Source: https://www.scribd.com/document/57749433/ECF-Lee-v-Marvel-Appellant-SLMI-Brief-6-9-11
Timestamp: 2017-04-28 07:21:41
Document Index: 430657195

Matched Legal Cases: ['§ 362', '§ 541', '§ 204', '§ 501', '§ 1291', '§ 1294', '§ 1334', '§ 2862', '§ 1291', '§ 541', '§ 541', '§ 362', '§ 2862', '§ 501', '§ 204', '§ 4421', '§ 41']

ScribdBrowseInterestsCareer & MoneyPersonal GrowthPolitics & Current AffairsScience & TechHealth & FitnessLifestyleEntertainmentBiographies & HistoryFictionBrowse byBooksAudiobooksNews & MagazinesSheet MusicBrowse allUploadSign inJoinECF Lee v Marvel Appellant SLMI Brief 6-9-11Uploaded by Ray DowdBankruptcyUnited States District CourtLawsuitJudgeCopyright0.0 (0)DownloadEmbedDescription: copyright ownership, copyright law, standing, real party in interest, copyrights and bankruptcy, licensing litigation, copyright litigation, stan lee, marvel comics, stan lee media incView Morecopyright ownership, copyright law, standing, real party in interest, copyrights and bankruptcy, licensing litigation, copyright litigation, stan lee, marvel comics, stan lee media incCopyright: Attribution Non-Commercial (BY-NC)Download as PDF, TXT or read online from ScribdFlag for inappropriate content11-831In the
STAN LEE, STAN LEE MEDIA, INC.,
Movant-Appellant, – v. – MARVEL ENTERPRISES, INC. and MARVEL CHARACTERS, INC., Defendants-Appellees.
BRIEF AND SPECIAL APPENDIX FOR MOVANT-APPELLANT
DUNNINGTON BARTHOLOW & MILLER, LLP Attorneys for Movant-Appellant 1359 Broadway, Suite 600 New York, New York 10018 (212) 682-8811
APPELLATE INNOVATIONS (914) 948-2240
CORPORATE DISCLOSURE STATEMENT PURSUANT TO RULE 26.1 OF THE FEDERAL RULES OF APPELLATE PROCEDURE
Pursuant to Rule 26.1 of the Federal Rules of Civil Procedure, MovantAppellant in this action, Stan Lee Media Inc., an administratively-dissolved Colorado corporation (“SLMI”), states that it does not have a corporate parent and there is no publicly held corporation that owns 10% or more of SLMI stock.
i Table of Contents Page I. II. III. IV. STATEMENT OF JURISDICTION ............................................................ 1 STATEMENT OF THE ISSUES ................................................................. 1 STATEMENT OF THE CASE .................................................................... 4 PROCEDURAL BACKGROUND ............................................................ 12 A. B. Lee v. Marvel (2002-2005) ............................................................... 12 On January 8, 2007, Lee Commenced An Ownership Rights Case In California, After Which Various Shareholders Attempt To Bring Derivative Lawsuits In SLMI's Name............................... 13 Judge Crotty Dismisses The First New York Derivative Lawsuit Because Putative Plaintiff's Counsel Was Not Authorized To Represent SLMI ....................................................... 15 Judge Crotty Dismisses The Second New York Derivative Lawsuit Because Putative Derivative Plaintiffs Had No Standing And Did Not Adequately Represent SLMI ....................... 15 The Colorado Court of Appeals Authorizes A New Board For SLMI, And The California Court Lifts The Stay In The California Litigation ......................................................................... 16 SLMI's Intervention Into Lee v. Marvel ........................................... 19 The California Case Is Stayed Again Pending Determination Of This Appeal.................................................................................. 21
F. G. V. VI.
STATEMENT OF FACTS ........................................................................ 23 SUMMARY OF ARGUMENT ................................................................. 26 A. B. 1. Standard of Review .......................................................................... 30 Discussion of Issues ......................................................................... 32 The District Court Erred By Declining To Vacate Its Judgment Pursuant To Rule 60 Because The Subject Matter of Lee v. Marvel Was Property Of SLMI's Bankruptcy Estate And, In Addition, Lee's Misconduct, SLMI's Changed Circumstances And The Avoidance Of A Grave Injustice To 1,800 Shareholders Necessitates Rule 60 Relief ............................................................. 32
ii VII. ARGUMENT ............................................................................................. 30
The District Court erred in denying relief under Rule 60(b)(4) because the 2005 judgment entered in Lee v. Marvel violated the automatic stay in bankruptcy ........................................... 33 The District Court erred in denying relief under Rule 60(d); 60(b)(5) and 60(b)(6) because: (i) the 2005 judgment was procured by Lee’s misconduct in failing to inform the Court of SLMI’s bankruptcy; (ii) SLMI’s changed status as being empowered with a duly authorized representative for the first time in ten years warrants relief; and (iii) denying relief would result in a manifest injustice to SLMI’s 1800 shareholders. .......................................................................... 37
The District Court Erred By Denying SLMI’s Application To Intervene and Be Re-Aligned As A Plaintiff And The Real Party In Interest .............................................................................................. 40 a. The District Court Erred Because Rule 24 of the Federal Rules of Procedure Required The District Court To Permit SLMI To Intervene As of Right. ........................................... 40 The District Court Erred Because Lee Lacked Standing To Sue Marvel Because He Had Previously Assigned His Copyrights To SLMI and Rule 19(a) of The Federal Rules of Civil Procedure Required Both Lee and Marvel To Inform Judge Sweet Of SLMI’s Competing Claim To the Property Lee Claimed To Own ............................................................ 41
The District Court Erred By Denying SLMI’s Application To Unseal Documents Filed In Lee v. Marvel That Are Presumptively Public and For Which There Is No Record Of A Compelling Reason To Seal ............................................................................... 43 The District Court Erred By Deciding That res judicata Applied And That SLMI Was Adequately Represented By Shareholders Who Had No Standing And Otherwise Could Not prosecute SLMI’s Claims ................................................................................ 45 a. The Court Should Not Reach The Issue Of Res judicata Because It Was Not Necessary To Judge Sweet’s Decision To Deny Relief. .................................................................... 46 Res judicata Should Not Apply Because Judge Crotty’s Purported Merits-Based Determinations Violated The Previously Stay Put In Place By The California Court ......... 48
Derivative Plaintiffs Lacked Standing And Thus The Crotty Court Lacked Jurisdiction To Rule On The Merits ............... 50 SLMI did not have a full and fair opportunity to litigate the issues that the District Court erroneously determined to be barred by res judicata ............................................................ 51 The Putative Derivative Plaintiffs did not and could not adequately represent SLMI.................................................... 52 Derivative Plaintiffs Lacked Identity And Privity With SLMI Because They Did Not Adequately Represent SLMI . 57 Defendants failed To Demonstrate With Clarity And Certainty That The Issues Before Judge Sweet Were Identical To The Issues Before Judge Crotty Because The Facts And The Burden of Proof Were Different ................... 58
VII. CONCLUSION .......................................................................................... 62
iv Table of Authorities Page(s) FEDERAL 48th St. Steakhouse, Inc. v. Rockefeller Group, Inc. (In re 48th St. Steakhouse, Inc.), 835 F.2d 427, 431 (2d Cir.1987) ....................................... 34 ABKO Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 971 (2d Cir. 1991) .. 41 AEP Energy Services Gas Holding Co. v. Bank of America, N.A., 626 F.3d 699 (2d. Cir. 2010) ..................................................................... 30, 48 Brennan v. N.Y.C. Board of Education, 260 F.3d 123 (2d Cir. 2001) ............ 47 Bridgeport Guardians, Inc. v. Delmonte, 602 F.3d 469 (2d Cir. 2010).......... 47 Carroll v. Tri-Growth Centre City, Ltd. (In re Carroll), 903 F.2d 1266 (9th Cir.1990) .................................................................................................. 34 Central Vermont Public Service Corp. v. Herbert, 341 F.3d 186 (2d Cir. 2003) .................................................................................................. 30 Clark v. Bear Stearns & Co., 966 F.2d 1318 (9th Cir. 1992) ................... 58, 60 Clark ex rel. George Washington Life Insurance Company v. Milam, 872 F. Supp. 307 (S.D. W. Va. 1994)......................................................................... 57 Cobb v. Pozzi, 363 F.3d 89 (2d Cir. 2004) ................................................ 59, 60 Colorado River Water Cons. Dist. v. U.S., 424 U.S. 800 (1976).................... 48 Curtis v. Citibank, N.A., 226 F.3d 133 (2d Cir. 2000) .................................... 49 Esquire Trade & Finance, Inc. v. CBQ, Inc., 562 F.3d 516 (2d Cir. 2009) ... 54 Fay v. Perles, 484 F. Supp. 2d 6 (D.D.C. 2007) ................................. 47, 52, 57 Fleck & Assocs. v. Phoenix, 471 F.3d 1100 (9th Cir. 2006) ........................... 50 Gambale v. Deutsche Bank AG, 377 F.3d 133 (2d Cir. 2004) .................. 31, 44 Gillig v. Nike, 602 F.3d 1354 (Fed. Cir. 2010) ............................................... 51 Gorman v. Consol. Edison Corp., 488 F.3d 586 (2d. Cir. 2007) .................... 31
v Greenwich Ins. Co. v. Media Breakaway, LLC, 2009 WL 2231678, at *5 (C.D.Cal. July 22, 2009).................................................................................. 53 Guru Denim, Inc. v. Hayes, 2010 WL 1854020, May 6, 2010 *12 ................ 59 Horne v. Flores, 129 S.Ct. 2579 (2009) .......................................................... 38 Hydranautics v. FilmTec Corp., 204 F.3d 880 (9th Cir. 2000) ...................... 58 Joy v. North, 692 F.2d 880 (2d Cir. 1982) ...................................................... 44 Kamikaze Music Corp. v. Robbins Music Corp., 534 F. Supp. 69 (S.D.N.Y. 1982) ................................................................................................................ 41 Lans v. Digital Equipment Corp., 252 F.3d 1320 (Fed. Cir. 2001) ................ 41 Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352 (9th Cir.1985) ............. 58 Lewis v. Chiles, 719 F.2d 1044 (9th Cir. 1983) .............................................. 51 Lujan v. Defenders of Wildlife, 504 U.S. 555, 570 n. 5, 112 S.Ct. 2130 (1992) ............................................................................................ 42 Martin [v. Wilks], 490 U.S. [755,] 762, n. 2, 109 S.Ct. 2180 [(1989)]........... 53 Marvel Characters, Inc. v. Simon, 310 F.3d 280 (2d Cir. 2002) .................... 31 Media Technologies Licensing, LLC v. Upper Deck Company, 334 F.3d 1366 (Fed. Cir. 2003) ....................................................................... 51 In re National Century Fin. Enters., 423 F.3d 567 (6th Cir. 2005) ................ 34 New York v. Green, 420 F.3d 99 (2d Cir. 2005) ............................................. 30 Papilsky v. Berndt, 466 F.2d 251 (2d Cir. 1972) ............................................ 57 Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304 (Fed. Cir. 2003).. 41 Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n.7, 99 S. Ct. 645 (1979) 53 Quinn v. Anvil Corp., 620 F.3d 1005 (9th Cir. 2010) ..................................... 51 Reliance Ins. Co. v. Six Star, Inc., 155 F.Supp.2d 49 (S.D.N.Y. 2001).......... 49 Reudiger v. U.S. Forest Service, 2005 WL 318795, *4 (D. Ore. 2005) ......... 47
