16

- 3912 Montauk U.S.A., LLC v. 148 South Emerson Associates LLC

1 

## In the 2 

# United States Court of Appeals 3 

## For the Second Circuit 4

________ 5

6 A UGUST T ERM , 201 7 7

8 A RGUED : O CTOBER 5

, 2017 9
D ECIDED : A PRIL 20, 201 8 10

11 No. 16

- 3912

- cv 12

13
M ARK H OROWITZ
, 14 Plaintiff

, 15

16
M ONTAUK U.S.A., LLC

, 17 Plaintiff

- Appell ant

, 18

19

v. 20

21
148 S OUTH E MERSON A SSOCIATES LLC

, 22 Defendant

- Appellee. 23

________ 24

25 Appeal from the United States District Court 26 for the Eastern District of New York. 27 No. 1 6

- cv

- 0 2741

– Sandra J. Feuerstein

, Judge

. 28

________ 29

30 Before: W ALKER
, R AGGI
, and H ALL
, Circuit Judges

. 31

________ 32

332 No. 16

- 3912

Plaintiff

- Appellant Montauk U.S.A., LLC (“Montauk”) appeals 1

from (i) the district court’s dismissal without prejudice of its Lanham 2

Act claims and motion for preliminary injunction under the “first

3

filed” rule, and (ii) the district court’s order, pursuant to Fed. R. Civ. 4

P. 41(d), t hat Montauk pay the costs, including attorneys’ fees, that 5

Defendant

- Appellee 148 South Emerson Associates LLC 6

(“Associates”) incurred in responding to a previous action Montauk 7

brought against Associates in Georgia state court that Montauk 8

voluntarily dismissed . Central to Montauk’s appeal is the contention 9

that Associates, a limited liability company, should have been held in 10

default because Associates could not litigate through a partial owner 11

who lacked derivative litigation rights under New York law

. 12

Because New York law allows for derivative representation on 13

the facts presented, we conclude at the outset that the district court 14

correctly rejected Montauk’s request to hold Associates in default. 15

We nevertheless vacate the district court’s dismissal of Montauk’s 16

complaint and preliminary injunction motion in favor of a first

- filed 17

federal Georgia action because the Georgia suit has been transferred 18

to the Eastern District of New York, so the reasoning behind the first

19

filed ruling no longer pertains . We affirm the district court’s award 20

of costs under Rule 41(d) , including attorneys’ fees, incurred by 21

Associates in the Geor gia state action . Consequently, we AFFIRM in 22

part, VACATE in part, and REMAND for further proceedings. 233 No. 16

- 3912

________ 1

2
M ICHAEL B OWE
, Kasowitz Benson Torres & 3 Friedman LLP

, New York, NY

, for Plaintiff

4 Appell ant

. 5

J AMES M. C ATTERSON
, Arnold & Porter Kaye 6 Scholer, LLP

, New York, NY ( Michael Burrows

, 7 Greenberg Traurig, LLP

, New York, NY

, on the 8 brief )

, for Defendant

- Appellee

. 9

________ 10

11 J OHN M. W ALKER
, J R

. , Circuit Judge : 12

Plaintiff

- Appellant Montauk U.S.A.

, LLC (“Montauk”) appeals 13

from (i) the district court’s dismissal without prejudice of its Lanham 14

Act claims and mot ion for preliminary injunction under the “first

15

filed” rule

, and (ii) the district court’s order , pursuant to Fed. R. Civ. 16

P. 41(d)

, t hat Montauk pay the costs , including attorneys’ fees, that 17

Defendant

- Appellee 148 South Emerson Associates LLC 18

(“Associates”) incurred in responding to a previous action Montauk 19

brought against Associates in Georgia state court that Montauk 20

voluntarily dismissed

. Central to Montauk’s appeal is the contention 21

that Associates , a limited liability company, should have been held in 22

default because Associates could not litigate through a partial owner 23

who lacked derivative litigation rights under New York law. 24

B ecause New York law allows for derivative representation on 25

the facts presented , we conclude at the outset that the district court 264 No. 16

- 3912

correctly rejected Montauk’s request to hold Associates in default. 1

We nevertheless vacate the district court’s dismissal of Montauk’s 2

complaint and preliminary injunction mo tion in favor of a first

- filed 3

federal Georgia action because the Georgia suit h as been transferred 4

to the Eastern District of New York, so the reasoning behind the first

5

filed ruling no longer pertains . We affirm the district court’s award 6

of costs under Rul e 41(d) , including attorneys’ fees, incurred by 7

Associates in the Georgia state action

. Consequently, we AFFIRM in 8

part, VACATE in part , and REMAND for further proceedings

. 9

BACKGROUND 1 10

This case is one in a series of bitterly contested suits 11

adjudicat ing rights associated with The Sloppy Tuna, a restaurant in 12

Montauk, NY. See App’x 707

– 09. In this installment

, Montauk , the 13

holding company for intellectual property associated with The 14

Sloppy Tuna

, and Montauk’s alleged manager, Mark Horowitz, sue d 15

Associates , the owner and operator of Th e Sloppy Tuna, claim ing that 16

Associates’ use of Montauk’s trademarks violates various provisions 17

of the Lanham Act. 18

1 These facts derive principally from the complaint and we accept them

as true. See Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555 (2007). Further, the records and decisions in the various judicial proceedings involving the parties and their constituent me mbers are facts of which we may take judicial notice. See Staehr v. Hartford Fin. Servs. Grp., Inc. , 547 F.3d 406, 424

– 25 (2d Cir. 2008)

