Opinion
21-CV-1732 (AT) (BCM)
07-23-2024
THE BRONX CONSERVATORY OF MUSIC, INC., Plaintiff, v. PHILIP KWOKA and THE BRONX SCHOOL FOR MUSIC, INC., Defendants.
REPORT AND RECOMMENDATION TO THE HON. ANALISA TORRES
BARBARA MOSES, UNITED STATES MAGISTRATE JUDGE.
Plaintiff Bronx Conservatory of Music, Inc. (the Conservatory) sued its former Executive Director, Philip Kwoka, and the competing music school he founded, the Bronx School for Music (the School), alleging, inter alia, copyright infringement, unfair competition, and trade secret misappropriation under both federal and state law. After discovery, the Hon. Analisa Torres, United States District Judge, granted summary judgment to defendants on all of plaintiff's federal claims, as well as its state-law trade secret misappropriation claim, and declined to retain jurisdiction over the remaining state law claims. Thereafter, defendants moved by letter-motion (Def. Mot.) (Dkt. 97) for an award of attorneys' fees pursuant to the Copyright Act, 15 U.S.C. § 505, the Lanham Act, 15 U.S.C. § 1117(a), the Defend Trade Secrets Act (DTSA), 18 U.S.C. § 1836(b)(3)(d), and the Court's inherent power. For the reasons that follow, I recommend that the motion be denied.
I. BACKGROUND
The facts and procedural history of this action are set forth in detail in the Court's summary judgment decision, see Bronx Conservatory of Music, Inc. v. Kwoka, 2024 WL 53569, at *1-2 (S.D.N.Y. Jan. 4, 2024), and are recounted here only to the extent relevant to defendants' fee motion.
The Conservatory is a nonprofit organization offering musical instruction to students in the Bronx. Bronx Conservatory of Music, 2024 WL 53569, at *1. Douglas Meyer is the Conservatory's President and Music Director. Id. Kwoka served as its part-time Executive Director from October 2015 until June 2020, when he resigned after failing to reach an agreement with the Conservatory on a new compensation arrangement. Id. However, at the Conservatory's request, Kwoka spent the summer of 2020 training his replacement. Id.
In November 2020, Kwoka incorporated the School, which, like the Conservatory, offers music lessons to students in the Bronx. Bronx Conservatory of Music, 2024 WL 53569, at *1. Kwoka emailed his "personal contacts, his former students and/or students referred by other parents, faculty member[s,] and community friends" to inform them of the new School, leading the Conservatory to suspect that he had misappropriated its lists of students, prospective students, faculty, prospective faculty, donors, and prospective donors, which, it claimed, were proprietary. Id. On January 27, 2021, plaintiff sent Kwoka a letter outlining its suspicions and demanding, among other things, that he cease and desist from using the Conservatory's lists and other "confidential information." See Desist Ltr. (Dkt. 87-9) at 2. Additionally, the letter demanded that Kwoka cease using "the Conservatory's copyrighted [instructional] materials as a basis for your school's curriculum." Id.
Kwoka did not respond to the cease-and-desist letter. See Thompson 4/28/23 Decl. (Dkt. 87-10) ¶ 4. On February 26, 2021, plaintiff commenced this action, alleging claims for (1) trade secret misappropriation under the DTSA; (2) trade secret misappropriation under New York law; (3) copyright infringement under the Copyright Act; (4) unfair competition under the Lanham Act; (5) unfair competition under New York law; (6) breach of fiduciary duty under New York law; (7) conversion under New York law; and (8) unjust enrichment under New York law. See Compl. (Dkt. 9) ¶¶ 26-62. Both defendants counterclaimed for (1) a declaratory judgment that plaintiff's copyright registrations were invalid and unenforceable; (2) a declaratory judgment that defendants did not infringe plaintiff's copyrights; and (3) a declaratory judgment that defendants did not "infringe" plaintiff's trade secrets. Ans. & Counterclaims (Dkt. 26) at 12-15, ¶¶ 10-31. Additionally, Kwoka asserted counterclaims for (4) sexual harassment under Title VII of the Civil Rights Act of 1964, the New York State Human Rights Law, and the New York City Human Rights Law; and (5) violations of the Fair Labor Standards Act (FLSA) and the New York Labor Law. Id. at 15-19, ¶¶ 32-56.
