Insurent Agency Corporation v. The Hanover Insurance Group, Inc. et al

2020 | Cited 0 times | S.D. New York | January 8, 2020



: -against- : 16-CV-3076 (LGS) (JLC)


: Defendants. : ---------------------------------------------------------------X JAMES L. COTT, United States Magistrate Judge. To the Honorable Lorna G. Schofield, United States District Judge:

Plaintiffs Insurent Agency Corporation and RS Holdings Corporation brought this action against Defendants The Hanover Insurance Company, Guarantr LLC d/b/a The Guarantors Agency, and Ronald MacDonald, alleging, inter alia, copyright infringement, unfair competition, trade secret misappropriation, and several state law claims. The Court dismissed all claims against Hanover. The surviving claims against The Guarantors Agency and MacDonald were subsequently settled. and costs as authorized by the Copyright the reasons set forth below, I recommend that be denied.

I. BACKGROUND The facts below are drawn from P , Dkt. No. 54, Opinion and Order resolving D No. 199. Plaintiff Insurent residential lease guarantees to tenants in New York City in 2008. SAC ¶ 9. 1 Insurent formed relationships with local landlords and building owners and offered its services as an institutional guarantor to prospective tenants to help satisfy the rigid lease application requirements in the City (and in other states and jurisdictions as well). SAC ¶¶ 9 14.

Insurent had been the first and only business of its kind until 2016 when D entered the market. MSJ Order at 2. Formed by former Insurent customer Julien Bonneville, Guarantors began soliciting potential investors and insurance carriers to start building its business. Id. at 2 3. Defendant The Hanover Insurance Company , thereby authorizing Guarantors agent. Id. at 3.

On April 26, 2016, Plaintiffs filed a single-claim complaint against Guarantors and Hanover, alleging that they were using certain copyrighted legal agreements that appeared to be identical to those used by Insurent in its own business (Count 1). Dkt. No. 1; see also id. Exhs. G and H (copyright registrations).

1 Insurent is a wholly owned subsidiary of Plaintiff RS Holdings. SAC ¶ 2.

Plaintiffs moved to preliminarily enjoin Defendants from using the allegedly infringing materials. Dkt. No. 10. Shortly thereafter, the parties stipulated to Plaintiffs withdrawing the preliminary injunction motion on the condition that Defendants would cease using the subject agreements. Dkt. No. 22.

After learning that its former longtime employee Defendant Ronald MacDonald had left Insurent to join Guarantors, Plaintiffs amended their complaint on June 17, 2016 to add nine causes of actions against all Defendants: trade secret misappropriation under New York law (Count 2); misappropriation under the Defend Trade Secrets Act (Count 3); unfair competition under New York law (Count 4); breach of fiduciary duty under New York law (Count 5); interference with prospective business advantage (Count 6); unfair competition under § 43(a) of the Lanham Act (Count 7); false advertising under § 350 of New York General Business Law (Count 8); breach of contract (Count 9); and inducement of breach of contract (Count 10). Dkt. No. 25. Hanover moved to dismiss counts 2 through 8 and 10 for failure to state claims as to it; according to Hanover, Insurent did not specifically allege which Defendants were implicated under the various claims. Dkt. Nos. 42 43.

Plaintiffs filed their second amended complaint in an attempt to correct these alleged pleading deficiencies. SAC, Dkt. No. 54. However, Hanover once again moved to dismiss counts 2 through 8 and 10. Dkt. Nos. 59 60. On June 27, 2017, the Court granted motion in part and denied it in part. Hearing

Specifically, the claims for breach of fiduciary duty (Count 5), interference with prospective business advantage (Count 6), unfair competition under § 43(a) of the Lanham Act (Count 7), and inducement of breach of contract (Count 10) were dismissed as to Hanover; the remaining claims (Counts 2, 3, 4, and 8), including for misappropriation under the Defend Trade Secrets Act, withstood the dismissal motion.

Meanwhile, discovery had been stayed pending second motion to dismiss and was thereafter limited for purposes of mediation,

which had been scheduled after the dismissal motion was decided. Dkt. No. 79. After mediation proved unsuccessful, the stay of discovery was lifted. Dkt. No. 102. On January 24, 2018, all defendants moved for summary judgment. Dkt. Nos. 163 67. The Court granted the motion in part and denied it in part. MSJ Order, Dkt.