vi Richards [v. Jefferson County], 517 U.S. [793,] 798, 116 S.Ct. 1761 [(1996)] .................................................................................... 53, 54 Saylor v. Lindsley, 391 F.2d 965 (2d Cir. 1968) ....................................... 50, 57 Sea-Land Services, Inc. v. Gaudet, 414 U.S. 573, 593, 94 S.Ct. 806, 39 L.Ed.2d 9 (1974)............................................................................................. 53 Semmes Motors, Inc. v. Ford Motor Company, 429 F.2d 1197 (2d Cir. 1970) .................................................................................................. 49 Smith v. McIver, 22 U.S. 532 (1824) ............................................................... 48 Steel Co. v. Citizens for a Better Environment, 523 U.S. 83 (1998)............... 50 Taylor v. Sturgell, 553 U.S. 880, 892-93, 128 S.Ct. 2161 (2008) ...... 53, 54, 55 United States v. Forma, 42 F.3d 759 (2d Cir.1994) ........................................ 30 United States v. Whiting Pools, Inc., 462 U.S. 198 (1983) ............................. 34 U.S. v. Alpine Land & Reservoir Co., 984 F.2d 1047 (9th Cir. 1993) ............ 38
STATE James McKinney & Son v. Lake Placid 1980 Olympic Games, 61 N.Y.2d 836, (1984)............................................................................................................... 42 National Financial Co. v. Uh, 279 A.D.2d 374, 375, 720 N.Y.S.2d 17 (1st Dep't 2001) ............................................................................................... 42
STATUTES 11 U.S.C. § 362(a) ........................................................................................... 34 11 U.S.C . § 541(1).......................................................................................... 33 17 U.S.C. § 204 ............................................................................................... 41 17 U.S.C. § 501 ............................................................................................... 41
vii 28 U.S.C. § 1291 ............................................................................................... 1 28 U.S.C. § 1294 ............................................................................................... 1 28 U.S.C. § 1334(e)(1) .................................................................................... 34 FRCP 17 ........................................................................................................ 1, 3 FRCP 19(a) .................................................................................... 26, 37, 41, 42 FRCP 23 .......................................................................................................... 53 FRCP 23.1 ..................................................................................... 16, 50, 55, 60 FRCP 23.1(a) ............................................................................................. 16, 55 FRCP 24 (a) ............................................................................................... 41, 47 FRCP 24 (a)(2) ................................................................................................ 47 FRCP 56.1 ........................................................................................... 27, 28, 30 FRCP 60(b) .......................................................................... 8, 20, 26, 37, 38, 47 FRCP 60(b)(3) ................................................................................................. 37 FRCP 60(b)(4) ......................................................................... 26, 30, 32, 33, 36 FRCP 60(b)(5) ............................................................................... 26, 32, 37, 38 FRCP 60(b)(6) ............................................................................... 26, 32, 37, 38 FRCP 60(d) ................................................................................ 8, 26, 32, 33, 37 FRCP 60(d)(3) ........................................................................................... 37, 43
OTHER AUTHORITIES Charles A. Wright, Arthur R. Miller & Edward H. Cooper, 11 Federal Practice & Procedure § 2862 (2d ed. 2002) .................................................... 34
viii Pursuant to Fed. R. App. P. 3, Movant-Appellant Stan Lee Media, Inc. (“SLMI”) hereby submits its appellate brief. I. STATEMENT OF JURISDICTION The Court has jurisdiction over this appeal from a final decision of a U.S. District Court under 28 U.S.C. §§ 1291 and 1294. SLMI appeals the decision of the United States District Court for the Southern District of New York by the Honorable Robert W. Sweet, dated February 4, 2011 (the “Intervention Order”), which denied SLMI’s application to (i) unseal court records; (ii) vacate a prior order and final judgment pursuant to Rule 60 of the Federal Rules of Civil Procedure; (iii) intervene, substitute and re-align SLMI as the real plaintiff in interest under Rules 17, 19, and 24 of the Federal Rules of Civil Procedure; and (iv) file a proposed pleading if leave to intervene is granted. II. STATEMENT OF THE ISSUES 1. Did the District Court err by concluding that another District
Judge’s March 31, 2010 dismissal due to lack of shareholder standing in a purported shareholder derivative action filed on January 26, 2009 precluded a Colorado corporation from asserting the viability of a copyright
1 assignment and asserting other claims where: (i) in an action commenced on January 8, 2007, the U.S. District Court for the Central District of California determined on January 20, 2009 that the Colorado corporation is a necessary party to any action involving the termination of the copyright assignment; (ii) the Colorado corporation had no legally-authorized management from at least December 5, 2006 to May 27, 2010 and—due to court-supervised contested elections—it was not represented before then in any action purportedly brought (directly or derivatively) on behalf of the Colorado corporation; and (iii) the Colorado Court of Appeals effectively installed new management of the Colorado corporation on May 27, 2010, implemented by a Colorado district court order dated January 31, 2011? Answer: Yes. 2. Where a corporate copyright owner is in bankruptcy, is a
decision of a federal district court transferring royalties belonging to the copyright owner to a corporate officer of the copyright owner void where it is issued without notice to (i) the copyright owner; (ii) the copyright owner’s shareholders; and (iii) the bankruptcy court with exclusive jurisdiction over the copyright owner’s assets? If so, did the District Court err in refusing to vacate such a void order and resulting judgment upon
2 application from newly-installed post-bankruptcy management of the corporate copyright holder? Answer: Yes. 3. Where a corporate copyright owner seeks to reclaim royalties
diverted by a disloyal manager and controlling shareholder that was the subject of a collusive litigation during the corporation’s bankruptcy, did the District Court err in denying an application for relief by the corporation’s newly-installed management by (i) not recognizing the corporate copyright owner as the real party in interest under Rule 17 of the Federal Rules of Civil Procedure; and (ii) not permitting the copyright owner to intervene as the true plaintiff? Answer: Yes. 4. Where a company seeks access to presumptively public court
files in a case closed in 2005, did the District Court err in denying access to the files where: (i) there is no public sealing order in place and (ii) there is no evidence showing that the documents should be sealed? Answer: Yes.
3 III. STATEMENT OF THE CASE The courts of the State of Colorado have authorized a new board of directors to act on behalf of SLMI as of May 27, 2010. This new board of directors is SLMI’s first legally-authorized corporate representation since SLMI’s bankruptcy was dismissed in December 2006 and the first management independent of its founder Plaintiff-Appellee Stan Lee since SLMI was founded in October 1998. The District Court decision below, however, overlooks and effectively nullifies shareholder elections supervised by the courts of the State of Colorado that finally resurrected SLMI’s ability to marshal its assets in the best interests of its approximately 1,800 shareholders. Movant-Appellant non-party SLMI brings this appeal from a decision of the Hon. Robert W. Sweet dated February 4, 2011 denying a motion to intervene and vacate a 2005 order awarding Lee ten percent of the royalties of the film Spider-Man: The Movie and subsequent judgment (“the 2005 Profits Order”) and denying an application by SLMI to intervene and substitute as the real party in interest (“Intervention Order”). In 1998, Marvel Enterprises, Inc. (“Marvel”), while in bankruptcy, rejected its contracts with the then 75-year-old comic book genius Stan Lee. Lee was the creator or co-creator of hundreds of characters, including
4 Spider-Man, The Incredible Hulk, Iron Man, Thor, the Fantastic Four and XMen. Having no source of income, Lee partnered with Peter Paul to create
what became the eponymous Stan Lee Media Inc. (“SLMI”). In exchange for control of SLMI, a majority of stock and a guaranteed salary for life, Lee executed a written assignment to SLMI of all of his intellectual property (including Spider-Man and the right to exploit his name and likeness, among other things) effective as of October 15, 1998 (“the October 1998 Assignment”). In 1999, to raise financing from investors, Lee executed written ratification of the October 1998 Assignment and represented that he had not assigned his intellectual property rights to anyone else (“the October 1999 Ratification”). Based on these representations, SLMI went public, eventually achieving a market capitalization on the NASDAQ Exchange in excess of three hundred million dollars. The October 1998 Assignment and the October 1999 Ratification were filed with the Securities Exchange Commission (“the SEC”). Eventually, the October 1998 Assignment was recorded with the U.S. Copyright Office. In February 2001, under Lee’s control, SLMI filed for Chapter 11 bankruptcy. During the bankruptcy, SLMI was delisted by the SEC and administratively dissolved by the State of Colorado. In December 2006,
5 having never even proposed a reorganization plan, SLMI’s bankruptcy was dismissed due to the failure of its bankruptcy management to comply with its duties under the Bankruptcy Code. Starting in 2007, SLMI shareholders commenced proceedings in Colorado State courts to compel courtsupervised elections of new directors. Because of allegations of wrongdoing among shareholders, the Colorado district court appointed a Special Master to oversee the proxy solicitation process and to ensure the regularity of the elections. Lee successfully challenged the seating of the directors elected at the December 2007 annual meeting, leaving SLMI without anyone legally authorized to act on its behalf. Lee also challenged the 2008 elections. On March 17, 2009, the Colorado state district court rejected the directors elected in December 2008. On May 27, 2010, however, the Colorado Court of Appeals reversed and, for the first time, seated the SLMI directors who had been elected by SLMI shareholders in December 2008. Lee appealed and lost before the Colorado Supreme Court, and a final order issued on January 31, 2011 confirmed the seating of the new board of directors.1
The Colorado trial court entered judgment seating SLMI’s board of directors on January 31, 2011, 4 days before Judge Sweet made his Intervention Order rulings in this action. SLMI intends to file a motion requesting judicial notice by this Court of that judgment and other relevant recent proceedings in the Colorado and California actions.