On September 7, 2022, the District Judge dismissed the fourth and fifth counterclaims pursuant to Fed.R.Civ.P. 12(c). At the close of discovery, defendants moved for summary judgment on all of plaintiff's claims. (Dkt. 81.) On January 4, 2024, the District Judge granted the motion as to the first, second, third, and fourth claims, dismissing them with prejudice, see Bronx Conservatory of Music, 2024 WL 53569, at *3-7, and declined to exercise supplemental jurisdiction over the remaining state law claims. Id. at *8.
Kwoka abandoned his Title VII claim after the Conservatory pointed out that he failed to make a timely complaint to the Equal Employment Opportunity Commission before filing suit. See Bronx Conservatory of Music, Inc. v. Kwoka, 2022 WL 4096069, at *3 (S.D.N.Y. Sept. 7, 2022). He opposed plaintiff's motion to dismiss his other counterclaims, but Judge Torres held that his allegations were "plainly insufficient" to state a claim for overtime pay under the FLSA and declined to retain jurisdiction over any remaining state law counterclaims. Id. Thereafter, Kwoka attempted to replead his FLSA claim, but that motion was denied on futility grounds. Bronx Conservatory of Music, Inc. v. Kwoka, 2022 WL 18143883, at *4 (S.D.N.Y. Oct. 28, 2022), report and recommendation adopted, 2023 WL 122036 (S.D.N.Y. Jan. 6, 2023).
On January 30, 2024, defendants asked the Court to "reopen[] this action" so that it could seek fees under the Copyright Act, the Lanham Act, the DTSA, and the "Court's inherent discretion to award fees in exceptional cases." Def. Mot. at 1. On February 1, 2024, the District Judge referred the application to me for report and recommendation. (Dkt. 98.) On February 7, 2024, plaintiff filed an opposing letter-brief (Pl. Opp.) (Dkt. 100), accompanied by the declaration of its counsel Roger S. Thompson (Thompson 2/7/24 Decl.) (Dkt. 100-1), and on February 10, 2024, defendants filed their reply letter-brief (Def. Reply) (Dkt. 101).
The parties' letters address defendants' entitlement to a fee award, not the amount of the award they seek. By Order dated February 2, 2024, I advised the parties that if the Court granted defendants' letter-motion, it would "set a schedule for the submission of the required time and expense records and permit briefing as to the amount of the award." (Dkt. 99.)
II. DISCUSSION
The parties agree that defendants are the prevailing parties on all of plaintiff's federal claims. However, prevailing parties are not automatically entitled to fees under any of the statutes upon which defendants rely. Rather, they must show that plaintiff's claims were "objectively unreasonable," that this was an "exceptional case," and/or that plaintiff filed its claims or conducted the litigation in "bad faith." Because several different fee-shifting standards are potentially applicable here, I discuss each in turn.
A. Copyright Act
Section 505 of the Copyright Act provides that a district court "may . . . award a reasonable attorney's fee to the prevailing party." 17 U.S.C. § 505. Although this provision "grants courts wide latitude to award attorney's fees based on the totality of circumstances in a case," Kirtsaeng v. John Wiley & Sons, Inc., 579 U.S. 197, 203 (2016), the Supreme Court has established "'several nonexclusive factors' to inform a court's fee-shifting decision: 'frivolousness, motivation, objective unreasonableness[,] and the need in particular circumstances to advance considerations of compensation and deterrence.'" Id. at 202 (quoting Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 n.19 (1994)) (alterations in original). No one factor is dispositive: the district court "must view all the circumstances of a case on their own terms, in light of the Copyright Act's essential goals" of "encouraging and rewarding authors' creations while also enabling others to build on that work." Kirtsaeng, 579 U.S. at 204, 209. However, "objective unreasonableness" is "an important factor" that "carries significant weight." Id. at 208-09.
1. Objective Unreasonableness
A copyright claim is "objectively unreasonable" when it has "no legal or factual support." Capitol Recs., LLC v. ReDigi Inc., 2022 WL 1046463, at *5 (S.D.N.Y. Apr. 7, 2022) (Sullivan, J.) (quoting Viva Video, Inc. v. Cabrera, 9 Fed.Appx. 77, 80 (2d Cir. 2001)); see also Penguin Books U.S.A. v. New Christian Church of Full Endeavor, Ltd., 2004 WL 728878, at *3 (S.D.N.Y. April 6, 2004) (a claim is objectively unreasonable when it is "clearly without merit or otherwise patently devoid of [a] legal or factual basis"). It is well-settled that "the grant of a motion for summary judgment does not in itself render a claim unreasonable." Insurent Agency Corp. v. Hanover Ins. Co., 2020 WL 86813, at *5 (S.D.N.Y. Jan. 8, 2020), report and recommendation adopted sub nom. Insurent Agency Corp. v. Hanover Ins. Grp., Inc., 2020 WL 1080774 (S.D.N.Y. Mar. 6, 2020); see also Kirtsaeng, 579 U.S. at 208 (cautioning courts against "confus[ing] the issue of liability with that of reasonableness"); Penguin Books, 2004 WL 728878, at *2 ("The mere fact that a defendant prevailed . . . 'does not necessarily mean that the plaintiff's position was frivolous or objectively unreasonable'") (quoting Arclightz and Films Pvt. Ltd. v. Video Palace, Inc., 2003 WL 22434153, at *3 (S.D.N.Y. Oct. 24, 2003)).
