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Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 1 of 10
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` 3/6/2020
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`16 Civ. 3076 (LGS)
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`OPINION AND ORDER
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
`-------------------------------------------------------------
`INSURENT AGENCY CORPORATION,
`
`X:
`
`Plaintiffs,
`
`-against-
`
`
`:
`:
`:
`:
`:
`:
`:
`Defendants.
`:
`
`------------------------------------------------------------ X
`
`THE HANOVER INSURANCE GROUP, INC.,
`et al.,
`
`LORNA G. SCHOFIELD, District Judge:
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`Insurent Agency Corporation (“Insurent”) and RS Holdings Corporation (collectively,
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`“Plaintiffs”), brought an action against The Hanover Insurance Company (“Hanover”), Guarantr
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`LLC d/b/a The Guarantors Agency (“Guarantors”) and Ronald MacDonald (collectively,
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`“Defendants”) alleging, inter alia, violations of the Copyright Act, the Lanham Act and the
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`Defend Trade Secrets Act. The Court dismissed all claims against Hanover. Hanover moved for
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`attorneys’ fees and costs as authorized by the Copyright Act, the Lanham Act, the Defend Trade
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`Secrets Act and the Court’s inherent power. In a Report and Recommendation, filed January 8,
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`2020 (the “Report”), Magistrate Judge James Cott recommended that Hanover’s motion be
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`denied. Hanover timely objected. For the following reasons, the objection is overruled and the
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`Report is adopted.
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`I.
`
`BACKGROUND
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`Familiarity with the Report, the underlying facts and procedural history is assumed. See
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`Insurent Agency Corp. v. Hanover Ins. Co., No. 16 Civ. 3076, 2018 WL 3979589 (S.D.N.Y.
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`Aug. 20, 2018).
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`Insurent launched a residential lease guaranty business in 2008. It was the first and only
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`business of its kind until 2016 when Guarantors entered the market. Hanover became
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 2 of 10
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`Guarantors’ insurance carrier. On April 26, 2016, Insurent and its parent company, RS Holdings
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`Corporation, initiated this suit alleging Defendants were using exact copies of Plaintiffs’
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`copyrighted legal agreements in their business, including titles, various policies, and Tenant
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`Participation Agreements. The parties subsequently stipulated that Defendants would cease to
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`use the subject agreements during the pendency of the action.
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`On June 17, 2016, after Ronald MacDonald -- an employee, officer, director and
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`managing director of Insurent since 2005 -- resigned in March 2016 and began consulting for
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`Guarantors, Plaintiffs amended the complaint to add nine causes of action against Defendants:
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`trade secret misappropriation under New York law (Count 2); misappropriation under the Defend
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`Trade Secrets Act (Count 3); unfair competition under New York law (Count 4); breach of
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`fiduciary duty under New York law (Count 5); interference with prospective business advantage
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`(Count 6); unfair competition under § 43(a) of the Lanham Act (Count 7); false advertising under
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`§ 350 of New York General Business Law (Count 8); breach of contract (Count 9); and
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`inducement of breach of contract (Count 10). On September 16, 2016, Plaintiffs filed a second
`amended complaint, and Hanover moved to dismiss counts 2 through 8 and 10 for failure to state
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`a claim.
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`The Court granted Hanover’s motion to dismiss in part, and dismissed counts five, six,
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`seven and ten. On January 24, 2018, all Defendants moved for summary judgment. The Court
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`granted the motion as to all remaining claims against Hanover, dismissing the claims of
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`copyright infringement (Count 1), trade secret misappropriation under New York law (Count 2),
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`misappropriation under the Defend Trade Secrets Act (Count 3), and unfair competition under
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`New York law (Count 4) as to Hanover; interference with prospective business advantage (Count
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`6) and unfair competition the Lanham Act (Count 7) as to MacDonald; and false advertising
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`
`
`2
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 3 of 10
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`under § 350 of New York General Business Law (Count 8) as to Hanover and MacDonald. The
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`remaining claims against the other Defendants subsequently settled.
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`Hanover filed a motion on July 19, 2019, seeking attorneys’ fees pursuant to Section 505
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`of the Copyright Act, Section 1117(a) of the Lanham Act, Section 1836(b)((3)(D) of the Defend
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`Trade Secrets Act and the Court’s inherent power. Judge Cott recommended denying the motion
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`in its entirety. Hanover filed timely objections to the Report with respect to the
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`recommendations under Section 505 of the Copyright Act and Section 1836(b)((3)(D) of the
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`Defend Trade Secrets Act.
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`II.
