OPINION AND ORDER
Plaintiff Versatile Housewares & Gardening Systems, Inc., (“Versatile”) brought this action in September 2009 against De
I. Background
A. Facts
The facts of the underlying action are largely irrelevant to the pending motions, so what follows is only a brief summary, as alleged by the Parties. Between 2000 and 2004, Versatile, a company based in Cambridge, Wisconsin, developed three versions of a gardening tool designed primarily for the disabled and began selling them under the trademarks “Ground Aug,” “Awesome Auger,” and “Weed Aug.” (SAC ¶¶ 3, 17-20.) In October 2005 Versatile acquired U.S. Patent 6,955,227 (“the '227 patent”), the scope of which is disputed. (Id. ¶ 21.) 2 In November 2006 Versatile and SAS began negotiating a distribution agreement for Versatile’s tools. (Deck of Scott Sobo in Supp. of Def./Counterclaim and Third-Party Pl. SAS Group, Inc.’s Mot. for Partial S.J. (“Sobo Deck”) (Dkt. No. 117) ¶ 3). These negotiations culminated in the parties executing two agreements in late December 2006: the Distribution Agreement, whereby SAS acquired exclusive rights to manufacture, sell, and market the tools allegedly covered by the '227 patent in exchange for royalty payments to Versatile (Distribution Agreement ¶¶ 1.1, 3.1); and a Patent Assignment Agreement (Griggs Deck Exh. B.), whereby Versatile assigned the '227 patent to SAS. (Versatile Rule 56.1 Statement (Dkt. No. 129) ¶¶ 1, 3; Sobo Deck ¶¶ 4, 8.)
The agreements both contain forum selection clauses designating New York as the parties’ chosen forum for resolving any disputes that might arise relating to them. The Distribution Agreement provides that its “[i]nterpretation and enforcement” are to be governed by New York law, (Distribution Agreement ¶ 8.1), and that:
[a]ny dispute which may arise under this Agreement or concerning any businessdispute between the parties to this Agreement, shall be resolved by the State or Federal Courts located in the State of New York, Westchester County. The parties agree to submit to the jurisdiction of all such courts for the purpose of resolving any such dispute(s). The judgment of such court(s) shall be granted full faith and credit by the courts of all such other countries where the parties may be located at the time such judgment is entered.
(Id. ¶ 8.2.) Similarly, the Patent Assignment Agreement provides:
This agreement shall be construed in accordance with, and governed in all respects by, the laws of the State of New York, without regard to conflicts of law principles. Any dispute concerning this assignment shall be resolved by courts located in the State of New York and the Parties consent to the jurisdiction of such courts for that purpose.
(Patent Assignment Agreement ¶ 5.)
In June 2008, SAS stopped making royalty payments to Versatile. (SAC ¶ 36.) According to SAS, this was after it came to SAS’s attention that Versatile was selling a competing gardening tool that was nearly identical to that distributed by SAS. (Sobo Decl. ¶ 10.) Until that point, SAS had believed that Versatile’s new product was covered by the '227 patent, which had been assigned to SAS pursuant to the Patent Assignment Agreement. (Id. ¶ 18; Exh. D, at 2.) SAS then “conducted a review” of the '227 patent and the product which SAS had been selling under the trademark “Awesome Auger,” and determined that this product “did not fall within the claims of’ the patent. (Id. ¶¶ 11-12.) Because of this, SAS cut off its royalty payments and demanded both reimbursement of all previously paid royalties and so-called “reverse royalty” payments from Versatile. (Id. ¶ 15; Exh. D, at 2-3.) Meanwhile, Versatile alleges, although it was understood between the parties that Versatile would maintain ownership of the products’ trademarks (SAC ¶¶ 26-30), when SAS stopped making royalty payments it nevertheless also filed its own trademark applications for the “Awesome Auger,” “Ultimate Awesome Auger,” and “Ultimate Auger” marks on behalf of Jordan Drew, an affiliated company, (id. ¶¶ 37-38). Versatile alleges that SAS acquired these marks by making false and misleading statements to the U.S. Patent and Trademark Office concerning the ownership of the “Awesome Auger” mark. (Id. ¶ 37.)