Here, although plaintiff lost its copyright claim at summary judgment, I cannot conclude that the claim was "patently devoid" of a legal or factual basis. Penguin Books, 2004 WL 728878, at *3. On July 5, 2020, after Kwoka resigned, the Conservatory's board of directors sent him a proposed letter-agreement "articulating [the board's] expectations for [Kwoka's] role in transitioning the duties and responsibilities of the Executive Director to an Interim Executive Director." 7/5/20 Ltr. (Dkt. 81-4) at 1. The document contemplated that the Conservatory would pay Kwoka $44 per hour for time spent training his successor, plus a $2500 bonus, at the end of the transition period, conditioned on (among other things) Kwoka "signing a standard separation agreement including clauses covering confidentiality and non-disparagement[.]" Id. at 4-5. The letter asked Kwoka to "respect the confidential nature of [the Conservatory's] proprietary information, assets, processes, etc.," id. at 5, and provided a space for him to countersign it under the statement, "I agree to work with the Board of Directors and the Interim Executor Director in effecting a smooth transition of Executive Director responsibilities according to the terms described above." Id.
On July 7, 2020, Kwoka wrote in an email that he had "decided . . . not [to] sign the letter in its current state." See 7/7/2020 Email (Dkt. 81-5) at 1. Kwoka instead proposed that he be paid $44 per hour while training the Interim Executive Director and that he keep the Lenovo computer issued to him by the Conservatory. Id. Kwoka represented that "[t]he computer itself does not have any proprietary information on it that belongs to [the Conservatory] and does not have any working applications on it that relate to [its] operational tasks," id., but gave no other assurances regarding the Conservatory's confidential or proprietary information.
On January 27, 2021, after Kwoka launched the School, plaintiff sent him a cease-and-desist letter stating it had come to the Conservatory's attention that Kwoka was "operating a competing music school in the Bronx and, in doing so, [] violat[ed] [his] obligations to respect the intellectual property rights of the Conservatory." Desist Ltr. at 1. Specifically, the Conservatory charged that Kwoka was soliciting its students and faculty "to start up [his] competing school." Id. According to the letter, Kwoka obtained the contact information he used for his solicitation efforts "because of [his] position as Executive Director of the Conservatory" and because he had "retained possession of the Conservatory's laptop[.]" Id. Plaintiff added that it "appeared" that Kwoka was utilizing, on behalf of the School, teaching materials that were "developed at great expense by the Conservatory," were "not publicly available," were the "proprietary property of the Conservatory," and were "protected by the U.S. Copyright Law." Id.
The Conservatory demanded that Kwoka "cease and desist from any activities which will further damage the Conservatory" including using confidential "student lists (potential and actual), teacher lists (potential and actual) and the Conservatory's instructional curriculum and materials"; using the Conservatory's "copyrighted materials as a basis for your school's curriculum"; and "[s]oliciting students and former students of the Conservatory using confusing and/or misleading language." Desist Ltr. at 2. As noted above, Kwoka did not respond to the cease-and-desist letter. Thompson 4/28/23 Decl. ¶ 4. Plaintiff filed this action one month later, alleging, on information and belief, that defendants copied - and therefore infringed plaintiff's registered copyrights in -the Conservatory's written Curriculum Materials, which were developed during Kwoka's tenure as Executive Director and provided "a detailed course of instruction in music theory, concerning music fundamentals such as note reading and rhythmic notation, solfege, scales, intervals, music terminology, introductory harmony, and sight-reading." Compl. ¶¶ 11-14, 37-39. See also id. Exs. A-B (copyright registrations).
