BSP Agency LLC et al v. Katzoff et al

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK

FOR PUBLICATION
In re:
Chapter 11
KG WINDDOWN, LLC, et al.,'
Case No. 20-11723 (MG)
Debtors.
(Jointly Administered)

BSP Agency LLC, Providence Debt Fund III L.P.,
Benefit Street Partners SMA-C L.P., Benefit Street
Partners SMA LM L.P., Providence Debt Fund III Adv. Pro. No. 21-01006 (MG)
Master (Non-US) Fund L.P., Benefit Street Partners
SMA-C SPV L.P., Manager IM Rest, LLC, 60th
Street IM Rest, LLC, Asset Co IM Rest, LLC,
Atlantic City IM Rest, LLC, Boca IM Rest, LLC,
Franchise IM Rest, LLC, Gram Trib IM Rest, LLC,
Long Island Opco IM Rest, LLC, Long Island
Propco IM Rest, LLC, Miami IM Rest, LLC,
Products IM Rest, LLC, Soho Prime IM Rest, LLC,
Central IM Rest, LLC, and Receivables IM Rest,
LLC,

Plaintiffs,

V.

Gerald Katzoff, GFB Restaurant Corp., IM LLC-I,
and I M LLC-IL,

Defendants.

OPINION AFTER TRIAL

! The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax

identification number (if any), include: KG Winddown, LLC (8556); KG USA Winddown, LLC (1682); KG III
Winddown, LLC (2613); KG LV Winddown, LLC (9805); KG Florida Winddown, LLC (9385); KG Puerto Rico
Winddown, LLC (0901); KG AC Winddown, LLC (5082); KG Products Winddown, LLC (0303); KG LI Restaurant
Group Winddown, LLC (1623); KG LI Winddown, LLC (1488); KG Franchise Winddown, LLC (0565); KG 60th
St Holdings Winddown, LLC (9997); KG Broadway Winddown, LLC (4335); KG Hamptons Winddown, LLC
(0423) and KG Payroll Winddown, LLC (0807). For the purpose of these chapter 11 cases, the service address for
the Debtors is: 12 Penns Trail, Suite 125, Newton, PA 18940.

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

ii
A P P E A R A N C E S:
QUINN EMANUEL URQUHART & SULLIVAN, LLP
Counsel to the Plaintiffs
51 Madison Avenue
New York, NY 10010
By: 	Rachel Epstein, Esq.
Benjamin Finestone, Esq.
Mario O. Gazzola, Esq.
Donald John Reinhard, II, Esq.
Zachary R. Russell, Esq.
MARKS & KLEIN, LLP
Counsel to the Defendants
63 Riverside Avenue
7th Floor
Red Bank, NJ 07601
By: 	Brent M. Davis, Esq.
Justin M. Klein, Esq.
WESTERMAN BALL EDERER MILLER ZUCKER & SHARFSTEIN, LLP
Counsel to Defendants Gerald Katzoff and GFB Restaurant Corp.
1201 RXR Plaza
Uniondale, NY 11556
By: 	William C. Heuer, Esq.
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Table of Contents
I. 	BACKGROUND........................................................................................................................................... 3
A. 	IL M ULINO’ S F OUNDING ........................................................................................................................................3
B. 	M R. K ATZOFF AND HIS B USINESS P ARTNERS A CQUIRE IL M ULINO ................................................................................. 4
C. 	THE GFB LICENSE ................................................................................................................................................. 4
D. 	THE IM‐III LICENSE ..............................................................................................................................................6
E. 	S UBLICENSES FROM IM USA ..................................................................................................................................8
F. 	IM USA E NTERS INTO A CREDIT A GREEMENT WITH BSP ............................................................................................. 8
G. 	THE D EBTORS E NCOUNTER F INANCIAL D ISTRESS AND PREPARE FOR B ANKRUPTCY ............................................................ 9
H. 	THE D EBTORS E NTER B ANKRUPTCY AND S ELL S UBSTANTIALLY A LL A SSETS TO PLAINTIFFS ................................................. 10
I. 	THE POST‐CLOSING LETTERS ................................................................................................................................10
J. 	THE A DVERSARY PROCEEDING .............................................................................................................................. 11
II. 	COUNT I: VIOLATION OF THE CRO ORDER .................................................................................................13
III. 	COUNT II: VIOLATION OF THE SALE ORDER ...............................................................................................15
A. 	THE POST‐CLOSING LETTERS V IOLATED THE S ALE O RDER ........................................................................................... 15
B. 	THE PLAINTIFFS A RE N OT E NTITLED TO A TTORNEYS ’ F EES FOR M R. K ATZOFF ’ S V IOLATION OF THE S ALE O RDER ...................16
IV. 	COUNT III: DECLARATION OF DOMAIN NAME RIGHTS ...............................................................................20
V. 	COUNT IV: BREACH OF THE IM‐III LICENSE ................................................................................................23
A. 	W HETHER E XTRINSIC E VIDENCE M AY B E CONSIDERED IN INTERPRETING THE LICENSES .................................................... 23
B. 	THE ORIGINAL PARTIES’ INTENT S HOULD B E CONSIDERED IN INTERPRETING THE LICENSES ................................................ 24
C. 	THE LICENSES CAN COEXIST W ITHOUT CONFLICT ...................................................................................................... 24
1. 	Scope of Exclusivity ...................................................................................................................................24
2. 	The “Restaurants” in the IM‐III License .................................................................................................... 25
3. 	The Territorial Restriction in the GFB License ........................................................................................... 28
4. 	Domain Names .........................................................................................................................................30
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5. 	Sharing the Use of the Domain Names ..................................................................................................... 32
D. 	THE PLAINTIFFS ’ CLAIMS FOR B REACH OF THE IM‐III LICENSE F AIL ............................................................................... 34
1. 	Grant and Continuation of the Original GFB License ................................................................................ 35
2. 	Representation and Warranty Regarding Prior Licenses .......................................................................... 36
3. 	Extensions and Amendments to the GFB License ..................................................................................... 36
4. 	Refusal to Cooperate with Prosecution of an Infringement Claim............................................................ 39
5. 	Anticipatory Breach by the Post‐Closing Letters ....................................................................................... 40
E. 	PLAINTIFFS HAVE N OT PROVEN A NY D AMAGES ....................................................................................................... 40
F. 	A N INJUNCTION I S N OT W ARRANTED ..................................................................................................................... 43
G. 	PRIOR N OTICE OF THE GFB LICENSE....................................................................................................................... 47
VI. 	COUNT V: INFRINGEMENT ........................................................................................................................49
VII. 	COUNT VI: FRAUDULENT TRANSFER UNDER N.Y. D.C.L. §§ 273, 274, AND 276 ......................................49
VIII. 	COUNT VII: FRAUDULENT TRANSFER UNDER 11 U.S.C. §§ 544, 548, AND 550 ........................................52
IX. 	COUNT VIII: TORTIOUS INTERFERENCE WITH CONTRACT ..........................................................................55
A. 	N EW YORK’ S S TRANGER R ULE .............................................................................................................................. 56
1. 	Mr. Katzoff ................................................................................................................................................58
2. 	GFB ...........................................................................................................................................................61
B. 	D AMAGES .........................................................................................................................................................63
X. 	COUNT IX: FRAUD ....................................................................................................................................64
XI. 	COUNT X: BREACH OF FIDUCIARY DUTY ....................................................................................................64
XII. 	DEFENDANTS’ COUNTERCLAIMS ..........................................................................................................71
A. 	COUNTERCLAIM FOR A D ECLARATION THAT THE GFB LICENSE IS V ALID ......................................................................... 71
B. 	COUNTERCLAIM FOR B REACH OF S ECTION 3.1.1 OF THE IM‐III LICENSE ....................................................................... 71
XIII. 	CONCLUSION .......................................................................................................................................75
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MARTIN GLENN
UNITED STATES BANKRUPTCY JUDGE
This opinion decides issues of fact and law following trial of this adversary proceeding.
BSP 2 was the pre-petition secured creditor of the chapter 11 debtors, and acquired the debtors’
assets with a credit bid in a section 363 sale. Among the valuable assets acquired was a license
of a tradename, trademark, and related intellectual property. But precisely what license rights
were acquired under the asset purchase agreement and sale order is very much in dispute. Both
sides seek a declaration of their rights, and the Plaintiffs also seek damages and injunctive relief
against at least some of the Defendants on a variety of legal theories.
The disputes stem from two licenses that grant “exclusive” rights to two different parties.
The first is the license dated September 23, 2002, between defendant IM LLC-I (“IM-I”) and
defendant GFB Restaurant Corp. (“GFB”). (“GFB License,” ECF Doc. # 35-1; Pls. Ex. 6.) GFB
owns and operates the “original” Il Mulino Italian restaurant in New York City. The second is
the license dated March 5, 2004, between IM-I and IM LLC-III (“IM-III”). (“IM-III License,”
ECF Doc. # 6-3; Pls. Ex. 18.) 3 The IM-III License was assigned to debtor Il Mulino USA, LLC
(“IM USA”) the same day as it was executed (March 5, 2004). (Pls. Ex. 18 at 13–16.)
The IM-III License was among the assets acquired by the Plaintiffs in the section 363
sale. After the section 363 sale, the Plaintiffs own and operate other Il Mulino restaurants, some
in New York City and some elsewhere.
2 	The BSP entities are BSP Agency LLC, Providence Debt Fund III L.P., Benefit Street Partners SMA-C
L.P., Benefit Street Partners SMA LM L.P., Providence Debt Fund III Master (Non-US) Fund L.P., and Benefit
Street Partners SMA-C SPV L.P. (collectively, “BSP”). The other Plaintiffs (Manager IM Rest, LLC, 60th Street
IM Rest, LLC, Asset Co IM Rest, LLC, Atlantic City IM Rest, LLC, Boca IM Rest, LLC, Franchise IM Rest, LLC,
Gram Trib IM Rest, LLC, Long Island Opco IM Rest, LLC, Long Island Propco IM Rest, LLC, Miami IM Rest,
LLC, Products IM Rest, LLC, Soho Prime IM Rest, LLC, Central IM Rest, LLC, and Receivables IM Rest, LLC)
were BSP’s designees under the Asset Purchase Agreement.
3 	In addition to the “IM-III License,” the parties have, at times, referred to this license as the “IM-I License”
and the “IM USA License.” Each of those terms refers to the same license.
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But what rights does each license grant? As part of an uneasy truce on negotiated terms
set forth in a stipulation and order dated February 5, 2021 (the “Stipulation,” ECF Doc. # 24),
GFB and BSP currently “share” (i) the “Il Mulino” tradename for their respective restaurants, (ii)
a common website accessed using the “ilmulino.com” domain name, and (iii) use of the
“ilmulino.com” domain name as part of their email addresses.
The central issue is whether the GFB License and the IM-III License conflict, or whether
they can coexist. For the reasons explained below, the Court finds that the licenses do not
conflict with each other, and the licenses can coexist. While the Court also finds that IM-I
breached the IM-III License, the Plaintiffs are entitled to only nominal damages.
With respect to the Plaintiffs’ other claims, the Court concludes that (1) certain post-
closing letters from Defendants’ counsel did not violate the CRO Order entered on August 14,
2020,4 but did violate the Sale Order entered on December 22, 20205 (but the Plaintiffs are not
entitled to attorneys’ fees), and (2) the Plaintiffs’ claims for fraudulent transfer, tortious
interference, and breach of fiduciary duty all fail. The Court also concludes that the Plaintiffs
should not be granted injunctive relief.