No. 199. In particular, summary judgment was granted as to the copyright infringement claim (Count 1); trade secret misappropriation under New York law (Count 2), misappropriation under the Defend Trade Secrets Act (Count 3), and unfair competition under New York law (Count 4) as to Hanover; interference with prospective business advantage (Count 6); unfair competition under § 43(a) of the Lanham Act (Count 7) as to MacDonald; and false advertising under § 350 of New York General Business Law (Count 8) as to Hanover and MacDonald; summary judgment was otherwise denied. Thus, while some claims remained against Guarantors and MacDonald, summary judgment was granted as to all the remaining claims against Hanover.

The remaining parties proceeded to prepare for trial until January 16, 2019 when the parties advised the Court that they had reached a settlement. Dkt. No. 234. The case was then referred to me when the parties reached an impasse in finalizing their settlement agreement. Dkt. No. 238. The parties ultimately settled the remaining claims by stipulation of voluntary dismissal. Dkt. No. 245.

On April 23, 2019, Hanover requested that the Court reopen the case and subsequently moved claims. Dkt. No. 246 258;

Dkt. No. 259; Declaration of Eugene L. Chang dated July 19, 2019, Dkt. No. 268. Plaintiffs filed their opposition papers on August 12, 2019. Memorandum of Law in Opposition to 271; Declaration of Robert D. Katz dated August 12, 2019, Dkt. No. 269; Declaration of Jeffrey L. Geller dated August 12, 2019 , Dkt. No. 270. Hanover filed its reply papers on September 23, 2019. Reply Memorandum of Law in Further Support of Motion for At No. 284; Declaration of Eugene L. Chang dated August 23, 2019, Dkt. No. 285. By Order of Reference dated June 7, 2019 for a Report and Recommendation. Dkt. No. 252.

II. DISCUSSION Hanover seeks fees pursuant to Section 505 of the Copyright Act, Section 1117(a) of the Lanham Act, Section 1836(b)((3)(D) of the

Def. Mem. at 1 3. As a threshold matter, there is no dispute that, by prevailing as to certain claims on its motion to dismiss and as to the remaining claims on the summary judgment motion, Hanover is a prevailing party. See Pl. Mem. at 2; Def. Mem. at 3 4. The issue then is whether, as the prevailing party, Hanover is entitled to fees. The Court considers each asserted basis for fees in turn. A. Section 505 of the Copyright Act

which provides:

In any civil action under this title, the court in its discretion may allow the recovery of full costs by or against any party other than the United States or an officer thereof. Except as otherwise provided by this title, the court may also awa the prevailing party as part of the costs. 17 U.S.C. § 505. Under the Copyright Act, [p]revailing plaintiffs and prevailing

prevailing parties Fogerty v. Fantasy, Inc., 510 U.S. 517, 534 (1994); accord Medforms, Inc. v. Healthcare Mgmt. Solutions, Inc., 290 F.3d 98, 117 (2d Cir. 2002) (attorneys parties under . . . There is no precise rule or formula for making these determinations, but Fogerty, 510 U.S. at 534 (quoting Hensley v. Eckerhart, 461 U.S. 424, 436 37 (1983)); see 17 U.S.C. § 505 in its discretion may

added). consider such factors as (1) the frivolousness of the non-

objectively unreasonable; and Bryant v. Media Right Prods., Inc., 603 F.3d 135, 144 (2d Cir. 2010) (citing Fogerty, 510 U.S. at 534 n.19). However, such factors may be used only so long as [they] are faithful to the purposes of the Copyright Act. , 240 F.3d 116, 120 21 (2d Cir. 2001) (quoting Fogerty, 510 U.S. at 534). The primary objective of the Copyright Act is to encourage the production of original literary, Fogerty, 510 U.S. at 524. This objective is promoted by discouraging infringement as well as by the successful defense of copyright infringement actions. See id. at 526. 1. Objective Unreasonableness

should be given substantial weight in determining whether an award of attorneys with an objectively reasonable litigation position will generally not promote the