.5 No. 16

- 3912

The individual players at the heart of the suit

, Drew Doscher, 1

Michael Meyer, Stephen Smith, and Mic hael Meagher, are former 2

business partners at The Seaport Group, a Wall Street investment 3

firm . They and their respective entities share a long history , the 4

relevant parts of which we discuss below

. 5

In 2010, Doscher pioneered the idea for The Sloppy Tuna wh ile 6

working at T he Seaport Group and sought out as partners and 7

investors then

- colleagues Meyer, Smith, and Meagher. Doscher 8

thereafter formed Montauk , a Georgia limi ted liability company of 9

which he always has been the sole member. Doscher creat ed 10

Montauk as a vehicle to hold The Sloppy Tuna’s intellectual property 11

and to license that intellectual property to Associates for use at the 12

restaurant

. 13

In March 2011

, Doscher, Meyer, Smith, and Meagher together 14

formed two New York limit ed liability companies : (i) Associates

, to 15

o wn and o perate The Sloppy Tuna ; and (ii) 148 South Emerson 16

Partners, LLC (“Partners”)

, to purchase the property on which The 17

Sloppy Tuna would operate. Following various ownership disputes 18

not relevant here

, the stakeholders in The Slop py Tuna consist of : 19

(i) Montauk, with Doscher a s the sole 100% partner; (ii) Associates, 20

with Meyer and Doscher as 50% partners; and (iii) Partners, with 21

Dosche r, Meyer, Smith, and Meagher each as 25% partners. 226 No. 16

- 3912

In May 2011, T he Sloppy Tuna opened for business. At that 1

time, Montauk , wholly owned and controlled by Doscher, began to 2

successfully reg ister several trademarks specifically designed for The 3

Sloppy Tuna with the United States Patent and Trademark Office

. See 4

App’x 42, 44

– 49. A ccording to the complaint, Montauk subsequently 5

permitted Associates to use those trademarks for The Sloppy Tuna 6

subject to an oral licensing agreement. App’x 11, 36; see also App’x 7

234. The parties operated under this arrangement for severa l years

, 8

during which time the restaurant enjoyed considerabl e success

. 9

In January 2013, however, confli ct erupted between the 10

partners and The Seaport Group abruptly ended its relationship with 11

Doscher

. See generally Doscher v. Sea Port Grp

. Sec., LLC

, 832 F.3d 372 12

(2d Cir. 2016). The record evinces the open and personal hostility 13

between the parties , most especially between Doscher and Meyer

. See 14

App’x 629, 631. 15

On October 18, 2013, amidst this conflict, Montauk and 16

Associates entered into a written license agreement regarding 17

Associates’ use of Montauk’s Sloppy Tuna marks (the “License 18

Agreement”) . App’x 35

– 41

. The License Agreement ’s stated aim w as 19

to “effectively” and “clearly memorialize” Montauk and Associates’ 20

pre

- existi ng oral agreement given that the parties “may be suffering 21

from some form of internal disagreement.” App’x 36. Horowitz 22

signed on behalf of Montauk, and Doscher, who owned 100% of 237 No. 16

- 3912

Montauk and was a 50% partner in Associates, signed the License 1

Agreement on behalf of Associates

. Meyer, the other 50% partner in 2

Associates, however, did not sign the License Agreement , which 3

required Associates to pay Montauk for use of the marks, and 4

provided that

, upon the termination of the agreement, the license 5

“shall i mmediately cease, [and Associates] shall immediately 6

discontinue all use of the [ m ] arks.” App’x 37

– 38. Associates and 7

Meyer have consistently contended that the License Agreement is a 8

sham and is unenforceable. 2 9

In 2014, Doscher, Meyer, Smith, and Meaghe r , as individuals 10

and through their respective entities, began litigating in various for a 11

numerous issues related to the ownership and operation of The 12

Sl oppy Tuna. P ertinent to th e issue s on appeal are the following four 13

lawsuit s , each adjudicating the rights to the intellectual property that 14

is the subject of the instant action. 15

First

, on December 23, 2014, Montauk brough t a declaratory 16

judgment action in the Northern District of Georgia against 17

Associates seeking a ruling that Montauk owns the relevant 18

trademarks and that Associates does not. As will be discussed, on 19

2 Following Montauk’s filing of its opening brief on this appeal, the New York state court ruled that the License Agr eement is “void, invalid and of not [ sic ] force or effect.” Meyer v. Montauk U.S.A., LLC , No. 600830/2015, Dkt. No. 239 at 10 (N.Y. Sup. Ct. May 9, 2017).8 No. 16