Plaintiff argues that when it filed this action it "reasonably believed" that defendants were using its Curriculum Materials, because (i) the School's website described a "three-year music theory course" which covered "music fundamentals such as note reading and rhythmic notation, solfege, scales, intervals, musical terminology, introductory harmony, and sight-reading"; (ii) the School could not have developed its own curriculum materials in the short period of time between Kwoka's resignation from the Conservatory and the launching of the School; and (iii) Kwoka made no effort to deny copyright infringement when he received the cease-and-desist letter. See Pl. Opp. at 3-4. On these facts, I agree that plaintiff's suspicions were warranted and that - particularly after Kwoka ignored the cease-and-desist letter - the Conservatory had a reasonable basis for believing that its factual allegations concerning the copying of its Curriculum Materials would have direct evidentiary support once it was able to conduct discovery. I therefore conclude that plaintiff's copyright claim was not objectively unreasonable when filed. For the same reasons, the claim cannot be characterized as frivolous. See Insurent Agency, 2020 WL 86813, at *6 ("Implicit in the conclusion that Plaintiffs' copyright claim is not objectively unreasonable is the finding that its claim was not devoid of legal or factual support. The Court accordingly concludes, for the reasons discussed above, that Plaintiffs' claim was not frivolous.").
Defendants argue that, even if the copyright claim was objectively reasonable when filed, fees are warranted because plaintiff failed to dismiss the claim after learning, at Kwoka's deposition, that the School had no written curriculum materials at all. See Def. Reply at 3; Kwoka Dep. Tr. (Dkt. 100-2) at 325:13 ("It was in my head."). In fact, plaintiff repeatedly offered to withdraw the copyright claim, beginning on March 7, 2022 (three days after the Kwoka deposition concluded), when it proposed that it drop that claim in exchange for defendants' agreement to drop their copyright-related affirmative defenses and counterclaim. See Thompson 2/7/24 Decl. Ex. B (Dkt. 100-3). According to plaintiff, defendants never responded. See Pl. Opp. at 4. According to defendants, they did respond, eight months later, when they rejected plaintiff's offer in a November 2, 2022 email. See Def. Reply at 3. On November 10, 2022, plaintiff again offered, by email, to drop its copyright claim - this time with no conditions. Id.
Defendants describe their November 2 email and plaintiff's November 10 email in their reply letter-brief. See Def. Reply at 3. Although they failed to submit admissible copies of either document, I have credited defendants' account for purposes of this Report and Recommendation.
Thereafter, neither side took any action until January 4, 2023, when defendants advised Judge Torres in a pre-motion letter that they intended to move for summary judgment on all of plaintiff's claims, including the copyright claim. (Dkt. 77 at 2.) On January 12, 2023, plaintiff responded that it "remain[ed] willing to drop its copyright claim[]," which would make a summary judgment motion unnecessary. (Dkt. 79 at 2.) However, on March 4, 2023, when defendants filed their summary judgment papers, they briefed the copyright claim on the merits, arguing that the Curriculum Materials were co-written by Kwoka and another Conservatory employee, while Kwoka was its Executive Director, but that the "work for hire" doctrine did not apply, and consequently that plaintiff could not "prove ownership" of the copyrighted works. (Dkt. 81-1 at 11.) In its own summary judgment papers, plaintiff reiterated that it "no longer presses the copyright claim," and agreed that it should be dismissed. (Dkt. 87 at 25-26.) Accordingly, Judge Torres deemed the copyright claim "abandoned" and dismissed it without further analysis. Bronx Conservatory of Music, 2024 WL 53569, at *6.
Although plaintiff could not drop the copyright claim unilaterally once defendants answered, see Fed. R. Civ. P. 41(a)(1)(A)(i), (a)(2), the claim could easily have been dismissed by means of a one-page stipulation pursuant to Fed.R.Civ.P. 41(a)(1)(A)(ii). It is unclear from the record why neither side prepared such a stipulation and presented it to the other side for signature.
Fees can be awarded, in a copyright case, where a party insists on pressing a claim or defense after learning that it lacks factual support. See, e.g., Capitol Recs., 2022 WL 1046463, at *6 (awarding fees where defendant's initial legal arguments were reasonable but "[t]he factual contentions it put forth in its summary judgment briefing . . . were at odds with the record, and therefore objectively unreasonable"). Here, however, it was defendants who - seemingly unable to take yes for an answer - continued to litigate plaintiffs copyright claim after plaintiff repeatedly told them (and the Court) that it was willing to withdraw it. Under the circumstances, it would be inappropriate to shift defendants' self-inflicted costs to plaintiff.