Matthew Bender, 240 F.3d at 122; see also Russian Ent. Wholesale, Inc. v. Close (affirming decision not to grant statutory fees based solely on defendant s objective

reasonableness). close Case 1:16-cv-03076-LGS-JLC Document 286 Filed 01/08/20 Page 7 of 24 Ariel (UK) Ltd. v. Reuters Grp. PLC, No. 05-CV-9646 (JFK), 2007 WL 194683, at *1 (S.D.N.Y. Jan. 24, 2007) (quoting Hofheinz v. AMC Prods., No. 00-CV-5827 (CPS), 2003 U.S. Dist. LEXIS 16940, at *17 (E.D.N.Y. Sept. 1, 2003) (citing Fogerty, 510 U.S. at 527) fees if it was objectively unreasonable for plaintiff to bring a copyright action. See,

e.g., Pannonia Farms, Inc. v. USA Cable, No. 03-CV-784 (NRB), 2004 WL 1276842, clearly without merit or otherwise

Penguin Books U.S.A. v. New Christian Church of Full Endeavor, Ltd., No. 96-CV-4126 (RWS), 2004 WL 728878, at *3 (S.D.N.Y. April 6, 2004).

To establish copyright infringement, a plaintiff must prove: (1) ownership of a valid copyright, and (2) copying of constituent elements of the work that are original. See, e.g., , 499 U.S. 340, 361 (1991). Hanover argues that copyright claim was objectively unreasonable because -letter law, which Plaintiffs failed to establish. Def. Mem. at 6. The Court, however, cannot conclude that claim was objectively unreasonable. In her opinion and order granting summary judgment on this claim, Judge Schofield found that there was insufficient evidence for a reasonable jury to conclude that Insurent owned the copyright:

copyright infringement (Count 1) because Plaintiffs

proffer insufficient evidence that they own any copyrights at issue.

authors of the wor copyright ownership, other than by operation of law, is not valid unless an instrument of conveyance, or a note or memorandum of the transfer, is in writing and signed by the owner of the rights conveyed or such ownId. at § 204(A). Plaintiffs do not Badillo drafted the agreements for which Plaintiffs assert

copyright claims, and proffer no evidence suggesting that a signed writing exists conveying to Plaintiffs any copyright ownership of these agreements. Plaintiffs argue that they own the copyrights in the agreements under the work-for-hire doctrine. This argument is rejected. The C

that the work is a work for hire in a signed written instrument. 17 U.S.C. § 101. Neither of these definitions applies here. Plaintiffs also proffer a declaration of Pillsbury Winthrop partner David Keyko in support of their claim of copyright ownership. According to the declaration, records show that Pillsbury Winthrop in fact drafted the agreements in

These statements do not evince a conveyance of copyright ownership or an agreement with an Insurent that the

MSJ Order at 14 15. While this analysis followed from general copyright principles, it can hardly be said that the law in this area is well-settled. See, e.g., Carol M. Bast and Linda B. Samuels, Plagiarism and Legal Scholarship in the Age

of Information Sharing: The Need for Intellectual Honesty, 57 CATH. U. L. REV. 777, wing from another s transactional and litigation documents without identifying the source of the writing, a customary practice for practicing attorneys, is currently a gray area in legal scholarship . . . . . Indeed, no case that the Court has found has squarely addressed the issue identified by Plaintiffs, namely, whether the client of an attorney has an ownership interest in the work product prepared for it. As United States Circuit Judge Stanley F. Birch, Jr. has commented:

more pay than that of a federal circuit judge, the law firm,

copyright ownership. While this result may seem perfectly rational to the lawyer, it may well come as a surprise to the client who is paying for the document preparation. But what few clients (even sophisticated corporations with in-house counsel) may understand is that any interest it may have in the document is merely possess[o]ry and does not extend to the copyright on the expression embodied in the document. Birch, Stanley F., Jr., Copyright Protection for Attorney Work Product: Practical and Ethical Considerations, 10 J. INTELL. PROP. L. 255, 259 60 (2003). The dearth of case law on this issue persuades the Court that claim was not objectively unreasonable. And while not sufficient to establish ownership, the disclaimer by provides some support for the proposition that Insurent may have had at least some ownership interest in decision to litigate complex or undecided issues of law is not objectively Effie Film, LLC v. Pomerance, No. 11-CV-7087 (JPO), 2013 WL

