The opinion of the court was delivered by: Denny Chin, United States District Judge:
In 1997, Lawrence Storey registered the Internet domain name
"cello.com" with Network Solutions, Inc. ("NSI"), an Internet domain name
registration company. Shortly thereafter, Cello Holdings, L.L.C. and
Cello Music & Film Systems, Inc. (together, "Cello") sued Storey in this
Court asserting rights to the "cello.com" name and seeking an injunction
requiring Storey to transfer the NSI registration of "cello.com" to
Cello. On the eve of trial, however, Cello advised the Court that the
case had been settled. As a consequence, the Court issued an order
discontinuing the case "with prejudice," subject to reinstatement within
Neither side requested reinstatement. Hence, the dismissal with
prejudice became final. Nonetheless, just days later, Cello filed an
arbitration proceeding against Storey for the same relief it had sought
in the discontinued action. Storey argued in the arbitration proceeding
that the dismissal with prejudice of the prior lawsuit barred Cello's
claims. The panel rejected Storey's res judicata argument, ruled in favor
of Cello on the merits, and ordered Storey to transfer the registration
of the domain name "cello.com" to Cello.
The parties thereafter brought separate lawsuits. Cello sued Storey in
state court in Virginia for an order confirming the arbitration award.
Storey brought this action, arguing that Cello was barred from
relitigating its claims with respect to "cello.com" because the prior
action was dismissed "with prejudice." Before this Court are the parties'
cross-motions for summary judgment pursuant to Fed.R.Civ.P. 56 and
Storey's motion for sanctions pursuant to Fed.R.Civ.P. 11.
Cello's motion is denied and Storey's motions are granted. The
discontinuance "with prejudice" operated as an adjudication on the merits
in Storey's favor and Cello was therefore barred from asserting future
claims against Storey based upon the same causes of action that were or
could have been asserted in the first case. By discontinuing its claims
"with prejudice" on the eve of trial, Cello could not then turn around,
as it did, to assert the same claims in an arbitration proceeding.
Moreover, in its answer and other submissions in this case, Cello made a
number of representations and arguments that have no reasonable basis in
law or fact. Accordingly, sanctions will be imposed.
The underlying facts are set forth in detail in the Court's memorandum
decision in the first action. See Cello Holdings, L.L.C. v. Lawrence-Dahl
Cos., 89 F. Supp.2d 464 (S.D.N.Y. 2000). The facts relevant to the issues
presently before the Court are not in dispute and are as follows:
On October 16, 1997, Cello commenced an action in this Court against
Storey (the "First Action") under the Federal Trademark Dilution Act (the
"FTDA"), 15 U.S.C. § 1125(c), and § 360-1 of the New York General
Business Law. N.Y. Gen. Bus. L. § 360-1 (McKinney Supp. 1999). Cello
contended that Storey was diluting its trademark "Cello" by registering
and trying to sell the domain name "cello.com." Cello contended that
Storey was a "cybersquatter" who had no "productive use" in mind for the
domain name when he registered it. Rather, Cello contended that Storey
registered the name solely for the purpose of "blackmail[ing]" someone
into buying it. Storey, on the other hand, contended that Cello failed to
demonstrate that the "Cello" mark was distinctive or famous, and argued
that "cello" was a common noun used in the names of dozens of
businesses. Storey, a California resident, also contended that the Court
lacked personal jurisdiction over him.
After discovery, the parties filed cross-motions for summary judgment.
While the motions were pending, the Anticybersquatting Consumer
Protection Act (the "ACPA") was signed into law. Pub. L. No. 106-113, 113
Stat. 1501 (1999) (codified at 15 U.S.C. § 1125(d)). The Court denied
the parties' cross-motions and granted Cello leave to amend its complaint
to add a cause of action under the ACPA. See Cello Holdings, L.L.C. v.
Lawrence-Dahl Cos., 89 F. Supp.2d 464 (S.D.N.Y. 2000).
