaintiff's submissions do not explain why this action was considerably more complex, or should have taken substantially more time to litigate, than a typical misappropriation of trade secrets case in which the defendant defaulted. In short, as to this time period for fees, I recommend a 15% reduction in the hours (amounting to 69.1 hours). As discussed previously, Williams' rate of $425.00 per hour is reasonable, and I thus recommend that Plaintiff receive an award of attorney's fees in the amount of $29,367.50, for work performed leading up to October 22, 2019.
In support of his application for fees from October 23, 2019 to July 26, 2021, Williams submitted copies of contemporaneous billing records, which show the date the legal services were performed, provide a description of the services he performed, and include the amount of time spent in performance of those services. See ECF No. 37-1; Williams Decl. ¶ 10; Suppl. Williams Decl. ¶ 1 (adopting representations made in the first Williams Declaration). Those records indicate that, among other things, Williams prepared a proposed order regarding default judgment, met with Plaintiff and co-counsel (Johnson & Oole) to prepare for the conference before Judge Freeman in July 2021, drafted a motion to seal, and prepared and reviewed Plaintiff's instant submission in support of its request for damages and attorney's fees. See ECF No. 37-1 at 2-3. The billing records thus also satisfy the requirement that an award of attorney's fees be based on contemporaneous time records. See Hollander, 291 F.Supp.3d at 562-63.
According to his billing records, Williams performed 47.70 hours of work on this matter from October 23, 2019, to July 26, 2021. See ECF No. 37-1 at 2-3. But Williams “reduced” his bill by $8,000. See Suppl. Williams Decl. ¶ 2. Given his discount, Williams' hourly rate for this period is effectively $271.41 per hour. This rate is reasonable for the work performed and I thus recommend that Plaintiff receive an award of attorney's fees in the amount of $12,272.50, for work performed from October 23, 2019, to July 26, 2021. The total recommended attorney's fee award for the work performed in connection with this litigation by Williams is therefore $41,640.00.
Next, Plaintiff seeks an award of attorney's fees in the amount of $24,000, for work performed by a different law firm, Johnson & Oole, in connection with this matter. Marky Decl. ¶ 49. In support of the application, Plaintiff submits invoices from Johnson & Oole, for work performed from March 2019 through June 2021, at an hourly rate of $200.00 per hour by an individual with the initials “SEO.” See ECF No. 33-2. As an initial matter, the invoices themselves document only $11,843.70 in fees, not $24,000.00.
Moreover, Plaintiff's submissions contain no information about who performed the work. Plaintiff's declaration merely states that Johnson & Oole is Plaintiff's “general counsel” and that the work performed was aimed at “attempting to resolve this matter.” See Marky Decl. ¶ 49. But without any information about the attorney who performed the work, there is no basis from which to determine whether the hourly rate charged or the time expended was reasonable. For instance, although the invoices indicate that the work was performed by an individual with the initials “SEO,” Plaintiff provides no information from which to determine whether SEO is a partner at Johnson & Oole or an associate. Nor is there any information from which to assess SEO's experience litigating similar matters. Because Plaintiff has not adequately supported his request for these attorney's fees, I do not recommend that Plaintiff be awarded any fees for the work performed by Johnson & Oole.
Finally, Plaintiff also seeks an award of attorney's fees in the amount of $3,550.00, for work performed by R. Scott Callen, an attorney “in Florida who advised [Plaintiff] on, among other issues, complying with federal and state laws that apply when a business client list, among other trade secrets, had been disclosed to third parties.”Marky Decl. ¶ 48. The billing records indicate that Callen's firm performed 12.15 hours of work, which when divided by the total fees, yields an hourly rate of approximately $292.18. See ECF No. 37-2. As an initial matter, the work performed by Callen does not appear to have been done directly in connection with this lawsuit. Instead, the billing records indicate that in July 2018-9 months before the commencement of this action-Callen met with Plaintiff “regarding unauthorized disclosure of proprietary client information,” reviewed “numerous contracts” and “laws” regarding such “unauthorized disclosures,” and performed analysis “regarding liability and legal solutions,” among other services. Id. Plaintiff describes the work performed by Callen as advising it on “complying with federal and state laws that apply when a business client list” has been disclosed. Marky Decl. ¶ 48. There is no indication in Plaintiff's declaration that Callen performed any work on this suit; indeed, there is no evidence that Callen performed any work beyond that performed in July 2018, 9 months before the Complaint was filed. And Plaintiff provides no case law to support an award of fees where, as here, the fees are for work peformed by counsel unrelated to the pending suit.
Initially, Plaintiff sought an award of $5,000.00 for the work performed by Callen. See Marky Decl. ¶ 48. Evidently recognizing the discrepancy between the amount requested and the amount documented in the billing records, Plaintiff subsequently reduced the amount requested to $3,550.00. See Suppl. Williams Decl. ¶ 4 (“Although the Undersigned was under the impression that R. Scott Callen's invoice was $5,000.00, based on a discount given by Mr. Callen, Mr. Callen's invoice is actually $3,550.00 and this is the amount Plaintiff seeks.”).