1759560, at *2 (S.D.N.Y. April 24, 2013) (citing Bourne Co. v. Walt Disney Co., No. 91-CV-0344 (LLS), 1994 WL 263482, at *2 (S.D.N.Y. June 10, 1994) r factors that may justify the denial of fees to a prevailing plaintiff is the presence of a complex or novel issue of law that the defendants litigate vigorously and in good ). While the Court agrees with Hanover that ownership is a sine qua non of a copyright infringement claim, the question of whether attorney work product falls under that category has not been litigated, much less settled. Given this undeveloped area of law, attempted theory of ownership, without more, does not establish that their patently Silberstein v. Fox Ent. Grp, Inc., 536 F. Supp. 2d 440, 444 (S.D.N.Y. 2008).

Moreover, the grant of a motion for summary judgment does not in itself render a claim unreasonable. See Contractual Obligation Prods., LLC v. AMC Networks, Inc., 546 F. Supp. 2d 120, 129 (S.D.N.Y. 2008); CK Co. v. Burger King Corp., No. 92-CV- To find as much per se to judgment are resolved against a copyright plaintiff. . . . [This is not] a correct Nicholls v. Tufenkian Import/Export Ventures, Inc., No. 04-CV-2110 (JCF), 2005 WL 1949487, at *3 (S.D.N.Y. Aug. 11, 2005) (quoting CK Co., 1995 WL 29488, at *1). purposes of enriching the general public through access to creative works, it is

peculiarly important that the boundaries of copyright law be demarcated as clearly Fogerty, 510 U.S. to sue in the first place, the need to encourage meritorious defenses is a factor that

a district court may balance against the potentially chilling effect of imposing a large fee award on a plaintiff, who, in a particular case, may have advanced a Lotus Dev. Corp. v. Borland Intern., Inc., 140 F.3d 70, 75 (1st Cir. 1998). where the case is novel or close because such a litigation clarifies the boundaries of

Earth Flag Limited v. Alamo Flag Co., 154 F. Supp. 2d 663, 666 (S.D.N.Y. 2001).

Given the lack of precedent on this issue, it was not unreasonable for Plaintiffs to take the position that copyright registration was valid. Nor is this a case in which Plaintiffs were put on notice that their claim was objectively unreasonable. See, e.g., Hudson v. Universal Studios, Inc., No 04-CV-6997 (GEL), 2009 WL 536564, at *3 (S.D.N.Y Mar. 4, 2009). 2

Moreover, Defendants, including Hanover, signed a stipulation in resolving Pla , in which they agreed not to use the accused materials. Signing this stipulation Silberstein, 536 F. Supp. 2d at 444.

2 Notably, Hanover did not seek Rule 11 sanctions at the time of its summary judgment motion which, while plainly not a prerequisite to seeking fees now, reflects at least an assent that it did not deem claim to be objectively unreasonable or frivolous.

In sum, on this record, the Court cannot find that copyright claim was so objectively unreasonable (as either a legal or factual matter) that no party Small v. Implant Direct Mfg. LLC, No. 06-CV-683 (NRB), 2014 WL 5463621, at *3 (S.D.N.Y. Oct. 23, 2014) (first alteration in original) (quoting EON Corp. IP Holdings LLC v. Cisco Sys. Inc., No. 12-CV-1011 (JST), 2014 WL 3726170, at *5 (N.D. Cal. July 25, 2014)); see, e.g., Langman Fabrics v. Samsung America, Inc., 997 where the plaintiff owned the copyright involved whether or not a freelance assistant who designed the copyrighted pattern was an employee of plaintiff. While I rejected the s argument on this ground as well, it again was not objectively un 2. Frivolousness Frivolousness, like objective unreasonableness, requires a court to determine

Creazioni Artistiche Musicali, S.r.l. v. Carlin Am., Inc., No. 14-CV-9270 (RJS), 2017 WL 3393850, at *4 (S.D.N.Y. Aug. 4, 2017) (quoting Neitzke v. Williams, 490 U.S. 319, 325 (1989)). eration of objective unreasonableness, although the Second Circuit has indicated that the two Creazioni, 2017 WL 3393850, at *4 (citing Matthew Bender, 240 F.3d at 122); see, e.g., Agence France Presse v. Morel,