In June 2010, based upon the May 27, 2010 decision of the Colorado Court of Appeals affirming the election results, SLMI’s new Board of Directors retained counsel to marshal SLMI’s assets and to assert claims on SLMI’s behalf. Among other issues, counsel investigated a November 1998 Assignment of Lee’s intellectual property to Marvel that Lee appeared to have executed without notice or disclosure to SLMI’s shareholders. Counsel also investigated the present action. In Lee v. Marvel, Lee brought the action against Marvel in 2002 in the United States District Court for the Southern District of New York asserting that he made a “conditional assignment” of his copyrights to Marvel. In Lee v. Marvel, Lee obtained the 2005 Profits Order: a grant of partial summary judgment awarding him ten percent of the royalties from Spider-Man: The Movie. Shortly thereafter, Lee and Marvel entered a confidential settlement and the District Court entered a final judgment (collectively referred to herein as the “2005 Profits Order”). Pursuant to SLMI’s investigation, counsel sought access to SLMI’s books and records and sought to review court records. SLMI’s prior corporate counsel and management failed to cooperate. During this time, the office of the Clerk of the U.S. District for the Southern District of New York informed SLMI’s counsel that Lee’s summary judgment motion in Lee v. Marvel was filed under seal. SLMI applied to the U.S. District Court for the
7 Southern District of New York by the Hon. Robert W. Sweet to have Lee v. Marvel records unsealed, to intervene as the real party in interest as the exclusive copyright owner pursuant to the October 1998 Assignment, to vacate the 2005 Profits Order and, upon granting leave to intervene, to file a proposed complaint as a re-aligned plaintiff. Relying mainly on Rules 60(b) and 60(d) of the Federal Rules of Civil Procedure, SLMI sought to vacate the 2005 Profits Order as void because the District Court lacked jurisdiction to enter it while SLMI was in bankruptcy; because the 2005 Profits Order was issued in violation of due process without notice to SLMI; and because of Lee’s fraud and misconduct. In support of the application, SLMI submitted an expert opinion of Lillian Laserson, former General Counsel of D.C. Comics. Laserson analyzed the October 1998 Assignment and other relevant documents, and she concluded that Lee’s assignment to SLMI was valid and that Lee had never terminated the assignment. The District Judge declined SLMI’s application to hold an evidentiary hearing on the question of SLMI’s copyright ownership. Instead, the District Court entertained oral argument off the record on the motion papers. While SLMI was in bankruptcy, Lee created two companies called QED Productions (“QED”) and POW! Entertainment (“POW!”) to exploit
8 his name, likeness and intellectual property. In 2007, Lee, individually and QED and POW! sued in the U.S. District Court for the Central District of California, purporting to represent SLMI. The plaintiffs sued SLMI shareholders to stop them from making claims to intellectual property and seeking a declaratory judgment that Lee’s intellectual property had never entered SLMI’s bankruptcy estate. On January 20, 2009, Judge Stephen V. Wilson concluded that Lee, QED and POW! had violated the automatic stay in bankruptcy by transferring certain intellectual properties out of SLMI’s bankruptcy estate. Judge Wilson determined that Lee’s attempts to reclaim intellectual properties based on his allegation that he terminated the October 1998 Assignment “would have to be litigated between Stan Lee and SLMI.” Judge Wilson found that SLMI was without anyone legally authorized to speak on its behalf and was a necessary party to resolution of the dispute. Accordingly, Judge Wilson issued a stay of the issue of whether or not the October 1998 Assignment was terminated pending the outcome of Colorado corporate governance proceedings (“the 2009 California Stay Order”). On January 24, 2011, Judge Wilson lifted the 2009 California Stay Order and directed SLMI to file a consolidated complaint as the plaintiff. SLMI filed the complaint on February 14, 2011. Judge Wilson consolidated
9 numerous California actions with SLMI realigned as plaintiff on February 15, 2011 (“the California Action”). On March 16, 2011 Lee, QED and POW! moved to dismiss or stay the California Action based on Judge Sweet’s February 4, 2011 Intervention Order. On May 4, 2011, Judge Wilson stayed the California Action pending the outcome of this appeal (the “May 2011 California Stay Order”) . The May 2011 California Stay Order states that if this Circuit Court does not specifically affirm the res judicata portion of the Intervention Order, the California Action will not be barred by collateral estoppel. The 2005 Profits Order that Movant-Appellant sought to vacate was entered in derogation of the bankruptcy court’s exclusive jurisdiction and in violation of an automatic stay in bankruptcy and thus should be vacated as void for lack of subject matter jurisdiction. In addition, this Court should recognize SLMI as the real party in interest as the assignee of Lee’s rights in the Spider-Man copyright. The essential relief that SLMI seeks is to have its day in the appropriate federal court to vindicate its intellectual property rights under the October 1998 Assignment. Marvel is not a party to the California Action. Accordingly, in the alternative, if the Court affirms that SLMI cannot intervene in Lee v. Marvel, SLMI seeks a limited affirmance of the Intervention Order that, in light of Judge Wilson’s February 15, 2011
10 consolidation, permits the California Action to proceed. Specifically, should this Court choose to affirm, Movant-Appellant respectfully requests that the decision of this Court state clearly the limited grounds necessary for affirmance and respectfully requests that such affirmance reject the District Court’s determination that a March 31, 2010 dismissal of a putative shareholder derivative claim by order of the U.S. District Court for the Southern District of New York (Hon. Paul A. Crotty)(“Derivative Dismissal Order”) has res judicata effect as to non-party SLMI. The Intervention Order is based on the erroneous legal premise that SLMI appeared before Judge Crotty prior to the issuance of the Derivative Dismissal Order. It is undisputable that SLMI had no legally authorized representatives from at least December 5, 2006 to May 27, 2010. Indeed, Lee is collaterally estopped from asserting the contrary because he actually litigated this issue and lost in the Colorado state courts. Accordingly, as stated in Judge Wilson’s May 2011 California Stay Order, a limited affirmance by this Court that does not adopt the Intervention Order’s res judicata reasoning would permit the Central District of California to resolve questions of fact raised in a 2007-filed case, consistent with the prior decisions of the Central District of California and the decisions of the courts
11 of the State of Colorado electing new SLMI management to pursue such claims. For these reasons, and those arguments set forth below, the Intervention Order should be vacated and reversed, remanded for additional factual findings; or, in the alternative, should this Court choose to affirm, this Court should reject or simply not address the District Court’s res judicata reasoning. IV. PROCEDURAL BACKGROUND A. Lee v. Marvel (2002-2005) Stan Lee commenced this action, Lee v. Marvel, in 2002 alleging that Marvel breached a conditional assignment of his copyright in the character Spider-Man by failing to pay him 10 percent of the profits from Spider-Man: The Movie. The U.S. District Court for the Southern District of New York, by the Hon. Robert W. Sweet, granted Lee partial summary judgment issuing the 2005 Profits Order, awarding him ten percent of Marvel’s profits from Spider-Man: The Movie. After the grant of partial summary judgment, Lee and Marvel settled on confidential terms, and Judge Sweet approved the Stipulation settling the matter. At the time of the 2005 Profits Order, SLMI was in bankruptcy and not a party to Lee v. Marvel. However, Lee had
12 already, in exchange for half of SLMI’s stock, control of SLMI, and a lifetime salary from SLMI, assigned all of his intellectual property (including the Spider-Man copyright) to SLMI pursuant to the October 1998 Assignment. In the wake of the SLMI bankruptcy dismissal in December 2006, a series of lawsuits erupted between Lee and various shareholder factions that ultimately led to SLMI’s motions to reopen this case. B. On January 8, 2007, Lee Commenced An Ownership Rights Case In California, After Which Various Shareholders Attempt To Bring Derivative Lawsuits In SLMI’s Name. On January 8, 2007, Lee and affiliated companies QED Productions and POW! Entertainment commenced QED Productions et al. v. James Nesfield, et al., Case No. 07-CV-225 in the Central District of California (Hon. Stephen V. Wilson). In the original complaint, Lee, QED and POW! purported to assert individually and on SLMI’s behalf violations of SLMI’s intellectual property rights against various shareholders involving ownership of all of Lee’s intellectual property (including Spider-Man). Various shareholders brought subsequent complaints against Lee in the Central District of California, including in Stan Lee Media, Inc. v. Stan Lee et al., Case No. 07-CV-4438 (SVW) (C.D. Cal. 2007) and in Abadin, et al. v. Stane
13 Lee, Case No. 09-CV-2340 (SVW) (C.D. Cal. 2009). These cases were eventually consolidated. On January 20, 2009, Judge Wilson issued the 2009 California Stay Order. The 2009 California Stay Order determined that Lee, QED, and POW! violated the automatic bankruptcy stay by attempting to transfer SLMI’s intellectual property rights while SLMI remained in bankruptcy. (A-1016-1030). Judge Wilson also identified and reserved the issue of SLMI’s ownership of its intellectual property and determined that SLMI was a necessary party to a determination of whether or not Lee had terminated the October 1998 Assignment: It appears, however, that resolution of these issues will necessarily involve SLMI in the litigation …. The Court finds that Plaintiff QED did not acquire an interest in the Properties by virtue of a transfer from the bankruptcy court because any such transfer was done in violation of the automatic stay, and was therefore void as a matter of law. As factual issues potentially remain regarding whether Plaintiffs have interests in the Properties sufficient to confer standing, Plaintiffs’ Motion for Partial Summary Judgment on the issue of standing is DENIED. (A-1029). Judge Wilson stayed the case pending the outcome of corporate governance proceedings in Colorado to determine SLMI’s duly authorized representatives. (A-1030).
Judge Crotty Dismisses The First New York Derivative Lawsuit Because Putative Plaintiff’s Counsel Was Not Authorized To Represent SLMI. Also starting in 2007, various shareholders in other districts
brought putative derivative actions, some purporting to be in SLMI’s name. Shareholders attempted to bring claims in the Southern District of New York in Stan Lee Media, Inc. v. Marvel Entertainment, Inc., et al., Case No. 07-CV-2238 (PAC) (S.D.N.Y 2007). On March 15, 2007, a complaint was filed before the Hon. Paul A. Crotty in SLMI’s name against Lee and others. Because the action was not authorized by SLMI, on September 9, 2008 Judge Crotty dismissed the action without prejudice to renewal: The current affirmation does not establish that counsel has been authorized by the corporate plaintiff to appear on its behalf. Accordingly the matter is dismissed without prejudice to its renewal should a properly constituted corporate entity decide to retain counsel and pursue whatever requests it may have. (A-534). D. Judge Crotty Dismisses A Second New York Derivative Lawsuit Because Putative Derivative Plaintiffs Had No Standing And Did Not Adequately Represent SLMI. Judge Crotty also later dismissed Abadin v. Marvel, Case No. 09-CV0715 (PAC) (S.D.N.Y. 2009), a purported shareholder derivative action commenced on January 26, 2009 (“SDNY Derivative Action”). On March
15 31, 2010, on a motion to dismiss pursuant to Rule 12(b)(6), Judge Crotty dismissed the action because the putative derivative plaintiffs lacked standing to sue on behalf of SLMI and could not adequately represent SLMI (the “Derivative Dismissal”): Plaintiffs did not own stock at the time of the complained of transaction, and accordingly they lack the requisite standing under the Federal Rules of Civil Procedure and Colorado law.[citation omitted].[fn4] [fn4:] It is doubtful whether the two named Plaintiffs can be said to “fairly and adequately represent the interests of” absent shareholders, as required by Fed. R. Civ. P. 23.1(a) …. These [proposed additional plaintiffs] cannot be allowed to serve in a fiduciary capacity; and they do not cure the deficiencies of Abadin and Belland. (A-641). E. The Colorado Court of Appeals Authorizes A New Board For SLMI, And The California Court Lifts The Stay In The California Litigation. While various litigations were filed and dismissed in federal courts, elections of new directors to represent SLMI were still being contested in Colorado court proceedings which permitted minority shareholders to elect a new Board of Directors for “good cause.” On August 2, 2007, in Belland v. SLMI, shareholders tried to seat a new Board of Directors at a December 2007 annual meeting in order to pursue SLMI’s intellectual property claims and claims against former directors. (A-113). The case was dismissed on
16 September 10, 2008 because two proposed directors were jailed for stock manipulation and the results of the 2007 annual meeting were invalidated. (A-659; [ No. 07-cv-7536 (Col. Denver Cty.), Trans. No. 21442352]). On October 1, 2008 another corporate governance action was commenced, PFP Family Holdings LLP v. SLMI. (A-660, [No. 08-cv-8584 (Col. Denver Cty.)]). In December 2008, court-ordered annual meeting occurred and a Special Master appointed by a Colorado district court presided over a courtordered shareholders election. (A-436-482). In a report dated February 9, 2009 (“Special Master Report”), the Special Master outlined the issues that she believed to be at stake in the outcome of the 2008 SLMI elections: (i) “[T]he very existence of SLMI. Should a slate of directors be elected and SLMI continue to exist and pursue lawsuits or should SLMI remain dissolved?” “[R]einstatement and election of a board of directors of SLMI … are hotly contested issues with … possibly the intellectual property … of SLMI at stake.” “There are lawsuits in more than one jurisdiction in which the parties are seeking control of, or redress for, SLMI’s alleged intellectual property.”
(A-459, Special Master Report at 20). In an Order, dated March 17, 2009, the Colorado District Court adopted the Special Master Report in its entirety as an order of the Court.
