A federal court tossed an intellectual property (IP) lawsuit brought by Stan Lee's daughter on res judicata grounds even though she was not a party to prior lawsuits. The court further sanctioned her $1 million for frivolous filings and ordered her attorneys jointly and severally liable for $250,000 of the sanction. The decision serves as a stark reminder that zealous advocacy is not an impenetrable shield against Rule 11 sanctions.
October 12, 2020 Top Story
Lawyers Sanctioned for Ignoring Res Judicata
Stan Lee’s daughter and attorneys owe $1 million for frivolous lawsuit
By Rachel A. Harris
A Decade of Lawsuits
In 1998, Stan Lee assigned his IP rights to Stan Lee Entertainment, Inc., predecessor to Stan Lee Media, Inc. (SLMI). A few years later, Stan Lee terminated the agreement based on SLMI's failure to perform its salary and benefits obligations. He and others then formed POW! Entertainment, Inc. (POW), transferring all his IP rights to POW. Over the next decade, the 1998 agreement between Stan Lee and SLMI became the subject of several lawsuits across the country over the true owner of Stan Lee’s IP rights. Various courts found that the agreement was terminated, that any claims were barred by the statute of limitations, or that the claims were precluded by res judicata. Nevertheless, Stan Lee’s daughter, JC Lee filed Lee v. POW! Entertainment, Inc., in the U.S District Court for the Central District of California to enforce the rights under the 1998 agreement between her father and SLMI.
Enough Is Enough, Says Court
The court dismissed JC’s lawsuit on res judicata grounds, finding the claims in prior lawsuits and JC’s lawsuit arose out of the same “nucleus of facts.” JC argued she focused on a severable assignment clause of the agreement while prior lawsuits focused on an employment clause. The court called this argument “false” and “a direct misrepresentation,” noting two other courts “squarely addressed” the assignment clause.
JC also argued res judicata did not apply because she was not a party to the prior lawsuits. While true, the court found she had a “commonality of interest” with SLMI to be “in privity.” On this point, JC faced a catch-22 by conceding she “joined forces” with SLMI and seeking declaratory relief of SLMI’s rights. The court noted, “JC Lee must be in privity with SLMI to seek the relief requested or she would lack standing to seek a declaration of SLMI’s rights.”
Sanctions for Frivolous and Improper Filing
Additionally, the court imposed sanctions under Rule 11 of the Federal Rules of Civil Procedure because JC and her attorneys filed a “frivolous” complaint without a “reasonable and competent inquiry” and with an “improper purpose.” As the court explained, the central purpose of Rule 11 is to deter baseless filings and streamline the administration and procedure of the federal courts.
Because JC’s claims had been barred on numerous occasions by res judicata, the court determined the matter was factually and legally baseless and filed without a reasonable and competent inquiry. The court also concluded that JC’s conduct demonstrated an improper purpose since certain allegations in the complaint were “unnecessary” and potentially included for sensationalism. As to her lawyers, the court said meritless cases filed by experienced attorneys is “a strong inference” of improper purpose. JC’s attorneys each had over 25 years of experience and should have known “that a case barred by res judicata time and time again should not be filed.”
JC’s attorneys argued that zealous lawyering led to the lawsuit: “[f]orceful representation often requires that an attorney attempt to read a case or an agreement in an innovative though sensible way.” The court disagreed, finding it “completely unreasonable to file a suit premised on an issue debated and analyzed in more than five federal district courts over the last decade.” Of the $1 million sanction imposed against JC, the court ordered her attorneys liable for $250,000.
In conclusion, the court stated: “Stan Lee, a superhero in his own right, served to inspire the everyday hero. The Court urges parties to treat his legacy with respect and cease engaging in meritless litigation.”
“Zealous Advocacy” Is Not a Shield Against Sanctions
"Zealous advocacy does not permit an attorney to bring a baseless claim or lawsuit that is pursued for an improper purpose,” explains Michael D. Steger, New York, NY, cochair of the ABA Section of Litigation’s Intellectual Property Litigation Committee. “Zealous advocacy in and of itself does not act as a shield to ward off sanctions when the entire underlying case is found to be frivolous,” he adds.
While most litigators know to avoid pursuing cases between the same parties over the same issues, “this decision highlights the importance of taking it a step further and really evaluating the underlying interests of parties to a potential case,” explains Tiffany A. Rowe, Washington, D.C., cochair of the Section of Litigation’s Professional Liability Litigation Committee. “Even in different cases where the parties are not identical, it is important to step back and consider how interests could be intertwined and preemptively try to untangle the web,” she adds.
“The purpose of Rule 11 sanctions is not to compensate the moving party but to deter future abuse by the offending party,” Rowe explains. “For a party with significant resources, the sanctions amount has to be significant to deter future conduct,” Steger adds. POW presented undisputed evidence of JC’s $50 to $70 million inheritance, which the court considered in its calculations. “For someone worth, say, $50 million, the level of fine or sanction that is going to actually result in some kind of deterrence will be different than someone worth, say, $750,000,” Rowe notes.
Rachel A. Harris is a contributing editor for Litigation News.
Hashtags: #stanlee #intellectualproperty #resjudicata
Related Resources
- Michael Stefanilo Jr., “Rule 11 Sanctions Are Not Fit for Every Occasion,” Pretrial Prac. & Disc. (Apr. 30, 2020).
- Melissa L. Stuart, “A Young Lawyer's Guide to Rule 11 Sanctions,” Trial Prac. (June 20, 2012).
- Adam E. Lyons, “Procedural Dismissal Leads to Substantive Loss,” Litigation News (Feb. 20, 2017).
- Carey L. Menasco, “Party in Privity Barred by Collateral Estoppel from Establishing Causation Element of Legal Malpractice Claim,” Prof'l Liab. Litig. (Aug. 31, 2015).
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