No. 10-CV-2730 (AJN), 2015 WL 13021413, at *5 (S.D.N.Y. Mar. 23, 2015), ,

Implicit in the conclusion that copyright claim is not objectively unreasonable is the finding that its claim was not devoid of legal or factual support. The Court accordingly concludes, for the reasons discussed above, that claim was not frivolous. See, e.g., Creazioni, 2017 WL 3393850, of the exact boundaries of these two factors [i.e., objective unreasonableness and

frivolousness], the Court has little trouble concluding, for the reasons discussed,

3. Motivation Hanover contends that could against Hanover, as Hanover was the deep pocket backing the other

[A] party is improperly motivated where it asserts but rather because it seeks to ] on an unreasonable legal theory in order to achieve a Agence France Presse, 2015 WL 13021413, at *5 (quoting Torah Soft Ltd. v. Drosnin, No. 00-CV-5650 (JCF), 2001 WL 1506013, at *5 (S.D.N.Y. Nov. 27, 2001)) no reason to doubt that, throughout the litigation, [a party] sincerely believed that [its work] was entitled to copyright protection and pursued [its] claim for the attorneys Effie Film, 2013 WL 1759560 at *4 (quoting Silverstein

v. Penguin Putnam, Inc., No. 01-CV-309 (JFK), 2008 WL 678559, at *4 (S.D.N.Y. Mar. 12, 2008)). The Court does not find that Plaintiffs engaged in bad faith conduct merely because their copyright claim was denied for insufficient evidence of ownership. The Court found against Plaintiffs, but that fact does not establish conduct sufficient to award attorney fees against them. Insurent believed that the defendants, including Hanover (whose name appeared on the agreements), had infringed upon its legal agreements and accordingly sought relief. SAC, Exhs. E and F. In arguing otherwise, Hanover contend tactics, which included numerous extensions, missed deadlines, and bad faith

mediation activities, made this litigation significantly more costly and further Based on a review of the docket, the Court finds that the number of extensions and/or adjournments requested by and missed deadlines is certainly high but does not rise to the level of litigation misconduct. It is true that a settlement offer might under some circumstances be a factor which could be

Harris Custom Builders, Inc. v. Hoffmeyer, 140 F.3d 728, 731 (7th Cir. 1998). However, mere unwillingness to settle does not indicate that their motivation in bringing the

suit was improper, particularly because the settlement amount offered is alleged to

have been negligible. See Geller Decl. ¶¶ 22 23. Thus, this factor does not support a fee award. 4. Deterrence and Compensation

Porto v. Guirgis, 659 F. Supp. 2d 597, 618 (S.D.N.Y. 2009) (quotation marks and citation omitted). Accordingly, attorneys Matthew Bender, 240 F.3d at 122 (quoting Fogerty, 510 U.S. at 534, n.19).

However, given the nature of this case, the Court concludes that an award of attorneys fees is not necessary to advance considerations of deterrence. Plaintiffs had at least an arguably reasonable litigation position; whether an attorney owns the copyright in his work product prepared for a client is not so obvious here that there is a need for deterrence. Considering all the circumstances, this is not a case where the Court should exercise its discretion to award attorneys fees to Hanover under Section 505. Hanover application for fees under the Copyright Act should therefore be denied. B. Section 1117(a) of the Lanham Act Hanover also seeks recovery of attorneys fees under the Lanham Act, which to the prevailing S.C. § 1117(a). In Octane Fitness, LLC v. ICON

Health & Fitness, Inc., 572 U.S. 545, 554 (2014), a patent case, the Supreme Court

respect to the substantive stre the governing law and the facts of the case) or the unreasonable manner in which the case was litigated, and the Second Circuit has held that this standard applies equally to cases arising under the Lanham Act. See Wholesale Corp., 909 F.3d 519, 531 (2d Cir. 2018). The Octane Fitness test instructs See Octane Fitness, 572 U.S. at 554. To make this determination, courts may assess the relevant and legal components of the case) and the need in some circumstances to advance

considerations of compensation Id. at 554 n.6 (quoting Fogerty, 510 U.S. at 534 n.19).