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`STANDARD OF REVIEW
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`A reviewing court “may accept, reject, or modify, in whole or in part, the findings or
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`recommendations made by the magistrate judge.” 28 U.S.C. § 636(b)(1)(C). “The district judge
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`must determine de novo any part of the magistrate judge's disposition that has been properly
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`objected to.” FED. R. CIV. P. 72(b)(3); accord 28 U.S.C. § 636(b)(1). Even when exercising de
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`novo review, “[t]he district court need not, however, specifically articulate its reasons for
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`rejecting a party's objections or for adopting a magistrate judge's report and recommendation in
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`its entirety.” Morris v. Local 804, Int'l Bhd. of Teamsters, 167 F. App'x 230, 232 (2d Cir. 2006)
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`(summary order); accord Rodriguez v. Berryhill, No. 18 Civ. 0918, 2019 WL 5158721, at *4
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`(S.D.N.Y. Oct. 15, 2019).
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`Where no specific written objection is made, “the district court can adopt the report
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`without making a de novo determination.” United States v. Male Juvenile, 121 F.3d 34, 38 (2d
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`Cir. 1997); accord Shulman v. Chaitman LLP, 392 F. Supp. 3d 340, 345 (S.D.N.Y. 2019) (“A
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`district court evaluating a magistrate judge's report may adopt those portions of the report to
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`which no ‘specific written objection’ is made, as long as the factual and legal bases supporting
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`
`
`3
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 4 of 10
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`the findings and conclusions set forth in those sections are not clearly erroneous or contrary to
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`law.”); see also Thomas v. Arn, 474 U.S. 140, 150 (1985) (finding that neither 28 U.S.C.
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`§ 636(b)(1)(C), nor the legislative history, indicates that “Congress intended to require district
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`court review of a magistrate's factual or legal conclusions, under a de novo or any other standard,
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`when neither party objects to those findings.”)
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`III. DISCUSSION
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`Hanover makes two objections to the Report: (1) with respect to Plaintiffs’ copyright
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`claim, the Report erred in finding that Plaintiffs’ copyright claim presented a novel question of
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`law; and (2) with respect to Plaintiffs’ trade secret misappropriation claim, the Report erred in
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`concluding that the fact that Plaintiffs’ claim may have had merit as to other Defendants justified
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`Plaintiffs’ claim against Hanover. As neither argument is persuasive, Hanover’s objections are
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`overruled.
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`A. Attorneys’ Fees under the Copyright Act
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`“In any civil action under [the Copyright Act], the court in its discretion may . . . award a
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`reasonable attorney's fee to the prevailing party as part of the costs.” 17 U.S.C. § 505.
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`Nonexclusive factors to consider in determining whether to award attorneys’ fees under the
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`Copyright Act include “frivolousness, motivation, objective unreasonableness (both in the
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`factual and in the legal components of the case) and the need in particular circumstances to
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`advance considerations of compensation and deterrence.” Fogerty v. Fantasy, Inc., 510 U.S.
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`517, 533 n.19 (1994); accord Universal Instruments Corp. v. Micro Sys. Eng'g, Inc., No. 18-
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`2022, ---Fed. App’x. ---, 2020 WL 555421, at *2 (2d Cir. Feb. 4, 2020) (summary order).
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`Hanover argues that the Report overlooks fundamental precepts of copyright law in
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`finding that Plaintiffs’ claim of copyright infringement was not objectively unreasonable because
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`this Court’s summary judgment decision and the sources relied on in the Report all recognize
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`
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`4
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 5 of 10
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`that copyright ownership must be transferred by the author in writing. Therefore, Hanover
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`argues, Plaintiffs’ claim -- that it owned the copyright to its legal documents (i.e. agreements,
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`policies, titles) drafted by its attorneys -- was objectively unreasonable.
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`But, as the Report explains in response to this same argument in Hanover’s initial motion,
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`there was no existing case law squarely addressing the issue of whether the client of an attorney
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`has an ownership interest in the work product prepared for it at the time Plaintiffs brought this
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`claim, and past literature in this area has observed that the copying of “another’s transactional
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`and litigation documents without identifying the source . . . is currently a gray area in legal
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`scholarship . . . .” Carol M. Bast and Linda B. Samuels, Plagiarism and Legal Scholarship in the
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`Age of Information Sharing: The Need for Intellectual Honesty, 57 CATH. U. L. REV. 777, 806
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`(2008). Hanover cites to no legal authority to the contrary. “A party’s good faith decision to
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`litigate complex or undecided issues of law is not objectively unreasonable.” Capitol Records,
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`Inc. v. MP3tunes, LLC, No. 07 Civ. 9931, 2015 WL 13684546, at *3 (S.D.N.Y. Apr. 3, 2015);
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`accord Owerko v. Soul Temple Entm't, LLC, No. 13 Civ. 6420, 2016 WL 80664, at *3 (S.D.N.Y.
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`Jan. 7, 2016).
