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Gottlieb, Rackman & Reisman, Pc v. Zencolor Corporation

United States District Court, S.D. New York

July 10, 2015

GOTTLIEB, RACKMAN & REISMAN, P.C., Plaintiff,
v.
ZENCOLOR CORPORATION ET AL., Defendants.

MEMORANDUM OPINION AND ORDER

JOHN G. KOELTL, District Judge.

The plaintiff Gottlieb, Rackman & Reisman, P.C. ("GRR") moves to dismiss the amended counterclaims asserted by the defendants, ZenColor Corporation and Danger Management & Media, Inc. (collectively, "Zen"), pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. GRR sued Zen to recover unpaid legal fees and to receive a declaration that an agreement (the "Fee Agreement") requires Zen to pay GRR a percentage of revenues from licensing Zen's patents in exchange for a reduction in legal fees. (Am. Compl. at 9.)

Zen responded with counterclaims for legal malpractice that it initially claimed were worth in excess of $500 million. (Answer at 18.) After the Court expressed skepticism how the counterclaimants could conceivably seek $500 million, Zen filed five amended counterclaims in which it seeks in excess of $100, 000 in damages for malpractice by GRR and a sixth amended counterclaim that seeks rescission of the purported Fee Agreement. (Zen Am. Countercls. ("ZAC") at 21-22.) With the parties' consent, the Court previously dismissed the sixth amended counterclaim with prejudice. (Dkt. No. 66.) GRR now argues that the remaining amended counterclaims should be dismissed.

For the reasons explained below, GRR's motion to dismiss Zen's amended counterclaims is granted in part and denied in part.

I.

In deciding a motion to dismiss pursuant to Rule 12(b)(6), the allegations in the counterclaims are accepted as true, and all reasonable inferences must be drawn in the pleader's favor. McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 191 (2d Cir. 2007). The Court's function on a motion to dismiss is "not to weigh the evidence that might be presented at a trial but merely to determine whether the [counterclaims themselves are] legally sufficient." Goldman v. Belden, 754 F.2d 1059, 1067 (2d Cir. 1985). The Court should not dismiss the counterclaims if the pleader 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 [pleader] pleads factual content that allows the court to draw the reasonable inference that the [opponent] is liable for the misconduct alleged." Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While the Court should construe the factual allegations in the light most favorable to the proponent, "the tenet that a court must accept as true all of the allegations contained in the [counterclaims] is inapplicable to legal conclusions." Id.

When presented with a motion to dismiss pursuant to Rule 12(b)(6), the Court may consider documents that are referenced in the counterclaims, documents that the pleader relied on in bringing suit and that are in the pleader's possession or that the pleader knew of when bringing suit, and matters of which judicial notice may be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002).

II.

The following facts in the amended counterclaims are accepted as true.

A.

On or about October 21, 2011, Zen entered into a retainer agreement with GRR, pursuant to which GRR would provide patentrelated services to Zen. (ZAC ¶ 1.) Zen intended to patent its color technology. (ZAC ¶ 4.) Zen contends that GRR originally represented that the legal fees for these filings would be approximately $25, 000. When it became apparent to GRR that the color technology was more complex than anticipated, GRR revised its fee estimate to no more than $75, 000. (ZAC ¶ 5.) Before preparing the applications, GRR performed a search to identify prior patent applications and patents that could impact the patentability of Zen's new technology. (ZAC ¶ 6.) This "prior art" search was critical because, consistent with the Patent Cooperation Treaty ("PCT"), the United States Patent and Trademark Office ("USPTO") would reject any claims within a patent that were based on prior patents or patent applications. (ZAC ¶¶ 6-7.)

On or about February 7, 2012, GRR filed a "provisional patent" application with the USPTO entitled "System And Method of Color Based Recommendation" (the "First Provisional Patent Filing"). (ZAC ¶ 9.) Zen alleges that the First Provisional Patent Filing did not address the core of its color technology despite Zen's repeated insistence on its importance. (ZAC ¶ 10.)

By early summer 2012, a GRR associate became the primary drafter of the Zen patent applications. Zen alleges that it was unaware that the associate lacked the experience or training required to prepare a patent application as complex as the Zen color technology. (ZAC ¶ 11.) On or about June 6, 2012, GRR filed a provisional patent application with the USPTO entitled "Product Identification And Searchable Format" (the "Second Provisional Patent Filing"). (ZAC ¶ 13.) Zen alleges that like the First Provisional Patent Filing, the Second Provisional Patent Filing was devoid of crucial information. (ZAC ¶ 14.)

In or about July 2012, Zen told GRR that it should not file any additional provisional patent applications. Zen instead asked GRR to concentrate on the non-provisional patent applications for "normalizing colors" into a universal digital color system and digital color-based search, the intended subject of the First Provisional Patent Filing. (ZAC ¶ 15.) Zen claims that GRR disregarded its directive and filed a provisional patent application with the USPTO entitled "Consumer and Business Shopping Tools" (the "Third Provisional Patent Filing") in August 2012. (ZAC ¶ 16.) Zen alleges that the Third Provisional Patent Filing was so poorly drafted that it had difficulty understanding what patent GRR had ...


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