With respect to the Defendants’ counterclaims against the Plaintiffs, the Court finds and
concludes that the Defendants are entitled to a declaration that the GFB License is valid and can
coexist with the IM-III License, but they are not entitled to a declaration that the IM-III License
is void.
4 	Stipulation and Order Approving Chief Restructuring Officer and Establishing Operating Protocol for the
Debtors entered on August 14, 2020 (the “CRO Order,” ECF Doc. # 6-12; Case No. 20-11723, ECF Doc. # 60).
5 	Order (I) Approving Asset Purchase Agreement Among Sellers and Buyer, (II) Authorizing Sale of
Substantially All of the Debtors Assets Free and Clear of Liens, Claims, Interests, and Encumbrances, (III)
Authorizing Assumption and Assignment of Certain Executory Contracts and Leases in Connection Therewith, and
(IV) Granting Related Relief (the “Sale Order,” ECF Doc. # 6-13; Case No. 20-11723, ECF Doc. # 392).
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I. 	BACKGROUND 6
The Plaintiffs are the buyers and designees of substantially all of Debtors’ assets in a
section 363 sale. (See Sale Order.)
The Defendants are Gerald Katzoff and three entities he controls: GFB, IM-I, and IM
LLC-II (“IM-II”). Defendants GFB, IM-I, and IM-II were not debtors in the bankruptcy case.7
Mr. Katzoff was the manager of the Debtors and was in control of the Debtors until this Court
appointed Mackinac Partners, LLC, as chief restructuring officer (“CRO”). See In re K.G. IM,
LLC, 620 B.R. 469 (Bankr. S.D.N.Y. 2020). Craig Boucher performed the duties of CRO on
behalf of Mackinac.
The dispute concerns the scope of the intellectual property rights that the Plaintiffs
acquired in the section 363 sale. The Plaintiffs describe those rights as “[t]he most valuable asset
Plaintiffs acquired from the Debtors.” (“Pls. Br.,” ECF Doc. # 74, at 11.)8
A. Il Mulino’s Founding
In 1981, brothers Giovanni and Fernando Masci founded the original Il Mulino restaurant
on West 3rd Street (the “Original Restaurant”) in the Greenwich Village neighborhood of
Manhattan. (“Stipulated Facts,” ECF Doc. # 78 Ex. A, ¶ 1.) Giovanni and Fernando Masci
owned the Original Restaurant through their company GFB. (Id. ¶ 2.) Since its founding in
6 	On June 15, 2021, the Court entered a joint pretrial order (the “Joint Pretrial Order,” ECF Doc. # 78) setting
forth stipulated facts, the parties’ contentions, the issues to be tried, lists of the Plaintiffs’ and Defendants’ exhibits,
the witness lists, and the relief sought. The Joint Pretrial Order supersedes the parties’ prior pleadings. Only those
issues identified in the Joint Pretrial Order were tried by the Court. This opinion sets forth the Court’s findings of
fact pursuant to Fed. R. Bankr. P. 7052, incorporating Fed. R. Civ. P. 52. Based on the Court’s opportunity to judge
witness credibility, the opinion includes the Court’s determinations of disputed issues of fact.
7 	On the other hand, IM-III and IM USA were Debtors in the bankruptcy case and are now known as KG III
Winddown, LLC, and KG USA Winddown, LLC. (See Case No. 20-11723, ECF Doc. # 400, ¶ 17.)
8 	All page number references in citations to documents filed on ECF refer to the page number automatically
generated by ECF in the header of the document, rather than any page number that may otherwise appear in the
document.
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1981, the Il Mulino brand has grown to encompass four distinct Il Mulino concepts—Il Mulino
New York, Trattoria Il Mulino, Il Mulino Prime, and Bistecca by Il Mulino. (Id. ¶ 3.) Currently,
there are fifteen restaurants operating under one of these four Il Mulino concepts across the
continental United States and Puerto Rico. (Id. ¶ 4.)
B. Mr. Katzoff and His Business Partners Acquire Il Mulino
In 2002, Mr. Katzoff and his business partners created two entities, IM-I and IM-II. (Id.
¶ 5.) On September 12, 2002, IM-II acquired 80% of the shares of GFB, and IM-I acquired all
rights, title, and interests in the intellectual property relating to the Original Restaurant (the
“Intellectual Property”).9 (Id. ¶¶ 6–7; Pls. Exs. 1–2.) The Intellectual Property was, and remains,
IM-I’s only material asset. (Stipulated Facts ¶ 7.)
C. The GFB License
IM-I granted the GFB License on September 23, 2002. The GFB License is governed by
New York law. (GFB License ¶ 19.)
The GFB License granted GFB:
an exclusive license (the “License”) during the term of this
Agreement to use Licensor’s trade name of Il Mulino for the
restaurant located at 86 West Third Street, New York, New York.
(Id. ¶ 3.) 	The GFB License contains a territorial restriction: the “License . . . may be used only
in the Territory.” (Id.) The Territory is defined as “the restaurant located at 86 West Third
Street, New York, New York.” (Id.)
9 	The term “Intellectual Property” is also used in the IM-III License. This opinion uses the term “Intellectual
Property” throughout. To be clear, as used in this opinion, “Intellectual Property” means “all intellectual property
relating to the Original Restaurant,” and the Court finds that the definition of “Intellectual Property” in the IM-III
License, although lengthier, is identical in its meaning.
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The GFB License originally included a licensing fee of 15% of gross sales, 10 which was
reduced to 5% in an amendment dated as of January 1, 2005. (Id. ¶ 6; “2005 Amendment,” Pls.
Ex. 22, ¶ 2.)
The term of the GFB License is as follows:
4. Term of Agreement – Extensions. The term of this Agreement
shall be ten years commencing with the date of this Agreement. The
term will be automatically extended for an additional ten years
unless either party notifies the other of its intention not to continue
the Agreement in force for the extended term. This notice must be
in writing, addressed to the address given above for the party to be
notified, mailed by certified or registered mail, and posted no later
than six months before the end of the original term of this
Agreement.
(GFB License ¶ 4.) The parties have stipulated that “[o]n September 23, 2012, . . . the GFB
License was renewed for its second and final ten-year term.”11 (Stipulated Facts ¶ 12.)
The GFB License was amended again on April 5, 2020. (“2020 Amendment,” Pls. Ex.
143.) The 2020 Amendment provides, in pertinent part, that the parties agree to amend the GFB
License as follows:
1. Expand the purpose of the License Agreement to allow the use of
the Intellectual Property in the development of additional restaurants
and the development, manufacture, sale and distribution of products,
including sauces and foods, pursuant to the terms of this license.
2. Expand automatically, the term of the agreement for an additional
20 years from the end of the License Agreement between the parties
dated September 23, 2002 to September 23, 2042.
3. “Royalty for the Use of the Trade Name and Trademark” shall be
amended to eliminate any and ALL royalty fees from the Licensee
to the Licensor for the use of the Trademarks. Also, Paragraph 6 in
10 	The original royalty rate followed a slightly more complicated formula than simply 15% of gross sales, but
the particulars of that formula are not relevant to this opinion.
11 	The parties dispute whether IM-I can extend the term of the GFB License (or grant a new license) beyond
its September 22, 2022, expiration date. But those issues are not included in the Joint Pretrial Order. Therefore, the
Court does not decide whether GFB can be granted a license extending beyond September 22, 2022.
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the original license agreement shall be eliminated and this paragraph
will replace it.
4. Waive and forgive any prior fees earned by the Licensor from the
Licensee.
5. All other terms of the license agreement will remain in full force
and effect.
(2020 Amendment ¶¶ 1–5.)
The term “Intellectual Property” is not clearly defined in the 2020 Amendment, but
appears to refer only to “trademarks (common law and federal applications), and domain names
relating to ILMulino and ILMulino New York” owned by IM-I that are “generated from the
operation of the ILMulino restaurant located at 86 West Third Street, New York, NY”:
WHEREAS, Licensor is the valid legal owner of the trademarks
(common law and federal applications), and domain names relating
to ILMulino and ILMulino New York. 	This Intellectual Property
are all the creations and generated from the operation of the
ILMulino restaurant located at 86 West Third Street, New York, NY
("the Intellectual Property”).
(Id.)
The 2020 Amendment was rescinded in its entirety on May 24, 2021. (“2021
Amendment,” Pls. Ex. 202.)
D. The IM-III License
IM-III was founded on February 4, 2004; IM USA was founded on March 5, 2004.
(Stipulated Facts ¶¶ 24, 26.) On March 5, 2004, IM-I entered into a license agreement with IM-
III. (IM-III License.) On the same day, IM-III assigned the IM-III License to IM USA.
(Stipulated Facts ¶ 29; Pls. Ex. 18 at 13–16.) The IM-III License is governed by New York law.
(IM-III License § 7.2.)
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The IM-III License provides:
1.1. Grant of Rights. Subject to the following terms and conditions,
Licensor [IM-I] hereby grants to Licensee [IM-III] during the Term
(as hereinafter defined), an exclusive, except for the licenses listed
on Exhibit A attached hereto, royalty-free right and license to use
the Intellectual Property in connection with the Restaurants and the
development, 	manufacture, 	sale 	and 	distribution 	of 	products
throughout the Territory (as hereinafter defined) pursuant to the
terms of this License.
(IM-III License § 1.1.) The second “whereas” clause of the IM-III License defines “Restaurants”
as “additional IL MULINO NEW YORK restaurants and other restaurants.” (Id. at 1.) The
entire clause is as follows:
WHEREAS, 	Licensor 	has 	previously 	licensed 	the 	Intellectual
Property in connection with the operation of IL MULINO NEW
YORK restaurants, and now desires to license the Intellectual
Property to Licensee to develop, operate and/or franchise additional
IL MULINO NEW YORK restaurants and other restaurants (the
“Restaurants”) and to develop products pursuant to the terms hereof.
(Id.)
The IM-III License provides that “[t]he territorial grant shall be worldwide, subject to the
existing licenses listed on Exhibit A attached hereto.” (IM-III License § 2.1.) Exhibit A
includes two licenses:
1. 	a license agreement dated August 14, 2003, between IM-I and
I.M. Dallas, Ltd., for an Il Mulino New York restaurant in Dallas,
Texas (id. at 10–35), and
2. 	a franchise agreement dated August 7, 2003, between IM-I and
WDI Corporation, for an Il Mulino franchise in Tokyo, Japan (id.
at 36–49).
Notably, Exhibit A does not list the GFB License as an existing license. The failure to include
the GFB License in Exhibit A is a key component of the Plaintiffs’ arguments in this case.
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The IM-III License was amended on July 3, 2012, to allow IM-I to license certain rights
in the Intellectual Property to IM 60th Street, LLC, for a restaurant to be opened and called Il
Mulino New York – Uptown. (Stipulated Facts ¶ 30.)
The IM-III License was amended again on December 5, 2012, changing the term from 20
years to a perpetual term, “subject to termination provided in Paragraph 6.2.” (Pls. Ex. 68 ¶ 1.)
E. Sublicenses from IM USA
On June 4, 2012, IM USA entered into a sublicense with The TJX Companies, INC
(“TJX”), granting TJX the right to use certain trademarks and intellectual property to produce
and sell “Merchandise.” (Stipulated Facts ¶ 32.)