- 3912

August 14, 2017, more than two and one

- half years later, the Georgia 1

federal a ction was transferred to the Eastern District of New York. 2

Second

, on January 29, 2015, Meyer sued Montauk in New York 3

state court alleg ing that the License Agreement wa s not a valid arms

4

length agreement and is therefore void ab initio , which ultimately 5

resulted in the Georgia federal action being stayed

. On February 19, 6

2015, because Dosc her and Meyer were deadlocked as co

- owners of 7

Associates

, the court appointed a temporary receiver ( Receiver) for 8

Associates

. On March 16, 2016, after Doscher fail e d to fully comply 9

w ith the Receiver, the New York s tate c ourt further ordered that : 10

(i ) the Receiver shall take full c ontrol of The Sloppy Tuna; (ii) Doscher 11

must surrender all of his restaurant

- related property to the Receiver; 12

and (iii) Doscher is “restrained from interfering in any way with the 13

Court

- appointed Temporary Receiver in his operation and 14

management of the company.” App’x 134. Shortly thereafter, on 15

March 24, 2016, Montauk terminated the License Agreement 16

purportedly because the N ew Y ork s tate c ourt’s order w rested too 17

much control of the restaurant from Doscher. 18

Third

, on March 24, 2016, Montauk sued Associates in Georgia 19

state court for breach of contract, unjust enrichment, and quantum 20

meruit

, relating to Associates’ continued use of The Sloppy Tuna 21

marks following Montauk’s termination of the License Agreement. 22

Montauk simultaneously moved for a temporary restraining order 239 No. 16

- 3912

(TRO ) and preliminary injunction ( PI ). On April 26, 2016, that court
, 1

after a hearing, denied the TRO and at the same time suggested that 2

Montauk’s filing of that action interfered with the state action in New 3

York in violation of that court’s March 16, 2016 order. App’x 588. 4

Two days later, on April 28, 2016, Montauk voluntarily dismissed the 5

state action in Georgia

. 6

Fourth and lastly, on May 31, 2016, Montauk and Horowitz 7

brought the instant action against Associates in t he Eastern District of 8

New York. They alleg ed that Associates ’ continued use of The Sloppy 9

Tuna marks after termination of the License Agre ement violated 10

several provisions of the Lanham Act. Montauk and Horowitz 11

asserted four claims : (i) trademark infringement, 15 U.S.C. § 1114; (ii) 12

false designation of origin and unfair competit ion, 15 U.S.C. § 1125(a); 13

(iii) cybersquatting , 15 U.S.C. § 1125(d); and (iv) trademark dilution, 14

15 U.S.C. § 1125(c). Montauk and Horowitz sought recover y only for 15

Associates’ use of The Sloppy Tuna marks after March 24, 2016, the 16

date Montauk terminated the License Agreement. 17

On July 1, 2016, Montauk and Horowit z moved for a TRO and 18

PI in the i nstant a ction

. That same day , the TRO was denied

, and 19

attorneys James M. Catterson and Michael Burrows filed notices of 20

appearance “for Michael J. Meyer, derivatively on behalf of 21

Defenda nt 148 South Emerson Associates. ” App’x 220

– 21

. No other 22

counsel appeared for Associates. Days later, Meyer , on behalf of 2310 No. 16

- 3912

Associates, filed a motion to dismiss , raising three arguments: (i) the 1

complaint must be dismissed under the “first

- filed” rule in favor of 2

the earlier

- filed and still extant f ederal ac tion Mo ntauk brought in 3

Georgia ; (ii) Montauk and Horowitz failed to state their 4

cybersquatting claim ; and (iii) Montauk should be ordered to pay the 5

costs , including attorneys’ fees, Associates incurred defending the 6

discontinued st ate action in Georgia under the anti

– forum shopping 7

provision of Fed. R. Civ. P. 41(d). 8

Meyer, on behalf of Associates, also responded to Montauk and 9

Horowitz ’s PI motion

, arguing that Montauk and Horowitz failed to 10

meet the standard for such relief . In reply, Montauk and Horowitz 11

argued not only that they had met the standard, but that the district 12

court should disregard any submissions filed by Meyer on behalf of 13

Associates . Specifically, they argued that “[t]here is no basis for a 14

non

- party [such as Meyer] to defend this action ‘derivatively’ simply 15

because it disagrees with the Receiver’s business judgment or seeks 16

to litigate with plaintiffs for its own self

- interested reasons.” No. 16

- 17

cv

- 02741, Dkt. No. 18 at 4 (E .D.N. Y. July 13, 2016). B ecause M eyer’s 18

“derivative” submissions were not properly before the court, 19

Montauk and Horowitz contended, and Meyer’s was the only 20

opposition to the PI motion

, the court should have granted the PI 21

motion by default. Meyer filed a sur

- reply , still purportedly on behalf 22

of Associates, attaching a declaration of the New York state court 2311 No. 16

- 3912

Rece iver , Charles C. Russo , in which he stated that he eagerly 1

consented to Meyer’s derivative defense of the case and that , in his 2

judgment, Meyer’s derivative representation was i n Associates’ best 3

interest. App’x 665

– 68

. 4

On October 19, 2016, the district court resolved the pending 5

motions substantially 3 in Associates’ favor and dismissed the action

. 6

Special App’x (“SA”) 1

– 31. First , the district court rejected Montauk 7

and Horowitz’s contention that Meyer d id not have a derivative right 8

to defend on behalf of Associates under New York law. SA 19

– 22. 9

Second , the district court dismissed Montauk and Horowitz’s 10

complaint without prejudice under the “firs t

- filed” rule based on the 11

action’s similarity to the earlier

- filed federal action in Georgia . SA 22

– 12

26. It followed that the district court denied without prejudice 13

Montauk’s PI mot ion. SA 26 n.10. Third

, the district court ordered 14

Montauk to pay the costs, including attorneys’ fees, incurred by 15

Associates in defending the Georgia state action under Rule 41(d). SA 16

26

– 30. Montauk , but not Horowitz, appealed

. 17

DISCUSSION 18

Montauk contends on appeal that the district court erred in 19

three ways: (i) allowing Meyer to defend the suit derivatively on 20

3 The district court did not resolve the aspect of Associates’ motion seeking dismissal of Montauk a nd Horowitz’s cybersquatting claim (Count III) for failure to state a claim.12 No. 16

- 3912

behalf of Associates; (ii) dismissing the action under the “first

- filed” 1

rule; and (iii) awarding Associates costs under Rule 41(d). Associates 2

argues that all three rulings we re correc t

. 3

We conclude that controlling New York law provides Meyer 4

with derivative rights to defend this suit on behalf of Associates and 5

we therefore find no error in the district court’s consideration of 6

Associates’ submissions . We conclude, however, that the district 7

court’s dismissal of the complaint under the “first

- filed” rule should 8

be vacated in light of the subsequent transfer of the Georgia federal 9

action to the Eastern District of New York. W e therefore vacate the 10

dismissal of Montauk’s complaint , which restores the preliminary 11

injunction motion which was never decided . We affirm in full

, 12

however, the awarding of costs under Rule 41(d) , including attorneys’ 13

fees, to Associates that relate to its defense of the previously 14

discontinued Georgia stat e action

. 15

I. Meyer’s Derivative Right to Defend 16

The district court rejected Montauk’s contention that Meyer has 17

no right to defend this suit derivativ ely on behalf of Associates. The 18

district court did so by looking to state law, specifically, New York’s 19

rules for derivative representation. The district court noted New 20

York’s general disfavor of derivative litigation , but identified an 21

exception: New York law will allow for derivative representation in 22

certain contexts to avoid the “intolerab le grievance” created where a 2313 No. 16

