The opinion of the court was delivered by: John G. Koeltl, District Judge
MEMORANDUM OPINION AND ORDER
The plaintiffs, Associated Financial Corporation and Community Housing Enterprises, Inc. (collectively, the "AFC Parties"), brought this action against the defendants, Stanley M. Kleckner, Lloyd Shields, and Polar International Brokerage Corporation ("Polar") (collectively, the "Polar Parties"). The plaintiffs have voluntarily dismissed their claims against defendant Mr. Shields pursuant to Federal Rule of Civil Procedure 41(a)(1)(A)(i). Defendants Polar and Mr. Kleckner move to dismiss the complaint pursuant to Rule 12(b)(6). The defendants also seek sanctions against the plaintiffs' counsel pursuant to Rule 11.
In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the complaint are accepted as true, and all reasonable inferences must be drawn in the plaintiff's favor.
McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007); Arista Records LLC v. Lime Group LLC, 532 F. Supp. 2d 556, 566 (S.D.N.Y. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at trial but merely to determine whether the complaint itself is legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the complaint if the plaintiff has stated "enough facts to state a claim to relief that is plausible on its face." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Ashcroft v. Iqbal, 129 S.Ct. 1937, 1949 (2009). While the Court should construe the factual allegations in the light most favorable to the plaintiff, "the tenet that a court must accept as true all of the allegations contained in the complaint is inapplicable to legal conclusions." Id.; see also SEC v. Rorech, 673 F. Supp. 2d 217, 221 (S.D.N.Y. 2009).
When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the complaint, documents that the plaintiff relied on in bringing suit and that are either in the plaintiff's possession or that the plaintiff knew of when bringing suit, or matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002); see also Rorech, 673 F. Supp. 2d at 221.
The parties have a somewhat complicated history together. In 1992, Hurricane Andrew damaged property owned by the plaintiffs. The plaintiffs and defendants Polar, an insurance brokerage firm, and Mr. Kleckner, Polar's president, became involved in litigation in federal court in Louisiana concerning an alleged kickback scheme in connection with hurricane damage repairs, Bacmonila Apartments, Ltd. v. Travelers Indemnity Co., No. CV 94-1092 (W.D. La.) (the "Bacmonila litigation"). The parties were also involved in a related action brought in this Court, Meadowbrook-Richman, Inc. v. Associated Financial Corp., No. 98 Civ. 5300 (S.D.N.Y.) (the "Meadowbrook litigation"). The parties settled the Meadowbrook litigation pursuant to a Settlement and Release Agreement ("SAR"). (Am. Compl. ¶ 2.)
Polar and Mr. Kleckner subsequently sued the AFC Parties in New York state court for indemnification for money Polar and Mr. Kleckner spent defending the Bacmonila litigation. The Appellate Division, reversing the trial judge, dismissed that action, finding that it was in violation of a covenant not to sue in paragraph II.G of the SAR. Polar Int'l Brokerage Corp. v. Richman, 820 N.Y.S.2d 584, 587 (App. Div. 2006). The AFC Parties then brought a motion in the same state court proceeding seeking attorneys' fees and costs in the amount of $153,226.60, plus interest, which they incurred defending the then-dismissed state court action. Justice Fried, the trial judge, denied that motion. Polar Int'l Brokerage Corp. v. Richman, No. 601213-2003, slip op. (N.Y. Sup. Ct. Jan. 15, 2009) (attached as Ex. D to the Yellen Decl.), aff'd, 901 N.Y.S.2d 153 (App. Div. 2010). The AFC Parties argued that they were entitled to fees and costs based on paragraph III.G of the SAR, which provides:
Enforcement of this Agreement. The Parties agree that the United States District Court for the Southern District of New York shall be the exclusive venue for the resolution of any claim arising out of or related to this Agreement. In any such proceeding to enforce this Agreement, in whole or in part, the prevailing Party shall be awarded its actual costs and attorneys' fees. (Yellen Decl. Ex. E, at 12.) Justice Fried found that paragraph G only allowed for legal fees to be recovered by the prevailing party in a proceeding in this Court, not in New York state court. Polar Int'l, No. 601213-2003, at 2. Moreover, Justice Fried found that the AFC Parties' motion should be denied because they did not argue that venue in the state court was improper or give the Polar Parties notice of their application for fees in their original motion to dismiss the state court action. Id. at 3. The Appellate Division affirmed the trial court's decision, finding that paragraph III.G of the SAR did not provide a basis for legal fees in an action in New York state court. Polar Int'l Brokerage Corp. v. Richman, 901 N.Y.S.2d 153 (App. Div. 2010).
The AFC Parties then brought this action in this Court. They allege two causes of action against defendants Polar and Mr. Kleckner. First, they allege that the defendants breached the covenant not to sue provided in paragraph II.G of the SAR and ask for damages in the amount of $153,226.60, plus interest, and their attorneys' fees incurred in bringing this action. (Am. Compl. ¶ 45.) The damages the AFC Parties seek are in the same amount as the attorneys' fees they sought in the state action. Second, the AFC Parties allege promissory fraud against defendants Polar and Mr. Kleckner for allegedly agreeing to the SAR with the intention of breaching the covenant not to sue. Again, the AFC Parties seek damages in the amount of $153,226.60, plus interest, and their attorneys' fees incurred in bringing this action. (Am. Compl. ¶ 50.) The defendants now move to dismiss this action.
The defendants argue that this action is barred by the doctrine of res judicata. Under the full faith and credit statute, federal courts afford state court judgments the same preclusive effect as would other courts in that state. 28 U.S.C. § 1738; see also Hickerson v. City of N.Y., 146 F.3d 99, 103 (2d Cir. 1998). Therefore, New York law governs this Court's res judicata analysis. Under New York's res judicata doctrine, after the final adjudication of a claim on the merits, all other claims between the same parties "arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy." O'Brien v. City of Syracuse, 429 N.E.2d 1158, 1159 (N.Y. 1981); see also EFCO Corp. v. U.W. Marx, Inc., 124 F.3d 394, 397 (2d Cir. 1997). Res judicata bars not only claims that were actually brought but also claims that ...