From 2014 to 2019, IM USA entered into sublicenses with Pasta Perfect, LLC, IMNY
GS, LLC, Il Mulino Gramercy, LLC, and IMNY BOCA, LLC, granting those entities the right to
use certain intellectual property in connection with the opening of new restaurants. (Id. ¶¶ 32–
36.) These sublicenses were “royalty-free.” (Pls. Exs. 73, 112, 124, 128.)
F. 	IM USA Enters into a Credit Agreement with BSP
In June 2015, BSP, as agent, and IM USA, K.G. IM, and IM-III entered into a credit
agreement. (Stipulated Facts ¶ 45.) Under the credit agreement, IM USA could borrow up to
$30 million; the initial proceeds were $21 million. (Id. ¶ 46.) The maturity date under the credit
agreement was June 15, 2020. (Id. ¶ 47.) Also in June 2015, IM USA and BSP entered into a
collateral assignment of contract whereby IM USA granted BSP a security interest in IM USA’s
rights under the IM-III License. (Id. ¶ 49.)
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In connection with the proposed financing, Citrin Cooperman completed a due diligence
report at BSP’s request. The report states that “[l]icensing fees are charged by IM1 to
GFB . . . .” 12 (Defs. Ex. O at 7.)
G. The Debtors Encounter Financial Distress and Prepare for Bankruptcy
On June 2, 2020, BSP delivered notices of events of default to certain Debtors and
provided notice that it was accelerating its loans. (Stipulated Facts ¶ 56.)
On June 30, 2020, Gerard Catalanello (the Debtors’ counsel in the bankruptcy case),
wrote to Michael Goldstein (BSP’s counsel in the bankruptcy case), stating that “there is a direct
license between IM LLC-I and GFB (it predates IM USA and was put in place when GFB was
purchased many years before the BSP transaction).” (Defs. Ex. GG at 2–3.) Mr. Catalanello
also stated:
I think the only way to truly understand all of these relationships and
the rights of all of these entities is to have Brian Gallagher involved
in this process now. He has handled all of the relevant transactions
and understands all of the pieces to this puzzle better than anyone
(on the legal or business side).
(Id. at 3.) Further emails between Mr. Catalanello and Mr. Goldstein continued as follows:
Goldstein: Thank you for the follow-up. 	Of course, we need to
receive a copy of the documentation.
Catalanello: Ok, but I don’t have that. Would need to get Gallagher
involved.
Goldstein: I guess you better get Jerry[ 13 ] on that. 	We made our
proposal re Gallagher.
12 	The reference in this due diligence report to that IM-I charged license fees to GFB undercuts the Plaintiffs’
argument that IM-I did not disclose the GFB License to BSP, or that the failure to list the GFB License in Exhibit A
to the IM-III License was a breach of the IM-III License.
13 	Likely referring to Mr. Katzoff.
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(Pls. Ex. 205 (simplified formatting).)14
H. The Debtors Enter Bankruptcy and Sell Substantially All Assets to Plaintiffs
On July 28, 2020, the Debtors filed voluntary petitions for relief under chapter 11 of the
Bankruptcy Code. (Stipulated Facts ¶ 57.) On August 3, 2020, BSP responded to the chapter 11
filing with a motion to lift the automatic stay to permit BSP to foreclose on its collateral, arguing
that the Debtors were not authorized to file voluntary chapter 11 petitions because of the terms of
BSP’s security interests and rights. (Case No. 20-11723, ECF Doc. ## 19–24.) The issues raised
by BSP’s motion threatened to derail the chapter 11 cases. The issues were consensually
resolved by a stipulation and order entered on August 14, 2020. (CRO Order.)15 Relevant to the
issues in this trial, that stipulation removed Mr. Katzoff from exercising management control
over the Debtors during the chapter 11 case, ceding most of the authority to the CRO.
This Court approved the sale of substantially all of the Debtors’ assets to BSP on
December 22, 2020. (Sale Order.) The sale closed on December 24, 2020. (Case No. 20-11723,
ECF Doc. # 396.) Under the Asset Purchase Agreement, the Plaintiffs were assigned the IM-III
License. (Id., ECF Doc. # 396-2 at 145; Stipulated Facts ¶ 58.)
I. 	The Post-Closing Letters
Following the closing of the sale of the Debtors’ assets to BSP, Mr. Katzoff’s counsel
sent two letters to the Debtors’ counsel16—one on January 6, 2021 (the “January 6 Letter,” Pls.
14 	These emails further substantially undercut BSP’s argument—pressed by BSP’s trial counsel until
Defendants’ counsel identified these as trial exhibits—that Defendants hid from BSP the facts about the GFB
License before the section 363 sale closed.
15 	The United States Trustee (“UST”) challenged entry of the stipulation providing the CRO with expanded
powers. The Court overruled the UST’s objection in a written opinion. See In re K.G. IM, LLC, 620 B.R. 469
(Bankr. S.D.N.Y. 2020).
16 	These letters were addressed only to the Debtors’ bankruptcy counsel and not to BSP’s counsel.
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Ex. 179), and one on January 12, 2021 (the “January 12 Letter,” Pls. Ex. 180, and, with the
January 6 Letter, the “Post-Closing Letters”).
The January 6 Letter addresses two main topics. First, it acknowledges that “Mr. Katzoff
no longer has a role with the entities that were sold by the Debtors to Buyer” and expresses
concerns that he may still be a “responsible person” with respect to various state liquor
authorities. (January 6 Letter at 2.) Second, it asserts “that the ‘ilmulino.com’ domain name,
and all that comes with it, was not owned by a Debtor entity and, thus, was not sold to Buyer.”
(Id. at 3.) The January 6 Letter goes on to state that
[o]n or about January 15, 2021, Mr. Katzoff intends to remove
unauthorized email users of, or access to, this domain name.
Moreover, as of that same date, Mr. Katzoff intends to take steps to
remove the Buyer-owned entities from all web-based and social
media accounts linked to the “ilmulino.com” domain name and/or
that have been maintained by Mrs. Katzoff . . . .
(Id.)
The January 12 Letter refers to the January 6 Letter—noting that it had “indicated that
Mr. Katzoff would, on January 15, 2021, begin the process of disentangling the former debtor
entities from the ‘ilmulino.com’ domain”—and states that Mr. Katzoff would extend the date to
from January 15, 2021, to January 22, 2021, “[t]o help facilitate an orderly transition.” (January
12 Letter at 2.)
J. 	The Adversary Proceeding
The Plaintiffs commenced this adversary proceeding on January 27, 2021. (“Complaint,”
ECF Doc. # 1.) 17 The Plaintiffs immediately sought a temporary restraining order and
preliminary injunction
17 	The operative complaint is the second amended complaint. (“Second Amended Complaint,” or “SAC,”
ECF Doc. # 43-2.)
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enjoining and restraining Gerald Katzoff (“Mr. Katzoff”) or any
person or entity acting on his behalf from (a) directly or indirectly,
representing, purporting or alleging to any person that Mr. Katzoff
has any management, voting rights, consent rights, consultation
rights or powers with respect to any of the Debtors, and taking any
action or inaction, to assert, exercise, or cause a third party to assert
or 	exercise, 	any 	management, 	voting 	rights, 	consent 	rights,
consultation rights or powers with respect to any of the Debtors or
any entity managed by any Debtor; (b) taking any action with
respect to the Liquor Licenses and Permits held by, in the name of,
or otherwise within the control of any Debtor or any entity managed
by any Debtor; and (c) taking any action with respect to the domain
name ilmulino.com or any other website used by or licensed to any
Debtor; (d) taking any action with respect 	to 	any social media
accounts associated in any way with the Il Mulino restaurants or
products; and (e) taking any actions with respect to any e-mail
accounts of any employee or former employee of the Debtors . . . .
(ECF Doc. ## 2–3.)
On February 5, 2021, the Court entered a stipulation and order resolving the motions for
a temporary restraining order and preliminary injunction and providing a framework for the use
of ilmulino.com and associated accounts during the pendency of this action. (Stipulation.)
On June 28, 2021, the Court held the evidentiary phase of the trial using Zoom for
Government. Direct testimony was presented by declarations, with live cross-examination. The
Plaintiffs’ witnesses were Craig Boucher, the CRO, and Brent Buckley, a managing director of
BSP; the Defendants’ only witness was Gerald Katzoff. The Court heard closing argument,
again using Zoom for Government, on July 19, 2021.
The parties also submitted three rounds of briefing. (Pls. Br.; “Defs. Br.,” ECF Doc. #
68; “Pls. Reply,” ECF Doc. # 77; “Defs. Reply,” ECF Doc. # 76; “Pls. Supp.,” ECF Doc. # 91;
“Defs. Supp.,” ECF Doc. # 90.)
In the next sections of this opinion, the Court discusses and rules on each of the causes of
action on which the parties went forward at trial—Sections II through XI for each of the
Plaintiffs’ causes of action and Section XII.A & B for the Defendants’ counterclaims.
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II. 	COUNT I: VIOLATION OF THE CRO ORDER
The CRO Order provides, in relevant part:
B. The CRO shall have sole and exclusive power to exercise all of
the management, voting rights, consent rights and powers of each of
the Debtors . . . .
C. Each of the Debtors, Katzoff, Galligan and J.B. IM, LLC, solely
in its capacity as manager of Debtor IMNY Hamptons, LLC, hereby
expressly consent to the appointment of the CRO and expressly
irrevocably waive any such management, voting rights, consent
rights, consultation rights or powers any of them may have with
respect to any of the Debtors . . . .
D. 	Neither 	Katzoff 	nor 	Galligan 	shall 	directly 	or 	indirectly,
represent, 	purport 	or 	allege 	to 	any 	person 	that 	he 	has 	any
management, voting rights, consent rights, consultation rights or
powers with respect to any of the Debtors, or take any action or
inaction, to assert, exercise, or cause a third party to assert or
exercise, 	any 	management, 	voting 	rights, 	consent 	rights,
consultation rights or powers with respect to any of the Debtors. In
addition, as long as the CRO is in place, BSP shall not directly or
indirectly, assert any management, voting rights, consent rights or
powers with respect to any of the Debtors, or take any action or
inaction, to assert, exercise, or cause a third party to assert or
exercise, any management, voting rights, consent rights or powers
with respect to any of the Debtors.
(CRO Order ¶ II.)
The Plaintiffs focus specifically on language in Paragraph II.D: “The CRO Order
prohibits Mr. Katzoff from taking ‘any action or inaction, to assert, exercise, or cause a third
party to assert or exercise any management, voting rights, consent rights, consultation rights or
powers with respect to any of the Debtors.’” (SAC ¶ 121 (quoting CRO Order ¶ II.D).) The
Plaintiffs submit that the CRO Order barred Mr. Katzoff from “asserting any rights over the
Domain Name Rights that were transferred by the Debtors to the Buyer under the Asset Purchase
Agreement and Sale Order.” (Id. ¶ 122.) The Defendants argue that the Post-Closing Letters are
an assertion of rights by Mr. Katzoff on behalf of non-Debtor IM-II, not an assertion of
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management rights on behalf of any Debtor entity. (Defs. Br. at 35.) The Plaintiffs respond that,
“in furnishing the Post-Closing Letters, Mr. Katzoff engaged in efforts to prevent or hinder
Debtors’ restaurants from accessing the Il Mulino Websites and Social Media Accounts, and
instead exert control over their public-facing online presence.” (Pls. Br. at 92.) The Plaintiffs
argue that this constituted an “attempt[] to exercise control over the Debtor entities’ property
interests and assets” in violation of the CRO Order. (Id.)