2. Motivation
"[A] party is improperly motivated where it asserts claims 'not because of [their] inherent merit,' but rather because it seeks to 'knowingly gamble[ ] on an unreasonable legal theory in order to achieve a secondary gain,'" such as "'the leveraging of a settlement.'" Agence France Presse v. Morel, 2015 WL 13021413, at * 5 (S.D.N.Y. Mar. 23, 2015) (quoting Torah Soft Ltd. v. Drosnin, 2001 WL 1506013, at *5 (S.D.N.Y. Nov. 27, 2001)), aff'd sub nom. Presse v. Morel, 645 Fed.Appx. 86 (2d Cir. 2016). But "where a court 'has no reason to doubt that, throughout the litigation, [a party] sincerely believed that [its work] was entitled to copyright protection and pursued [its] claim for the purpose of vindicating [its] rights,' that fact 'weighs against awarding costs and attorneys' fees against [it].'" Effie Film, LLC v. Pomerance, 2013 WL 1759560, at *4 (S.D.N.Y. Apr. 24, 2013) (quoting Silverstein v. Penguin Putnam, Inc., 2008 WL 678559, at *4 (S.D.N.Y. Mar. 12, 2008)).
Defendants assert that plaintiff's "true motive" in bringing this action was "vengeance and elimination of competition," and that this was "obvious and apparent to Plaintiff's own faculty, parents of students, and 3 board members, all of whom signed various declaration in support of Mr. Kwoka, disclaiming [the Conservatory's] allegations." Def. Reply at 2. However, after review of the referenced declarations (submitted by defendants in support of their motion for summary judgment), I conclude that while the decision to sue the School and Kwoka was controversial within the Conservatory community, there is no solid evidence that plaintiff advanced its copyright claim to pursue "vengeance" against Kwoka, or to eliminate competition, rather than to protect its intellectual property.
The declarations of Conservatory parents, teachers, and (former) board members focus, for the most part, on Kwoka's talents as a music teacher and school director, and lament what they view as the Conservatory's poor judgment in failing to retain his services. See, e.g., Egorova Decl. (Dkt. 81-10) at 1-2; Soukhovetski Decl. (Dkt. 81-11) at 2-3; Ko Decl. (81-12) at 1-2; Radovic Decl. (Dkt. 18-16) at 1; Desmarais Decl. (Dkt. 81-18), at 2-3. A few declarants noted that the relationship between Meyer and Kwoka deteriorated toward the end of Kwoka's tenure at the Conservatory, see, e.g., Tineo Decl. (Dkt. 81-14) at 2; Ghadimi Decl. (Dkt. 81-19) at 2, or after he resigned, see Soukhovetski Decl. at 3; Betson Decl. (Dkt. 81-17) at 2. While this testimony tends to show a contentious relationship between Meyer and Kwoka, it does not follow that the Conservatory brought this action for improper purposes. The same is true with respect to the declarations of parents and former board members who disagreed with the decision to litigate. See, e.g., Armstrong Decl. (Dkt. 81-15) at 2 ("[I]t's a true shame that both schools' effort is diverted to this litigation instead of being put in good use."); Egorova Decl. at 3 (attesting that she resigned from the Conservatory board in January 2021 in protest of the decision to sue Kwoka).
Only two declarants directly address the Conservatory's motivation for bringing this action. One parent of a Conservatory student attested that she "believe[d] this lawsuit is nothing more than Mr. Meyer's vengeance against Philip [Kwoka]." Ghadimi Decl. at 2. However, she offered no basis for that belief beyond her observation that there was "growing conflict" between the two men, who "didn't share [a] common vision for the future of the program." Id. Similarly, a former Conservatory board member attested that he was "shocked" to learn that Meyer "decided to file a lawsuit against Philip Kwoka and his newly formed music school, for what seem to be unsubstantiated claims with a true motive of shutting down his operations." Ko Decl. at 3. In Ko's view, plaintiff's claims were "unsubstantiated" because Kwoka "co-wrote the curriculum and workbooks for which he is being sued," and because the faculty he "poached" "consisted of his close friends that he had recruited for the [Conservatory] and who had voiced their protests the eve of his departure." Id. While this testimony tends to show that plaintiff's DTSA claim was weak (at least as applied to plaintiff's faculty list), Ko offers no other support for his speculation as to Meyer's "true motive."
