Montauk U.S.A., LLC v. 148 South Emerson Associates LLC
888 F.3d 13
2d Cir.2018Background
- Montauk U.S.A., LLC (owned solely by Doscher) owns trademarks for The Sloppy Tuna and licensed them to 148 South Emerson Associates LLC (Associates), a New York LLC owned 50/50 by Doscher and Meyer.
- After internal disputes and a New York state-court receivership over Associates, Montauk terminated the license on March 24, 2016 and filed a Georgia state lawsuit for contract-based relief; Montauk voluntarily dismissed that Georgia state action two days after the court expressed skepticism.
- Montauk then sued Associates (and sought a TRO/PI) in the Eastern District of New York under the Lanham Act for post-termination trademark infringement, unfair competition, cybersquatting, and dilution.
- Meyer (the 50% co-owner of Associates) appeared and filed pleadings "derivatively on behalf of" Associates; Montauk argued Meyer lacked derivative litigation/defense rights under New York law and sought default against Associates.
- The district court (1) allowed Meyer to defend derivatively under New York law, (2) dismissed Montauk’s federal action without prejudice under the first-filed rule in favor of the earlier-filed Georgia federal action, and (3) awarded Associates costs (including attorneys’ fees) under Fed. R. Civ. P. 41(d) for the dismissed Georgia state action. Montauk appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a 50% LLC member (Meyer) may litigate derivatively to defend Associates | Meyer lacks derivative defense rights under NY law; Associates should be defaulted | NY law permits derivative representation here; Receiver consent supports derivative defense | Court: Meyer could defend derivatively; district court correctly considered his filings |
| Whether the action should be dismissed under the first-filed rule in favor of the Georgia federal action | Georgia action filed earlier; but dismissal improper given forum-shopping concerns | First-filed Georgia federal action takes priority | Court: dismissal vacated because the Georgia federal action was later transferred to the same district judge — first-filed rule no longer controls |
| Whether Montauk’s EDNY Lanham claims are "based on or include the same claim" as the Georgia state action for Rule 41(d) | The actions differ (contract vs. Lanham Act; post-filing infringements) so Rule 41(d) doesn’t apply | Both suits rest on the same core dispute—ownership/right to use the marks—so Rule 41(d) applies | Court: Rule 41(d) applies; the EDNY action is based on the same underlying claim as the Georgia state action |
| Whether attorneys’ fees are recoverable as part of "costs" under Rule 41(d) | Attorneys’ fees not recoverable because Rule 41(d) doesn’t expressly include them | Rule 41(d) permits awarding attorneys’ fees as costs to deter forum shopping; district court has discretion | Court: Attorneys’ fees may be awarded under Rule 41(d); award affirmed |
Key Cases Cited
- AEP Energy Servs. Gas Holding Co. v. Bank of Am., N.A., 626 F.3d 699 (2d Cir. 2010) (explaining the first-filed rule and priorities between competing lawsuits)
- Tzolis v. Wolff, 10 N.Y.3d 100 (N.Y. 2008) (New York Court of Appeals: derivative standing rules for LLCs and members)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (U.S. 2007) (pleading-fact acceptance standard for complaint allegations)
- Marek v. Chesny, 473 U.S. 1 (U.S. 1985) (interpretation of "costs" in Rule 68 and inference about costs/fees language)
- Key Tronic Corp. v. United States, 511 U.S. 809 (U.S. 1994) (inquiry into whether a statutory term implies an intent to provide attorneys’ fees)
- Rogers v. Wal-Mart Stores, 230 F.3d 868 (6th Cir. 2000) (holding attorneys’ fees are not available under Rule 41(d))
- Andrews v. America’s Living Ctrs., LLC, 827 F.3d 306 (4th Cir. 2016) (discussing Rule 41(d)’s purpose as deterrent to forum shopping)