- 3912

corporate entity refuses to act and a stakeholder is left without a 1

remedy. SA 20

– 21. The district court concluded that to reject Meyer’s 2

right to defend derivatively here would be an “intolerable grievance

, ” 3

where one of th e two 50% “ owners of a [n] [LLC] cause[d] his wholly

4

owned company, and the purported manager of that company, to 5

commence a lawsuit against th[at] LLC.” SA 20. Stated differently, 6

the district court concluded that to enter default against the LLC in 7

this instance would be inequitable because it would effectively 8

require the LLC to pay license fees to one 50% member (Doscher) at 9

the expense of the other 50% member (Meyer) who would be barred 10

from appearing in the suit. 11

The district court correctly concluded that New York law 12

governs whether Meyer may derivatively defend Associates in this 13

matter. See Fed. R. Civ. P. 17(b) (3) ; see also Allright Missouri, Inc. v. 14

Billeter, 829 F.2d 631, 635 (8th Cir. 1987). 4 The district court’s 15

assessment being an interpretation and application of state law, we 16

4 Rule 17(b)(3) provides in relevant part that “[c]apacity to sue or be sued is determined . . . by the law of the state where the court is located.” At first glance, one could q uestion whether this provision applies because Meyer is not “be[ing] sued” in this action. However, “[c]apacity has been defined [under Rule 17(b)] as a party’s personal right to come into court, and should not be confused with the question of whether a p arty has an enforceable right or interest or is the real party in interest. Generally, capacity is conceived of as a procedural issue dealing with the personal qualifications of a party to litigate and typically is determined without regard to the particu lar claim or defense being asserted.” Wright & Miller, 6A Fed. Prac. & Proc. Civ. § 1559 (3d ed. 2017) (footnotes omitted)

.14 No. 16

- 3912

review it de novo

. See In re World Trade C t r

. Lower Manhattan Disaster 1

Site Lit i g. , 846 F.3d 58, 63 (2d Cir. 2017) ; see also Firestone v. Galbreath

, 2

976 F.2d 279, 283 (6th Cir. 1 992). 3

Under New York law, a shareholder has no general right to 4

litigate on behalf of a corporation. See N.Y. Bus. Corp. Law (“BCL”) 5

§ 626. Such derivative litigation is disfavored “ because [it] ask [s] 6

courts to second

- guess the business judgment of the individuals 7

charged with managing the company.” Bansbach v. Zinn , 1 N.Y.3d 1, 8

8 (2003). Under certain conditions, however, a shareholder may 9

litigate to vindicate corporate rights. BCL § 626 (c)

. The p rincip al 10

condition is that the putative derivative litigant attempt to get the 11

corporate board to act or, alternatively, explain why such an attempt 12

should be excused

. Id . The same principle applies when a receiver is 13

in charge. O’Brien v. King

, 17 N.Y.S.2d 44, 45 (1st Dep’t 1940) ( w here 14

a corporation is run by a receiver, such pre

- suit demand must be 15

made on that receiver, which “stands in th e place of the managing 16

body” )

. The demand component stems from the requirement that a 17

derivative litigant demonstrate “a sufficient excuse” as to why it 18

should be allowed to overcome the board’s business judgment and 19

represent the interests of the corporation. See Tzolis v. Wolff

, 10 N.Y.3d 20

100, 108 (2008) (quoting Robi nson v. Smith , 3 Paige Ch. 222, 232

– 33 21

( N.Y. Ch. 1832)). This is because, at its core, the issue is whether the 22

litigation decision of the governing board represents the interests of 2315 No. 16

- 3912

the shareholders. See Auerbach v. Bennett , 47 N.Y.2d 619, 628 (1979)

. 1

T he “real question is one of p roper representation. ” Id. The New York 2

Court of Appeals has also made clear that the se rules as to derivative 3

rights apply with equal force to LLCs and their members

. See Tzolis

, 4

10 N.Y.3d at 103

. 5

The question here is whether these derivative representation 6

rules allow Meyer to represent Associates’ interests in defense against 7

the instant suit

. Montauk contends the answer is no, arguing that 8

derivative representation is unavailable on the present facts. It rests 9

its argument on two asser ted principles of New York law : 10

(i) derivative representation is available only where a managing 11

body’s decision not to litigate was negligent, fraudulent, or in bad 12

faith , a showing that Meyer has not made as to Associates; and 13

(ii) derivative representation rights do not exten d to litigation defense

. 14

Finding no support for either principle , we conclude that Meyer was 15

free to derivatively defend this case on behalf of Associates. 16

Montauk cites no authority, and we ar e aware of n one, 17

intimating that derivative representation is only permissible under 18

New York law where a managing body’s decision not to litigate was 19

negligent, fraudulent, or in bad faith. Tomczak v. Trepel

, 724 N.Y.S.2d 20

737 (1st Dep’t 2001), cited repeatedly by Montauk for this proposition, 21

is instructive. There, the First Department affirmed the dismissal of a 22

derivative suit because the plaintiffs failed to allege sufficient 2316 No. 16

- 3912

wrongdoing on the part of the board. Id. at 73 8 . Contrary to 1

Montauk’s contention, however, the court did not imply that board 2

wrongdoing was the only avenue to derivative representation; it 3

simply addressed the board’s wrongdoing because that was the 4

reason the plaintiffs proffered in that case for why the board was not 5

properly representing the interests of the shareholders

. Tomczak 6

makes clear that, at bottom, the inquiry in a derivative rights question 7

is an assessment of the managing body’s intent in adopting a litigation 8

strategy. That the plaintiffs failed to adduce facts relevant to that 9

inquiry is evidence d from the following statement : 10

While plaintiffs allege that unsuccessful 11 demands were made on the Club’s Board of 12 Directors to initiate legal action, the 13 complaint provides no indication as to who 14 made the demands, when they were made, 15 which Board members they were made to, 16 the content of the demands or why the Board 17 refused to take action

