Opinion
No. 00 Civ. 5764 (RLC)
January 7, 2003
Attorneys for Plaintiff: BAKER BOTTS LLP from New York, New York. Of Counsel: RUSSELL H. FALCONER and ESTEBAN A. ROCKETT.
Attorney for Defendants: AGNES C. McKEON from New York, New York. Of Counsel: AGNES C. McKEON.
OPINION
On April 8, 2002, the court denied plaintiff's and defendants' motions for summary judgment and granted plaintiff's motion for judgment on the pleadings as to defendants' counterclaims. Defendants now move for sanctions pursuant to Rule 11, F.R.Civ.P. and for attorney fees under the Lanham Act, 15 U.S.C. § 1117(a).
BACKGROUND
Plaintiff, the New York Stock Exchange ("the Exchange"), commenced this action against defendants David Gahary and John Zito, claiming that defendants used variations of the name "Richard Grasso" without permission to post offensive messages on certain internet bulletin boards, in violation of the Lanham Act, New York State's General Business Law, and New York common law. Defendants filed counterclaims of harassment and abuse of process.
Plaintiff also filed suit against a third defendant, Michael Watson. Watson entered into a "Stipulated consent Judgment" on December 28, 2000, and is no longer a defendant in this matter.
The court denied each party's motion for summary judgment with regard to plaintiff's claims, finding that issues of fact existed regarding Gahary's intent, whether the Exchange had successfully established a secondary meaning associated with the Grasso name (Richard Grasso is Chairman and CEO of the Exchange), the likelihood of confusion, and defendants' First Amendment claims. New York Stock Exchange v. Gahary, 196 F. Supp.2d 401, 415 (S.D.N.Y. 2002) (Carter, J.).
With respect to defendants' counterclaims, the court granted plaintiff judgment on the pleadings. Id. The harassment claim was dismissed because New York law recognizes no such tort, and the abuse of process counterclaim was dismissed because "defendants do not, and the court is convinced they cannot, allege facts sufficient to constitute even a prim[a] facie case . . . ." Id. In discussing the abuse of process counterclaim the court stated:
Defendants apparently believe that the Exchange's complaint and memoranda are so obviously unjustified as to speak for themselves. The court could not disagree more. Though the Exchange has not offered enough proof to justify summary judgment, its submissions certainly do not evidence any bad faith or other malicious intent. That the Exchange may ultimately fail to prevail on its claims is immaterial; the court fully comprehends why the former felt compelled to bring suit in the first place. The Exchange was reasonably concerned that Gahary's highly offensive messages would threaten their substantial investment in the good name of Richard Grasso. Even when the record is construed to favor defendants, the worst that can be said about the Exchange is that it overestimated the strength of its claims somewhat.Id.
The matter was set down for trial on April 17, 2002, and was then rescheduled by the court to begin on Monday, April 22, 2002. At approximately 7 P.M. on Friday, April 19, 2002, plaintiff's counsel telephoned defendants' counsel to inform her that the Exchange had decided to move for voluntary dismissal with prejudice, and advised her to stop
preparing for trial. The court granted plaintiff's motion for voluntary dismissal on April 22, 2002.
DISCUSSION
Defendants claim that sanctions should be imposed and attorney fees awarded pursuant to Rule 11, F.R.Civ.P. and section 35(a) of the Lanham Act because,
not only was plaintiff completely unjustified in bringing this action but that it did so in bad faith for an improper purpose. Baker Botts, perhaps the nation's pre-eminent trademark authority, failed to conduct even the most basic of inquiries into the facts of this case and the pertinent law. In addition, in furthering the Exchange's improper action, Baker Botts failed to cite the prevailing legal authority [in its motion for summary judgment] and attempted to misrepresent the facts.
(Def.'s Mem. in Supp. Mot. for Sanctions and Atty. Fees at 56.)
In their memorandum, defendants make much of the fact that plaintiff moved for voluntary dismissal "on the eve of trial," essentially arguing that based on this fact, the court should reverse its earlier judgment that plaintiff acted in good faith and should find that plaintiff acted improperly in filing its complaint and its motion for summary judgment.
A. Rule 11 Sanctions
Rule 11, F.R.Civ.P. places an affirmative duty on an attorney to conduct a reasonable inquiry into the viability of a pleading before it is signed. Sanctions are appropriate under Rule 11 when a pleading
has been interposed for any improper purpose, or where, after reasonable inquiry, a competent attorney could not form a reasonable belief that the pleading is well grounded in fact and is warranted by existing law or a good faith argument for the extension, modification or reversal of existing law.United States v. Int'l Bhd. of Teamsters, 948 F.2d 1338, 1344 (2d Cir. 1991) (quoting Eastway Constr. Corp. v. City of New York, 762 F.2d 243, 254 (2d Cir. 1985)). To determine whether a violation of Rule 11 has occurred, the court must decide whether the attorney's conduct was objectively reasonable at the time he or she signed the motion, pleading, or other paper. Id.; Rotter v. Leahy, 93 F. Supp.2d 487, 502 (S.D.N.Y. 2000) (Sweet, J.). In focusing on the reasonableness at the time of signing, the court must take care not to allow hindsight to skew its judgment. Int'l Bhd. of Teamsters, 948 F.2d at 1344 (citations omitted).
The court has already addressed the propriety and reasonableness of plaintiff's complaint and determined that plaintiff's complaint was objectively reasonable at the time it was signed. See Gahary, 196 F. Supp.2d at 415. With regard to plaintiff's other submissions, the court held that they were justified, that they did not evidence any bad faith or malicious intent, and that the worst that could possibly be said on the basis of these submissions is that the Exchange "overestimated the strength of its claims somewhat." Id. Through these statements, the court made it perfectly clear that the pleadings were objectively reasonable at the time they were signed.
The fact that plaintiff decided to move for voluntary dismissal before trial does not change the court's determination, nor should it. First, the court is simply unconvinced that plaintiff's moving for voluntary dismissal was anything but a legitimate tactical decision. Second, even if the court could infer bad faith from plaintiff's action, it would be contrary to the law in the Second Circuit to analyze plaintiff's earlier pleadings in light of this later action, for that would be allowing hindsight to skew the court's judgment. See Int'l Bhd. of Teamsters, 948 F.2d at 1344. The court already decided this issue and that decision stands. B. Attorney Fees Under the Lanham Act
Defendants are the ones who come very close to crossing the line between zealous advocacy and sanctionable conduct by bringing this motion despite the court's earlier opinion.
Section 35 of the Lanham Act provides that the court "in exceptional cases may award reasonable attorney fees to the prevailing party." 15 U.S.C. § 1117(a) (West Group 2002). The Second Circuit has held that a court should award such fees only "on evidence of fraud or bad faith." Gordon Breach Science Publishers S.A. v. American Inst. of Physics, 166 F.3d 438, 439 (2d Cir. 1999) (quoting Twin Peaks Prods., Inc. v. Publications Int'l, Ltd., 996 F.2d 1366, 1383 (2d Cir. 1993)).See also Conopco, Inc. v. Campbell Soup Co., 95 F.3d 187, 194 (2d Cir. 1996); Multivideo Labs, Inc. v. Intel Corp., No. 99 Civ. 3908, 2000 WL 502866, at *1 (S.D.N.Y. April 27, 2000) (Cote, J.). As there is no evidence of fraud or bad faith here, an award of attorney fees is unwarranted.
CONCLUSION
Defendants' motion for Rule 11 sanctions is denied. Defendants' motion for attorney fees under § 35(a) of the Lanham Act is also denied.