The Distribution Agreement terminated on January 1, 2009, Versatile alleges, due to SAS’s failure to make its royalty payments. (SAC ¶ 39); see also Distribution Agreement ¶ 1.2 (providing for automatic two-year renewals from January 1, 2007, “for so long as [SAS] shall comply with all its obligations under this Agreement”). During the spring and summer of 2009, both parties sought royalty payments and reimbursements that each allegedly owed the other. (SAC ¶¶ 40-43; Sobo Decl. ¶¶ 16-18.)
B. Procedural History
Versatile filed the initial complaint in this action in the Eastern District of Wisconsin on September 3, 2009. (Compl. (Dkt. No. 1).) Versatile’s Complaint asserted claims for violations of the Lanham Act and Copyright Act, for trademark infringement under Wisconsin law, and for common law trademark infringement, fraud, and breach of the Distribution Agreement.
(Id.
¶ 1.) Versatile named SAS and Jordan Drew as defendants, as well as two Wisconsin corporations, Thill Logistics, Inc., (“Thill”) and NAT, LLC (“NAT”); Versatile alleged that Thill and NAT acted essentially as distributors of
As relevant to the pending motions here, SAS and Jordan Drew moved to dismiss the case for improper venue and lack of personal jurisdiction or, in the alternative, to transfer the case to this Court, pointing to the forum selection clauses of the Distribution and Patent Assignment Agreements. (Dkt. No. 13; Defs. SAS Group, Inc. & Jordan Drew Corp.’s Br. in Supp. of Their Mot. to Dismiss (Dkt. No. 14) 9.) On December 4, 2009, the Wisconsin District Court entered an order transferring the case to this Court pursuant to 28 U.S.C. § 1404(a), based on those provisions.
See Versatile Housewares & Gardening Sys., Inc. v. Thill Logistics, Inc.,
No. 09-CV-846,
After the transfer, this Court denied the Parties’ competing motions for preliminary injunctions in April 2010. (Dkt. No. 96.) SAS then filed a motion for partial summary judgment on its counterclaim on June 18, 2010. (Dkt. No. 113.) It contends that Versatile’s decision to bring this action originally in Wisconsin constituted a knowing breach of the mandatory forum selection clause of the Distribution Agreement, and that SAS is therefore entitled to all damages stemming from Versatile’s breach, including the attorneys’ fees and costs expended to defend this case in Wisconsin and litigate its transfer to this Court. (Mem. of Law in Supp. of Def./Counterclaim and Third-Party Pl. SAS Group, Inc.’s Mot. for Partial S.J. (Dkt. No. 115) (“SAS Mem.”) 10-12.) SAS and Jordan Drew seek a total of $37,269.71 in damages; this figure includes the nearly $11,000 paid to local Wisconsin counsel and nearly $25,000 to SAS’s current counsel, along with prejudgment interest. (Id. at 11-12.) Versatile cross-moved for summary judgment on the counterclaim (Dkt. No. 127), contending that New York law does not allow for the recovery of attorneys’ fees under these circumstances and that the damages SAS seeks are excessive. (Pl.’s Mem. of Law in Supp. o[f] Its Mot. for Partial S.J. and in Opp’n to SAS’s Mot. for Partial S.J. (Dkt. No. 128) (“Versatile Mem.”) 2, 5.) The Court held oral argument on these motions on November 10, 2010. The Court denied both motions without prejudice in March 2010, after the Parties informed the Court that they were engaged in settlement discussions. (Dkt. No. 151.) These proved unsuccessful, and earlier this month the Parties asked to have the motions reinstated.
II. Discussion
A. Standard of Review
1. Summary Judgment
Pursuant to Federal Rule of Civil Procedure 56(a), summary judgment should be granted if the moving party shows that “there is no genuine dispute as to any material fact and the movant is entitled to
2. New York State Law
In the absence of a definitive ruling from the New York Court of Appeals, the Court’s task in deciding issues of New York law is to “predict how the state’s highest court would resolve” those issues.
Runner v. N.Y. Stock Exchange, Inc.,
B. Analysis
1. SAS’s Entitlement to Damages
To recover on its breach of contract claim, SAS must prove that: “(1) a contract existed between the parties; (2) [SAS has] in all respects complied with [its] obligations; (3) [Versatile’s] alleged failure constitutes a failure to perform its obligations under the contract; and (4) [SAS has] been damaged as a result of the defendant’s actions.”