The fact that Kwoka co-wrote the Curriculum Materials does not, without more, show that plaintiff's copyright infringement claim lacked merit. To the contrary: under the Copyright Act, "a person's status as an employee renders a work created within the scope of employment as a work for hire, as to which the copyright belongs to the employer (in the absence of a contract providing otherwise)." Martha Graham Sch. & Dance Found., Inc. v. Martha Graham Ctr. of Contemp. Dance, Inc., 380 F.3d 624, 636 (2d Cir. 2004); see also 17 U.S.C. § 101 (defining a "work made for hire" as, inter alia, "a work prepared by an employee within the scope of his or her employment"). In their summary judgment papers, defendants argued that Kwoka's creation of the Curriculum Materials was not within the scope of his employment as its Executive Director, and therefore that the copyright did not belong to the Conservatory. (Dkt. 81-1 at 11.) As noted above, however, the District Judge did not reach this issue, and it was never resolved.
Taken as a whole, defendants' declarations fail to establish that the Conservatory "knowingly gamble[d] on an unreasonable legal theory in order to achieve a secondary gain." Agence France Presse, 2015 WL 13021413, at *5. Moreover, as noted above, plaintiff had a reasonable basis for filing its copyright claim in 2021, and repeatedly offered to withdraw that claim, beginning in early 2022, as soon as Kwoka testified that he did not use any written curriculum materials at the School. These facts further undermine defendants' contention that plaintiff's copyright claim was filed or maintained for improper purposes.
3. Deterrence and Compensation
In considering a fee request under § 505 of the Copyright Act, the court properly considers "the need in particular circumstances to advance considerations of compensation and deterrence." Fogerty, 510 U.S. at 535 n.19 (quoting Lieb v. Topstone Industries, Inc., 788 F.2d 151, 156 (3d Cir. 1986)); accord Kirtsaeng, 579 U.S. at 202. In their moving letter, defendants refer to the Conservatory as a "resourceful party" out to "financially exhaust" defendants, see Def. Mot. at 1, and in their reply letter, they return to this theme, arguing that fees should be awarded because Kwoka had to rely on "financial support" from his father to defend this action. Def. Reply at 4. To the extent that this is intended as an argument for either "compensation" or "deterrence," it fails.
The record shows that neither the Conservatory nor the School is well-resourced. The primary reason that the Conservatory failed to offer Kwoka the full-time contract he requested in 2020 was its precarious financial condition, worsened by the COVID pandemic. See, e.g., 7/5/20 Ltr. at 2 (explaining that Kwoka's part-time compensation of approximately $41,000 constituted "11.8% of our projected expenses for FY20," and that "at this stage of its growth, [the Conservatory] is not large enough to afford a full-time Executive Director with compensation in the range you are seeking"). Nor is there any evidence that the Conservatory has a history of bringing abusive litigation. Thus, although plaintiff's decision to initiate this action may appear unwise in retrospect (as it did to some members of the Conservatory community at the time), an award of fees is not, in my judgment, necessary or appropriate to advance considerations of compensation or deterrence. For this reason as well, defendants' motion for fees pursuant to § 505 of the Copyright Act should be denied.
B. Lanham Act
The Lanham Act provides for fee shifting in "exceptional cases." 15 U.S.C. § 1117(a). An "exceptional" case is "one that stands out from others with respect to the substantive strength of a party's litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated." Sleepy's LLC v. Select Comfort Wholesale Corp., 909 F.3d 519, 530 (2d Cir. 2018) (quoting Octane Fitness, LLC v. ICON Health & Fitness, Inc., 572 U.S. 553-54 (2014)). The fact that a Lanham Act claim is dismissed on summary judgment is not enough to render the case "exceptional," so as to warrant a fee award. See, e.g., Hamptons Locations, Inc. v. Rubens, 2011 WL 11076458, at *4 (E.D.N.Y. Feb. 14, 2011) (collecting cases), report and recommendation adopted, 2013 WL 6234636 (E.D.N.Y. Dec. 2, 2013); Elements/Hill Schwartz, Inc. v. Gloriosa Co., 2002 WL 31133391, at *3 (S.D.N.Y. Sept. 26, 2002) ("[Plaintiff's efforts to support its claims, although insufficient to prevent summary judgment for its adversaries, were not so exceptionally meritless as to meet the standard required by the controlling case law.").