The Plaintiffs are correct that the CRO Order stripped Mr. Katzoff of his management
rights with respect to the Debtors. (CRO Order ¶ II.D.) However, the Defendants are also
correct that the Post-Closing Letters take the position that the domain name rights are owned by
a non-Debtor. (See January 6 Letter (“We had previously informed you that the ‘ilmulino.com’
domain name, and all that comes with it, was not owned by a Debtor entity and, thus, was not
sold to [BSP].” (emphasis added)).) While the position asserted by Mr. Katzoff in the Post-
Closing Letters is problematic for other reasons (discussed below)—particularly to the extent
that the Post-Closing Letters purport to assert rights over “all that comes with [the ilmulino.com
domain name],” and not merely ownership—it is not correct that the Post-Closing Letters were a
willful assertion of management rights of the Debtors. The Post-Closing Letters were explicitly
an effort to “disentangle” Debtor and non-Debtor entities, with Mr. Katzoff purportedly asserting
the rights of non-Debtors (as well as trying to protect himself personally with respect to
“responsible person” liability under the liquor licenses). Thus, while the position taken by Mr.
Katzoff in the Post-Closing Letters with respect to the use of the ilmulino.com domain name is
inconsistent with the rights granted under the IM-III License, it is not a violation of the CRO
Order.
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Accordingly, the Plaintiffs are not entitled to a judgment declaring that the Post-Closing
Letters violate the CRO Order.
III. 	COUNT II: VIOLATION OF THE SALE ORDER
A. The Post-Closing Letters Violated the Sale Order
The Sale Order provides, inter alia, that “[a]ll Persons having Claims of any kind or
nature whatsoever against the Debtors or the Purchased Assets shall be forever barred, estopped,
and permanently enjoined from pursuing or asserting such Claims against the Buyer or any of its
assets, property, Affiliates, successors, assigns or the Purchased Assets.” (SAC ¶ 128 (quoting
Sale Order ¶ Q).) The Plaintiffs submit that “[t]he Post-Closing Letters assert claims that fall
within the scope of ‘Claims’ against the Buyer as defined in the APA which are permanently
barred, estopped and enjoined.” (Id. ¶ 129.) The Plaintiffs also argue that they “suffered harms
from not receiving clear title and rights to use the Il Mulino Domains that were supposed to have
been transferred to Plaintiffs pursuant to the APA,” as well as “the harm of incurring attorneys’
fees and costs in order to prosecute this claim and vindicate Plaintiffs’ property rights.” (Pls.
Supp. at 51.)
The Plaintiffs argue that the Post-Closing Letters interfered with their receipt of “clear
title,” but the Plaintiffs did not purchase title to the Il Mulino Domains because the Debtors did
not own the Il Mulino Domains—IM-I did. The Plaintiffs did, however, purchase the IM-III
License and, with it, the right to use the Il Mulino Domains. The definition of “Claims” in the
Sale Order is extremely broad,18 and Mr. Katzoff’s threatened interference with the Plaintiffs’
18 	Paragraph Q of the Sale Order provides, in relevant part:
Notwithstanding any provision to the contrary in any other agreement, the Debtors
are authorized to sell the Purchased Assets to the Buyer free and clear of all liens,
claims, encumbrances and interests against the Debtors or the Purchased Assets,
including, without limitation, any debts, claims (including all “claims” as defined
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rights under the IM-III License qualifies as the assertion of a Claim and was barred by the Sale
Order.
Thus, to the extent that the Post-Closing Letters assert “claims” or “interests against . . .
the Purchased Assets,” they violate the Sale Order. (See Sale Order ¶ Q.) Accordingly, the
Plaintiffs are entitled to a declaration that the Post-Closing Letters violated the Sale Order (but
not the CRO Order). For reasons discussed below, however, the Plaintiffs are not entitled to
attorneys’ fees in connection with Count I.
B. The Plaintiffs Are Not Entitled to Attorneys’ Fees for Mr. Katzoff’s Violation of
the Sale Order
The Plaintiffs also seek attorneys’ fees in connection with Count II for the Defendants’
allegedly sanctionable behavior. (Pls. Supp. at 57–58.) Since the Defendants did not violate the
in the Bankruptcy Code), rights, causes of action, and/or suits arising under or out
of, in connection with, or in any way relating to, any acts, omissions, obligations,
demands, guaranties, rights, contractual commitments, restrictions, limitations,
restrictions, or conditions in any organizational documents governing any of the
Purchased Assets, product liability claims, environmental liabilities, employee
pension or benefit plan claims, multiemployer pension or benefit plan claims
(including any such claim arising out of, relating to, or resulting from the Debtors’
withdrawal from participation in any such plans), labor agreement claims
(including, but not limited to, any such claim relating to any and all collective
bargaining agreements), workers’ compensation claims, severance claims, retiree
healthcare or life insurance claims, and/or claims for taxes of or against the
Debtors and/or the Purchased Assets, and any derivative, vicarious, transferee, or
successor liability claims, rights, or causes of action (whether in law or in equity,
under any law, statute, rule, or regulation of the United States, any state, territory,
or possession thereof, or any other applicable jurisdiction), whether arising prior
or subsequent to the commencement of these chapter 11 cases, whether known or
unknown, fixed or contingent, anticipated or unanticipated, accrued or not, or
imposed by agreement, understanding, Law, equity, or otherwise arising under or
out of, in connection with, or in any way related to the Debtors, the Debtors’
interests in the Purchased Assets, the operation of the Debtors’ business before
the Closing, or the transfer of the Debtors’ interests in the Purchased Assets to the
Buyer, all Excluded Assets, and all Excluded Liabilities (collectively, excluding
any Assumed Liabilities and Permitted Liens, the “Claims”). . . . All Persons
having Claims of any kind or nature whatsoever against the Debtors or the
Purchased Assets shall be forever barred, estopped, and permanently enjoined
from pursuing or asserting such Claims against the Buyer or any of its assets,
property, Affiliates, successors, assigns, or the Purchased Assets . . . .
(Sale Order ¶ Q.)
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CRO Order, the Plaintiffs are not entitled to attorneys’ fees in connection with Count I. While
Defendants did violate the Sale Order, based on the caselaw that the Plaintiffs cite, they are also
not entitled to recover attorneys’ fees in connection with Count II. Mr. Katzoff’s behavior
manifested in the Post-Closing Letters does not rise to the level of willful, egregious conduct that
can form the basis for recovery of attorneys’ fees.
In support of their claim for attorneys’ fees, the Plaintiffs rely on Lehman Bros. Holdings
Inc. v. Barclays Capital Inc. (In re Lehman Bros. Holdings Inc.), Adv. Proc. No. 10-04103
(JMP), 2013 WL 6283572 (Bankr. S.D.N.Y. Dec. 3, 2013), aff’d, 526 B.R. 481 (S.D.N.Y. 2014),
aff’d, 645 F. App’x 6 (2d Cir. 2016). (Pls. Br. at 94.) In Lehman Bros., the bankruptcy court
granted the defendant-purchaser’s motion for sanctions and awarded
reasonable counsel fees and costs incurred in defending against this
litigation that has been pursued knowingly by [the plaintiff] in
violation of the Sale Order. This award of civil contempt sanctions
will serve to shift the cost of litigation to a sophisticated financial
institution that understood the risks and should have known better
than to go after the purchaser of the Purchased Assets.
Id. at *5. The court relied on the following three-element formulation of civil contempt: “(1) the
order the contemnor failed to comply with is clear and unambiguous, (2) the proof of
noncompliance is clear and convincing, and (3) the contemnor has not diligently attempted to
comply in a reasonable manner.” Id. at *1 (quoting Paramedics Electromedicina Comercial,
Ltda. v. GE Med. Sys. Info. Techs., Inc., 369 F.3d 645, 655 (2d Cir. 2004)). The Lehman Bros.
court found that its sale order was clear and unambiguous and that the sale order “enjoin[ed] the
assertion of any claim against [the defendant-purchaser] based on an interest in the Purchased
Assets.” Id. at *2. The court also found that the plaintiff’s
lawsuit against . . . the purchaser of significant assets in one of the
largest and most prominent bankruptcy sales of all time was a
decision bordering on the reckless . . . [and was] “clear and
convincing” 	evidence 	of 	non-compliance 	with 	a 	Sale 	Order
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injunction that was designed to block the very behavior in which
[the plaintiff] chose to engage.
Id. at *3. Finally, the court found that the plaintiff had “willfully . . . disregarded the injunction
and . . . taken the position that [the plaintiff’s] own rogue legal theory gave it the right to
proceed . . . with impunity.” Id. at *4. Notably, the plaintiff had been given an opportunity, after
the completion of discovery, “to discontinue [the] adversary proceeding and avoid any risk of
sanctions, but [the plaintiff] refused that offer.” Id.
The Plaintiffs also cite Weitzman v. Stein, 98 F.3d 717 (2d Cir. 1996), for the proposition
that “a finding of willfulness strongly supports granting [an award of fees and costs].” (Pls. Br.
at 94 (quoting Weitzman, 98 F.3d at 719) (alteration in original).) In Weitzman, the party seeking
to recover attorneys’ fees was the holder of a judgment and had obtained a court order to seize a
vehicle belonging to the judgment debtor. Weitzman, 98 F.3d at 718. The order plainly
prohibited the judgment debtor or his representatives from interfering with the order. Id.
Nevertheless, the judgment debtor’s attorney “delivered by hand a letter to the sheriff’s office
stating that the vehicle held for sale did not belong to [the judgment debtor], but to his wife . . . ,
and that the car subject to seizure was another one.” Id.
The Plaintiffs also cite this Court’s decision in In re Plumeri, No. 10-10050 (MG), 2010
WL 3087685 (Bankr. S.D.N.Y. 2010), which imposed sanctions on a debtor’s attorney where,
“[d]espite knowing that a judgment of possession was entered against his client prior to filing the
Initial Petition, [the attorney] did not disclose this fact either in the Initial Petition or the First
Amended Petition, as required by 11 U.S.C. § 362(l)(5).” Plumeri, 2010 WL 3087685 at *3.
The Court awarded fees lower than the amount sought by the creditor, noting that “only fees that
are directly caused by the sanctionable conduct may be awarded. Even then, the awarding court
must make a determination whether the requested fees are reasonable.” Id. at *4. Thus, to the
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extent that the Plaintiffs were entitled to recover any attorneys’ fees—which they are not—they
would only be able to recover fees attributable to the Post-Closing Letters’ violation of the Sale
Order.