Weiss v. La Suisse, Societe D'Assurances Sur La Vie,
Versatile concedes that a party may recover damages for breach of a forum selection clause as a general matter. (PL’s Reply in Supp. of Its Mot. for Partial S.J. and Further Opp’n to Def.’s Mot. for Partial S.J. (Dkt. No. 132) (“Versatile Reply”) 4.) This is consistent with New York law: not only has the First Department squarely held as much, in a case this Court will discuss further below,
see Indosuez Int’l Fin., B.V. v. Nat’l Reserve Bank,
Versatile raises three arguments why the Court nevertheless may not award damages in this case. First, Versatile contends that New York law prohibits a damages award, both in general and specifically with respect to the award of attorneys’ fees, when the non-breaching party has already received an equitable remedy against the same breach. (Versatile Mem. 2; Versatile Reply 2 n. 2.) According to this argument, the Eastern District of
a. Breach of the Forum Selection Clause
The Court will address this last argument first. In its reply brief, Versatile notes that the Eastern District of Wisconsin, in ordering the case transferred to this Court, did not actually conclude that Versatile had breached the forum selection clause; the court “merely enforced” the clause by ordering the transfer. (Versatile Reply 1 n. 1.) Versatile asserts, without analysis, that a genuine issue of fact therefore exists with respect to whether Versatile in fact did breach the clause, precluding summary judgment in favor of SAS.
(Id.)
Even if the Court were to credit this argument,
see Mosdos Chofetz Chaim, Inc. v. Vill. of Wesley Hills,
First, whether Versatile breached the Distribution Agreement is, in this case, a question that can be resolved on summary judgment because the only relevant facts — that Versatile brought this action in Wisconsin and the text of the forum selection clause — -are undisputed, and Versatile has not explained why the language of the clause is ambiguous.
See Omni Quartz, Ltd. v. CVS Corp.,
In light of the Transfer Order’s conclusion that the purpose of the clause was to vest jurisdiction and venue exclusively in Westchester County, New York, and applying the well-established rule that contracts in New York are to be interpreted in light of the parties’ intent,
see Nash v. Bd. of Educ.,
b. SAS’s Entitlement to a Damages Award in Addition to the Venue Transfer
As noted earlier, a plaintiff in a breach of contract action may recover both general and consequential damages — amounts that compensate the plaintiff both for the value of the promised performance and for additional losses the plaintiff suffered due to the failure to perform.
See, e.g., Schonfeld v. Hilliard, 218
F.3d 164, 175-76 (2d Cir.2000) (applying New York law);
Appliance Giant,
These principles apply not only to contract actions seeking solely money damages, but also to actions in equity seeking specific performance of contracts. It is well established in New York law that “[t]here is no inconsistency between an action for specific performance and an action for breach of contract.”
Judnick Realty Corp. v. 32 W. 32nd Street Corp.,
Versatile’s position — that the transfer of this case to this Court fully extinguished any right of SAS to collect damages for the breach — is clearly inconsistent with these principles, as the transfer alone does not fully compensate SAS for the losses it incurred from having to defend this action originally in Wisconsin, losses it would not have suffered had Versatile fully performed the contract. Had this action originally been filed in this Court, the Parties would not have litigated the preliminary injunction issues twice, as happened here
(see
Dkt. Nos. 4-7, 18-21 (relating to Versatile’s original motion for a preliminary injunction filed in Wisconsin)), SAS presumably would not have hired Wisconsin counsel at all, and, of course, the Parties would also have avoided litigation over the venue transfer. The costs SAS incurred in pursuing this litigation are costs that “naturally flow[ed]” from Versatile’s breach,
Freidus,
Versatile responds by invoking the well established New York rule that a court will not award specific performance when there is an adequate remedy at law, such as an action for damages. (Versatile Reply at 2 n. 2.)
See, e.g., La Mirada Prods. Co. v. Wassall PLC,
c. SAS’s Entitlement to Attorneys’ Fees as Damages
SAS principally seeks damages for the attorneys’ fees it expended defending this action in Wisconsin. (SAS Mem. 11-12; Decl. of John T.A. Rosenthal in Opp’n to Pl.’s Cross-Mot. for Partial S.J. and in Further Supp. of Def. SAS’s Mot. for Partial S.J. (“Rosenthal Decl.”) (Dkt. No. 125) ¶¶2-7.) Versatile contends that such an award would violate the “general rule in New York” that prevailing parties may not recover attorneys’ fees absent some provision in a contract between the parties, state statute, or court rule allowing fee recovery. (Versatile Mem. 2.) SAS responds that some courts in New York have allowed plaintiffs asserting claims for breach of forum selection clauses to recover attorneys’ fees and other litigation expenses. (Mem. of Law in Opp’n to Pl.’s Cross-Mot. for Partial S.J. and in Further Supp. of SAS’s Mot. for Partial S.J. (“SAS Reply”) (Dkt. No. 123) 6.)