In determining whether a case is "exceptional," courts in this Circuit rely on the same "nonexclusive list of factors enumerated in Fogerty in the Copyright Act context: frivolousness, motivation, objective unreasonableness (both in the factual and legal components of the case) and the need in particular circumstances to advance considerations of compensation and deterrence." Louis Vuitton Malletier, S.A. v. My Other Bag, Inc., 764 Fed.Appx. 39, 41 (2d Cir. 2019) (internal quotation marks and citations omitted). Additionally, as Judge Cott noted in Insurent Agency, most cases awarding fees under the "exceptional cases" standard "involve substantial litigation misconduct." 2020 WL 86813, at *8 (quoting Small v. Implant Direct Mfg. LLC, 2014 WL 5463621, at *3 (S.D.N.Y. Oct. 23, 2014)); see, e.g., Romeo & Juliette Laser Hair Removal, Inc. v. Assara I LLC, 2016 WL 1328936, at *3 (S.D.N.Y. Apr. 5, 2016) (awarding fees where "bad faith litigation tactics" necessitated "burdensome and time-consuming" responsive measures), ifd, 679 Fed.Appx. 33 (2d Cir. 2017).
Here, as in Hamptons Locations, defendants "do not spend much time analyzing the legal sufficiency of plaintiff['s] claims, relying instead on hindsight and the end result of the case." 2011 WL 11076458, at *5. Moreover, nothing in the District Judge's summary judgment decision requires the conclusion that plaintiff's Lanham Act claim was "exceptionally meritless," much less that plaintiff engaged in "bad faith litigation tactics." See Bronx Conservatory of Music, 2024 WL 53569, at *7 (granting summary judgment to defendants after determining that only two of the eight Polaroid factors supported plaintiff's claim). I therefore conclude that this case is not "exceptional," and that a fee award under the Lanham Act is unwarranted.
Plaintiff alleged that defendants violated § 43(a) of the Lanham Act, 15 U.S.C. § 1125(a), by confusing Conservatory students and parents into "believing that the School was somehow associated with or a continuation of the Conservatory." Compl. ¶¶ 23, 44(b). In support of that claim, plaintiff presented evidence of "actual confusion," namely, that one parent mistakenly enrolled his children in the School, believing that defendants' registration materials were "sent by my daughter's program director at [the Conservatory]." Armstrong Decl. at 2. Although the same parent later explained that this was "a simple and honest mistake on my part," id. (causing the District Judge to discount the incident as "de minimis" and "insufficient to raise triable issues," Bronx Conservatory of Music, 2024 WL 53569, at *7), the fact that the mistaken enrollment occurred at all provides further support for plaintiff's contention that it filed and prosecuted its Lanham Act claim "in good faith." Pl. Opp. at 2.
C. Defend Trade Secrets Act
Under the DTSA, a district court may award "reasonable attorney's fees" to a prevailing defendant where, among other things, "a claim of the misappropriation is made in bad faith, which may be established by circumstantial evidence[.]" 18 U.S.C. § 1836(b)(3)(D). Although the Second Circuit has not defined "bad faith" in the context of the DTSA, it has held (in a case brought under Equal Access to Justice Act) that "[i]n order to award bad faith fees, the district court must find that the losing party's claim was (1) meritless; and (2) brought for improper purposes such as harassment or delay." Kerin v. United States Postal Service, 218 F.3d 185, 190 (2d Cir. 2000) (quoting Sierra Club v. United States Army Corps of Eng'rs, 776 F.2d 383, 390 (2d Cir.1985)); see also Insurent Agency, 2020 WL 86813, at *8 (adopting the Kerin definition for use in determining a fee application under the DTSA)."The test is conjunctive and neither meritlessness alone nor improper purpose alone will suffice." Sierra Club, 776 F.2d at 390.
Plaintiff's DTSA claim alleged that defendants misappropriated its confidential Student List, Faculty List, and Donor List, and used them to "lure away" students, faculty, and benefactors to the School. Compl. ¶¶ 9-10, 20-22, 26-31. Judge Torres granted summary judgment to defendants on the DTSA claim (and on plaintiff's parallel state law trade secrets claim) because (i) the Conservatory submitted no admissible evidence countering Kwoka's statement that he did not use the Student List, relying instead on his personal cellphone, which contained the names and contact information of various "individual students," Bronx Conservatory of Music, 2024 WL 53569, at *4-5; (ii) the Faculty List was not a trade secret, since the Conservatory "publishes a list of its faculty on its website, making their identities 'readily ascertainable' to the general public," id. at *5 (quoting Am. Inst. of Chem. Engineers v. Reber-Friel Co., 682 F.2d 382, 387 (2d Cir. 1982)); (iii) the Donor List likewise was not a trade secret, since the names of the Conservatory's donors can be found in "widely available private and public databases as well as government records," id.; and (iv) "as with the Faculty and Student Lists, the Conservatory points to no evidence to controvert Kwoka's statement that he did not use the Donor List in reaching out to potential benefactors." Id.
