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Manhattan Review LLC v. Yun

United States District Court, S.D. New York

April 10, 2017

MANHATTAN REVIEW LLC and JOERN MEISSNER, derivatively on behalf of Manhattan Review LLC, Plaintiffs,
v.
TRACY YUN, MANHATTAN ENTERPRISE GROUP LLC d/b/a MANHATTAN ELITE PREP, and CHRISTOPHER KELLY, Defendants.

          TO THE HONORABLE LEWIS A. KAPLAN, U.S.D.J.

          REPORT AND RECOMMENDATION

          JAMES C. FRANCIS IV UNITED STATES MAGISTRATE JUDGE

         Manhattan Review LLC ("Manhattan Review") and Dr. Joern Meissner, suing derivatively on Manhattan Review's behalf, bring this action alleging a variety of claims stemming from Tracy Yun's formation and operation of Manhattan Enterprise Group LLC, which does business as Manhattan Elite Prep. The defendants have moved to dismiss the Second Amended Complaint, and the plaintiffs have moved for leave to file a third amended complaint. For the reasons discussed below, I recommend that the motion to dismiss be granted and that leave to amend be denied.

         Background

         A. Factual Background

         The facts underlying the plaintiffs' claims are set forth in my Report and Recommendation on the defendants' motion to dismiss the First Amended Complaint. See Manhattan Review LLC v. Yun, No. 16 Civ. 102, 2016 WL 6330474, at *1-2 (S.D.N.Y. Aug. 15, 2016). In March 2005, Dr. Meissner and Ms. Yun formed Manhattan Review, a test-preparation business for the Graduate Management Admission Test (“GMAT”). (Second Amended Complaint (“SAC”), ¶¶ 16, 20). Manhattan Review is a Delaware Corporation with its principal place of business in New York. (SAC, ¶¶ 1 21). Mr. Kelly, an attorney admitted to practice in New York, represented Dr. Meissner and Ms. Yun in the creation of Manhattan Review, drafting an Operating Agreement and filing the necessary paperwork for Manhattan Review to do business in New York. (SAC, ¶ 23).

         In December 2011, following “several heated exchanges” between Ms. Yun and Dr. Meissner “rooted, in part, in [Ms.] Yun's misinterpretation of their personal relationship, ” Ms. Yun took steps to shut down Manhattan Review and establish a competitor without Dr. Meissner's consent. (SAC, ¶¶ 38, 44). She emptied most of the money out of Manhattan Review's bank account and transferred two of its trademarks to herself. (SAC, ¶¶ 50-52). On December 30, 2011, she executed a Certificate of Cancellation of Manhattan Review, which she filed with the Delaware Secretary of State on January 3, 2012. (SAC, ¶ 53). Mr. Kelly allegedly knew about Ms. Yun's plans to shut down Manhattan Review and gave her legal advice on how to misappropriate its assets and transfer its trademarks to herself. (SAC, ¶¶ 74-84, 90-91).

         On January 3, 2012, Ms. Yun created Manhattan Enterprise Group LLC, a Delaware corporation that she wholly owned. (SAC, ¶¶ 4, 55). She immediately commenced operations as Manhattan Elite Prep, using Manhattan Review's assets, intellectual property, trademarks, phone numbers, and employees. (SAC, ¶¶ 56-57, 59). She directed Manhattan Review's clients to Manhattan Elite Prep, “blatantly copied” Manhattan Review's logo, and marketed and sold Manhattan Review's copyrighted materials. (SAC, ¶¶ 59-61). Since January 2012, Ms. Yun and Manhattan Elite Prep have continued to sell books, prep materials, and study guides that use Manhattan Review's trademarks and copyrighted materials. (SAC, ¶¶ 97-103).

         Manhattan Review asserts ten causes of action in the Second Amended Complaint: (1) breach of fiduciary duty (against Ms. Yun); (2) breach of contract (against Ms. Yun); (3) trademark infringement, unfair competition, and false designation of origin in violation of 15 U.S.C. § 1225(a) (against Ms. Yun and Manhattan Elite Prep); (4) unfair competition (against Ms. Yun and Manhattan Elite Prep); (5) infringement in violation of New York statutory and common law (against Ms. Yun and Manhattan Elite Prep); (6) aiding and abetting breach of fiduciary duty (against Mr. Kelly); (7 & 8) copyright infringement or contributory copyright infringement (against all defendants); and (9 & 10) fraudulent conveyance (against Ms. Yun and Manhattan Elite Prep). (SAC, ¶¶ 104-165). The Second Amended Complaint contains an additional cause of action in which Dr. Meissner asserts each of those claims derivatively on Manhattan Review's behalf. (SAC, ¶¶ 166-175).