New York follows the “American Rule” on the award of attorneys’ fees, meaning that “attorneys’ fees and disbursements are incidents of litigation and the prevailing party may not collect them from the loser unless an award is authorized by agreement between the parties or by statute or court rule.”
A.G. Ship Maintenance Corp. v. Lezak,
Finally, by court rule, New York courts may make awards of “actual expenses reasonably incurred and reasonable attorney’s fees, resulting from frivolous conduct” in civil litigation. N.Y. Comp.Codes R.
&
Regs. tit. 22, § 130-1.1(a). Conduct is “frivolous” under this rule if it “is completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law,” is undertaken primarily to delay litigation or to harass, or involves “material factual statements that are false.”
Id.
§§ 130-1.1(c)(1)-(3). The rule thus mirrors Federal Rule of Civil Procedure 11.
See Jewelers Vigilance Comm., Inc. v. Vitale Inc.,
No. 90-CV-1476,
Putting these court rules aside for the moment, no statute authorizes recovery of attorneys’ fees in this case. The Parties’ contracts also do not provide for fee awards. Neither the Distribution Agreement nor the Patent Assignment Agreement contains any provisions expressly referring to attorneys’ fees, with one exception not relevant here.
7
(The exception does indicate, however, that the Parties knew how to provide specifically for cost-shifting in their written agreements.) Although the incurring of attorneys’ fees may be a foreseeable result of the breach of a forum selection clause, the New York rule is that any contractual abrogation of the American Rule must be by
express
contractual provision.
See Mid-Hudson Catskill Rural Migrant Ministry, Inc. v. Fine Host Corp.,
The
Indosuez
opinion does not detail the facts of the case, but it appears that the lower court had permanently enjoined the defendant from pursuing certain foreign litigation, concluding that the defendant was in breach of the relevant agreement’s forum selection clause, and also awarded damages for the breach.
Indosuez,
The Court gives “proper regard” to these cases.
Runner,
The so-called
Shindler
exception to the American Rule is instructive.
Shindler
allows the recovery of fees incurred in prior litigation against
third parties
caused by a wrongful act, including a breach of contract, of the defendant.
See, e.g., Travelers,
Hunt
also demonstrates that, as a more general matter, the New York Court of Appeals has not expanded the narrow American Rule exceptions to recognize the
general
rule that SAS’s position would require this Court to adopt: that a party may recover attorneys’ fees from an opposing party whenever the fees can be characterized as “damages” resulting from the opposing party’s wrong, rather than as collateral consequences of litigation. Even when an opposing party’s conduct directly causes attorneys’ fees to be incurred, fee recovery is unavailable unless a
specific
exception applies. For instance,
Hunt
holds that attorneys’ fees are only recoverable in litigation
against a third party
from a defendant whose tort or breach of contract causes that litigation,
see id.,
even though either a tort or breach of contract makes litigation against the tortfeasor or breaching party itself eminently foreseeable. As another example, while an insured may recover litigation costs incurred
defending
a suit against a third party after the insurer declines to defend the claim, the insured may not recover costs incurred in suing the insurer to force the insurer to provide coverage,
see Doyle v. Allstate Ins. Co.,
The Second Circuit has held that New York law allows parties in certain circumstances to recover consequential damages, including litigation costs, resulting from a breach of a covenant not to sue — an arguably analogous context.
See Artvale, Inc. v. Rugby Fabrics Corp.,
Artvale
and its progeny are generally taken to be the Second Circuit’s view on New York law,
see, e.g., Lubrizol Corp. v. Exxon Corp.,
The
Artvale
rule — that “absen[t] ... contrary evidence,” no litigation expenses may be recovered for breaches of covenants not to sue unless the suit was “brought in obvious breach or otherwise in bad faith” — is not satisfied if the suit “is ultimately held to be in breach of a covenant not to sue, but ... was based on a reasonable and good faith argument either that the covenant did not bar the suit or that the covenant was obtained by unfair means.”
