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Omega Institute, Inc. v. Universal Sales Systems

February 5, 2010


The opinion of the court was delivered by: Michael A. Telesca United States District Judge



Plaintiff The Omega Institute, Inc. d/b/a Money Tree Training Group ("plaintiff" and/or "Money Tree"), brought this action against defendants Universal Sales Systems, Inc. ("Universal"), Ed Dorris ("Dorris"), Chris Benton ("Benton") (collectively "Universal defendants"), and Allen Sheldon, alleging causes of action including: copyright infringement, breach of contract, misappropriation and other related claims that defendants improperly copied and/or duplicated work created by plaintiff. The Universal defendants denied plaintiff's allegations and asserted three affirmative defenses, but did not include a counterclaim. Plaintiff has moved to dismiss this action without prejudice pursuant to Federal Rule of Civil Procedure 41(a)(2). Money Tree claims it is no longer in business and as a result cannot proceed with this action. The Universal defendants however refuse to stipulate to a dismissal without prejudice and request that plaintiff's withdrawal of the Complaint must be with prejudice. The Universal Defendants request that this court deny plaintiff's motion, and grant a dismissal of this matter with prejudice. In the alternative, the Universal defendants have filed a cross-motion requesting an Order compelling plaintiff to respond to outstanding discovery demands. For the reasons set forth below, I hereby grant plaintiff's motion to dismiss this case without prejudice and deny the Universal defendants' cross-motion.


Plaintiff commenced this action by filing a Complaint on or about October 17, 2008. The Universal defendants answered the Complaint on November 10, 2008. According to plaintiff, due to the economy and its own resulting financial constraints, Money Tree laid off all its employees and ceased operating a majority of its business during the second fiscal quarter of 2009. See Declaration of Paul L. LeClair ("LeClair Decl."), ¶5. As a result of having to close its business, plaintiff did not and presently does not have the resources to continue litigating this matter. See id. On May 5, 2009 and July 2, 2009, counsel for the Universal defendants wrote letters to plaintiff's counsel demanding that the case be dismissed. See id. The Universal defendants believe that if this matter is litigated, it would prove that the allegations made by plaintiff lacked merit. See Affidavit of Glenn E. Pezzulo ("Pezzulo Aff."), ¶12. As such, when plaintiff's counsel suggested that the instant litigation be dismissed, the Universal defendants requested that it be dismissed with prejudice. See id.

The Universal defendants rely on an action in state court*fn1 where plaintiff and its principals were sued for allegedly the same claims*fn2 for which plaintiff is now suing the Universal defendants. See id., ¶5. Indeed, the Universal defendants state that both Benton and Dorris were employees of the plaintiff when the plaintiff was sued in the Prior Action. See id., ¶7. Further, they argue that all the materials used by each of these entities are identical and that this was further confirmed by the decision in state court which held that the materials used by the entities were not protectable as trade secrets. See id., ¶8. Accordingly, the Universal defendants claim that they cannot accept a dismissal without prejudice since they have a right to a determination as to whether they may continue to use their materials. See id., ¶13.

On July 7, 2009 plaintiff's counsel informed counsel for the Universal defendants that plaintiff was willing to enter into a stipulation dismissing the action. See id. However, plaintiff was only willing to stipulate to dismiss the action, if it was without prejudice since plaintiff wanted to avoid the preclusive effect of a dismissal. See id. The Universal defendants rejected plaintiff's July 7 offer and served various discovery demands upon plaintiff on July 21, 2009. See id. Plaintiff's responses were due in August 2009. Instead of responding to the Universal defendants' discovery demands, plaintiff filed the instant motion. No other discovery or proceedings have taken place in this action.

Plaintiff contends that this motion was filed because it is unwilling to stipulate to dismiss this action on the merits and with prejudice. In this regard, plaintiff claims that the training materials that is at issue in this action have been copyrighted, are the property of plaintiff, and may be used again by them or a successor assignee. See LeClair Decl., ¶6. As a result, plaintiff asserts that dismissing this action on the merits is tantamount to providing a license to the Universal defendants to continue using such materials. See id. On the other hand, the Universal defendants argue that because no discovery responses have been served, there is no proof of the copyright status of the materials, or even which materials have been copyrighted or are at issue. See Pezzulo Aff., ¶16. Further, the Universal defendants argue that it was plaintiff who commenced the instant action, an action based upon materials that plaintiff was aware were previously held to be not protectable. See id.*fn3 In addition, the Universal defendants state that they rely upon these materials to conduct their business. See id. However, the Universal defendants claim that they are confident that if this matter was litigated, the materials at issue would again be held to be not protectable. See id.


I. Motion for Voluntary Dismissal

A. Standard of Review

Under Federal Rule of Civil Procedure 41(a)(2), courts may permit a party to withdraw its claims. Fed.R.Civ.P. 41(a)(2). The decision whether to grant a Rule 41(a)(2) motion for voluntary dismissal lies within the sound discretion of the court. See Catanzano v. Wing, 277 F.3d 99, 109 (2d Cir.2001); Banco Central de Paraguay v. Paraguay Humanitarian Foundation, Inc., 2006 WL 3456521 (S.D.N.Y.2006) (Dismissals under Rule 41(a)(2) are discretionary). In Banco Central de Paraguay, the court explained, "Although voluntary dismissal without prejudice is not a matter of right, the presumption in this circuit is that a court should grant a dismissal pursuant to Rule 41(a)(2) absent a showing that defendants will suffer substantial prejudice as a result." Id. at *6 (citations omitted). "Starting a litigation all over again does not constitute legal prejudice." Cantanzo, 277 F.3d at 110.

In Zagano v. Fordham University, 900 F.2d 12, 14 (2d Cir. 1990), the Second Circuit established five factors that a court should consider in determining whether a defendant will suffer legal prejudice. These include: 1) the plaintiff's diligence in bringing the motion; 2) any "undue vexatiousness" on the plaintiff's part; 3) the extent to which the suit has progressed including the defendant's effort and expense in preparation for trial; 4) ...

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