The Plaintiffs are not entitled to recover attorneys’ fees based on the caselaw they rely
on. They have not established the elements present in Lehman Bros. The Sale Order is clear and
unambiguous; and it may even be that the Post-Closing Letters constitute clear and convincing
proof of noncompliance with the Sale Order, as Mr. Katzoff asserted an interest in the
Intellectual Property granted by the IM-III License to IM-III, which was assigned to IM USA
and purchased by the Plaintiffs pursuant to the Sale Order. However, the Plaintiffs failed to
demonstrate the third element, i.e., that Mr. Katzoff did not diligently attempt to comply in a
reasonable manner. First, there is no evidence in the record that Mr. Katzoff acted on any of the
threats in the Post-Closing Letters to exclude the Plaintiffs from the Il Mulino Domains. Second,
within several weeks after the threats were made, the parties entered into the Stipulation that was
so-ordered by the Court. While the Stipulation is in effect, Mr. Katzoff may not:
a. Remove or revoke access of any employee or agent of Plaintiffs
who currently uses an email account that ends with “ilmulino.com”
(each, an “IM Email Account”);
b. Remove or revoke access of any employee or agent of Plaintiffs
who currently has any level of access to use, maintain or update the
websites operated for the benefit of the restaurants operating under
the Il Mulino brand, including but not limited to, www.ilmulino.com
(the “Website”);
c. Remove or revoke access of any employee or agent of Plaintiffs
who currently has any level of access to use, maintain or update the
web-based and social media accounts linked to the “ilmulino.com”
domain name (the “IM Social Media Accounts”);
d. Make any changes to any information concerning the Acquired
Operating Restaurants, the Managed Operating Restaurants, the
Franchise Restaurants, or the Products Business (the entities and
businesses set out in this paragraph, collectively, are the “Buyer
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Entities”) on the Website, except with the prior written consent of
the Plaintiffs;
e. Make any changes to any information or postings concerning the
Buyer Entities on the IM Social Media Accounts, except with the
prior written consent of the Plaintiffs;
f. All changes to the Website and IM Social Media Accounts shall
be consistent with the terms of section 5 below.
(Stipulation § 2.) There is no evidence that Mr. Katzoff or any of the Defendants failed to
comply with the Stipulation since it has been in effect. Moreover, and as the Plaintiffs point out,
the Defendants have admitted that the “Plaintiffs hold rights pursuant to the IM-III License to
use the Il Mulino Domains.” (Pls. Supp. at 27 (citing, inter alia, Defs. Br. at 36).) Regardless of
whether the Defendants violated the Sale Order, the Court finds that, when given an opportunity
to comply with the Sale Order, the Defendants have brought themselves into compliance. This is
a far cry from the situation in Lehman Bros., where the plaintiff was given multiple opportunities
to abandon its lawsuit and yet it persisted, or in Plumeri, where the debtor’s attorney failed on
multiple occasions to disclose the landlord’s judgment of eviction against the debtor as required
by statute.
As this Court has noted (in a case cited by the Plaintiffs), “[o]nly when there has been a
substantial departure from . . . [the high] standards [of professional conduct required of attorneys
appearing in bankruptcy court] must the Court deal with sanctions issues.” In re Green, 422
B.R. 469, 472 (Bankr. S.D.N.Y. 2010). This is not such a case. Accordingly, the Plaintiffs are
not entitled to an award of attorneys’ fees in connection with Count II.
IV. 	COUNT III: DECLARATION OF DOMAIN NAME RIGHTS
Count III, as originally framed in the Second Amended Complaint, is for “Declaring a
License of the Domain Name Rights.” (SAC at 27 (emphasis added).) However, as the case
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proceeded, the Plaintiffs took conflicting positions with respect to this count, at times arguing
that they have ownership of the Intellectual Property, rather than simply a license:
trial will show that all expenses for maintenance and upkeep of the
websites 	and 	social 	media, 	including 	compensation 	for 	the
employees and consultants who worked on them, was paid by IM
USA. 	As a result, Debtor IM USA was the registrant and record
owner of each of the Il Mulino Websites, corresponding Email
Accounts, and Social Media Accounts.
Pursuant to the APA, BSP also acquired “all of the Sellers’
telephone numbers, fax numbers, e-mail addresses, websites, URLs
and internet domain names related to the Business.” APA § 2.1(x).
Accordingly, Plaintiffs acquired the Il Mulino Websites, Email
Accounts, and Social Media Accounts, and are entitled to an order
requiring Defendants to transition control of the these [sic] assets.
(Pls. Br. at 87–88 (emphasis added).) However, in other places, the Plaintiffs reversed their
position, arguing that they only have a license, rather than ownership, of the Intellectual
Property:
As set forth in Plaintiffs’ opening brief, Plaintiffs’ Second Amended
Complaint is premised upon IM-I’s ownership over the Il Mulino
Intellectual Property and brings claims solely based on Plaintiffs’
exclusive license to use and sublicense to others the Il Mulino
Intellectual Property. 	Defendants concede that Plaintiffs are
challenging only that Defendants do not have rights to use the Il
Mulino Intellectual Property “in connection with the Il Mulino
location at 86 West 3rd Street . . . .” 	Def. Br. at 28-29 (quoting
Plaintiffs’ Second Amended Complaint ¶ 103). 	Plaintiffs’ claims
are entirely consistent with the IM USA License, as Plaintiffs do
not challenge IM-I’s ownership over the Intellectual Property, only
IM-I’s breaching grant of a license that conflicts with exclusive
rights to license it granted to IM USA.
(Pls. Reply at 29 (emphasis in original).)
Despite these inconsistencies in the Plaintiffs’ briefs, the parties stipulated that “[t]he Il
Mulino Intellectual Property was, and remains, IM-I’s only material asset.” (Stipulated Facts ¶
7.) The Plaintiffs’ claim that they have a license to use the Intellectual Property is itself an
admission that the Plaintiffs do not own the Intellectual Property.
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Moreover, the IM-III License includes an explicit provision acknowledging IM-I’s
ownership of the Intellectual Property and a prohibition on the Licensee’s assertion of “any right,
title or interest in or to the Intellectual Property”:
3.1 Ownership of the Intellectual Property.
3.1.1. 	Licensee acknowledges and agrees that Licensor is
the owner of all right, title and interest in and to the
Intellectual 	Property, 	including 	all 	related 	trademark
registrations and applications for registration and all “il
mulino” formative domain names, even if registered to
Licensee, and substantially similar domain names, even if
registered to Licensee, and retains all rights therein except as
g ranted herein, and that no such right, title or interest therein
is conveyed hereby. Licensee shall not challenge or, directly
or indirectly, assert any right, title or interest in or to the
Intellectual Property or any “il mulino” formative trademark
applications for registration or registration thereof or any “il
mulino” formative domain names or substantially similar
domain names. 	Licensee shall not use or permit others to
use the Intellectual Property or an “il mulino” formative
trademark, company name, domain name or a substantially
similar trademark, company name or domain name in any
way inconsistent with Licensor's rights therein and all uses
of the Intellectual Property shall inure to the benefit of
Licensor.
(IM-III License § 3.1.) An assertion that the Plaintiffs, rather than IM-I, own the Intellectual
Property would be a clear breach of this section.19
Accordingly, to the extent that the Plaintiffs (at some points) argue that they are in fact
the owners of the Intellectual Property, the Court concludes that IM-I is the owner of the
Intellectual Property.
To the extent that the Plaintiffs request a declaration that they only have a license from
IM-I to use the Intellectual Property, the Court concludes that they do indeed have such a license
19 	The Defendants’ counterclaim regarding such an alleged breach is discussed later in this opinion.
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under the IM-III License. However, that license is limited only to certain purposes—which do
not conflict with the GFB License—as further explained in the following section.
V. 	COUNT IV: BREACH OF THE IM-III LICENSE
A. Whether Extrinsic Evidence May Be Considered in Interpreting the Licenses
The GFB License and the IM-III License each include a merger clause, indicating that the
license is “the complete understanding between the parties concerning the subject thereof” (GFB
License ¶ 18) and “the entire agreement between the parties with respect to its subject matter”
(IM-III License § 7.3).
The GFB License and the IM-III License are each governed by New York law. (GFB
License ¶ 19; IM-III License § 7.2.) Merger clauses are strictly enforced under New York law:
Courts and commentators addressing the substantive and procedural
aspects of New York commercial litigation agree that the purpose of
a general merger provision, typically containing the language . . .
that it “represents the entire understanding between the parties,” is
to require full application of the parol evidence rule in order to bar
the introduction of extrinsic evidence to vary or contradict the terms
of the writing. 	The merger clause accomplishes this objective by
establishing 	the 	parties’ 	intent 	that 	the 	Agreement 	is 	to 	be
considered 	a 	completely 	integrated 	writing. 	A 	completely
integrated contract precludes extrinsic proof to add to or vary its
terms.
Primex Int’l Corp. v. Wal-Mart Stores, 679 N.E.2d 624, 627 (N.Y. 1997) (citations omitted).
Notwithstanding this strict rule, extrinsic evidence may be considered to interpret
ambiguities in a fully integrated contract, as long as the interpretation does not add to or vary the
terms of the contract. As explained by the Second Circuit:
Even though a document may be fully integrated with respect to the
ultimate terms of the agreement, the meaning of those terms may
remain unclear. 	In such cases, it is proper to consider extrinsic
evidence in interpreting the ambiguous terms, irrespective of the
parol evidence rule.
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Topps Co. v. Cadbury Stani S.A.I.C., 526 F.3d 63, 69 (2d Cir. 2008) (internal quotation marks
and citations omitted).
Here, the many ambiguities in the licenses require the Court to consider extrinsic
evidence. Those ambiguities and their interpretation are discussed below.
B. The Original Parties’ Intent Should Be Considered in Interpreting the Licenses
To the extent that the Court may consider extrinsic evidence of the parties’ intent to
interpret the licenses, the licenses should be interpreted considering the intent of the original
parties to the contract. The Plaintiffs, as assignees of the IM-III License, are bound by the intent
of the original parties, as “an assignee stands in the shoes of the assignor and subject to all
equities against the assignor. An assignee takes all rights of the assignor, no greater and no less.”
Sompo Japan Ins. Co. of Am. v. Norfolk S. Ry. Co., 966 F. Supp. 2d 270, 279 (S.D.N.Y. 2013)
(internal quotation marks and citations omitted), aff’d, 762 F.3d 165 (2d Cir. 2014). This has
“always been the law in New York.” Septembertide Publ’g, B.V. v. Stein & Day, Inc., 884 F.2d
675, 682 (2d Cir. 1989) (citing Seibert v. Dunn, 110 N.E. 447, 450 (N.Y. 1915)).
C. The Licenses Can Coexist Without Conflict
There are multiple possible interpretations of the grant of rights in each license.
1. 	Scope of Exclusivity
The scope of “exclusivity” under each license is ambiguous. At a minimum, the
following two interpretations of the grant of rights under each license are possible:
1. 	Under each license, only the licensee can use the intellectual
property “for” or “in connection with” its restaurant(s). Others
can use the intellectual property for other restaurants and other
purposes.
2. 	Under each license, only the licensee can use the intellectual
property—period. No one else can use the intellectual property
for any purpose. However, the licensee may use the intellectual
property only in connection with its restaurant(s).
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The first interpretation is the better reading, because it does not require any rewriting of
the language in the licenses. If the second interpretation had been the intent, the grant of rights
could have easily been written as follows: “Licensor grants to Licensee an exclusive license to
use the intellectual property. Licensee may use the intellectual property only in connection with
Licensee’s restaurant(s).”
The parties’ course of conduct also supports the first interpretation. GFB has been using
the intellectual property in question for many years (for its restaurant), and IM USA never
claimed that this was a breach of its exclusive right to use the intellectual property.
Therefore, the Court finds that the “exclusive” grant of rights in each license was limited
to use of the licensed property for certain purposes. That is, the GFB License permits GFB to
use the trade name Il Mulino “for the [Original Restaurant]” (and no one else may use the trade
name Il Mulino for the Original Restaurant), and the IM-III License permits IM-III (and now
BSP) to use the Intellectual Property “in connection with the Restaurants” (and no one else may
use the Intellectual Property in connection with the Restaurants). (See GFB License ¶ 3; IM-III
License § 1.1.)
2. 	The “Restaurants” in the IM-III License
The IM-III License defines “Restaurants” as “additional IL MULINO NEW YORK
restaurants and other restaurants.” (IM-III License at 1.)20 The parties dispute whether this
definition includes the Original Restaurant.