. 18

Id. (emphasis added). 19

If the board or other managing body’s intent in making its 20

litigation decision was to further the interests of the shareholders

, 21

New York court s defer to that choice. If its intent was otherwise, they 22

may not. 23

With this basic principle in mind, it becomes clear that there is 24

little sense in a rule that confines derivative representation to 25

situations where a managing body ’s decision not to litig ate is made 2617 No. 16

- 3912

with some malfeasance

. T he flaw in M ontauk’s contention is notably 1

apparent in the present context, which is distinct from the usual 2

derivative standing question in a significant way: the derivative 3

litigant and the company here fully agree as to the best litigation 4

strategy, specifically, that Meyer defend the action. New York’s 5

concerns behind its general reluctance to allow derivative litigation 6

are simply not present in this case

. 7

A board’s malfeasance becomes relevant onl y where the board 8

and the shareholder disagree as to the path forward

, i.e.

, where the 9

corporation affirmatively “decide[s] to terminate” litigatio n that the 10

shareholder desired, Amalgamated Sugar Co. v. NL Indus tries , Inc. , 825 11

F.2d 634, 641 (2d Cir. 1987), or “decline [s] to institute . . . an action” 12

“that the plaintiff [shareholder] has requested the receiver to 13

maintain,” Koral v. Savory, Inc. , 276 N.Y. 215, 219

– 20 (1937). This is 14

because , as discussed, New York law look s to a board’s malfeasance 15

o nly to the extent it may provide a reason to reject the board’s chosen 16

litigation strategy in favor of a different one proposed by a 17

shareholder. 18

But, w e hav e no battle here between conflicting litigation 19

positions and therefore no need to show the Receiver’s malfeasance

. 20

The Receiver

— which is obligated as a fiduciary to act in the best 21

interest of Associates

, see Insurance Co. of N

. Am

. v. City of New York

, 22

71 N.Y.2d 983, 985 ( 1988)

— wholly and eagerly consent s to Meyer’s 2318 No. 16

- 3912

derivative defense. T he Re ceiver explained in the record its insistence 1

that it wa s in the best interest of Associates for Meyer to defend this 2

litigation. App’x 666, 672. T his decision is properly subject to the 3

business judgment rule

, and it makes no difference that the governing 4

corporate entity is a receiver

. See Golden Pac. Bancorp v. F.D.I.C. , 2002 5

WL 31875395, at *9 (S.D.N.Y. Dec. 26, 2002) (under New York law, 6

“receiver s , just like corporate directors, are entitled to the defere nce 7

of the business judgment rule”). Montauk does not contend that 8

Meyer’s derivative defense is somehow counter to the interests of 9

Associates or that the Receiver’s decision to allow Meyer to defend 10

this case was itself made in bad faith

. In sum, Monta uk’s argument 11

that Meyer was required to demonstrate malfeasance on the part of 12

the Receiver was properly rejected by the district court. 13

Montauk also argues that even if LLC members may bring 14

derivative law suits, they may not derivatively defend lawsuits. 15

Montauk cites no law, or reasoning, to support this contention, and 16

the argument is not pressed in its reply brief. The argument is 17

meritless nonetheless. As discussed, t he core question in a derivative 18

litigation inquiry is who is a proper e ntity to represent the company’s 19

interests . There is no reason for different rules for that question when 20

the company defends against rather than brings a suit. 21

In sum, Meyer both (i) took efforts to get Associates to defend 22

the action, BCL § 62 6 (c); and, once Associates elected not to defend 2319 No. 16