17 The Special Master Report: (a) disallowed the results of the December 2008 election on quorum grounds; and (b) prevented the Board elected by SLMI shareholders from having legal authority to act. (A-484-494). The Colorado district court noted: In this case, Plaintiff, a shareholder of the Company, seeks the same thing that another shareholder sought in Belland v. Stan Lee Media, Inc., … a court-ordered shareholders’ meeting so that the Company, which has been without directors for years, could elect directors and resume business. Part of the “business” Plaintiff, Belland and other shareholders aligned with them want the Company to resume is to bring various claims against Stan Lee and the Lee Family 1985 Trust, alleging that they stripped the Company of its assets, including intellectual property related to Mr. Lee’s comic book creation, The Incredible Hulk. (A-484-485). Accordingly, the Colorado district court made clear that the core purpose of the Colorado litigation was to determine if SLMI’s shareholders wished to have a new board of directors pursue “redress for SLMI's alleged intellectual property.” On May 27, 2010, the Colorado Court of Appeals reversed the district court’s rejection of the election results and authorized the seating of the Board of Directors elected by shareholders in December 2008. (A-111, 130). Lee unsuccessfully appealed and the Colorado Supreme Court denied certiorari on October 18, 2010. (A-1089; [Stan Lee Media Inc. v. P.F.P
18 Family Holdings, L.P., No. 10-SC-451 (Col. Supr. Crt. 2010)]). On November 8, 2010, the Colorado Court of Appeals issued its mandate returning jurisdiction over the corporate governance litigation to the Colorado district court. [P.F.P. Family Holdings, L.P. v. Stan Lee Media Inc., No. 08-cv-8584, (Col. Denver Cty.) Trans. No. 34482317]. On January 31, 2011 the Colorado district court issued a confirmatory order, based upon the Court of Appeals ruling, formally seating the new Board of Directors. [P.F.P. Family Holdings, L.P. v. Stan Lee Media Inc., No. 08-cv-8584, (Col. Denver Cty.) Trans. No. 35683810]. F. SLMI’s Intervention Into Lee v. Marvel Legally authorized at last, SLMI’s new Board authorized an investigation into the disappearance of SLMI’s assets prior to, during, and after its bankruptcy. Lee and his counsel, however, have delayed and obstructed the turnover of SLMI’s books and records. On July 14, 2010, SLMI’s newly authorized Board caused SLMI’s new counsel to move Judge Sweet to unseal the summary judgment motion made by Lee in Lee v. Marvel and the accompanying motion papers. (A-6, Docket 32). On July 26, 2010, SLMI moved to vacate, intervene and reopen the case in Lee v. Marvel, which had been closed in 2005, and for permission to appear in the case as a real party in interest re-aligned as the
19 true plaintiff. (A-7, [Docket 42]) On February 4, 2011, Judge Sweet denied SLMI’s motion to re-open and intervene because Lee v. Marvel did not involve “copyright interests” and because the 2005 Profits Order granting in part summary judgment had no effect on SLMI’s claims. (A-1103, 1120). SLMI argued that as the owner of the intellectual property assigned to it by Lee but exploited by Lee during SLMI’s bankruptcy, (i) SLMI was the real party in interest in this action and (ii) the 2005 Profits Order was void because it disposed of SLMI assets while SLMI was in bankruptcy— pointing to Judge Wilson’s 2009 California Stay Order determining that SLMI was a necessary party to any determination of whether the October 1998 Assignment had been terminated. Judge Sweet denied SLMI’s applications in the Intervention Order, the decision appealed here. The Intervention Order concluded that the question of whether or not the October 1998 Assignment was terminated was res judicata based on the Derivative Dismissal Order. The Intervention Order focused on three issues. First, Judge Sweet determined, first, that SLMI failed to demonstrate extraordinary circumstances with “highly convincing evidence” in order to demonstrate that post-judgment intervention and Rule 60(b) relief was warranted in the closed case, Lee v. Marvel. (A-1082, 1085, 1097-1108). Next, Judge Sweet
20 determined that SLMI could not demonstrate that it was a necessary party to Lee v. Marvel because Lee v. Marvel involved a private contract dispute between Lee and Marvel and did not involve “copyright interests.” (A1109). These determinations were the only determinations necessary to the Court’s conclusion and decision that Lee v. Marvel would remain closed and SLMI could not intervene. Lastly, after the two previous rulings, the Intervention Order stated that derivative plaintiffs in the earlier putative SDNY Derivative Action before Judge Crotty “adequately represented” SLMI—and thus, Judge Crotty’s merits determination in the putative SDNY Derivative Action had res judicata effect as to SLMI. (A-1118). SLMI appeals this Order. G. The California Case Is Stayed Again Pending Determination Of This Appeal. Following the Colorado Court of Appeals decision, Judge Wilson heard argument on January 24, 2011 on Lee’s motion to further stay the California Action. At the hearing, the Court summarized the triable issue of ownership before the Court, stating that: the dispute, which has been absolutely lost in the shuffle, is whether Stan Lee had a right to breach the — not breach — but void the contract with SLMI — as he says he did — shortly before the SLMI bankruptcy or, alternatively, whether the contract between Stan Lee and SLMI was voidable at the outset and because the essential dispute is who has the copyrights to the creations of Stan Lee.
21 (SLMI v. Lee, No. 07-cv-225 (C. D. CA. 2011), Trns. Hrg., Jan. 24, 2011 at 4:6-13 (statement of Judge Wilson)) On January 24, 2011, Judge Wilson denied the Lee, QED, and POW! motion for a stay and directed SLMI to file a consolidated complaint. (SLMI v. Lee, No. 07-cv-225 (C. D. CA. 2011) [Docket 150]). By order dated February 15, 2011, the Court consolidated the California Action. (SLMI v. Lee, No. 07-cv-225 (C. D. CA. 2011) [Docket 153]). Relying on the Intervention Order, on March 16, 2011, Lee, QED, and POW! applied to Judge Wilson in Stan Lee Media Inc. v. Stan Lee et al. to dismiss or stay SLMI’s complaint in the California Action. (SLMI v. Lee, No. 07-cv-225 (C. D. CA. 2011) [Docket 158]). In an “In Chambers Order” order dated May 4, 2011, Judge Wilson stayed the California Action pending the resolution of this appeal, declining to determine whether SLMI’s complaint should be dismissed on res judicata or collateral estoppel grounds, because of the potential ramifications of the present appeal. (SLMI v. Lee, No. 07-cv-225 (C. D. CA. 2011) [Docket 182]) Judge Wilson noted: Should the Second Circuit affirm [Lee v. Marvel] on res judicata grounds, this Court may be estopped from relitigating that issue. Should the Second Circuit reverse [Lee v. Marvel] or affirm it without addressing the res judicata determination, Judge Sweet’s opinion will have no collateral estoppel effect [citations omitted]. (Id. at 2).
22 V. STATEMENT OF FACTS In July 1998, when Marvel rejected Lee’s 1994 employment contract in Marvel’s bankruptcy, Lee regained his rights in characters he created or co-created such as Spider-Man, The Incredible Hulk, The X-Men, Iron Man, The Fantastic Four, Thor, Daredevil, and many others (“the Lee Characters”). (A-61, 262, 1041). In October 1998, Lee co-founded SLMI’s predecessor in interest (together, with SLMI, referred to herein as “SLMI”). (A-292, 505, 717). At that time, Lee assigned all of his intellectual property and rights to SLMI in the October 1998 Agreement. (A-91-95). In exchange for his intellectual property, Lee became SLMI’s Chairman and received managerial control of SLMI, a majority of SLMI’s stock, and a salary for life. (A-91). The document containing the October 1998 Assignment also had an employment agreement with a severability clause, in case any of its provisions might be found void. (A-95, 1036, 1042-1046). One month after executing the October 1998 Agreement, unbeknownst to SLMI, Lee executed a similarly worded assignment with Marvel in November 1998. (A-18, 205; [Docket 1, Ex. 1]). In October 1999, to attract additional investment in SLMI and to take SLMI public, Lee
23 executed a written ratification of the October 1998 Assignment, specifically stating that he had never assigned his intellectual property to anyone else. (A-201, 1096). With Lee in control, SMLI offered its shares to the public in early 2000 and achieved a market capitalization in excess of three hundred million dollars ($300,000,000). (A-253). On January 30, 2001, while SLMI was preparing to file for bankruptcy, Lee’s and SLMI’s attorney, Arthur M. Lieberman, sent a letter to SLMI’s chief executive officer on behalf of Lee that alleged a breach of contract—but which actually waived Lee’s rights, if any, to challenge the assignment of Lee’s intellectual property to SLMI. (A-855). On February 16, 2001, SLMI, under Lee’s control, filed for bankruptcy in the U.S. Bankruptcy Court for the Central District of California. (A-403, 405, 409, 656). Lee did not disclose the October 1998 Assignment in SLMI’s asset and liability schedules, and Lee did not file a proof of claim informing the California bankruptcy court about any purported termination of the October 1998 Assignment. (A-952, 1034) From October 1998 through May 2010 (before, during and after SLMI’s bankruptcy), Lee dominated and controlled the Company. During SLMI’s Bankruptcy, in March 2002, Lee caused SLMI to appoint SLMI’s Controller, Junko Kobayashi (“Kobayashi”), as SLMI’s authorized agent to
24 make decisions on SLMI’s behalf. (A-1012). At that time, Kobayashi worked at POW!, an entity created and controlled by Lee for the purpose of receiving assets from SLMI’s bankruptcy estate. (Id.). While under Lee’s control, SLMI was de-listed from the NASDAQ by the Securities Exchange Commission and administratively dissolved by the State of Colorado for non-payment of taxes. (A-87, 105). In 2006, the U.S. Bankruptcy Court for the Central District of California dismissed SLMI’s bankruptcy. SLMI received no discharge in bankruptcy. (A-107-110, 652). On May 27, 2010, the Colorado Court of Appeals recognized SLMI’s board as the duly authorized management of SLMI, providing SLMI with a duly authorized representative that is not beholden to Lee for the first time since SLMI was founded in 1998. (A111). In Lee’s complaint in Lee v. Marvel filed in November 2002 while SLMI remained in bankruptcy, Lee asserted that he owned his intellectual property after he granted a “conditional” assignment to Marvel in November 1998. (A-15, 18).
25 VI. SUMMARY OF ARGUMENT Four aspects of the District Court’s Intervention Order are erroneous as a matter of law: First, the District Court’s denial of Rule 60(b) relief is clearly erroneous. Lee transferred all of his intellectual property to SLMI and then, while he was still an officer of SLMI, but SLMI was in bankruptcy, he brought a lawsuit against Marvel in which he asserted that he owned the intellectual property he had previously transferred to the bankrupt SLMI. Under these circumstances, the District Court should have granted Rule 60(b) and 60(d) relief because: (i) under Rule 60(b)(4) the District Court’s prior judgment was void as in violation of the automatic stay in SLMI’s bankruptcy; (ii) under Rule 60(d) SLMI is entitled to vacatur because Lee and Marvel both were required under Rule 19(a) of the Federal Rules of Civil Procedure to notify the Court that SLMI was a necessary party to the action—but both Lee and Marvel failed to do so; (iii) under Rule 60(b)(5) the changed circumstances of SLMI’s re-incarnation pursuant to the Colorado state corporate governance rulings in May 2010 and January 2011 justify giving SLMI its day in court; and finally (iv) under 60(b)(6), without relief, a manifest injustice would befall SLMI’s 1800 shareholders who had
26 elected SLMI’s new management for the purpose of investigating SLMI’s claims against Lee and marshaling SLMI’s assets. Second, the District Court’s denial of SLMI’s application to intervene as of right is clearly erroneous. SLMI has a legitimate ownership claim to Lee’s intellectual property. Lee asserted in his complaint in this matter that he—not SLMI—owned rights revenues generated from the exploitation of the Spiderman comic-book character. In addition, the October 1998 Assignment—an assignment from Lee to SLMI of Lee’s intellectual property and rights—expressly included language stating that payments and benefits to Lee for the exploitation of any Lee character would inure to SLMI. The District Court declined to hold a hearing and make sure factual findings sufficient to support the Intervention Order. Accordingly, based upon SLMI’s ownership interest in the Spiderman character contrary to Lee’s asserted ownership and the fact that payments to Lee were to inure to SLMI’s benefit, SLMI is entitled to intervene in Lee v. Marvel as of right. Third, the District Court’s denial of SLMI’s application to unseal court records is clearly erroneous. Lee submitted a Rule 56.1 Statement in support of Lee’s motion for summary judgment in Lee v. Marvel under seal. Upon information and belief, SLMI asserts that the Rule 56.1 statement reasserts Lee’s purported Spider-Man copyright ownership claim first made by
27 Lee in his complaint in this matter. SLMI seeks to unseal these records to confirm that Lee improperly asserted to the District Court that he owned his intellectual property at issue in Lee v. Marvel when, in fact, SLMI owned that property and SLMI was still in bankruptcy. Under the adversarial system, SLMI should be permitted to test and use this evidence. The Intervention Order at first concludes that SLMI’s application was an attempted end-run around a previous discovery ruling. However, SLMI was not a party to that action, and that action was dismissed because Judge Crotty concluded that the attorneys bringing that action did not demonstrate due authorization from SLMI. Next, the District Court concluded that SLMI had already received Lee’s Rule 56.1 statement in discovery in that previous action. However, SLMI was not a party to that action and did not receive the documents. SLMI’s current counsel, as officers of the court, represented that to their knowledge, SLMI did not have the documents. The facially contradictory conclusions of the District Court should be reversed. These documents are presumptively public. Fourth, the District Court’s determination that res judicata applies to SLMI is based on the clearly erroneous premise that SLMI participated in the proceedings before Judge Crotty. SLMI was absent from the proceedings, and thus lacks privity, and is not bound by them. Further, the
28 District Court misconstrued the legal definition of “adequate representation.” SLMI had no representation in the prior action and thus could not have fully and fairly litigated the issues the District Court concluded had res judicata effect. Also, as a threshold matter, the District Court’s res judicata decision came after logically predicate decisions in which the District Court concluded there was no basis to re-open Lee v. Marvel and no basis to allow SLMI to intervene. Since SLMI was not permitted to intervene in Lee v. Marvel, the District Court lacked subject matter jurisdiction to proceed to determine the res judicata issue. Thus, the District Court’s res judicata determination could not have been necessary to the District Court’s decision denying SLMI relief. Furthermore, the Intervention Order directly contradicts Judge Crotty’s determinations: (i) that SLMI was not a party; (ii) that the putative derivative plaintiffs lacked standing, (iii) that it was “doubtful” derivative plaintiff could adequately represent SLMI and (iv) that derivative plaintiffs had previously released their right to bring derivative claims—which together conclusively establish that Judge Crotty’s prior decision could have no res judicata effect on SLMI.