20 	In their supplemental brief, the Plaintiffs argued that the definition of Restaurants in the IM-III License
includes every restaurant referenced in the entire “whereas” clause, including the restaurants to which the Licensor
had previously licensed the Intellectual Property. (Pls. Supp. at 17.) However, construing the entire “whereas”
clause as the definition of “Restaurants” is nonsensical, as the entire clause includes many words and phrases that
are clearly not restaurants. If all of the restaurants referenced in the entire “whereas” clause were intended to fall
within the definition of “Restaurants,” the parenthetical should have read “(every restaurant referenced in this
‘whereas’ clause, a ‘Restaurant’).” Considering the way the “whereas” clause and the parenthetical is actually
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While the IM-III License does not explicitly mention the GFB License, it does explicitly
mention the Original Restaurant. In defining the term “Intellectual Property,” the IM-III License
states that “Licensor is the valid and legal owner of [intellectual property] relating to . . . the
operation of the Il Mulino restaurant located at 86 West Third Street, New York, New York.”
(Id. (emphasis added).) The term “Restaurants,” on the other hand, includes only “additional IL
MULINO NEW YORK restaurants and other restaurants.” (Id.) The Court finds that there is no
ambiguity that the Original Restaurant is not an “additional IL MULINO NEW YORK
restaurant” under the IM-III License, because the agreement itself refers to the Original
Restaurant as an “Il Mulino restaurant.”
At the trial, the Plaintiffs spent a great deal of time to show that the Original Restaurant
was, in other contexts, referred to interchangeably as “Il Mulino” and “Il Mulino New York.”
However, Plaintiffs’ argument depends on extrinsic evidence that the Court could only consider
if the IM-III License itself were ambiguous whether “additional IL MULINO NEW YORK
restaurants” included the Original Restaurant. Nevertheless, even if the Court could consider
this evidence, and even if it were true that the Original Restaurant is an IL MULINO NEW
YORK restaurant, it is certainly not an “additional IL MULINO NEW YORK restaurant.”
However, there is an ambiguity about which restaurants are included within the term
“other restaurants.” The term “other restaurants,” at first glance, appears to be a very broad
catchall. The Plaintiffs asserted at closing argument that the reference to “other restaurants”
simply means “any restaurant.” However, if that were the intended meaning, there would be no
written, only as much of the preceding language that could logically constitute a definition of “Restaurants” should
be included in the definition, i.e., “additional IL MULINO NEW YORK restaurants and other restaurants.”
At closing argument, the Plaintiffs changed their argument, arguing that the term “Restaurants” does not
include the word “additional,” and includes only the words after the word “additional,” such that it would
encompass any and all restaurants. The Court similarly rejects this reading for the reasons explained below.
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need for a defined term for “Restaurants,” as the “whereas” clause could have simply read “to
develop, operate and/or franchise restaurants,” and references to “the Restaurants” could have
been to “restaurants” in general. There would also be no reason for the apparent distinction
between “additional IL MULINO NEW YORK restaurants” and “other restaurants.” The
reference to “other restaurants” was apparently intended to include restaurants using concepts
other than “IL MULINO NEW YORK,” such as “Prime,” “Bistecca,” and “Trattoria,” which do
not include the Original Restaurant.
Moreover, in the context of the entire “whereas” clause, it becomes clear that the term
“Restaurants” (and therefore the term “other restaurants”) should only include restaurants that
the Licensee would “develop, operate, and/or franchise.” It is undisputed that GFB—and not
IM-III, IM USA, or any of the Plaintiffs—operated the Original Restaurant. As noted by the
Plaintiffs themselves:
 	“Defendant GFB Restaurant Corp. (‘GFB’) is a New York corporation that
operates a restaurant at 86 West Third Street, New York, New York.” (Complaint
¶ 35.)
 	“As set forth in its operating agreement, the ‘purpose’ of IM-III is ‘to . . . own and
operate restaurants . . . other than the IL Mulino New York restaurant located at
86 West Third Street . . . .’” (Pls. Br. at 19 (quoting IM-III Operating Agreement,
Pls. Ex. 16, § 2.1) (emphasis added).)
 	IM USA “was formed . . . to serve as the actual licensing and management
company for new Il Mulino franchises and restaurants.” (Id. at 20 (emphasis
added).)
Therefore, the Original Restaurant is not included in the term “other restaurants,” and
since the Original Restaurant is not within either the term “additional IL MULINO NEW YORK
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restaurants” or “other restaurants,” it is not within the term “Restaurants” as defined in the IM-III
License.21
3. 	The Territorial Restriction in the GFB License
The GFB License states that it “may be used only in the Territory,” which is defined as
“the restaurant located at 86 West Third Street, New York, New York.” (GFB License ¶ 3.)22 If
this territorial restriction applies to advertising, then GFB would have no right under the GFB
License to advertise outside of the Original Restaurant.
The GFB License does seem to allow for the use of the trade name Il Mulino for
advertising for the Original Restaurant. While advertising is not specifically stated as a
permitted use of the trade name, the GFB License broadly permits GFB “to use Licensor’s trade
name of Il Mulino for the restaurant located at 86 West Third Street . . . .” (Id. ¶ 3.) Advertising
is certainly a “use of Licensor’s trade name of Il Mulino,” and, therefore, the specific permission
to advertise would be superfluous. See 15 U.S.C. § 1127 (“[A] mark shall be deemed to be in
use in commerce . . . on services when it is used or displayed in the sale or advertising of
services and the services are rendered in commerce . . . .” (emphasis added)).
In addition, the GFB License requires consent by the Licensor before GFB engages in
any advertising, which supports the interpretation that GFB is permitted to advertise under the
GFB License, although IM-I must first approve the specific advertisement:
21 	The Plaintiffs also argue that the phrase “Licensor has previously licensed the Intellectual Property in
connection with the operation of IL MULINO NEW YORK restaurants” references only the licenses in Exhibit A to
the IM-III License (which include only the licenses for the Dallas and Tokyo restaurants). However, if this were the
intended meaning, the language could have simply read “Licensor has previously licensed the Intellectual Property
in the licenses included in Exhibit A.” Furthermore, even if only the Dallas and Tokyo restaurants were meant to be
referenced in that phrase, the “whereas” clause does not state that “Licensor has previously licensed the Intellectual
Property only in connection with the operation of [the Dallas and Tokyo] restaurants.”
22 	It is also possible that the definition of “Territory” only includes “86 West Third Street, New York, New
York” (i.e., it does not include “the restaurant located at”). The difference could be significant if, for example, the
address includes the land surrounding the building, while “the restaurant” includes only the building. Such a
distinction is not relevant to this opinion.
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8. Prohibited Use of Trademark. 	Licensor’s trade name and
trademark will be used only in the manner provided by Licensor. It
will not be used by Licensee in any form of advertising unless
Licensee has first obtained Licensee’s[ 23 ] written consent to the
specific use.
(GFB License ¶ 8.) The GFB License also indicates that GFB must cease use of the trade name
and mark upon termination of the agreement, including in advertisements, which would be
unnecessary if the GFB License did not allow for use of the trade name in advertisements in the
first place:
11. Effect of Termination of Agreement. Upon the termination of
this Agreement for any reason, Licensee will immediately stop the
use of Licensor’s trade name and mark in any and all forms,
including signs, menus, advertisements, logos, etc.
(Id. ¶ 11.)
As the GFB License therefore allows for advertising (with a requirement of IM-I’s
consent to the specific advertisement), the question becomes whether the territorial restriction
applies to advertising. Such a restriction would be nonsensical, as it would mean that GFB could
only advertise within the Original Restaurant. This would effectively mean that GFB could not
advertise, which would make the GFB License internally inconsistent. As noted by the Plaintiffs
themselves, “[i]n interpreting a contract, ‘the entire contract must be considered, and all parts of
it reconciled, if possible, in order to avoid an inconsistency.’” (Pls. Supp. at 17 (quoting
Morse/Diesel, Inc. v. Trinity Indus., Inc., 67 F.3d 435, 439 (2d Cir. 1995)).) Here, it is possible
to reconcile the license with itself by interpreting the permission to use the trade name for
advertising as an implied exception to the territorial restriction.
23 	Defendants note that “[t]his is clearly a typographical error and is meant to say ‘Licensor’s.’” (Defs. Supp.
at 10 n.4.)
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To the extent that either the permission to advertise or the applicability of the territorial
restriction to advertising is ambiguous from the text of the license, the Court should look to
extrinsic evidence to determine whether the territorial restriction was intended to cover
advertising. GFB has been advertising its restaurant (outside of the restaurant) for the past
twenty years, with no protest from anyone before this lawsuit. Therefore, the Court concludes
that the GFB License was intended to permit such advertising.
4. 	Domain Names
As the GFB License allows for use of the trade name Il Mulino for advertising (outside of
the Original Restaurant), the same is true for the use of domain names.
The only differences between the trade name Il Mulino and the domain name
ilmulino.com is the lack of a space between “Il” and “Mulino” and the top-level domain
identifier of “.com.” Courts disregard such differences when evaluating the similarity of marks,
as “[i]t is necessary in the registration of an internet address to eliminate spaces and . . . to add a
top-level domain at the end of the address.” TCPIP Holding Co. v. Haar Commc’ns, Inc., 244
F.3d 88, 101 (2d Cir. 2001); see also 1 M CCARTHY ON TRADEMARKS & UNFAIR COMPETITION §
7:17.50 (“Courts and the Trademark Board agree that a gTLD [ 24] will usually have no trademark
significance.”).
Furthermore, in the Second Circuit, the use of a trademark in a domain name
automatically constitutes use of the mark “as a mark.” TCPIP, 244 F.3d at 104; see also 5
M CCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 25A:42 (“The Second Circuit has gone
the farthest of any court and has held that any use of a word as a domain name is use as a ‘mark’
and is not eligible for the fair use defense.”) (citing TCPIP, 244 F.3d at 104). In TCPIP, the
24 	“gTLD” means “generic top-level domain,” e.g., “.com.”
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Second Circuit found that the defendant’s use of the domain name “thechildrensplace.com” was
use of the plaintiff’s trademark (“The Children’s Place”) as a mark. (Notably, the plaintiff did
not have a trademark for “thechildrensplace.com,” but only “The Children’s Place.”) Therefore,
the use of the domain name did not qualify for the fair use defense that would have allowed the
defendant to use the mark despite another’s exclusive right to use the mark, as one of the
requirements for the fair use defense is that the mark be used “otherwise than as a mark” and
used “only to describe the goods or services.” 15 U.S.C. § 1115(b)(4). The court affirmed the
preliminary injunction issued against the defendant under the Lanham Act (for infringement) as
to its use of the domain names that were sufficiently similar to the plaintiff’s mark (“The
Children’s Place”) as to cause a genuine likelihood of confusion among consumers.25
Accordingly, as a general matter, a license that grants the use of a trade name also grants
the use of that trade name as a domain name. While this may not be the case where the license
contains a territorial restriction,26 the territorial restriction in the GFB License was not intended
25 	The Ninth Circuit takes a different view and requires the use of the domain name to be a “commercial use”
of the mark in order for the use of the name to be use “as a mark.” Under this view, if the domain name directed the
user to a blank website, then the domain name would arguably not be use of the name as a mark. See, e.g.,
TrafficSchool.com, Inc. v. Edriver Inc., 653 F.3d 820, 833–34 (9th Cir. 2011) (“Until a domain name is associated
with a server that hosts a website, it’s not visible to consumers and thus can’t possibly confuse them.”); GoPets Ltd.
v. Hise, 657 F.3d 1024, 1035 (9th Cir. 2011) (“Registration of a domain name without more does not constitute
service mark or trademark infringement.”).