Bellefonte,
SAS responds that the argument was made in bad faith because there is some indication Versatile suspected at the time it filed its suit that the forum selection
Of course, in reality the fees SAS incurred in defending itself in Wisconsin were not “incident” to the substantive litigation in which SAS was involved; they were a loss — the primary loss — occasioned directly by Versatile’s breach of the clause.
Cf. Cefali v. Buffalo Brass Co.,
Because SAS may not recover the attorneys’ fees it incurred in litigating this case in Wisconsin, SAS’s motion for summary judgment on the counterclaim is DENIED with respect to those fees, and Versatile’s motion for summary judgment is GRANTED to the extent SAS seeks those fees.
The American Rule only precludes the recovery of attorneys’ fees, not other costs. The Court has determined that SAS is entitled to recover any damages it incurred that resulted from Versatile’s breach of the forum selection clause except its attorneys’ fees. SAS’s submissions do not indicate whether SAS claims damages from any other loss it suffered. Moreover, New York law requires the plaintiff in a breach of contract action to mitigate damages it incurs; failure to do so will result in the defendant not being charged with them. This duty to mitigate only extends to those damages “that the plaintiff could have avoided with reasonable effort and without undue risk, burden, or expense.”
U.S. Bank Nat’l Ass’n v. Abies & Hall Builders,
III. Conclusion
For the reasons stated herein, SAS’s motion for partial summary judgment is GRANTED except to the extent SAS claims to be entitled to attorneys’ fees; with respect to SAS’s claim for attorneys’ fees as contract damages, SAS’s motion is DENIED. Versatile’s motion for partial summary judgment is DENIED except to the extent SAS seeks attorneys’ fees.
SO ORDERED.
Notes
. The Court will refer to SAS and Jordan Drew collectively as "SAS” for purposes of these motions.
. It is also unclear from its complaint what Versatile believes the '227 patent covers. Versatile states only that it "filed a patent application directed to one variation of gardening tools” in September 2002, and that the '227 patent "issued from that application on October 18, 2005.” (SAC ¶ 21.)
. Specifically, both the Distribution Agreement and the Patent Assignment Agreement indicate that New York law should govern their interpretation and enforcement.
(See
Distribution Agreement ¶ 8.1; Patent Assignment Agreement ¶ 5.) Moreover, the Parties agree that New York law applies to the questions raised by these motions.
See Motorola Credit Corp. v. Uzan,
. Karpinski illustrates that, although this principle arises most often in cases involving buyers and sellers of real property, it is not confined to that context. Karpinski is also particularly relevant here, as a non-compete agreement is analogous to a forum selection clause in the sense that usually any breach will cause immediate harm that cannot be fully remedied by an injunction or other form of purely prospective relief (like the venue transfer in this case).
. The Court takes Versatile to be arguing that no damages may ever be awarded when a court has ordered the breach remedied by a transfer. It could well be that in some cases these expenses, or other legal costs, would have been incurred anyway even had the particular forum selection clause been performed. However, that goes only to the amount of damages recoverable by the non-breaching party, not to whether a damages award is legally available.
. This rule "is based upon the high priority accorded free access to the courts and a desire to avoid placing barriers in the way of those desiring judicial redress of wrongs."
A.G. Ship Maintenance,
. Specifically, the Distribution Agreement requires Versatile to cover SAS's costs in cases of patent infringement. (Distribution Agreement ¶ 6.2.)
. As Versatile points out, the other cases cited by SAS (see SAS Reply 7) do not involve the application of New York law.
.
Allendale
cited only two cases to support this conclusion. The first,
Fischer v. Bright Bay Lincoln Mercury, Inc.,
. Versatile seems to have known, or perhaps feared, that the forum selection clause applied to this action when it filed it, as evidenced by the fact that when SAS’s counsel sought Versatile’s consent for an extension of time to oppose Versatile’s motion for a preliminary injunction in Wisconsin, Versatile apparently refused to consent unless SAS agreed not to enforce the clause by moving to transfer this action. (See Rosenthal Decl. Exh. E.) Versatile’s counsel at oral argument disputed SAS's "characterization” of this conversation.
. In its reply memorandum, SAS states emphatically that it "is
not
asking the Court to sanction Versatile for frivolous conduct.” (SAS Reply 8 (emphasis in original).) Some New York cases have held that, in context, a party’s breach of a forum selection clause was not "frivolous” conduct under the New York court rules, precluding an award of attorneys' fees.
See, e.g., Sydney Attractions Grp. Pty Ltd. v. Schulman,