In any case, even if Plaintiff could recover attorney's fees for work by counsel that was not in connection with this suit, Plaintiff has not adequately supported its request for such fees here. Plaintiff has provided Callen's billing records, but he does not indicate whether they are contemporaneous records and also does not provide any information about Callen, his practice, or his experience. Plaintiff thus provides no information from which to determine whether Callen's hourly rate is reasonable given his past experience, or from which to assess whether the time Callen expended was reasonable. To be sure, Plaintiff's current counsel opines in his declaration that the rates charged by Callen and time expended were reasonable. See Suppl. Williams Decl. ¶ 4. But whether the rates charged and the time expended were reasonable is a determination to be made by the Court, and Plaintiff fails to provide the necessary information from which the Court can make such an assessment. Indeed, counsel's declaration provides no details from which to determine, for instance, whether Callen's rate is “in line with those [rates] prevailing in the community for similar services by lawyers of reasonably comparable skills, experience, and reputation.” Reiter, 457 F.3d at 232 (citation omitted; alteration in original). I thus recommend that no attorney's fees be awarded for the work performed by R. Scott Callen.
F. Costs
Plaintiff also seeks reimbursement for costs incurred in this action. The DTSA permits an award of the prevailing party's reasonable costs. Smart Team, 2022 WL 847301, at *10. “As with attorneys' fees, [a] requesting party must substantiate the request for costs.” Guo v. Tommy's Sushi, Inc., No. 14-CV-3964 (PAE), 2016 WL 452319, at *3 (S.D.N.Y. Feb. 5, 2016); see also Euceda v. Preesha Operating Corp., No. 14-CV-3143 (ADS) (SIL), 2017 WL 3084490, at *4 (E.D.N.Y. June 30, 2017) (“In the absence of adequate substantiation, a party is not entitled to recover costs.”), report and recommendation adopted, 2017 WL 3084408 (E.D.N.Y. July 18, 2017). “An award of costs ‘normally include[s] those reasonable out-of-pocket expenses incurred by the attorney and which are normally charged to fee-paying clients.'” Fisher v. S.D. Prot. Inc., 948 F.3d 593, 600 (2d Cir. 2020) (quoting Reichman Bonsignore, Brignati & Mazzotta P.C., 818 F.2d 278, 283 (2d Cir. 1987)) (alteration in original).
Plaintiff seeks “total travel costs” incurred by it and a “Florida attorney” in the amount of $4,310.19. See Marky Decl. ¶¶ 1, 45-47. Marky explains that he had to “travel from Tallahassee, Florida to New York for counsel to prepare” him for “a hearing that was previously scheduled in this proceeding,” and that “[i]n anticipation of the hearing, Marky's Martial Arts Florida attorney traveled with [Marky] to assist in [his] preparation for the scheduled hearing.” Marky Decl. ¶ 46; see ECF Nos. 27-3 (receipts for various travel-related costs, including meals), 27-4 (receipts for plane tickets), and 27-5 (receipt for three nights of lodging in New York).
Plaintiff does not provide a date for the “hearing” (or any other details about the “hearing”). Plaintiff only states that it was an in-person hearing that was changed to a telephonic hearing. See ECF No. 48, n.2. The dates of the receipts provided by Plaintiff are for travel from September 24, 2019, through September 27, 2019. Williams' billing records indicate that he attended an Order to Show Cause hearing on October 22, 2019, and a telephone conference with the Court on September 27, 2019. See ECF No. 27-2 at 12, 15. Only the Order to Show Cause hearing is reflected on the Court's docket. See Minute Entry for proceedings held before Judge Andrew L. Carter, Jr on 10/22/2019 (Entered: 10/31/2019). Given that the travel receipts are from September 2019, they could not have been in connection with attending the October 2019 hearing.
Moreover, to the extent Plaintiff traveled to New York to prepare for and attend a telephonic conference on September 27, 2019, Plaintiff does not explain what the conference concerned or why Plaintiff would have had to prepare or attend that conference. Where courts have awarded costs for travel, the costs generally relate to in-person proceedings, such as trials or depositions, where a party's appearance was required. See, e.g., Mark Andrew of the Palm Beaches, Ltd. v. GMAC Com. Mortg. Corp., No. 01-CV-1812 (JGK) (MHD), 2003 WL 21767633, at *2-3 (S.D.N.Y. July 31, 2003) (requiring defendant to pay some travel costs associated with deposition of plaintiffs' two expert witnesses); John Wiley & Sons, 327 F.Supp.3d at 648 (costs awarded for hotel accommodations during trial).