However, even if commercial use of the name were required in this Circuit, the website that one is directed
to when typing “ilmulino.com” into a browser (i.e., the website for Il Mulino restaurants) clearly shows that
“ilmulino.com” is a commercial use of the mark. A leading treatise gives the following quite applicable example:
Thus, commercial web sites such as an accounting firm home page or a web site
for a chain of quick service restaurants would qualify either as a form of
advertising of the underlying services or as a rendering of information services
and thus be subject to the Lanham Act.
5 M C CARTHY ON TRADEMARKS & U NFAIR COMPETITION § 25A:42 (emphasis added).
26 	See Hard Rock Cafe Int’l (USA) Inc. v. Morton, No. 97 Civ. 9483 (RPP), 1999 WL 717995 (S.D.N.Y. Sept.
9, 1999); Hard Rock Cafe Int’l (USA) Inc. v. Morton, No. 97 Civ. 9483 (RPP), 1999 WL 701388 (S.D.N.Y. Sept. 9,
1999).
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to apply to advertising, as explained above. As the use of a domain name is a form of
advertising, the territorial restriction should also not apply to the use of domain names.
Again, to the extent that there is any ambiguity in the contract whether it grants the use of
domain names, or whether the territorial restriction applies to the use of domain names, the
parties’ conduct for almost the past twenty years (before this lawsuit) clearly shows that the
intent was to allow GFB to use domain names with no territorial restriction.
5. 	Sharing the Use of the Domain Names
While there may be practical issues with respect to shared use of domain names—in
particular, ilmulino.com—it is not clear that the grant of licenses to two parties for use of a
domain name for distinct purposes presents a legal issue.
Here, IM-I has licensed use of ilmulino.com to both GFB and IM USA for use in
connection with their respective restaurants. Therefore, both can make edits to the website that
relate to their respective restaurants, and both have a right to be listed on the website, including
on the homepage. Conversely, neither has a right to make edits to the website that relates to the
other’s restaurants. Therefore, party A’s hypothetical attempt to make the links for party B’s
restaurant impracticably small would both be an act outside of party A’s license, as well as an act
that potentially tortiously interfered with party B’s rights under its license. Presumably, edits
that relate to both parties’ restaurants (e.g., the background color for the website) should only be
made if both parties consent to the edit, although IM-I appears to have the final say in such
matters due to the quality control measures in each license.
The Defendants note that the parties have already reached a workable solution to the
issue of a shared website:
GFB and IM USA have been coexisting and collaborating on the
content of the website and shared used of the domain names for
almost twenty years. 	Plaintiffs and GFB (with oversight by IM1)
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have been continuing that arrangement since the Consent Order [Dkt.
No. 24] (the “Consent Order”) was entered in this case on February
5, 2021. A continuation of the procedures in the Consent Order is a
workable solution.
(Defs. Supp. at 11.) The Defendants are even willing to go so far as to have a separate website
for the Original Restaurant, with only a link on the homepage of ilmulino.com:
In the alternative, another practical solution would be to have the
“homepage” of the current Il Mulino website could simply contain
a prominent link to direct consumers looking for the Original Il
Mulino Location to a separate website controlled by GFB under a
separate domain name (owned by GFB, IM1, IM2 or an affiliate), in
the same size, manner and location on the homepage as the links to
the other Il Mulino New York locations. 	GFB would operate its
website and Plaintiffs would then operate its website, subject to
Section 4.1 and 4.2 of the IM3 License.
(Id.)
The Plaintiffs argue that the only workable solution “would be for GFB to acquire from
Plaintiffs a sublicense to use the Il Mulino Domains pursuant to Plaintiffs’ exclusive right to
sublicense any rights to use the Il Mulino Intellectual Property.” (Pls. Supp. at 23.) However,
this is based on the Plaintiffs’ reading of the IM-III License as an exclusive license to use the
Intellectual Property for any purpose, or at least an exclusive license for use of the Intellectual
Property in connection with certain restaurants including the Original Restaurant. This reading
is incorrect, as section 1.3 of the IM-III License provides:
1.3. Assignable Rights. 	Licensee may transfer, sublicense and/or
assign all or part of the rights granted by this License to a third party
without the consent of Licensor.
(IM-III License § 1.3 (emphasis added).) The “rights granted by this License” include only the
right to use the Intellectual Property in connection with the Restaurants (as defined in the IM-III
License) and products. (Id. § 1.1.) The “rights granted by this License” did not include the right
to use the Intellectual Property for the Original Restaurant. Therefore, the Plaintiffs have no
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right to sublicense any of the Intellectual Property to GFB for use in connection with the
Original Restaurant.
While the parties may have future disputes whether a certain use of the website is
permitted under the licenses, or whether the parties have complied with the quality control
provisions in the licenses, this Court will not speculate on the merits of such future disputes
which if not consensually resolved would have to be adjudicated in non-bankruptcy court. The
Stipulation the parties negotiated, and the Court approved, appears to provide a workable
solution, but the Court will not impose the long-term adherence to the terms of the Stipulation
that the parties negotiated as an interim standstill while this litigation proceeded to trial. The
parties may well have trouble “living together” in the shared use of the domain name, email
addresses, and website, but it is a result of two separate licenses which the Court has concluded
can coexist (if not easily). Until the section 363 sale, Mr. Katzoff was essentially on all sides of
the relationships, making it easy to coexist; that is no longer true. The parties can either
negotiate a better consensual solution to their problems, or they will be forced to live with, in
effect, “shared custody” of intellectual property rights. BSP shouldn’t lose sight of the fact that
substantial “good will” value of the trade name and mark is derived from the Original
Restaurant. The value of what BSP acquired has been enhanced by association with the name
and mark and it can continue to benefit by the association.27
D. The Plaintiffs’ Claims for Breach of the IM-III License Fail
As the GFB License and the IM-III License do not overlap and can coexist, the grounds
for a breach of the IM-III License are rather limited. The Plaintiffs allege “four distinct”
27 	BSP made no effort to establish damages by showing that the value of its license was somehow harmed by
the continuing association with the Original Restaurant. It is doubtful that such a showing could have been made.
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breaches of the IM-III License. (Pls. Br. at 57.) The Court concludes that nearly all the claims
for breach fail. However, where there actually was a breach, the Plaintiffs are entitled only to
nominal damages.
1. 	Grant and Continuation of the Original GFB License
First, the Plaintiffs argue that IM-I breached the IM-III License “from the date that
license was executed to today as a result of IM-I’s ongoing purported licensing to GFB of the Il
Mulino trade name.” (Id.) Section 1.2 of the IM-III License does indeed prohibit IM-I from
“licens[ing] . . . the Intellectual Property”:
1.2 	No 	Reservation 	of 	Rights. 	Upon 	execution 	of 	this
Agreement, Licensor shall have no rights to use, license, assign or
transfer the Intellectual Property during the Term, unless the
Agreement is terminated pursuant to Paragraph 6.2.
(IM-III License § 1.2.)
Contrary to the Plaintiffs’ claim that there is a “continuing breach” of Section 1.2 due to
IM-I’s “ongoing purported licensing,” the Court finds that the better reading of Section 1.2 is
that it only restricts the active grant of a license; it does not restrict IM-I from passively allowing
an existing license to stay in force. To the extent the language is ambiguous on this point, the
fact that no party had objected to the continuation of the GFB License for nearly twenty years
shows that the passive continuation of the GFB License was not intended to be a breach of
Section 1.2. Therefore, the Court concludes that Section 1.2 is only breached by the active grant
of a license.
Moreover, under New York law, the alleged breach is not one that would properly be
considered a “continuing breach.” Instead, the grant of the GFB License, even if it were a breach
of Section 1.2, is viewed under New York law as “a single breach—with damages increasing as
the breach continued,” rather than a “continuing breach.” Maloul v. New Colombia Res., Inc.,
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No. 15 CIV. 8710 (KPF), 2017 WL 2992202, at *5 (S.D.N.Y. July 13, 2017) (quoting Henry v.
Bank of Am., 48 N.Y.S.3d 67, 70 (1st Dep’t 2017)); see also Kahn v. Kohlberg, Kravis, Roberts
& Co., 970 F.2d 1030, 1041 (2d Cir. 1992) (explaining that plaintiffs could not use continuing
wrong theory for “ongoing” violation, because “performance under the contract merely affects
damages and does not give rise to a new cause of action”).
Therefore, the original grant of the GFB License could not possibly be a breach of
Section 1.2, as it occurred before the execution of the IM-III License; the Defendants could not
have breached Section 1.2 when the GFB License was granted, as Section 1.2 did not yet exist.
2. 	Representation and Warranty Regarding Prior Licenses
The Plaintiffs argue that “IM-I breached the IM USA License at execution by violating
its representation and warranty that it had ‘not previously granted any rights to any third party
which are inconsistent with the License herein.’” (Pls. Br. at 57 (quoting IM-III License §
5.1.1).) However, as explained above, the GFB License and the IM-III License do not overlap;
the GFB License only grants rights to use the name “Il Mulino” for the Original Restaurant, and
the IM-III License only grants rights to use the Intellectual Property for additional Il Mulino
restaurants. Therefore, the rights granted under the GFB License were not contrary to the
representation and warranty that IM-I had “not previously granted any rights to any third party
which are inconsistent with” the IM-III License.
3. 	Extensions and Amendments to the GFB License
The Plaintiffs argue that
IM-I committed additional breaches of Sections 1.1–1.3 of the IM
USA License when it: (i) modified and re-affirmed the GFB License
in 2005; (ii) failed to terminate, and instead renewed and extended
the term of that license in 2012; and (iii) purported to grant GFB
additional rights in the 2020 GFB License Amendment.
(Pls. Br. at 57.)
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a. 	Section 1.1
The 2005 Amendment made only one change to the GFB License, which was to reduce
the licensing fee from 15% to 5%. The 2005 Amendment did not change or expand GFB’s rights
to use the property licensed under the GFB License.
The extension of the GFB License in 2012 similarly did not result in any change or
expansion of GFB’s rights to use the property licensed under the GFB License.
As noted above, there is no conflict between the rights granted under the original GFB
License and the rights granted under the IM-III License. Therefore, neither the 2005
Amendment nor the extension of the term in 2012 resulted in a breach of Section 1.1, as there is
no overlap between the GFB License (either as amended in 2005 or as extended in 2012) and the
IM-III License.
On the other hand, the rights granted by the 2020 Amendment conflict with the IM-III
License, and the 2020 Amendment was therefore a breach of the “exclusive . . . right and license
to use the Intellectual Property in connection with the Restaurants and . . . products . . . .” (IM-
III License § 1.1.) But IM-I and GFB rescinded the 2020 Amendment in its entirety on May 24,
2021, before GFB acted on it to the detriment of BSP. (2021 Amendment.) The Plaintiffs have
not proven that the Defendants acted on any of the expanded rights or were otherwise damaged
by the breach of Section 1.1. The Plaintiffs are therefore entitled to only nominal damages for
the breach.
b. 	Section 1.2
As noted above, Section 1.2 only prohibits the active grant of a license. The 2005
Amendment is only a reduction of the licensing fee in the pre-existing GFB License, and
therefore did not constitute a breach of Section 1.2.