The District Judge's summary judgment analysis suggests that, to the extent premised on the Faculty List or the Donor List, plaintiff's DTSA claim was meritless from the outset. See Telerate Sys., Inc. v. Caro, 689 F.Supp. 221,232 (S.D.N.Y. 1988) ("a trade secret [must] be veiled in sufficient secrecy that 'except by use of improper means, there would be difficulty in acquiring the information'") (quoting Q-Co Indus., Inc. v. Hoffman, 625 F.Supp. 608, 617 (S.D.N.Y. 1985)) (internal citations and quotation marks omitted). However, Judge Torres did not find that the Student List failed to qualify as a trade secret; rather, the Conservatory lost this aspect of its DTSA claim because it was unable to adduce evidence showing that Kwoka used the Student List in his solicitation efforts (as opposed to relying on the contact information he had obtained lawfully from "individual students and their families"). Bronx Conservatory of Music, 2024 WL 53569, at *5. "In short," the claim "failed as a matter of proof," Insurent Agency, 2020 WL 86813, at *9 (emphasis in original), which does not show that it was "wholly without merit," much less that it was "brought in bad faith." Id. Further, for the same reasons discussed above, plaintiff has not shown that this action was "brought for improper purposes such as harassment or delay." Kerin, 218 F.3d at 190. A fee award under the DTSA is therefore unwarranted.
D. Inherent Power
"A court may sanction a party under its inherent power to deter abuse of the judicial process and prevent a party from perpetrating a fraud on the court." Yukos Cap. S.A.R.L. v. Feldman, 977 F.3d 216, 235 (2d Cir. 2020). However, "the Supreme Court has made clear that courts should impose sanctions pursuant to their inherent authority only in rare circumstances." Id. (citing Chambers v. NASCO, Inc., 501 U.S. 32, 44 (1991)). In order to impose fee-shifting as a sanction pursuant to its inherent power, the district court "must find that: (1) the challenged claim was without a colorable basis and (2) the claim was brought in bad faith, i.e., motivated by improper purposes such as harassment or delay." Schlaifer Nance & Co., Inc. v. Estate of Andy Warhol, 194 F.3d 323, 336 (2d Cir. 1999) (reversing sanctions order). "[A] claim is entirely without color when it lacks any legal or factual basis." Id. at 337 (alteration in original) (quoting Sierra Club, 776 F.2d at 390). Moreover, the sanctioned party's bad faith must be proven by "clear evidence." Cretella v. Liriano, 370 Fed.Appx. 157, 159 (2d Cir. 2010) (quoting United States v. Int'l Bhd. of Teamsters, 948 F.2d 1338, 1345 (2d Cir. 1991)). "This is a separate and higher burden than establishing that a case is 'exceptional' for purposes of [15 U.S.C. § 1117(a)]." Am. Infertility of New York, P.C. v. Deep Blue Health New Zealand Ltd., 2019 WL 10786023, at *10 (S.D.N.Y. Dec. 30, 2019), report and recommendation adopted, 2020 WL 4218261 (S.D.N.Y. July 23, 2020).
In this case, as discussed above, plaintiff's claims were not without a colorable basis, and there is no "clear evidence" of bad faith on plaintiff's part. Accordingly, defendants are not entitled to a fee award pursuant to this Court's inherent authority.
III. CONCLUSION
For the reasons set forth above, I recommend, respectfully, that defendants' motion (Dkt. 97) be DENIED.
NOTICE OF PROCEDURE FOR FILING OF OBJECTIONS TO THIS REPORT AND RECOMMENDATION
The parties shall have fourteen days from the service of this report and recommendation to file written objections pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil Procedure. See also Fed.R.Civ.P. 6(a), (d). A party may respond to another party's objections within fourteen days after being served with a copy. Fed.R.Civ.P. 72(b)(2). Any such objections shall be filed with the Clerk of the Court, with courtesy copies delivered to the Hon. Analisa Torres at Daniel Patrick Moynihan United States Courthouse, 500 Pearl Street, New York, New York 10007. Any request for an extension of time to file objections must be directed to Judge Torres. Failure to file timely objections will preclude appellate review. See Thomas v. Arn, 474 U.S. 140, 155 (1985); Frydman v. Experian Info. Sols., Inc., 743 Fed.Appx. 486, 487 (2d Cir. 2018) (summary order); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010).