- 3912

the action, (ii) adequately explained why he should be all owed to 1

derivatively defend it: Associates’ good

- faith and well

- reasoned 2

consent. Meyer therefore met the obligations imposed on him by 3

New York law to deriva tively defend this lawsuit. 4

II. The “First

- Filed” Rule 5

The district court dismissed Montauk’s complaint without 6

prejudice under the “first

- filed” rule, which provides that “where 7

there are two competing lawsuits, the first suit should have priority, 8

absent the show ing of balance of convenience or special 9

circumstances giving priority to the second.” AEP Energy Servs. Gas 10

Holding Co. v. Bank of Am. , N.A. , 626 F.3d 699, 722 (2d Cir. 2010) 11

(internal quotation marks omitted). The rule “embodies 12

considerations of judicial administration and conservation of 13

resources, and recognizes that a party who first brings an issue into a 14

court of competent jurisdiction should be free from the vexation of 15

concurrent litigation over the same subject matter.” Id. (internal 16

quot ation marks and citation omitted). 17

The district judge , over Montauk’s objection, concluded that 18

the instant a ction should give way to the Georgia federal action under 19

the “first

- filed” rule. On August 14, 2017, however, the district court 20

judge presiding over the Georgia federal action transferred that case 21

to the Eastern District of New York where it was assigned to the 22

district judge in this case . No. 17

- cv

- 4747, Dkt. Nos. 10 3

– 0 4 ( E.D.N.Y. 2320 No. 16

- 3912

Aug

. 14 & 16, 2017). Consequently, none of the considerations 1

motivating the district court’s application of the “first

- filed” rule 2

remain. The “first

- filed” rule has no import where , as here, the two 3

cases at issue reside on the docket of the same dist rict judge. The abl e 4

district judge is perfectly capable of consolidating them as necessary. 5

We therefore vacate the district court’s dismissal of this action under 6

the “first

- filed” rule, as well as its dismissal of Montauk’s motion for 7

a preliminary injunction. 8

III. Associate s ’ Rule 41(d) Motion 9

The district court concluded that Montauk must pay Associates 10

the costs , including attorneys’ fees, it incurred in the G eorgia s tate 11

a ction pursuant to Rule 41(d), which provides that: 12

If a plaintiff who previously dismissed an 13 action in any court files an action based on 14 or including the same claim against the 15 same defendant, the court . . . may order the 16 plaintiff to pay all or part of the costs of that 17 previous action. 18

Fed. R. Civ. P. 41(d). The district court concluded that Rule 41(d) was 19

implicated due to the similarities in the allegations and relief sought 20

as between the i nstant a ction and the Georgia state action , for which 21

Montauk did not “demonstrat[e] that there was a good r eason

. . . to 22

dismiss.” SA 28

– 29. We review the question of whether specific types 23

of costs are available under a given statute de novo and the decision 2421 No. 16

- 3912

whether to grant costs for abuse of discretion. See Gortat v. Capala 1

Bros. , 795 F.3d 292, 295 (2d Cir. 2015) (per curiam). 2

Montauk asserts that there are two errors in the district court’s 3

analysis. First , it argues that the district court abused its discretion in 4

concluding that the instant a ction is “based on or includ[es] the same 5

claim” as the Georgia state action

. Second , it argues that even if 6

Associates is entitled to costs under Rule 41(d), the district court erred 7

in concluding that attorneys’ fees may be awarded as part of such 8

costs. Neither argument is persuasive

. 9

a. The District Court Did Not Abuse its Discretion in 10 Concluding that the Instant Action is “[B]ased on .

. . 11 the [S]ame [C]laim [s] ” as the Georgia State Action 12

It is quite clear to us that the instant a ction is “based on

. . . the 13

same claim [s] ” as the Georgia state action . Montauk’s claims in both 14

actions depend on the same core showing about the same trademarks : 15

that Associates has no legal ownership of or right to use The Sloppy 16

Tuna marks . If Associates owns the marks or otherwise has rights to 17

the ir use , Associates likely neither breached the License Agreement 18

(the subject of the Georgia state action ) nor violated the Lanham Act 19

(the subject of the instant a ction)

. On the other hand, i f Montauk 20

owns the marks or if Associates had no right to their use , Asso ciates 21

may have breached the License Agreement or violated the Lanham 22

Act

. T he different assertions in these actions are certainly “based on” 23

the same underlying claims of ownership and use rights

. 2422 No. 16

- 3912

Montauk ’ s arguments to the contrary are unpersuasive. 1

Montauk points to the fact that the Georgia state action was contract

2

based and the instant a ction is brought under the Lanham Act. That 3

two actions involve different theories of recovery , however, is not 4

dispositive for Rule 41(d) , as its plain language

— “ based on . . . the 5

same claim”

— makes clear

. This is most especially the case here, 6

where Montauk could have asserted a Lanham Act violation in the 7

Georgia state action by simply amending its complaint

. See, e.g.

, Corps 8

Grp. v. Afterburner, Inc.

, 779 S.E.2d 383 , 386 n.3 ( Ga. Ct. App

. 2015). 9

Rather, Montauk chose instead to voluntarily dismiss the Georgia 10

state action and file its Lanham Act claims in federal court in another 11

state. Moreover, it did so i mmediately after the Georgia state court 12

stated its belief that the action was meritless and that its filing likely 13

contravened an order of another court, which was itself addressing 14

substantially related claims . This is the precise type of litigation tactic 15

that Rule 41(d) i s meant to deter. See An drews v. America’s Living Ctr s

. , 16

LLC , 827 F.3d 306, 309 (4th Cir. 2016) (“ [T] he purpose of Rule 41(d) is 17

to serve as a deterrent to forum shopping and vexatious liti gation

. ” 18

(internal quotation marks omitted) ). 5 19

5 We are not alone in our view that Montauk’s actions in relation to the Georgia state action were part of a pattern of vexatious litigation. While this appeal was pending, the justice presiding over the New York state action held Montauk’s counsel in contempt in part for his filing of the Georgia state action. Meyer v. 148 S. Emerson Assocs. LLC , No. 068379/2014, Dkt. No. 1355 (N. Y. Sup. Ct. May 9, 2017).23 No. 16

- 3912

Montauk’s other contention that the actions are distinct for 1

purposes of Rule 41(d) is that the instant a ction seeks relief only for 2

infringement s that occurred after the filing of the Georgia state action

. 3

Specifically, Montauk points out that because it filed the Georgia state 4

action on March 24, 2016, the same day that it unilaterally terminated 5

the License Agreement, “none of the alleged trademark infringement, 6

dilution, or cybersquatting had taken pla ce at the time the [Georgia 7

state action] was filed.” Br. of Appellant at 41. This argument, 8

although perhaps clever, fares no better. 9

The record makes clear that Associates has utilized the at

- issue 10

marks at the restaurant and elsewhere since opening wi thout 11

interruption and with Montauk’s knowledge. Consequently, 12

Montauk knew when it filed its Georgia state action that, under its 13

theory

, Associates would be in violation of the Lanham Act from 14

March 25, 2016 onward, yet it neither sought Lanham Act reli ef in the 15

G eorgia s tate a ction nor sought to amend its complaint prior to its 16

voluntary dismiss al

. In sum, t hat certain alleged acts occurred after 17

the filing of the Georgia state action does not alter the underlying 18

claim upon which both actions are based: that Associates did not own 19

and had no right to use The Sloppy Tuna trademarks

. 20

Finally, relying on Phunware, Inc. v. Exc e lmind Gr ou p Ltd. , 117 F. 21

Supp. 3d 613 (D. Del. 2015) , Montauk argues that the instant a ction is 22

not sufficiently related to the Georgia state action for p urposes of Rule 2324 No. 16