Without addressing the Fogerty factors as they Act claim, Hanover simply points to its partial success on its motion to dismiss, arguing that Plaintiffs [the] underlying their Lanham Act claim. Def. Mem. at 8. However, Judge Schofield explained the reason for dismissal of the claim:

Next is Count Seven, the unfair competition claim under the Lanham Act. That claim is also dismissed. One element of the claim is that the allegedly false message be placed in interstate commerce. The complaint simply makes allegations of having disseminated the information to multiple landlords and owners, and that is insufficient to allege that the statements were placed in interstate commerce. So that claim is dismissed as well.

MTD Hearing Tr. at 8:13 20. Hanover is not because Insurent failed to properly allege that the statements occurred in interstate

1800 Get Thin, LLC v. Hiltzik,

No. 11-CV-00505 (ODW), 2011 WL 4102222, at *2 (C.D. Cal. Sept. 13, 2011) (declining to award fees under Lanham Act or c Indeed, the claim which was premised on two sets of allegedly misleading statements Defendants made to landlords survived summary judgment as to Guarantors and MacDonald. See MSJ Order at 12 13. Because the same Lanham Act claim appears to be based on facts occurring when Guarantors was authorized to act as , Plaintiffs had a reasonable basis for alleging their Lanham Act claim against Hanover. Moreover, the claim was dismissed before the bulk of significantly to the factual or legal burdens of [ ] the Lanham Act. See Hoepker v. Kruger, 200 F. Supp. 2d 340, 355 (S.D.N.Y. 2002).

To the extent that Hanover argues that Plaintiffs litigated their Lanham Act claim in an unreasonable manner, , as discussed above, did not rise to such level. The Supreme Court observed in Octane Fitness that a

conduct while not necessarily independently sanctionable is nonetheless so Octane Fitness, 572 U.S. at 555.

substantial Small, 2014 WL 5463621, at *4 (emphasis added) (citing cases); see, e.g., Romeo &

Juliette Laser Hair Removal, Inc. v. Assara I LLC, No. 08-CV-0442 (DLC), 2016 WL

- , .

Although fair competition claim against Hanover may have suffered from a pleading deficiency, meaning of Octane Fitness and fees under the Lanham Act would therefore be

unwarranted. C. Section 1836(b)(3)(D) of the Defend Trade Secrets Act

trade secrets misappropriation claim under the D the DTSA, a court may ,

which may be established by circumstantial evidence, . . . award reasonable 18 U.S.C. § 1836(b)(3)(D). It appears that neither the legislature nor the courts to date e trade secret misappropriation context. The law itself was enacted only in 2016. However, as the Second Circuit has elsewhere defined bad faith, fees, the district court must find that the losing party's claim was (1) meritless; and Kerin v. United States Postal Service, 218 F.3d 185, 190 (2d Cir. 2000) (Equal Access to Justice Act

case). purpose a Sierra Club v. United States Army Corps of Eng rs, 776

F.2d 383, 390 (2d Cir. 1985).

trade secret misappropriation claim was premised on actuarial data contained in a pitch presentation by Guarantors to Hanover, a potential insurance carrier at the time. In attempting to demonstrate bad faith on the part of Plaintiffs, judgment on this claim:

against Hanover for trade secret misappropriation under New York and federal law, and unfair competition under New York law (Counts 2, 3 and 4) because Plaintiffs proffer no evidence from which a reasonable jury could infer that Hanover had notice of the purported misappropriation. Without notice of any misappropriated Schroeder, [17 N.Y.S.3d 678, 691 2015)] Schroeder, 17 N.Y.S.3d at 693, in acquiring them.

in particular, its loss ratio and either knew or was willfully ignorant that these were misappropriated trade secrets. Plaintiffs draw this inference based primarily on the fact that purported misappropriated information relating to Insur 2015 presentation to Hanover. Plaintiffs proffer no evidence to support the conclusion that Hanover viewed estimates based on non-proprietary information, as Guarantors represented. [Plaintiffs] argue that a negative inference should be drawn from the fact that Reinke of Hanover destroyed his

Guarantors when he moved his office from Minneapolis to Nashville. This argument is rejected. [Plaintiffs] assert that this move happened ttests that the move actually took place in April 2015, well before this suit was filed. knowledge of misappropriation should be inferred because w

particularly when Guarantors portrayed them as estimates. MSJ Order at 8 9.