29 VII. ARGUMENT A. Standard of Review The district court’s order denying SLMI’s Rule 60(b)(4) motion (A1082-1120) is reviewed de novo because there are no disputes over the subsidiary facts pertaining to the issue of the court’s own jurisdiction to dismiss the case, with prejudice pursuant to a settlement agreement while the SLMI bankruptcy case was still pending. Central Vermont Public Service Corp. v. Herbert, 341 F.3d 186, 189 (2d Cir. 2003) citing United States v. Forma, 42 F.3d 759, 762 (2d Cir.1994). Under Rule 60(b)(4), no deferential standard of review is appropriate because, if the underlying judgment is void, it is a per se abuse of discretion for a district court to deny a movant's motion to vacate the judgment under Rule 60(b)(4). Id. (citations omitted). On appeal, “we review de novo a District Court’s legal interpretation of the Federal Rules of Civil Procedure and review for clear error any factual findings that underlie the court’s resolution of a Rule 60(b) motion.” New York v. Green, 420 F.3d 99, 105 (2d Cir. 2005). Since the district court’s denial of SLMI’s request for leave to file an amended complaint (A-1108-1120) was based on a legal interpretation (A1117-1118), it too is subject to de novo review. AEP Energy Services Gas
30 Holding Co. v. Bank of America, N.A., 626 F.3d 699, 725 (2d. Cir. 2010) citing Gorman v. Consol. Edison Corp., 488 F.3d 586, 592 (2d. Cir. 2007). “We review a district court’s decision to vacate or modify a protective order,” such as SLMI’s motion to unseal the summary judgment record here (A-84-85) “for abuse of discretion.” Gambale v. Deutsche Bank AG, 377 F.3d 133, 139 (2d Cir. 2004) (affirming court’s order to unseal summary judgment records that had been protected by stipulated confidentiality order). Determining the preclusive effect of a federal judgment, such as Judge Crotty’s dismissal order of March 31, 2010 in the putative SDNY Derivative Action (A-632-645) is a question of law subject to de novo review. Marvel Characters, Inc. v. Simon, 310 F.3d 280, 286 (2d Cir. 2002). SLMI replied to Lee’s res judicata arguments [Docket 61], but the District Court erroneously agreed with Lee’s arguments and applied res judicata against SLMI.
31 B. 1.
Discussion of Issues The District Court Erred By Declining To Vacate Its Judgment Pursuant To Rule 60 Because The Subject Matter Of Lee v. Marvel Was Property Of SLMI’s Bankruptcy Estate And, In Addition, Lee’s Misconduct, SLMI’s Changed Circumstances And The Avoidance Of A Grave Injustice To 1800 Shareholders Necessitates Rule 60 Relief. The District Court erred in denying SLMI’s request for Rule 60 relief
for two reasons. First, the District Court erred in denying relief under Rule 60(b)(4) because the 2005 judgment entered in Lee v. Marvel violated the automatic stay in bankruptcy. Second, the District Court erred in denying relief under Rule 60(d); 60(b)(5) and 60(b)(6) because: (i) the 2005 judgment was procured by Lee’s misconduct in failing to inform the Court of SLMI’s bankruptcy; (ii) SLMI’s changed status as being empowered with a duly authorized representative independent of Lee for the first time in ten years warrants relief; and (iii) denying relief would result in a manifest injustice to SLMI’s 1800 shareholders. At a minimum, given SLMI’s proffer of the Laserson Declaration showing the continuing validity of the October 1998 Assignment, the Intervention Order should have made findings of fact regarding the October 1998 Assignment sufficient for this Court to review the District Court’s conclusion that SLMI had not proffered sufficient evidence of ownership of the Spider-Man copyright. See Philips Lighting Co. v. Schneider, 395 Fed.Appx. 796, 799, 2010 WL 3959820, 3
32 (2d Cir. 2010) (remanding denial of motion to vacate pursuant to Rule 60(d) for additional findings of fact). “On remand, the district court should clarify these factual issues, which may bear on its decision whether to vacate the judgment. The district court may do so by conducting a hearing or directing the parties to submit additional factual materials.” Id. Accordingly, the Court should reverse and remand this matter for further proceedings. a. The District Court erred in denying relief under Rule 60(b)(4) because the 2005 judgment entered in Lee v. Marvel violated the automatic stay in bankruptcy. The District Court denied SLMI vacatur of the 2005 Profits Order on the asserted ground that Lee v. Marvel did not adjudicate copyright claims and that “[t]here is no language in the SLE/Lee Employment Agreement granting SLMI any rights to Lee’s salary, profit participation or other compensation from Marvel.” (A-1098)(referring to the October 1998 Assignment). This is clear error because SLMI’s right to revenues generated from the exploitation of Lee’s creations were assets of SLMI’s bankruptcy estate under 11 U.S.C. § 541(1). Under 11 U.S.C. § 541(1) property of the estate is defined as comprising “all of the following property, wherever located and by whomever held,” including but not limited to “all legal or equitable interests of the debtor in property as of the commencement of the case.” See, e.g.,
33 United States v. Whiting Pools, Inc., 462 U.S. 198, 205-206, n. 9 (1983). A judgment from a non-bankruptcy court that disposes of property in which a bankruptcy estate has an interest, without a previous application to the bankruptcy court to lift the automatic stay, is void under 11 U.S.C. § 362(a) and the bankruptcy court’s exclusive jurisdiction over property of the bankruptcy estate under 28 U.S.C. 1334(e)(1). See, e.g., 48th St. Steakhouse, Inc. v. Rockefeller Group, Inc. (In re 48th St. Steakhouse, Inc.), 835 F.2d 427, 431 (2d Cir.1987) cert. denied, 485 U.S. 1035, 108 S.Ct. 1596 (1988); Carroll v. Tri-Growth Centre City, Ltd. (In re Carroll), 903 F.2d 1266, 1270-71 (9th Cir.1990); accord In re National Century Fin. Enters., 423 F.3d 567 (6th Cir. 2005). Such a void judgment cannot acquire validity due to the passage of time or laches on the part of the party against whom it is sought to be enforced. See Charles A. Wright, Arthur R. Miller & Edward H. Cooper, 11 Federal Practice & Procedure § 2862 (2d ed. 2002). Here, the October 1998 Assignment grants to SLMI all of Lee’s intellectual property rights – including any right Lee possessed to share in the exploitation of these intellectual property rights with Marvel or any other party. (A-94). The November 1998 Assignment Lee executed with Marvel containing terms for salary, profit participation, and any “other compensation” appears to be a grant by Lee for Marvel to exploit the rights
34 Lee purported to possess but where owned by SLMI. In other words, the profit participation claims Lee asserted in Lee v. Marvel for Spider-Man: The Movie were based on Lee’s asserted ownership of the rights to the Spider-Man property, which were actually owned by SLMI. Notwithstanding Lee’s second-in-time agreement with Marvel, The October 1998 Assignment contained the following terms: (a) Paragraph 3(b): “You [Lee] shall receive bonuses on those projects you personally initiate and/or accomplish with approved entities from your participation as assigned to the company.” Paragraph 4(a): “I [Lee] assign, convey and grant to the Company forever, all right, title and interest I may have or control, now or in the future, in the following: Any and all ideas, names, titles, characters, symbols, logos, designs, likenesses, visual representations, artwork, stories, plots, scripts, episodes, literary property, and the conceptual universe related thereto, including my name and likeness (the ‘Property’) which will or have been in whole or in part disclosed in writing to, published, merchandised, advertised, and/or licensed by Company, its affiliates and successors in interest and licensees (which by agreement inures to Company's benefit) or any of them and any copyrights, trademarks, statutory rights, common law, goodwill, moral rights and any other rights whatsoever in the Property in any and all media and/or fields, including all rights to renewal or extensions of copyright and make applications or institute suits therefor (the ‘Rights’).” [emphasis added].
(A-93-94). In addition, Paragraph 2 of the October 1998 Agreement allows Lee to undertake a limited employment at Marvel but does not authorize Lee to divert profit participation or other compensation inuring to SLMI. (A-91).
35 Paragraph 2 states only that Lee can work for Marvel “no more than an average of 10-15 hours per week” without violating his exclusive services obligation to Appellant. This “carve-out” is separate and unrelated to Lee’s grant of his intellectual property and rights under the agreement. Critically, the only part of Paragraph 2 that expressly deals with rights to Lee’s participation from another entity indicates that such participation belongs to SLMI: “All other services performed and intellectual property created for the Company, or for any other entity, which entity shall be approved in writing by the Company, shall inure to the benefit of the Company to the entire extent your participation provides.” (A-91) [emphasis added]. This contract language, coupled with Paragraph 4(a) which also states that licenses inure to SLMI’s benefit, unambiguously states that any benefits Lee may receive—such as the profit participation that was the subject matter of Lee v. Marvel—inures to SLMI. Because SLMI owned the rights Lee asserted in Lee v. Marvel, the 2005 Profits Order is void and the District Court erred by not vacating it based upon the exclusive jurisdiction of the Bankruptcy Court. Accordingly, the Court should reverse the District Court and vacate the judgment in this matter under Rule 60(b)(4).
36 b. The District Court erred in denying relief under Rule 60(d); 60(b)(5) and 60(b)(6) because: (i) the 2005 judgment was procured by Lee’s misconduct in failing to inform the Court of SLMI’s bankruptcy; (ii) SLMI’s changed status as being empowered with a duly authorized representative for the first time in ten years warrants relief; and (iii) denying relief would result in a manifest injustice to SLMI’s 1800 shareholders. The District Court also erred because SLMI is entitled to Rule 60 relief due to fraud and misconduct and changed circumstances, as well as— under the Rule 60(b) catch-all—in order to avoid a grave injustice to SLMI’s approximately 1800 shareholders. First, the District Court’s judgments are subject to vacatur based upon misconduct, misrepresentation and/or fraud upon the Court under Rule 60(d)(3).2 Lee and Marvel were required under Rule 19(a) of the Federal Rules of Civil Procedure to inform the Court of any party with an interest in the subject matter of an action. It appears, however, that during the time Lee prosecuted Lee v. Marvel, neither Lee nor Marvel informed the District Court that: (i) Lee previously granted of all of his intellectual property to SLMI; and (ii) SLMI was in bankruptcy. Under Rule 60(d), the Court is empowered to vacate a judgment to address questions of misrepresentations, including misleading omissions, that operate to undermine the Court’s just
SLMI did not move under Rule 60(b)(3), but did move under Rule 60(d)(3).
determinations of matters before it. See Philips Lighting Co., 395 Fed. Appx. at 799. Second, “changed circumstances” under Rule 60(b)(5) support Rule 60(b) relief here. As set forth in a March 17, 2009 opinion of the Colorado district court, following the dismissal of SLMI’s bankruptcy in 2006, SLMI had no legally authorized management and had not had any for years. (A484-493). In light of the rulings from the Colorado Courts empowering SLMI’s new Board, for the first time, SLMI is now free from the direct control of Lee and its former management and can assert claims that, hitherto, it was unable to bring. Under these changed circumstances (and in light of the facts discussed herein) it is no longer equitable to allow the Court’s previous judgments to stand. See FRCP 60(b)(5); Horne v. Flores, 129 S.Ct. 2579, 2592 (2009). Third, and finally, under Rule 60(b)(6) this Court may vacate a judgment to avoid manifest injustice where circumstances beyond a party’s control prevented timely action to protect its interests. See U.S. v. Alpine Land & Reservoir Co., 984 F.2d 1047, (9th Cir. 1993), cert. denied, 510 U.S. 813, 114 S.Ct. 60 (1993). Here, the Colorado courts have only recently empowered SLMI to pursue claims and marshal its assets for the benefit of its shareholders. As proffered before the District Court, SLMI can
38 demonstrate SLMI’s ownership of Lee’s creations, but its shareholders have been unable to benefit from SLMI’s ownership due to the fact that SLMI has been without a duly authorized representative independent of Lee for approximately a decade. Previous to a final determination from the Colorado courts, Judge Crotty dismissed a putative SDNY Derivative Action that has erroneously become the basis for Judge Sweet’s rulings in this matter. Out of deference to the Colorado courts which have undertaken to empower SLMI to assert claims on behalf of its shareholders best interests, SLMI should be allowed to have its day in court. Otherwise, the Colorado decisions are a nullity and the shareholders damaged by SLMI’s dismissed bankruptcy will suffer the manifest injustice of having the Company barred from marshaling its assets. In sum, denying SLMI an opportunity to litigate its ownership claim would not only unjustly enrich Marvel and Lee, two parties who failed to advise the District Court of SLMI’s status as a necessary party to this action, but also damage SLMI’s shareholders. Accordingly, the Court should reverse the District Court’s Intervention Order, vacate the 2005 Profits Order and remand for further proceedings.