In August 2000, shortly before the First Action was scheduled to be
tried, Cello's counsel advised the Court that the case had been
"settled." In fact, as the Court has now learned, the First Action had
not actually "settled," but instead Cello had merely decided to
discontinue its claims. The parties did not enter into a settlement
agreement. Because the Court was advised that the case had been
"settled," the Court issued a 30-day order on August 15, 2000,
discontinuing the First Action "with prejudice" but subject to
reinstatement within 30 days. The trial was canceled. Neither side
requested reinstatement and the dismissal "with prejudice" therefore
became final on or about September 14, 2000.
On September 25, 2000, Storey's counsel sent a letter to "Cello
Limited" (the "September 25th Letter") stating that Storey had
successfully concluded trademark litigation in which Storey's "ownership
interest" in "cello.com" had been "challenged" by Cello. The September
25th Letter further stated that Storey was offering the domain name for
sale. (Def. Mem. at Ex. 1).
4. The Arbitration proceedings
The eResolution complaint form contained a space for a description of
"any other legal proceedings that have been commenced or terminated in
connection with or relating to the contested domain name(s)." In this
section, Cello wrote:
This issue began with a Complaint filed 16 Oct. 1997
in the United States District Court for the Southern
District of New York, 97 Civ. 7677. The case has
dragged on for almost three years without resolution
and with significant expense. Cello Holdings LLC
voluntarily dismissed the case last month so as to
avail itself of this dispute resolution policy which
was not available at the time of the 1997 filing,
thereby saving significant time and expense over the
(Id. at Ex. 3, p. 7) (emphasis added).*fn3 Cello's complaint made no
mention of the September 25th Letter and did not allege that Storey had
engaged in any wrongful conduct following the dismissal of the First
Storey submitted a response on the form provided by eResolution. His
principal argument was that the arbitration proceedings were barred by the
discontinuance with prejudice of the First Action. Storey wrote:
On October 16, 1997, Cello Holdings, LLC and Cello
Music and Film Systems, Inc. filed an identical
complaint against Lawrence-Dahl Companies and
Lawrence Storey in the United States District for
the Southern District of New York in an action
entitled Cello Holdings, L.L.C. v. Lawrence Dahl
Companies. . . . The action was discontinued with
prejudice by Order dated August 15, 2000, which, as
noted above, acts as an adjudication on the merits
of complainant's claims.
(Id. at Ex. 5, pp. 3-4). Storey also wrote:
Complainant's claim to the "cello.com" domain name
is in any event wholly lacking in merit and should
be rejected even were this tribunal empowered to
reconsider this issue — which it is not.
(Id., Ex. 5, pp. 7-8) (emphasis added). Storey did address the merits,
but he did so merely as an alternative argument to his res judicata
defense, and he did so merely by summarizing his arguments in the First
Action and this Court's ruling on the summary judgment motions and
attaching copies of the court papers.
On December 21, 2000, the eResolution panel issued a decision in favor
of Cello. Noting that Storey had "responded to the Complaint and ha[d]
freely participated in this arbitration" and that "voluminous material"
had been submitted by the parties, the panel found for Cello. (Def. Mem.
at Ex. 4, pp. 3, 10). In response to Storey's assertion that the
arbitration was precluded by the dismissal of the First Action, the panel
held that Storey's assertions "are at variance with this Tribunal's
reading of the evidence he submitted and are expressly rejected.
Furthermore, as Respondent has made no attempt to enjoin the actions of
eResolution or this Tribunal, a claim that jurisdiction is absent or that
Respondent has not consented to participate in this proceedings is
likewise unpersuasive." (Id. at Ex. 4, p. 7). The panel then ordered that
Storey transfer the registration of "cello.com" to Cello. (Def. Mem. at
Ex. 4, p. 11).
Storey filed the instant action on January 10, 2001. The complaint
seeks a declaratory judgment that Storey's ownership and use of the
domain name "cello.com" is not unlawful.
The complaint seeks relief principally on the basis of the res judicata
effect of the dismissal of the First Action, and it also seeks ...