- 3912

41(d) because Montauk seek s distinct relief in each action

. The 1

argument is meritless . For one, in Phunware

, the plaintiff had a good

2

faith concern that the relief sought in the second

- filed action , money 3

damages, would have been unavailable in the first

- filed forum , a 4

court of equity

, id. at 623

– 24 & n.9, and Montauk makes no showing 5

that there was a form of relief available in the Eastern District of New 6

York that was unavailable in the Georgia state cou rt. More 7

fundamentally, however, Montauk did not seek different relief in the 8

two relevant actions; in both , Montauk sought injunctive relief and 9

damages. 10

The district court did not abuse its discretion in granting 11

Associates’ Rule 41(d) motion. 12

b. The District Court Did Not Err in Awarding 13 Associates Attorneys’ Fees as Part of Costs 14

As discussed, Rule 41(d) allows a district court to order 15

plaintiffs “to pay all or part of the costs of that previous action.” Fed. 16

R. Civ. P. 41(d). Montauk challenges the district court ’s conclusion 17

that “costs” in Rule 41(d ) may include attorneys’ fees. 18

We have n ot addressed whether attorneys’ fees are available as 19

part of “costs” under Rule 41(d)

. The issue has split our sister circuit 20

courts. The Sixth Circuit has concluded in light of Rule 41(d)’s silence 21

as to attorneys’ fees that such fees are never available under the rule. 22

See Rogers v. Wal

- Mart Stores , 230 F.3d 868, 874 (6th Cir. 2000). On the 2325 No. 16

- 3912

other hand, t he Eighth an d Tenth Circuits have concluded without 1

much discussion that attorneys’ fees m ay be awarded under Rule 2

41(d). See Evans v. Safeway Stores, Inc. , 623 F.2d 121, 122 (8th Cir. 1980) 3

(per curiam) ; Meredith v. S to vall , 216 F.3d 1087 (10th Cir. 2000) 4

(unpublished). The Fourth , Fifth, and Sev enth Circuits have taken a 5

hybrid approach and concluded that attorneys’ fees may not 6

generally be awarded as costs under the rule, but with an exception 7

for when the statute serving as the basis for the original suit itself 8

allows for attorneys’ fees ( such as 42 U.S.C. § 1983 )

. See Andrews , 827 9

F.3d at 309

– 12 (adopting rule from Esposito v. Piatrowski , 223 F.3d 497, 10

501 (7th Cir. 2000)) ; Portillo v. Cunningham , 872 F.3d 728, 738

– 39 (5th 11

Cir. 2017) . For the reasons that follow, we agree with the outcom es 12

arrived at b y the Eighth and Tenth Circuits: district courts may award 13

attorneys’ fees as part of costs under Rule 41(d). 14

T here is no unifo rmity across federal authorities as to whether 15

the term “costs” includes attorneys’ fees. For example, th e term 16

“ c osts” in Rule 39 of the Federal Rules of Appellate Procedure, as well 17

as an earlier version of 28 U.S.C. § 1927, have both been determined 18

not to incorporate attorneys’ fees. See Hines v. City of Albany , 862 F.3d 19

215, 220

– 21 (2d Cir. 2017) ; Roadw ay Express, Inc. v. Piper, 447 U.S. 752, 20

759 (1980). But, the term “costs” in Rule 54(d) of the Federal Rules of 21

Civil Procedure is written such that it includes attorneys’ fees. See 22

Andrews , 827 F.3d at 311 n.2

. For other rules, such as Rule 68 of the 2326 No. 16

- 3912

Federal Rules of Civil Procedure and Rule 7 of the Federal Rules of 1

Appellate Procedure, “costs” includes attorneys’ fees in certain 2

instances, but not in others , specifically, such fees can be awarded 3

where the cause of action under which the suit at issue is brought so 4

allow s , but not otherwise

. See Marek v. Chesny , 473 U.S. 1 , 9 (19 85) ; 5

Adsani v. Miller, 139 F.3d 67 , 79 (2d Cir. 1998)