The District Court Erred By Denying SLMI’s Application To Intervene and Be Re-Aligned As A Plaintiff And The Real Party In Interest. As discussed above, the District Court denied SLMI’s application to
intervene and be re-aligned as the real party in interest because Lee v. Marvel did not adjudicate any copyright claims and, according to the Intervention Order, nothing done in this matter affected SLMI’s claims. (A1108-1116). This determination was in error because Lee asserted in his Complaint that he was the owner of his intellectual property when, in fact, he had previously granted his intellectual property to SLMI. In addition, this matter has already prejudiced SLMI’s rights and appears to be used again to further prejudice SLMI and its shareholders. Accordingly, SLMI should be allowed to intervene as the real plaintiff in interest in Lee v. Marvel. a. The District Court erred because Rule 24 of the Federal Rules of procedure required the District Court to permit SLMI to intervene as a right. Rule 24 of the Federal Rules of Civil Procedure provides that, on timely motion, the court must permit anyone to intervene who: (1) is given an unconditional right to intervene by a federal statute; or (2) claims an interest relating to the property or transaction that is the subject of the action, and is so situated that disposing of the action may as a practical matter impair or impede the movant’s ability to protect its interest, unless existing
40 parties adequately represent that interest. See Fed. R. Civ. P. 24(a). Here, SLMI claimed a legitimate interest to the property and transaction that was the subject matter of Lee v. Marvel. Accordingly, the District Court erred in refusing to permit SLMI to intervene. b. The District Court erred because Lee lacked standing to sue Marvel because he had previously assigned his copyrights to SLMI and Rule 19(a) of the Federal Rules of Civil Procedure required both Lee and Marvel to inform Judge Sweet of SLMI’s competing claim to the property Lee claimed to own. Under federal law, a pre-litigation assignment of intellectual property ownership deprives the plaintiff-assignor of standing to sue. See, e.g., Paradise Creations, Inc. v. UV Sales, Inc., 315 F.3d 1304, 1310 (Fed. Cir. 2003); Lans v. Digital Equipment Corp., 252 F.3d 1320, 1328 (Fed. Cir. 2001). An assignee of a copyright is the owner of a copyright and thus the “real party in interest” with standing to bring ownership and infringement claims. 17 U.S.C. § 501; ABKO Music, Inc. v. Harrisongs Music, Ltd., 944 F.2d 971, 980-81 (2d Cir. 1991). Where standing is based on an assignment of copyrights, recording the assignment is sufficient to permit a plaintiff-assignee standing to assert ownership and infringement claims. 17 U.S.C. § 204; Kamikaze Music Corp. v. Robbins Music Corp., 534 F. Supp. 69 (S.D.N.Y. 1982) (Sweet, J.). Under New York law, where a plaintiff assigns rights before filing a lawsuit, the plaintiff has no standing.
41 National Financial Co. v. Uh, 279 A.D.2d 374, 375, 720 N.Y.S.2d 17 (1st Dep't 2001); James McKinney & Son v. Lake Placid 1980 Olympic Games, 61 N.Y.2d 836, 838 (1984). Furthermore, standing to sue under Article III of the U.S. Constitution, like other bases of federal court jurisdiction, must be present at the time of commencement of the federal lawsuit. See, e.g., Lujan v. Defenders of Wildlife, 504 U.S. 555, 570 n. 5, 112 S.Ct. 2130 (1992) (plurality opinion). Lee averred in the Complaint that he owned the Historical Characters: “Defendants were given the right and assumed the obligation to commercially exploit Mr. Lee’s characters, as well as his name Defendants received a conditional assignment of Mr. Lee’s rights in his many world famous and hugely popular characters . . .” (A-18). However, Lee did not have standing to assert copyright ownership because he had previously assigned such ownership to SLMI. Without ownership, Lee had no standing to sue. Indeed, this is the very issue – Lee’s standing to assert ownership of intellectual property transferred under the October 1998 Agreement— that Judge Wilson stayed in 2009 in the California Stay Order because a determination of Lee’s ownership involved SLMI as a necessary party. (A1030). In fact, Lee and Marvel were required by Rule 19(a) to inform the Court of any party with an interest in the subject matter of an action. They
42 did not (which constitutes grounds for SLMI’s request for Rule 60(d)(3) relief discussed above. Accordingly, the District Court erred in refusing to allow SLMI to intervene as of right and in failing to re-align the Company as the real plaintiff in interest with standing to bring ownership and infringement claims against Lee and Marvel. Accordingly, the District Court erred because Lee had no standing to assert ownership of SLMI’s property in Lee v. Marvel. 3. The District Court Erred By Denying SLMI’s Application To Unseal Documents Filed In Lee v. Marvel That Are Presumptively Public and For Which There Is No Record Of A Compelling Reason To Seal. SLMI’s application to unseal court records should have been granted. On July 14, 2010, after the Colorado appellate court had ruled in favor of seating its board of directors SLMI moved to unseal the following documents: “…and other documents not appearing on the Docket.” (A-6, 84-85). The district court denied that motion in the Intervention Order, citing two grounds: (a) that seeking the records was an end-run to “circumvent” an earlier order limiting discovery in the matter of Case No. 07-CV-2238 (dismissed without prejudice) (A-1119-1120) and, also because the court concluded that Lee had previously produced the disputed documents to SLMI in discovery during the course of the Case No. 07-CV2238 litigation. (A-1119). These self-contradictory reasons are clearly
43 erroneous. (The court’s reasons were self-contradictory because, if Lee had indeed previously produced the records to SLMI in discovery, then unsealing those same records to allow access by SLMI in this action could not possibly have offended any discovery limitations imposed in the previous action.) In part because they relate to a court’s adjudication process, “documents used by parties moving for, or opposing, summary judgment should not remain under seal absent the most compelling reasons.” Joy v. North, 692 F.2d 880, 893 (2d Cir. 1982); Gambale v. Deutsche Bank AG, 377 F.3d 133, 139 (2d Cir. 2004). Although parties to litigation may thus overcome the presumption of access by supplying “most compelling reasons,” they cannot expunge the public interest by the simple expedient of filing a stipulation of dismissal with the court. Here, there is no evidence in the record establishing that SLMI does indeed possess these sealed records. There was no proffer in the record of any reason why these documents should remain under seal—let alone a proffer of “good cause” or any “most compelling reasons.” No publicly-filed sealing order had stated any reasons supporting the district court’s original sealing of these documents; indeed, prior to SLMI’s investigation, no mention of the documents in question appeared anywhere on the docket sheet for this matter. (A-1-14). In
44 contrast, SLMI’s diligent search has failed to uncover the disputed sealed documents as being in its possession. Contrary to Lee’s assertion before that he has produced these documents in the previous litigation of Case No. 07CV-2238 [Docket 56 at 1]. Lee has failed to provide a production bates range to confirm this production to counsel authorized to represent SLMI. Lee never produced any documents to SLMI during discovery because, as the record also clearly establishes, that SLMI was not a party to the litigation in Case No. 07-CV-2238. Accordingly, because there is no good or compelling reason to keep these records sealed, and SLMI’s proffer that it does not possess these documents remains unchallenged, the Court should reverse and remand with directions to unseal the disputed documents for access by SLMI and the public. 4. The District Court Erred By Deciding That res judicata Applied And That SLMI Was Adequately Represented By Shareholders Who Had No Standing And Otherwise Could Not Prosecute SLMI’s Claims The District Court erred here because it misconstrued the legal definition of “adequate representation” in the context of a derivative action under the circumstances presented by the complex and admittedly confusing procedural history of this and related matters involving Lee and SLMI. Even though the District Court had already determined that this closed case
45 would not be re-opened for other reasons logically antecedent, Judge Sweet then undertook the additional and unnecessary task of determining that the proposed SLMI complaint against Lee and Marvel was barred by res judicata. This determination was in error five reasons: (i) the Court should not reach the issue of res judicata because it was not necessary to Judge Sweet’s decisions denying relief; (ii) Judge Crotty’s purported merits-based determinations were not but simply a ruling on a motion to dismiss pursuant to Rule 12(b)(6); (iii) the putative derivative plaintiffs lacked standing; (iv) the putative derivative plaintiffs did not and could not adequately represent SLMI; (v) SLMI did not have a full and fair opportunity to litigate the issues that the District Court concluded to be barred by res judicata; and (vi) the issues before Judge Crotty on a motion to dismiss pursuant to Rule 12(b)(6) were not identical to the issues before Judge Sweet because the facts and the burden of proof were different. The Intervention Order erroneously assumes that Judge Crotty made determinations on the merits rather than dismissing a complaint pursuant to Rule 12(b)(6).
a. The court should not reach the issue of res judicata because it
was not necessary to Judge Sweet’s decision to deny relief. The District Court also erred in making a determination on res judicata because doing so was not necessary to its decision on SLMI’s motions. Where an issue is not necessary to a Court’s determination the
46 court should not reach that issue. Reudiger v. U.S. Forest Service, 2005 WL 318795, *4 (D. Ore. 2005). See Fay v. Perles, 484 F. Supp. 2d 6, 9, 10-11 (D.D.C. 2007). On an intervention application, (a) the Court typically lacks the power to adjudicate the merits of a proposed pleading; and (b) merits issues involving the proposed pleading should typically be deferred for a determination until after discovery and fact-finding proceedings have taken place. Bridgeport Guardians, Inc. v. Delmonte, 602 F.3d 469, 474-475 (2d Cir. 2010); Brennan v. N.Y.C. Board of Education, 260 F.3d 123, 129-131 (2d Cir. 2001) (reversing denial of intervention motion, noting that “[t]he sufficiency of an interest entitles the intervenor to contest the merits of his/her claim based on that interest [and] [a]n interest that is otherwise sufficient under Rule 24(a)(2) does not become insufficient because the court deems the claim to be legally or factually weak” and stating that “[t]he merits can, therefore, be resolved only after appellants have an opportunity for discovery and the presentation of evidence as a party to the action.”). In the Intervention Decision, Judge Sweet, first, denied SLMI Rule 60(b) relief; and second, denied intervention. (See A-1084, 1086, 11081116, Intervention Decision at 1, 3, 25-33). These determinations were the only determinations necessary to the Court’s conclusion and decision that Lee v. Marvel would remain closed and SLMI could not intervene. In short,
47 res judicata does not apply and is not necessary to Judge Sweet’s case ruling. Accordingly, and the Court should vacate (or decline to reach) the District Court’s res judicata determination.