In any case, even assuming Plaintiff's appearance at the September 27 telephone conference in this case was required, the amount of travel expenses he seeks-$4,310.19 for hotel and airfare-is excessive. See Mark Andrew of the Palm Beaches, 2003 WL 21767633, at *2 (finding hotel and travel costs excessive and awarding costs of $200 for hotel and $400 for airfare); John Wiley & Sons, 327 F.Supp. at 648 (finding hotel charges during trial excessive and reducing award by 30%); Gaia House Mezz LLC v. State St. Bank & Tr. Co., No. 11-CV-3186, 2014 WL 3955178, at *2 (S.D.N.Y. Aug. 13, 2014) (finding $2,839.16 to be an unreasonable cost for three nights in a Manhattan hotel, and reducing award for hotel costs to “a reasonable rate of $275 per night”) (citing J.S. Nicol, Inc. v. Peking Handicraft Inc., No. 03-CV-1548, 2008 WL 4613752, at *14-15 (S.D.N.Y. Oct. 17, 2008)); Arbor Hill Concerned Citizens Neighborhood Ass'n. v. Cnty. of Albany, No. 03-CV-502, 2005 WL 670307, at *13 (N.D.N.Y. Mar. 22, 2005) (finding costs incurred for lodging and meals for attendance of counsel at hearing was excessive, and reducing by one-half). I recommend that Plaintiff's request for an award of these travel costs be reduced by 30%, amounting to an award of $3,017.13.
Plaintiff also seeks an award of costs incurred in litigating this action. See Williams Decl. ¶ 11; ECF No. 35-1 (Bill of Costs); Suppl. Williams Decl. ¶ 2; ECF No. 37-1. According to the “Bill of Costs,” Plaintiff incurred $400.00 in “Fees of the Clerk,” $258.15 in “Fees for service of summons and subpoena,” $198.15 in “fees for printed or electronically recorded transcripts,” and $1,681.00 in “other costs.” See ECF No. 35-1. Plaintiff does not specify or describe what is included in the category of “other costs.” Additionally, Plaintiff incurred a “service fee of $60.00 for service of this Court's June 22, 2021 Order,” $456.87 in “electronic research costs,” and a fee of $175.00 “for the service of this Court's July 13, 2021 Order.” See Suppl. Williams Decl. ¶ 2; ECF No. 37-1.
At the time counsel submitted his declaration, the process server had “not yet provided an invoice” but counsel “expect[ed]” that the fee for serving the Court's July 13, 2021 Order and [Plaintiff's] recent submissions” to Defendant would be $175.00. As of the date of this Report and Recommendation, counsel had not provided a supplemental declaration confirming that the process server fee was in fact $175.00.
The Court can take judicial notice of the $400.00 filing fee incurred by Plaintiff. See, e.g., Soto v. Los Corbaticas Deli Grocery II Corp., No. 18-CV-3602 (JGK) (JLC), 2018 WL 4844018, at *9 (S.D.N.Y. Oct. 5, 2018) (taking judicial notice of $400 filing fee). Other costs, such as fees for process servers, photocopy fees, and postage are all compensable. See Gesualdi v. Magnolia Pro Trucking Inc., No. 11-CV-4082 (ADS) (AKT), 2012 WL 4036119, at *11 (E.D.N.Y. Aug. 20, 2012), report and recommendation adopted, 2012 WL 4035779 (E.D.N.Y. Sept. 11, 2012); U.S.A. Famous Original Ray's Licensing Corp. v. Famous Ray's Pizza Buffet Inc., No. 12-CV-8753 (JGK) (GWG), 2013 WL 5363777, at *8 (S.D.N.Y. Sept. 26, 2013) (awarding costs for filing fees, copies, research, and service of process). However, Plaintiff has not provided any underlying documentation to substantiate the amount of the process server fee, printing or photocopy fees, or other fees for which Plaintiff seeks reimbursement. Moreover, Plaintiff seeks to recover $1,681.00 for “other costs”-a category for which Plaintiff provides no detail whatsoever about what expenses the $1,681.00 covered. See, e.g., Soto, 2018 WL 4844018, at *9 (declining award of process server fee in the amount of $195 where counsel “simply provided their own billing records” and did not “submit[ ] underlying documentation” to support the amount requested); Acharya v. Solanki, No. 18-CV-8010 (JLC), 2022 WL 1144696, at *9 (S.D.N.Y. Apr. 12, 2022) (declining cost award for $120 process server fees where fee amount was not substantiated); Sevilla v. Nekasa Inc., No. 16-CV-2368 (AJP), 2017 WL 1185572, at *8 (S.D.N.Y. Mar. 30, 2017) (refusing to award costs absent supporting documentation and collecting cases); Euceda, 2017 WL 3084490, at *4 (“Although the Court takes judicial notice of the Court's $350.00 filing fee, the Court does not recommend an award for costs that lack supporting documentation.”).
Thus, I recommend that Plaintiff be awarded $400.00 in costs for the filing fee in this action, but I do not recommend an award of costs for the other fees requested by Plaintiff.
CONCLUSION
For the foregoing reasons, I recommend that Plaintiff be awarded $216,205.92 in compensatory damages, $216,205.92 in punitive damages, $41,640.00 in attorney's fees, $3,417.13 in costs, and post-judgment interest to accrue in accordance with 28 U.S.C. § 1961 (calculated from the date the Clerk of Court en payment by Defendant).
SO ORDERED.