. See generally Marek , 473 6

U.S. at 43

– 51 (Brennan, J. dissenting) (listing over 100 statutes with 7

varying usages of the term “attorney’s fees” relative to “costs”). 8

T wo relevant lessons emerge from the case law on how to 9

assess the availability of attorneys’ fees pursuant to a provision , such 10

as Rule 41(d), which allows for “costs” but makes no express reference 11

to attorneys’ fees

. First

, “costs” do not include attorneys’ fees where 12

the rule incorporates a statutorily enumerated list of “costs” that itself 13

omits attorneys’ fees. See Hines

, 862 F.3d at 220

– 21. In Hines

, for 14

example, we concluded that the term “costs” in Rule 39 of the 15

appellate procedure rules does not include attorneys’ fees because the 16

advisory committee notes to the rule refer to the definition of “costs” 17

in 28 U.S.C. § 1920 , which does not include attorneys’ fees in its 18

enumerated list of costs. Id. The Supreme Court took a similar tack 19

in Roadway Express , where it held that the definition of “costs” in 28 20

U.S.C. § 1920 should be incorporated into the then

- operative version 21

of 28 U.S.C. § 1927 ’s cost

- shifting provision because the two 22

provisions , given their shared history, “should be read together as 2327 No. 16

- 3912

part of [an] integrated statute.” 447 U.S. at 760. Here, Rule 41(d) 1

incorporate s no other defini tion of costs

, either expressly or by 2

reference, and therefore attorneys’ fees are not precluded by this 3

principle

. 4

Second

, in t his situation

— where the term “costs” is entirely 5

undefined, either expressly or by reference

— we look to see “ if the 6

statute otherwise evinces an intent to provide for [attorneys’] fees.” 7

Key Tronic Corp. v. United States , 511 U.S. 809, 815 (1994). 8

Consequently, we disagree with the Sixth Circuit’s conclusion that 9

attorneys’ fees are unavailable under Rule 41(d) “simpl[y] [because] 10

the rule does not explicitly provide for them.” Rogers , 230 F.3d at 874. 11

In Marek

, for example, “given the importance of ‘costs’ to the Rule,” 12

the Court “ infer [ red ]” “that the term ‘costs’ in Rule 68 was intended 13

to refer to all costs properly awardable under the relevant substantive 14

statute or other authority” on which the claimant brought suit. 473 15

U.S. at 9 ; see infra note 6

. 16

Here, as the great weight of distric t court authority has 17

concluded in this circuit, see Pelczar v. Pelczar, 2017 WL 3105855, at *2 18

(E.D.N.Y. July 20, 2017) (collecting cases), the entire Rule 41(d) scheme 19

would be substantially undermined were the awarding of attorneys’ 20

fees to be precluded

. We thus have no difficulty in concluding that 21

Rule 41(d) evinces an unmistakable intent for a district court to be 22

free , in its discretion, to award attorneys’ fees a s part of costs. 2328 No. 16

- 3912

Rule 41(d)’s purpose is clear and undisputed : “to serve as a 1

deterrent to forum shopping and vexatious litigation.” Andrews , 827 2

F.3d at 309 (quoting Simeone v. First Bank Nat’l Ass’n , 971 F.2d 103, 108 3

(8th Cir. 1992) and citing Esposito , 223 F.3d at 501) ; Adams v. N.Y. State 4

Educ. Dep’t , 630 F. Supp. 2d 333, 343 (S.D.N.Y. 2009) ; 8 Moore’s Fed. 5

Prac. § 41.70 [ 1 ] (3d ed. 2016)

. Rule 41(d) would be greatly limited as 6

a n effective deterrent if district courts were precluded from assessing 7

attorneys’ fees as part of costs. 6 T he need for attorneys’ fees may be 8

6 We choose not to join the Fourth, Fifth, and Seventh Circuits in adopting a rule based on Marek in which attorneys’ fees are available under Rule 41(d) only if the underlying cause of action itself allows for attorneys’
fees. We think such a rule makes little sense as to Rule 41(d) , where there is no connection between the underlying cause of action and the behavior
the rule seeks to influence. Pegging the scope of the incentive to the underlying cause of action might make sense in the context of Rule 68, which is meant to encourage settlement, see Marek , 473 U.S. at 5, because a parties’ incentives to settle are tied to the amount of available recovery. See
id. (“Rule [68] prompts both parties to a suit to evaluate the risks and costs of litigation, and to balance them against the likelihood of success upon trial
on the merits

. ”) ; see also Adsani , 139 F.3d at 73

– 75

. As discussed, however, the purpose o f Rule 41(d) is to d eter litigants from forum shopping or fil ing

vexatious suits

, a ct s largely untethered to the merits. The hybrid rule therefore places an arbitrary condition on the Rule 41(d) deterrent. For example, attorneys ’ fees are allowed to prev ailing parties under federal

anti

- discrimination statutes but not under certain New York anti

discrimination statutes, which are “essentially the same ” as their federal counterpart s

. See Lightfoot v. Union Carbide Corp. , 110 F.3d 898, 913

– 14 (2d
Cir. 1997 ) (disallowing attorneys’ fees to victorious plaintiff where her
claim under the federal Age Discrimination in Employment Act, which allows for the recovery of attorneys’ fees, was dismissed and plaintiff only recovered on her claim under the New York State Human Rights Law, which “does not provide for an award of [attorneys’] fees”). Under the29 No. 16

- 3912

especially acute in the Rule 41(d) context . The targets of deterrence 1

under the rule will often be litigants , such as Montauk, that fil e 2

complaints and quickly dismiss them, perhaps in reaction to initial 3

unfavorable rulin gs, or hoping for a subsequent case assignment to a 4

judge they view as more favorable . These are actions with minor costs 5

to the adversary other than attorneys’ fees , which may be substantial

. 6

Indeed , such actions will rarely incur most of the expenses routinely 7

recoverable as costs. See 28 U.S.C. § 1920. The instant case is a n apt 8

example. Apart from attorneys’ fees, the only costs paid by 9

Associates in defense of the Georgia state action were a $15.00 charge 10

for delivery of documents and a $60.48 ch arge for a transcript fee from 11

a court reporter. See No. 16

- cv

- 2741, Dkt. No. 36

- 5 at 10 ( E.D.N.Y. 12

Nov. 17, 2016). W e are wholly unconvinced such small payment s 13

would effectively deter litigants such as Montauk from forum 14

shopping or otherwise embarking on a course of vexatious litigation

. 15

We affirm the district court’s ruling on Associates’ Rule 41(d) motion. 16

CONCLUSION 17

We find the parties’ remaining contentions to be without merit, 18

and, f or the reasons stated above

, we AFFIRM in part and VACATE 19

hybrid approach , Rule 41(d) would therefore place a larger deterrent on
vexatious federal discriminati on suits th a n on vexatious New York
discrimination suits. We se e no basis for this distinction.30 No. 16

- 3912

in part the judgment of the district cour t and REMAND for 1

proceedings consistent with this opinion

. 2