b. Res judicata should not apply because Judge Crotty’s
purported merits-based determinations violated the previously stay put in place by the California Court. The District Court further erred in finding that res judicata applied because Judge Crotty’s purportedly merits-based rulings were, instead, granting a motion to dismiss. Given the previous stay put in place by Judge Wilson in the first-filed California SLMI litigation, the Intervention Order’s assumption that Judge Crotty’s decision was “on the merits” is clearly erroneous. In AEP Energy Services Gas Holding Company v. Bank of America, N.A., this Circuit applied the first-filed doctrine to vacate a merits ruling by a New York District Court, due to the existence of a previously filed litigation in a Texas federal court involving the same issues. The Court stated that: (a) the first-filed doctrine implicates the threshold ground of “whether a District Court has, or has acquired, the power to adjudicate a particular dispute;” and (b) a New York District Court has “an independent obligation to defer to the primacy of the first-filed suit.” 626 F.3d 699, 718725 (2d Cir. 2010); see also, e.g., Colorado River Water Cons. Dist. v. U.S., 424 U.S. 800, 818 (1976); Smith v. McIver, 22 U.S. 532, 535 (1824) (“In all
48 cases of concurrent jurisdiction, the court which first has possession of the subject matter must decide it”); Curtis v. Citibank, N.A., 226 F.3d 133, 138 (2d Cir. 2000). This rule is applicable even where the parties in the two actions are not identical [cits. om.].”); Semmes Motors, Inc. v. Ford Motor Company, 429 F.2d 1197, 1292 (2d Cir. 1970); Reliance Ins. Co. v. Six Star, Inc., 155 F.Supp.2d 49, 54 (S.D.N.Y. 2001) (“The party opposing application of the first-filed doctrine has the burden to show that special circumstances justify an exception [cits. om.].”). Here, in the Stay Order dated, January 20, 2009, Judge Wilson ruled on summary judgment motions filed in the first-filed, federal court litigation over disputed ownership rights involving Stan Lee pending before the United States Court for the Central District of California. In the Stay Order, Judge Wilson: (a) invalidated as void purported transfers of SLMI’s intellectual property assets to Stan Lee or his affiliates during Appellant's bankruptcy case; and (b) stayed and reserved issues of ownership of Lee’s intellectual property until a duly authorized representative appeared on behalf of SLMI. On March 31, 2010, Judge Crotty dismissed the putative SDNY Derivative Action case for lack of standing to sue on behalf of non-party Appellant (A-640-641). Although Judge Crotty’s Derivative Dismissal
49 Order went further and addressed merits-based issues not before the Court, because putative derivative plaintiffs lacked standing and SLMI was not a party (A-641-645) such observations are nonbinding dicta vis-à-vis SLMI. Accordingly, the District Court erred. Applying principles of comity relevant to the first-filed rule, this Court should vacate that branch of the District Court’s Intervention Order that purports to determine the res judicata effect of Judge Crotty’s Derivative Dismissal Order because applying res judicata here fails to provide deference to issues stayed and reserved by Judge Wilson in a first-filed action in which SLMI is a party.
c. Derivative Plaintiffs lacked standing and thus the Crotty Court
lacked jurisdiction to rule on the merits. In addition, the District Court’s decision is in error because Judge Crotty’s decision rested on the fact that the putative derivative plaintiffs lacked standing to assert claims on SLMI’s behalf. When a derivative lawsuit is dismissed because the putative derivative plaintiff lacked standing to represent the corporation, there can be no res judicata effect on other shareholders or the corporation. Saylor v. Lindsley, 391 F.2d 965, 967 (2d Cir. 1968); Steel Co. v. Citizens for a Better Environment, 523 U.S. 83, 109110 (1998); Fleck & Assocs. v. Phoenix, 471 F.3d 1100, 1107, n.4 (9th Cir. 2006). Standing to pursue a derivative action under Rule 23.1 of the Federal Rules of Civil Procedure is a “necessary predicate” and a “logical
50 antecedent” to Article III standing. No Article III standing can exist if the plaintiff lacks sufficient standing to “step into the corporation’s shoes” of the Corporation and act adequately as a representative on its behalf. Quinn v. Anvil Corp., 620 F.3d 1005, 1012 (9th Cir. 2010)(citing Lewis v. Chiles, 719 F.2d 1044, 1047 (9th Cir. 1983)) Here, SLMI was not, itself, a party represented in the lawsuit because at the time Judge Crotty rendered the Derivative Dismissal Order, the corporate governance proceedings in Colorado had not yet concluded. (A112-130, 640-641). As a result, where, as here, a derivative plaintiff lacks standing, no case or controversy remains and a federal court lacks subject matter jurisdiction and is powerless to adjudicate the merits of a case. See Media Technologies Licensing, LLC v. Upper Deck Company, 334 F.3d 1366, 1370 (Fed. Cir. 2003); Gillig v. Nike, 602 F.3d 1354, 1361 (Fed. Cir. 2010). Accordingly, the Derivative Dismissal has no preclusive or res judicata affect as to SLMI.
d. SLMI did not have a full and fair opportunity to litigate the
issues that the District Court erroneously determined to be barred by res judicata Furthermore, SLMI did not have a full and fair opportunity to litigate the issues barred by res judicata under the Intervention Order. A party that is not given an opportunity to appeal an issue is not subject to res judicata
51 on the issue. See Fay v. Perles, 484 F.Supp.2d at 9, 10-11; see Charles A. Wright, Arthur R. Miller & Edward H. Cooper, 11 Federal Practice & Procedure § 4421 at 570 (2d ed. 2002). This Court previously denied SLMI’s motion to intervene in the Appeal of the Derivative Dismissal. [Abadin v. Marvel, No. 10-1717, (2d Cir. 2010), Docket 47]. Thus, this Circuit previously determined that SLMI was not a necessary party aggrieved by the Derivative Dismissal, which holding further demonstrates that no rulings in the SDNY Action can have res judicata effect as to SLMI.
e. The putative derivative plaintiffs did not and could not
adequately represent SLMI. According to the District Court, “SLMI’s interests were adequately represented in Abadin [the case Judge Crotty dismissed on March 31, 2010].” (A-1118). As a result, the District Court undertook to determine that the proposed SLMI complaint against Lee and Marvel was barred by res judicata. Id. That conclusion was legally incorrect because SLMI was not a party in the action before Judge Crotty—and because Judge Crotty’s dismissal order of March 31, 2010 (A-631-645) shows that none of the actual parties were capable of representing SLMI in the SDNY Derivative Action. Under any enlightened system of law, “[i]t is a violation of due process for a judgment to be binding on a litigant who was not a party or a
52 privy and therefore has never had an opportunity to be heard.” Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n.7, 99 S. Ct. 645 (1979).3 Unless a litigant appeared as a plaintiff or was served with summons as a defendant in the prior action, there are only six established grounds for holding that litigant bound by a prior adjudication. Taylor v. Sturgell, 553 U.S. 880, 89293, 128 S.Ct. 2161 (2008). Only one of those six grounds is arguably applicable here: Third, we have confirmed that, “in certain limited circumstances,” a nonparty may be bound by a judgment because she was “adequately represented by someone with the same interests who [wa]s a party” to the suit. Richards [v. Jefferson County], 517 U.S. [793,] 798, 116 S.Ct. 1761 [(1996)] (internal quotation marks omitted). Representative suits with preclusive effect on nonparties include properly conducted class actions, see Martin [v. Wilks], 490 U.S. [755,] 762, n. 2, 109 S.Ct. 2180 [(1989)] (citing Fed. Rule Civ. Proc. 23), and suits brought by trustees, guardians, and other fiduciaries, see Sea-Land Services, Inc. v. Gaudet, 414 U.S. 573, 593, 94 S.Ct. 806, 39 L.Ed.2d 9 (1974). See also 1 Restatement [(Second) of Judgments] § 41 [(1980)]. Taylor, 553 U.S. at 894-95.4 This Court has since recognized the strict Due
Whether to accord preclusive effect to the rulings and pronouncements made by Judge Crotty in other federal actions is governed by federal law. Federal law applies here even insofar as the Complaint invokes diversity jurisdiction. See Greenwich Ins. Co. v. Media Breakaway, LLC, 2009 WL 2231678, at *5 (C.D. Cal. July 22, 2009). 4 The substantive legal relationships justifying preclusion based upon each of the six traditionally-recognized grounds are sometimes referred to as “privity.” “The term ‘privity,’ however, has also come to be used more broadly, as a way to express the conclusion that nonparty preclusion is appropriate on any ground.” Taylor, 553 U.S. at 894 n.8 (citation omitted). “To ward off confusion” (id.), the Supreme Court avoided using the term “privity” in the Taylor opinion, and SLMI likewise does not use that term here.
Process limitations that Taylor imposes upon applying the bar of res judicata: The [Supreme] Court’s earlier decision in Richards “established that representation is ‘adequate’ for purposes of nonparty preclusion only if (at a minimum) one of ... two circumstances is present”: (1) “special procedures to protect the nonparties’ interests” or (2) “an understanding by the concerned parties that the first suit was brought in a representative capacity.” Taylor, 128 S.Ct. at 2174. Because neither of the required circumstances is present in this case, we hold that affording the order dismissing the Socrates Action res judicata effect against Esquire would violate due process. Esquire Trade & Finance, Inc. v. CBQ, Inc., 562 F.3d 516, 521-22 (2d Cir. 2009). Importantly, Taylor establishes that there is no broader “virtual representation” exception to the rule against binding nonparties to the results of prior litigation. See 553 U.S. at 894-95. As a result, SLMI could only be bound by Judge Crotty’s rulings “according to the established grounds for nonparty preclusion described in this opinion.” Id. at 904. Here, as in the Esquire Trade & Finance case, those grounds do not apply as a matter of law. Judge Crotty understood that SLMI was not a party in the derivative case before him, and he correctly recognized at the time of his dismissal ruling in that case that “SLMI’s status as a viable corporation had not been restored.” (A-638). He then specifically held that dismissal was required— precisely because no legally valid representative of SLMI was present. Both
54 of the named Plaintiffs, Jose Abadin and Chris Belland, had acquired their shares in 1999, after the 1998 transaction assignment from Lee to Marvel that Judge Crotty viewed as the heart of the alleged wrongdoing. (A-640641). As a result, he held that the named derivative plaintiffs “lack the requisite standing under the Rules of Civil Procedure and Colorado law.” (A-641). In addition, Judge Crotty also recognized that both putative derivative plaintiffs had previously released any and all derivative claims that they could assert in an earlier class action settlement. (A-635, 639). Under these circumstances, there was no “understanding by the concerned parties that the first suit was brought in a representative capacity,” Taylor, 553 U.S. at 897, and therefore no grounds for imposing the bar of res judicata. In fact, Lee and the other defendants submitted strong arguments why, at that time, the putative derivative plaintiffs appearing before Judge Crotty could not adequately represent SLMI. [Abadin v. Marvel, No. 09-cv-0715, Docket 24 at 6-11.] Judge Crotty agreed with these assertions made in the motions to dismiss in the SDNY Action. In fact, Judge Crotty stated his views as to the adequacy of the putative derivative plaintiffs as follows: It is doubtful whether the two named Plaintiffs [i.e. Abadin and Belland] can be said to “fairly and adequately represent the interests of” absent shareholders, as required by Fed. R. Civ. P. 23.1(a). Both are close associates of Peter F. Paul who stands
55 convicted on his plea of guilty to securities fraud: manipulating SLMI stock. The same may said of the four additional corporate entities in the proposed Second Amended Complaint (Excelsior Productions Inc., Continental Entities Inc., Hollywood Holdings Corp., and PFP Family Holdings L.P.) who have the same deficiencies found in Abadin and Belland. According to the indictment to which Paul pled guilty, he created the nominees which were then used in his conspiratorial scheme to manipulate SLMI stock. At least two of the nominees were created post 1998. (See Shore Affidavit, Ex. I, pp. 5-10). These 4 entities cannot be allowed to serve in a fiduciary capacity; and they do not cure the deficiencies of Abadin and Belland. (A-641). (emphases added). Judge Crotty’s views on this matter were more than a mere expression of “doubt.” Judge Crotty directly relied upon these views as a finding upon which he based his order denying putative derivative plaintiffs’ requested leave to amend the derivative complaint in that action. Thus, Judge Crotty conclusively established that SLMI was not adequately represented by the putative derivative plaintiffs that appeared before him in the SDNY Derivative Action.5 The District Court was bound by this determination.