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`And nothing in the record contradicts or discredits the sworn statements of Plaintiffs’
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`Vice-Chairman and Chief Operating Officer, Jeffrey Geller, and Plaintiffs’ counsel of record in
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`this case, both of whom attest that the copyright claim was brought in good faith. Although
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`Plaintiffs did not dispute that their attorneys drafted the at-issue documents at summary
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`judgment, these Affidavits are evidence that Plaintiffs reasonably believed when they brought
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`this claim that Mr. Geller’s contribution to the drafting process1 gave them a valid claim to the
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`
`
` 1 Per Mr. Geller’s declaration, Mr. Geller “worked together with the attorneys” and he was the
`one who “suggested the format for each of the provisions that [he] thought needed to be included
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`
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`5
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 6 of 10
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`copyrights. Hanover’s assertion that Mr. Geller’s affidavit is “an eleventh hour change of
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`position” does not prevent the Court from considering the Affidavits for the purpose of
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`determining whether to award attorneys’ fees under Section 505. See Ariel(UK) Ltd. v. Reuters
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`Grp. PLC, No. 05 Civ. 9646, 2007 WL 194683, at *3 n.2 (S.D.N.Y. Jan. 24, 2007) (“The Court
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`notes that the Affidavits contain factual allegations that, with very few exceptions, were not
`
`included in Ariel's pleadings and thus are before the Court for the first time. . . . However,
`
`nothing prevents the Court from considering the Affidavits to the extent that they shed light on
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`whether Ariel's copyright claims were objectively unreasonable when the action commenced, for
`
`the sole purpose of determining whether to award fees and costs under 17 U.S.C. § 505.”) This
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`is particularly true where Mr. Geller’s assertions are not inconsistent with his deposition
`
`testimony or this Court’s finding that the documents were drafted by Plaintiffs’ attorneys.
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`Accordingly, Plaintiffs’ claim was not so “clearly without merit or otherwise patently devoid of
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`legal or factual basis” that it should “be deemed objectively unreasonable” and the Report’s
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`finding that Plaintiff’s claim was not objectively unreasonable is adopted. Penguin Books
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`U.S.A., Inc. v. New Christian Church of Full Endeavor, Ltd., No. 96 Civ.412, 2004 WL 728878,
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`at *3 (S.D.N.Y. Apr. 6, 2004).
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`Hanover does not object to the Report’s finding that the other factors appropriately
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`considered in making awards of attorneys’ fees under the Copyright Act weigh against granting
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`the motion.2 As the reasoning is not clearly erroneous or contrary to law, the Report’s finding as
`
`
`
`
`in each of the agreement forms.
`2 To the extent that Hanover’s conclusory assertions that Plaintiffs’ copyright claim was “plainly
`a frivolous one” and that “Plaintiffs can only have been motivated by the possibility of a
`settlement with a party it presumed to have deep pockets,” were intended to object to the
`Report’s findings as to the other factors, they are insufficient to warrant a de novo review.
`“When a party makes only conclusory or general objections, . . . a court will review the report
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`
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`6
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 7 of 10
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`to those factors is also adopted, see Male Juvenile, 121 F.3d at 38, and Hanover’s motion for
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`attorneys’ fees under the Copyright Act is denied.
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`B. Attorneys’ Fees under the Defend Trade Secrets Act
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`Under the Defend Trade Secrets Act, a court may “award reasonable attorney's fees to the
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`prevailing party” “if a claim of the misappropriation is made in bad faith, which may be
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`established by circumstantial evidence.” 18 U.S.C. § 1836. In the context of awarding
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`attorneys’ fees for bad faith under the Court’s inherent power, 3 the Second Circuit has held that,
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`“[i]n order to award bad faith fees, the district court must find that the losing party's claim was
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`(1) meritless; and (2) brought for improper purposes such as harassment or delay. The test is
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`conjunctive and neither meritlessness alone nor improper purpose alone will suffice.” Kerin v.
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`U.S. Postal Serv., 218 F.3d 185, 190 (2d Cir. 2000) (citation and quotation mark omitted);
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`accord Universal Church, Inc. v. Universal Life Church/ULC Monastery, No. 14 Civ. 5213,
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`2019 WL 4601741, at *3 (S.D.N.Y. Sept. 19, 2019). A meritless claim is “entirely without
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`color.” Id. at 190 n.2. “A claim is colorable, for the purpose of the bad faith exception, when it
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`has some legal and factual support, considered in light of the reasonable beliefs of the individual
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`making the claim. The question is whether a reasonable attorney could have concluded that facts
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`supporting the claim might be established, not whether such facts actually had been established.”
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`Kerin, 218 F.3d at 190 n.2.