Notwithstanding ruling, the record does not indicate that DTSA claim was meritless or brought for improper purposes. Plaintiffs simply failed to establish that Hanover knew of the trade secrets, let alone that it acquired them through improper means or used them. In short, Plaintiff trade secret misappropriation claim failed as a matter of proof. But the record does not demonstrate that it was wholly without merit and brought in bad faith.

Hanover contends that trade secret misappropriation claim stemmed from a fishing expedition in which

scenario where the trade secrets plaintiff may not know which parts of its trade secrets have been misappropriated or cannot determine the full scope of its claims Uni-Sys., LLC , No. 17-CV-147 (KAM) (CLP), 2017 WL 4081904, at *4 (E.D.N.Y. Sept. 13, 2017). argument that it

incurred considerable expense to resist lawsuit. Yet the genesis of the litigation arose from Insurent learning that Guarantors who was by then backed by Hanover was using identical legal materials, followed by the discovery that a former employee had joined the new competing company. At the time the SAC was filed, belief that trade secrets had been misappropriated appeared to be reasonable in view of the timing of these events.

Moreover, DTSA trade secrets claim survived summary judgment against Guarantors and MacDonald. Thus, there was a reasonable factual basis for the assertion of the claims against Hanover; the close temporal connection and subsequent agency relationship between Hanover and the other defendants at least suggested trade secret misappropriation on the part of Hanover (though Judge Schofield ultimately found otherwise). Under the circumstances, the Court cannot conclude assertion of the DTSA claim against Hanover was brought in bad faith. Although Plaintiffs were not ultimately successful as to Hanover, that fact alone does not establish that they engaged in misconduct in bringing and maintaining their claim.

In light of the factual backdrop that led to this lawsuit, Plaintiffs did not institute or maintain their claims under the DTSA in bad faith. Accordingly, fees under the DTSA should be denied. D. The to Award Fees

Finally, Hanover has requested that the Court exercise its inherent power to award it attorneys Case 1:16-cv-03076-LGS-JLC Document 286 Filed 01/08/20 Page 22 of 24 pursuant to its inherent power, a district court must find that: (1) the challenged claim was without a colorable basis and (2) the claim was brought in bad faith, i.e., motivated by improper purposes such as Schlaifer Nance & Co., Inc. v. Estate of Andy Warhol, 194 F.3d 323, 336 (2d Cir. 1999). entirely without color when it lacks any Conversely, a claim

is Id. at 337 (alteration in original) (quoting Sierra Club, 776 F.2d at 390, and Nemeroff v. Abelson, 620 F.2d 339, 348 (2d Cir. 1980)). Oliveri v. Thompson, 803

F.2d 1265, 1272 (2d Cir. 1986).

As discussed above, claims against Hanover were not without a colorable basis. Furthermore, there is insufficient evidence of bad faith on part. At bottom, Plaintiffs brought unsuccessful claims but they were not filed in bad faith. Accordingly should be denied. 3

III. CONCLUSION For the foregoing reasons, I recommend that fees and costs be denied.

PROCEDURE FOR FILING OBJECTIONS TO THIS REPORT AND RECOMMENDATION Pursuant to 28 U.S.C. § 636(b)(1) and Rule 72(b) of the Federal Rules of Civil

3 of action against Hanover, nor does it seek its fees as to those claims.

Procedure, the parties shall have fourteen (14) days from service of this Report and Recommendation to file any written objections. See Fed. R. Civ. P. 6. A party may respond to any objections within fourteen (14) days after being served. Such objections, and any responses to objections, shall be filed with the Clerk of Court, with courtesy copies delivered to the chambers of the Honorable Lorna G. Schofield and to the chambers of the undersigned, United States Courthouse, 500 Pearl Street, New York, New York 10007. Any requests for an extension of time for filing objections must be directed to Judge Schofield.

FAILURE TO FILE OBJECTIONS WITHIN FOURTEEN (14) DAYS WILL RESULT IN A WAIVER OF OBJECTIONS AND WILL PRECLUDE APPELLATE REVIEW. 28 U.S.C. § 636(b)(1); Fed. R. Civ. P. 72. See Thomas v. Arn, 474 U.S. 140 (1985); Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010). Dated: January 8, 2020

New York, New York

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