         B. State Court Action

         On March 7, 2012, Dr. Meissner commenced an action in New York State Supreme Court asserting individual claims and derivative claims on behalf of Manhattan Review against Ms. Yun and Manhattan Elite Prep. (Defendant Christopher Kelly's Memorandum of Law in Support of His Motion to Dismiss the Second Amended Complaint (“Kelly Memo.”) at 6; Defendant Tracy Yun's Memorandum of Law in Support of Motions to Dismiss Plaintiffs' Second Amended Complaint (“Yun Memo.”) at 6; Plaintiffs' Memorandum of Law in Opposition to Defendants' Motions to Dismiss (“Pl. Memo.”) at 8). On July 6, 2015, the court granted partial summary judgment to Ms. Yun and Manhattan Elite Prep, dismissing all of Dr. Meissner's derivative claims on the ground that he lacked the capacity to sue on behalf of Manhattan Review because he did not “successfully file a petition with Delaware's Court of Chancery to nullify or rescind the Certificate of Cancellation.”[1] (Meissner v. Yun, Index No. 650913/2012, at 6 (N.Y. Sup. Ct. July 6, 2015), attached as Exh. C to Declaration of Tracy Yun dated Dec. 1, 2016 (“Yun Decl.”); Proposed Third Amended Complaint (“Proposed TAC”), attached as Exh. A to Declaration of Thomas P. Higgins dated Jan. 6, 2017, ¶¶ 121-122).

         Shortly thereafter, Dr. Meissner sought to revive Manhattan Review as a Delaware corporation. On July 30, 2015, he paid Manhattan Review's past due fees and charges and filed a Certificate of Correction pursuant to the Delaware Limited Liability Company Act, Del. Code Ann. tit. 6, § 18-211, attesting that the Certificate of Cancellation filed by Ms. Yun was not authorized by Manhattan Review. (Proposed TAC, ¶¶ 123-124). On August 3, 2015, the Delaware Secretary of State issued a Certificate of Good Standing to Manhattan Review. (Proposed TAC, ¶ 126). On August 12, 2015, Dr. Meissner filed a motion to renew, correct, and vacate the July 6 Order based on Manhattan Review's newly restored status as an entity in good standing in Delaware. (Memorandum of Law in Support of Plaintiff's Motion for Renewal and Related Relief at 2-3, Meissner, Index No. 650913/2012 (N.Y. Sup. Ct. Aug. 12, 2015), attached as Exh. D to Yun Decl.; Proposed TAC, ¶¶ 125-26). On October 28, 2015, the court rejected Dr. Meissner's motion on the ground that he “failed to demonstrate that a Certificate of Good Standing is the equivalent of nullifying or revoking the Certificate of Cancellation under Delaware Law.”[2](Meissner, Index No. 650913/2012 (N.Y. Sup. Ct. Oct. 28, 2015), attached as Exh. E to Yun Decl.; Proposed TAC, ¶ 127). Dr. Meissner has appealed the July 6 and October 28 Orders to the Appellate Division, First Department (Proposed TAC, ¶ 129), which has not rendered a decision as of this writing.

         C. The Instant Motions

         The defendants move to dismiss the Second Amended Complaint on the following grounds: (1) the doctrines of res judicata and collateral estoppel bar the plaintiffs' claims; (2) the plaintiffs lack capacity to sue; (3) the claims against Ms. Yun and Manhattan Elite Prep for trademark infringement are deficiently pled; and (4) the claims against Mr. Kelly for aiding and abetting breach of fiduciary duty and copyright infringement are both time-barred and deficiently pled. In connection with their motions to dismiss, the defendants seek an award of attorneys' fees and costs under the Copyright Act, 17 U.S.C. § 505, and the Lanham Act, 15 U.S.C. § 1117.

         The plaintiffs move for leave to file a third amended complaint, which adds a cause of action against Mr. Kelly for breach of fiduciary duty but otherwise alleges the same causes of action as the Second Amended Complaint. (Proposed TAC, ¶¶ 138-220). The Proposed Third Amended Complaint ...


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