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`There is no basis to find Plaintiffs acted in bad faith in bringing a trade secrets
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`
`
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`strictly for clear error.” Espada v. Lee, No. 13 Civ. 8408, 2016 WL 6810858, at *2 (S.D.N.Y.
`Nov. 16, 2016); accord TCA Television Corp. v. McCollum, No. 15 Civ. 4325, 2018 WL
`2932724, at *2 (S.D.N.Y. June 12, 2018).
`3 As a relatively new law, there is not yet case law analyzing bad faith under this provision of the
`Defend Trade Secrets Act.
`
`
`
`7
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 8 of 10
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`misappropriation claim against Hanover. Hanover fails to show either that Plaintiffs’ claim was
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`meritless or that it was brought for improper purposes. Indeed, Hanover’s argument that it was
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`clear from early in the litigation that Plaintiffs had no good faith basis for their claim is based
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`solely on the assertion that Hanover “undertook an exhaustive investigation of its own files to
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`confirm that it neither possessed nor used any of Plaintiffs’ trade secrets – and informed
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`Plaintiffs of the same.” But a plaintiff is not required to withdraw a claim against a defendant
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`merely because the defendant asserts that it conducted an internal search and found no evidence
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`of plaintiff’s claims, particularly where the parties disputed whether the search was sufficiently
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`complete. In determining whether a claim was meritless, “[t]he question is whether a reasonable
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`attorney could have concluded that facts supporting the claim might be established.” Kerin, 218
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`F.3d at 190 n.2. It was not unreasonable for Plaintiffs’ attorneys to believe that facts supporting
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`the claim might be established following discovery. And, as the Report observes, although
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`Plaintiffs’ claim failed as a matter of proof at summary judgment, nothing in the record
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`demonstrates that it was wholly without merit.
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`Equally unavailing is Hanover’s argument the Report conflated claims against the other
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`defendants with the claim against Hanover, and that the Report’s finding that the agency
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`relationship between Hanover and the other defendants suggested misappropriation on the part of
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`Hanover was made in error. Indeed, this Court denied Hanover’s motion to dismiss this claim
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`based on the allegations that Hanover now asserts were insufficient:
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`So let me turn second to Count Three, the misappropriation of trade secrets claim
`under the Defense Trade Secrets Act. That claim survives. The DTSA provides a
`cause of action to "an owner of trade secrets that is misappropriated... if the trade
`secret is related to a product or service used in, or intended for use in, interstate or
`foreign commerce." 18 U.S.C. Section 1836(b)(1).
`
`I've already discussed that the complaint states a claim against Hanover based on
`the allegations that Guarantors were acting within the scope of its actual authority
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`
`
`8
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 9 of 10
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`when it used plaintiffs' trade secrets to sell policies as an agent for Hanover. As
`such, Hanover's argument that the complaint fails to plead facts sufficient to
`allege Hanover's liability under respondeat superior does not warrant dismissal.
`
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`And Hanover’s conclusory assertion, based on this argument, that “the only logical
`
`conclusion is that Plaintiffs brought their misappropriation claim against Hanover in a
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`bad faith attempt to extract a more financially rewarding settlement” is insufficient to
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`find the claim was “brought for improper purposes such as harassment or delay.” Kerin,
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`218 F.3d at 190. Having found that there is insufficient evidence to find Plaintiffs’ claim
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`was either meritless or brought for improper purposes, this Court cannot award attorneys’
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`fees under the Defend Trade Secrets Act.
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`C. Attorneys’ Fees under the Lanham Act and the Court’s Inherent Power
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`Hanover does not object to the Report’s recommendation to deny the motion for
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`attorneys’ fees pursuant to the Lanham Act and the Court’s inherent power. “A district court
`
`evaluating a magistrate judge's report may adopt those portions of the report to which no
`
`‘specific written objection’ is made, as long as the factual and legal bases supporting the findings
`
`and conclusions set forth in those sections are not clearly erroneous or contrary to law.”
`
`Shulman, 392 F. Supp. 3d at 345; accord Male Juvenile, 121 F.3d at 38. As the factual and legal
`
`bases supporting the findings and conclusions set forth in those sections are not clearly erroneous
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`or contrary to law, the recommendations are adopted and Hanover’s motion for attorneys’ fees
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`pursuant to the Lanham Act and the Court’s inherent power is denied.
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`IV. CONCLUSION
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`
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`For the foregoing reasons, Hanover’s objections are overruled and the Report’s
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`recommendation to deny the motion for attorneys’ fees is adopted.
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`
`
`9
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`

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`Case 1:16-cv-03076-LGS-JLC Document 289 Filed 03/06/20 Page 10 of 10
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`The Clerk of Court is respectfully directed to close the motion at Docket Nos. 258.
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`Dated: March 6, 2020
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` New York, New York
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`
`
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`10
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