This Court too expressly recognized that SLMI was not a party to the derivative case. The putative derivative plaintiffs appealed Judge Crotty’s order of dismissal. During the course of that appeal, on September 16, 2010, this Court made the following order: “IT IS HEREBY ORDERED that the motion by non-party Stan Lee Media, Inc. for permission to intervene to file an application to stay briefing schedule to obtain indicative ruling and file appeal is DENIED.” [Abadin v. Marvel, No. 101717 (2d Cir. 2010), Docket 47].
f. Derivative plaintiffs lacked identity and privity with SLMI
because they did not adequately represent SLMI. The District Court also erred because SLMI was not in privity with the derivative shareholders. In the derivative context, a nonparty corporation (such as SLMI) is not deemed in “privity” with individual shareholders from a putative derivative suit where the court never authorized those shareholders to serve as representatives of the corporation. See Fay v. Perles, 484 F. Supp. 2d 6, 9, 10-11 (D.D.C. 2007) (“Fay was not joined in the prior suit [because his motion to intervene was denied], nor did he ‘assume control’ of the Perles v. Kagy litigation such that he should be bound by it. … Accordingly, Fay cannot be barred in the present action by the doctrine of res judicata.”); see also Section 41 of the Restatement (Second) of Judgments; Saylor v. Lindsley, 391 F.2d at 967-968; Papilsky v. Berndt, 466 F.2d 251, 260 (2d Cir. 1972); Clark ex rel. George Washington Life Insurance Company v. Milam, 872 F. Supp. 307, 316 (S.D. W. Va. 1994) (“If the minority shareholders did not have standing to bring the derivative action, they cannot be considered to be representative of either GW CORP or GW LIFE, and privity between the parties would not exist.”). Here, Judge Crotty dismissed the putative derivative complaint for lack of standing; because plaintiffs had previously released their rights to bring derivative claims; and, because it was “doubtful” that putative derivative
57 plaintiffs (as well as the proposed additional plaintiffs added in a proposed amended complaint) could adequately represent SLMI or its shareholders at that time. (A-641). Thus, based upon Judge Crotty’s determinations, there can be no privity between SLMI and derivative plaintiffs sufficient to support the District Court’s application of res judicata as against SLMI here.
g. Defendants failed to demonstrate with clarity and certainty
that the issues before Judge Sweet were identical to the issues before Judge Crotty because the facts and the burden of proof were different. The District Court erred because the issues before it were different from the issues before Judge Crotty. In order to demonstrate res judicata, Defendants must demonstrate each element of res judicata or collateral estoppel “with clarity and certainty.” See Hydranautics v. FilmTec Corp., 204 F.3d 880, 885 (9th Cir. 2000); Levi Strauss & Co. v. Blue Bell, Inc., 778 F.2d 1352, 1357 (9th Cir.1985) (en banc). Similarity between issues does not suffice; res judicata or collateral estoppel is applied only when the issues are identical. Levi v. Blue Bell, 778 F.2d at 1357. If different facts are in issue in a second case from those that were litigated in the first case, then the parties are not collaterally estopped from litigation in the second case. Id. Also, if the burden of proof in the present case is different from the burden of proof on the previously-decided issue, then the issue is deemed not identical for the purposes of issue preclusion. See Clark v. Bear Stearns
58 & Co., 966 F.2d 1318, 1322 (9th Cir. 1992); accord Cobb v. Pozzi, 363 F.3d 89, 113 (2d Cir. 2004). Here, more than the proof is different—the facts are different. As with Levi and the unpublished decision, Guru Denim, Inc. v. Hayes, 2010 WL 1854020, *12 (C.D. CA. May 6, 2010) (copy attached hereto), the subject matter of the two cases must be identical. Before Judge Crotty, the Court purported to determine merits issues and copyright interests as well as claims relating to unauthorized use of different properties and trademarks in the SDNY Derivative Action filed in 2009. In contrast, before Judge Sweet—as Judge Sweet made perfectly clear in his Order—the subject matter of that case was NOT copyright interests: “No claim was presented with respect to Lee or Marvel’s copyright interests. Lee and Marvel resolved a private dispute resulting in complete relief between the parties and the judgment entered had no effect on any rights now being asserted by SLMI.” (A-1109). According to Judge Sweet, he resolved a contract dispute filed in 2002 involving payments under a 10 percent profit-sharing agreement for Spider-Man: The Movie. (A-1108-1109). These facts are different from the 2009 SDNY Derivative Action because the timing of the filings are different and SLMI’s ownership claims purportedly brought
59 derivatively in 2009 implicate scores of properties and marks that have little or nothing to do with Spider-Man: The Movie. In addition, the issues between the two cases are not identical because the burden of proof for SLMI in Lee v. Marvel was different before Judge Sweet than the burden on the putative derivative plaintiffs before Judge Crotty in the SDNY Derivative Action. See Clark v. Bear Stearns & Co., 966 F.2d 1318, 1322 (9th Cir. 1992); accord Cobb v. Pozzi, 363 F.3d 89, 113 (2d Cir. 2004). Before Judge Sweet, SLMI has no burden of proof on the issue of res judicata (and, thus, the issue of “adequate representation”) because Lee and Marvel each shouldered the burden of proving the affirmative defense of res judicata by attempting to prove with “certainty and clarity” that SLMI was adequately represented by the putative derivative plaintiffs. However, in the earlier SDNY Derivative Action before Judge Crotty, putative derivative plaintiffs had the burden of demonstrating that they adequately represented SLMI under Rule 23.1 of the Federal Rules of Civil Procedure. Indeed, before Judge Crotty, Lee and Marvel sought to demonstrate the opposite of what they sought to proof before Judge Sweet: that the putative derivative plaintiff could not and did not adequately represent the interests of SLMI and its shareholders. In the end, Judge Crotty recognized Lee and Marvel’s efforts to demonstrate that the putative
60 derivative plaintiffs could not represent SLMI by stating in a footnote that that the derivative shareholders in that action (as well as the proposed additional plaintiffs added in a proposed amended complaint) did not adequately represent SLMI or its shareholders at that time. (A-641). This shifting of the burden of persuasion and the conflicting arguments made by Lee before Judge Sweet and Judge Crotty demonstrates that the issues before those two Judges were not identical. This lack of identity of issue is fatal to the District Court’s application of res judicata as to SLMI.
61 VII. CONCLUSION The U.S. District Court for the Central District of California has stayed its hand, after permitting SLMI to substitute as plaintiff and the real party in interest in a 2007 proceeding brought in SLMI’s name, pending the outcome of this appeal. The District Court’s 2005 Profits Order that Movant-Appellant sought to vacate was entered in violation of an automatic stay in bankruptcy and should be vacated, SLMI recognized as the real party in interest as the assignee of Lee’s rights in the Spider-Man copyright, and either permitted to proceed, or, in the alternative and consistent with the first-filed rule, dismissed without prejudice to the California Action proceeding. Alternatively, Movant-Appellant SLMI respectfully requests that this Court remand for additional findings of fact relative to whether the profits from Spider-Man: The Movie were property part of SLMI’s bankruptcy estate. However, in the additional alternative, should this Court choose to affirm, Movant-Appellant respectfully requests that this Court state clearly the limited grounds necessary for affirmance and respectfully requests that such affirmance not adopt the District Court’s reasoning with respect to the res judicata effect of Judge Crotty’s Derivative Dismissal Order. As stated in Judge Wilson’s May 4, 2011 California Stay Order,
62 such a limited affirmance would free the hand of the California court to permit SLMI to advance its claims in California and thus would achieve a result consistent with both the prior decisions of the District of California and the decisions of the courts of the State of Colorado electing new management for SLMI. Additionally, since the record reveals no basis for sealing court records, the District Court should be directed to permit SLMI access to all court records relating to this action.
Dated: New York, New York June 9, 2011 DUNNINGTON, BARTHOLOW & MILLER LLP
By: __________/S/___________ Raymond J. Dowd Luke A. McGrath 1359 Broadway, Suite 600 New York, NY 10018 Tel: (212) 682-8811 Fax: (212) 661-7769 rdowd@dunnington.com
63 Documents Similar To ECF Lee v Marvel Appellant SLMI Brief 6-9-11Skip carouselPeter Paul's Answer to Stan Lee's 2nd Amend ComplaintChronology of Lee-SLM- Marvel issuesStan Lee Fraudulent Motion to Approve Sale of Stan Lee Media Assets to Non-Existent LLCSmoking Gun Hidden Memebership Agreement Founding POW QED to Loot SLM in BK Nov 2001Stan Lee Media v Stan Lee Motion For Summary Judgment Detailing Lee's Bankruptcy FraudsJ Wilson's Order Denying QED's MSJ 1-20-09Joint Copyright Ownership RightsStan Lee Media Boxes Index of Files and DocsFederal Judge Notifies US Copyright Office of Ruling that Stan Lee Illegally Assigned The Drifter and The Accuser to POW EntertainmentStan Lee Mark Trademark & Copyrighted Charactrers 132ppStan Lee v. Marvel Court OpinionAbatement of Traffic Ticket Arrest Warrant or Court PapersWilson v. Cincinnati Ins Co, 4th Cir. (2002)Kontrick v. Ryan, 540 U.S. 443 (2004)Robertson v. Howard, 229 U.S. 254 (1913)In Re Bobby G. Queen, D/B/A Black Darth Company, Debtor. Bobby G. Queen, D/B/A Black Darth Coal Company v. United States, 16 F.3d 411, 4th Cir. (1994)Appellate BriefLeonard Thompson v. Mary Michels, 3rd Cir. (2014)Hull v. City of Santa Fe, 10th Cir. (2006)Ramsey v. Citibank, 10th Cir. (2012)Buck v. Drake, 10th Cir. (2010)Taylor v. Huffman, 4th Cir. (1997)Brooks v. Sauceda, 10th Cir. (2000)Bronx Brass Foundry, Inc. v. Irving Trust Co., 297 U.S. 230 (1936)Tyrone Perkins v. Sec Dept of Veterans Affairs, 3rd Cir. (2014)Fria Presentation1 - CopyUnited States v. Jerome G. Beery, 678 F.2d 856, 10th Cir. (1982)Sunset Sales, Inc. v. Clarendon National, 195 F.3d 568, 10th Cir. (1999)David Alston v. Kean University, 3rd Cir. (2014)Alberto Concepcion v. Fedural Bureau of Prisons, 3rd Cir. (2011)Documents About BankruptcySkip carouselAffidavit in Support of Motion to Dismiss Dan Snyder v. Washington City Paper and Dave McKennaDefective Real Estate DocumentsPershing Square Third Quarter Investor LetterCircuit City C.F.O.'s Bankruptcy Filing AffidavitNBA Constitution and by LawsMortgage Electronic Registration Systems Inc and Country Wide Home Loans Inc v Warren e Agin Trustee AppelleeSecuritization is IllegalExaminer's Report in re Dynegy HoldingsLehman Examiner's Report, Vol. 6Understanding the Securitization Process and the Impact on Consumer Bankruptcy CasesLawsuit Against Ruth Madoff (Irving Picard)General Growth Properties' Bankruptcy FilingU.S. Trustee's Objection to AlixPartners's G.M. FeesCengage Learning's Chapter 11 petitionGT Advanced Technologies Request to Void Apple AgreementsREVENGE OF THE DEBTORS - WHO CAN LEGALLY ENFORCE A MORTGAGE AFTER A “LANDMARK” CASELehman Examiner's Report, Vol. 8ResCap's Chapter 11 FilingPatriot Coal's Bankruptcy PetitionLehman Examiner's Report, Vol. 9MGM's Bankruptcy PetitionMF Global's bankruptcy petitionAMR Corp.'s bankruptcy petitionLehman's Chapter 11 Reorganization PlanBankruptcy WorksheetMortgage Electronic Registration Systems, Inc., Appellant, V. Lisa Marie Chong, Lenard e SchwartzerFidelity's (LPS) Secret Deals With Mortgage Companies and Law FirmsSummary of Tribune BankruptcyArcapita Bank Chapter 11 petitionGeneral Motors' Bankruptcy PetitionMore From Ray DowdSkip carouselIn Re Tam the Slants - Trademark RegistrationCopyright InfringementMarrakesh Treaty For the Visually Impaired2016 Dept Commerce White Paper on Copyright Remix Statutory DamagesCassirer v Thyssen-Bornemisza Collection Foundation (Spain) Re Summary Judgment Motions315Second CircuitHandwriting Expert Report Regarding Forgeries of Mathilde Lukacs SignaturesSchenker Company History - Nazi Looted Artworks By Egon SchieleSeltzer v Green Day IncSegundo Suenos LLC v JonesFox Broadcasting Co Inc v Dish Network LLCColumbia Pictures Industries Inc v FungHobbs v JohnJaso_v_Coca_Cola_CoFederal Civil Practice CLE Program SDNY - May 5Women in the LawCooper v. NCS Pearson, Inc. OpinionBrief of Amici CuriaeIn re Flamenbaum Brief of Amici Curiae5th International Conference on Looted Art in the Czech Republic BrochureUniversal Furniture Internaitonal, Inc. v. FrankelHobby Lobby Stores Inc. v. Sebelius, Et Al.Tolliver v. McCantsTattoo Art Incorporated v. Tat International LLCRussian Entertainment Wholesale, Inc. v. Close-Up International, Inc.Scholz Design, Inc. v. Sard Custom Homes, LLCGary Friedrich Enterprises LLC v. Marvel Characters, Inc.Cariou v. PrinceAuthors Guild, Inc., Et Al. v. Google, Inc.SONY BMG Music Entertainment v. Tenenbaum