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The extension of the GFB License in 2012 is a closer question. However, the Court finds
that, as the extension was automatic under the original GFB License (unless either party decided
not to continue the license), the extension was not an active grant of a license that would
constitute a breach of Section 1.2.28
However, even if the 2005 Amendment or the 2012 extension were breaches of Section
1.2, the breaches occurred at the time of the amendment and the extension; they are not
“continuing breaches.” Accordingly, a claim for breach of Section 1.2 due to the 2005
Amendment and the 2012 extension are barred by the six-year statute of limitations for breach of
contract actions under New York law.
On the other hand, the 2020 Amendment so dramatically expanded GFB’s rights under
the GFB License that it was essentially equivalent to a new license for the expanded rights.29
However, again, the Plaintiffs have not shown that the Defendants acted on any of the expanded
rights before the 2020 Amendment was rescinded. The Plaintiffs are therefore entitled to only
nominal damages.
28 	Paragraph 4 of the GFB License provides:
4. Term of Agreement – Extensions. The term of this Agreement shall be ten
years commencing with the date of this Agreement. 	The term will be
automatically extended for an additional ten years unless either party notifies the
other of its intention not to continue the Agreement in force for the extended term.
This notice must be in writing, addressed to the address given above for the party
to be notified, mailed by certified or registered mail, and posted no later than six
months before the end of the original term of this Agreement.
(GFB License ¶ 4.) Viewed differently, the original GFB License had a 20-year term, terminable after 10 years if
either party notified the other of its intention not to extend the term. The 2020 Amendment, rescinded on May 24,
2021, would have extended the term of the GFB License until September 23, 2042. But as already indicated, the
Court does not reach the issue whether IM-I can extend the term of the GFB License beyond September 23, 2022.
29 	The expanded rights included “allow[ing] the use of the Intellectual Property in the development of
additional restaurants and the development, manufacture, sale and distribution of products, including sauces and
foods, pursuant to the terms of this license.” (2020 Amendment ¶ 1.)
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c. 	Section 1.3
Section 1.3 only allows the Licensee under the IM-III License to “transfer, sublicense
and/or assign all or part of the rights granted by this License to a third party without the consent
of Licensor.” (IM-III License § 1.3.) There is no evidence that the Defendants prevented the
Plaintiffs from exercising their authority under this section. Moreover, as noted above, Plaintiffs
only had the right to sublicense “the rights granted by this License,” which did not include the
right to use the Intellectual Property in connection with the Original Restaurant. Therefore, a
sublicense from the Plaintiffs to GFB to use the Intellectual Property in connection with the
Original Restaurant would have been outside of the authority granted by Section 1.3.
Accordingly, the Court concludes that the Defendants did not breach Section 1.3 of the
IM-III License.
4. 	Refusal to Cooperate with Prosecution of an Infringement Claim
The Plaintiffs argue that IM-I also breached Section 3.3 of the IM-III License by
“refusing to cooperate with Plaintiffs in prosecuting GFB’s (and potentially IM-II’s)
infringement of Plaintiffs’ exclusive rights to use the Il Mulino Intellectual Property.” (Pls. Br.
at 57.) Section 3.3 provides:
3.3. Infringement of the Intellectual Property. 	Licensee shall
promptly notify Licensor in writing of any known or suspected
infringement of the Intellectual Property. 	Subject to the terms
hereof, Licensor shall have the exclusive right to take action or
institute proceedings with respect to such infringement, and shall
proceed as it may, in its sole discretion. Licensee shall reasonably
cooperate 	in 	any 	such 	infringement 	action 	or 	proceeding 	by
Licensor, at Licensor’s expense. If Licensor elects not to take action
or fails to diligently prosecute such action, Licensee may take such
action at the Licensee’s expense. 	In this event, Licensor shall
cooperate as necessary in such action with the Licensee including,
without limitation, joining as a party. 	In such case, Licensor and
Licensee shall each pay their own respective costs and fees.
(IM-III License § 3.3.)
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However, even if the Defendants did not cooperate in the Plaintiffs’ infringement action,
the Plaintiffs’ infringement action against the Defendants was entirely without merit, because
GFB acted entirely within the scope of its license and therefore cannot be an infringer. See 3
M CCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 18:44.50 (noting that licensees that use
trademarks under licenses from the trademark owner “cannot be ‘infringers’”). Accordingly, it
was not “necessary” for the Defendants to join in the action, and therefore the Defendants did not
breach Section 3.3. Moreover, even if Section 3.3 were breached, the Plaintiffs have not proven
any damages as a result of any breach of Section 3.3.
5. 	Anticipatory Breach by the Post-Closing Letters
Finally, even if the stated intent to remove the Plaintiffs from the websites in the Post-
Closing Letters constituted an anticipatory breach of the IM-III License,30 the Plaintiffs have not
shown any damages from such a breach. Furthermore, such a claim was not included in the
Second Amended Complaint or listed as an issue to be tried in the Joint Pretrial Order.
E. Plaintiffs Have Not Proven Any Damages
As noted above with respect to each alleged breach, the Plaintiffs have not proven any
damages from any breach. This would also be true even if the licenses did conflict.
The Plaintiffs contend that “IM USA alone was entitled to receive royalty payments” for
the intellectual property, so had IM-I “not breached the IM USA license, IM USA would have
been entitled to receive all royalty payments GFB owed under the GFB License or a reasonably
equivalent market rate.” (Pls. Br. at 65.) The Plaintiffs submit a damages calculation based on
30 	It is not clear what obligation in the IM-III License the Defendants would have breached by removing the
Plaintiffs from the websites. Under the IM-III License, the right to use the Intellectual Property was granted upon
execution (see IM-III License § 1.1); the IM-III License includes no explicit obligation of IM-I to continue to allow
access to the websites. However, if IM-I prevented the Plaintiffs’ exercise of their rights under the IM-III License,
that may be a breach of the “implied good faith obligation not to do anything that would impair or destroy the value”
of the Plaintiffs’ rights. See 3 M C CARTHY ON TRADEMARKS & U NFAIR C OMPETITION § 18:44.
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the rate GFB owed under the GFB License (i.e., 5% of GFB’s annual gross revenues), totaling
$4,058,637.74, exclusive of interest. (Id.; ECF Doc. # 74-1.)
This damages calculation is highly questionable. As an initial matter, the parties to the
GFB License did not actually intend the actual payment of fees. Mr. Katzoff stated in his
deposition that there was an “understanding for years that there would be no payments made.”
(“Katzoff Depo.,” ECF Doc. # 74-2, at 118:16–17.) Moreover, GFB and IM-I had the same
owners, with the same proportional ownership (Pls. Br. at 27), and it was therefore
inconsequential to the parties to the GFB License and the owners of the entities whether royalties
were actually paid (and it is undisputed that no royalties were ever paid).
By contrast, GFB and IM USA have significantly different ownership. A comparison of
the ownership structure of GFB, IM-I, and IM USA is as follows:
GFB and IM-I:
40%: Katzoff & Galligan
40%: Passive Investors
20%: Masci Brothers
IM USA:
56.7% Katzoff & Galligan
43.3% Passive Investors
(Id.)
Therefore, any royalty payments from either GFB or IM-I to IM USA potentially would
have been a means for Katzoff, Galligan, and the Passive Investors to siphon money away from
the Masci Brothers.
Damages can be calculated following the “reasonable royalty” approach primarily
outlined in Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y.
1970). “The reasonable royalty theory of damages . . . seeks to compensate the patentee . . . for
its lost opportunity to obtain a reasonable royalty that the infringer would have been willing to
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pay if it had been barred from infringing.” Adrea, LLC v. Barnes & Noble, Inc., 227 F. Supp. 3d
303, 307 (S.D.N.Y. 2017) (ellipses in original) (quoting AstraZeneca AB v. Apotex Corp., 782
F.3d 1324, 1334 (Fed. Cir. 2015)). Although this approach is primarily used in patent
infringement cases, it is appropriate in breach of contract cases as well. See Agrigenetics, Inc. v.
Pioneer Hi-Bred Int’l, Inc., No. 1:08-cv-802-TWP-TAB, 2010 WL 4683936, at *2 (S.D. Ind.
Nov. 10, 2010).
A reasonable royalty may be calculated based on an established royalty, or it may be
derived from a hypothetical negotiation. On Track Innovations Ltd. v. T-Mobile USA, Inc., 106
F. Supp. 3d 369, 407 (S.D.N.Y. 2015) (“A ‘reasonable royalty’ is typically derived from a
hypothetical negotiation between the [two parties] when the infringement began.”).
The Plaintiffs argue that IM USA would have secured a 5% royalty rate in a hypothetical
sublicense from GFB. This argument fails for the following reasons.
First, the IM-III License only grants the Licensee the right to “transfer, sublicense and/or
assign all or part of the rights granted by this License to a third party.” (IM-III License § 1.3
(emphasis added).) As explained above, the IM-III License did not grant the right to use the
Intellectual Property in connection with the Original Restaurant. Therefore, the Plaintiffs have
no right to sublicense the use of any of the Intellectual Property in connection with the Original
Restaurant. 31
Second, while existing royalties are generally strong evidence of reasonable royalties,
royalty rates under license agreements between related entities “do not prove a royalty rate
established by an arms-length transaction.” Medtronic Sofamor Danek USA, Inc. v. Globus
31 	However, the Plaintiffs and IM-I could agree to amend the IM-III License to allow for a direct license from
IM-I to GFB. The Plaintiffs would presumably seek compensation from IM-I for such an amendment, which may
be similar to the royalties the Plaintiffs would receive if they were able to sublicense the intellectual property
themselves. Nevertheless, this amount has not been proven.
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Med., Inc., 637 F. Supp. 2d 290, 309–10 (E.D. Pa. 2009), aff’d sub nom. Warsaw Orthopedic,
Inc. v. Globus Med., Inc., 416 F. App’x 67 (Fed. Cir. 2011). Accordingly, the 5% rate owed by
GFB to IM-I is not strong evidence of a reasonable royalty.
Furthermore, the evidence shows that the sublicenses that were granted from IM USA to
Pasta Perfect, LLC, IMNY GS, LLC, Il Mulino Gramercy, LLC, and IMNY BOCA, LLC, were
“royalty-free.” (Pls. Exs. 73, 112, 124, 128.) There is no reason to believe that GFB would have
paid a royalty rate higher than that owed by these other entities, particularly as the continued
operation of the Original Restaurant is essential to the value of the brand.
Finally, even if the Plaintiffs were entitled to damages, under New York law, where
monetary damages are sought for alleged continuing contractual breaches, “the plaintiff’s
recovery must be limited to damages incurred within the six years prior to commencement of the
action.” Garron v. Bristol House, Inc., 79 N.Y.S.3d 265, 268 (2d Dep’t 2018) (citing
Kaymakcian v. Bd. of Managers of Charles House Condo., 854 N.Y.S.2d 52 (1st Dep’t 2008);
Bulova Watch Co. v. Celotex Corp., 389 N.E.2d 130 (N.Y. 1979); Westchester Cnty. Correction
Officers Benevolent Assn., Inc. v. Cnty. of Westchester, 885 N.Y.S.2d 728 (2d Dep’t 2009)); see
also Henry v. Bank of Am., 48 N.Y.S.3d at 70 (“Where applicable, the [continuing wrong]
doctrine will save all claims for recovery of damages but only to the extent of wrongs committed
within the applicable statute of limitations.”).
Accordingly, even if the Plaintiffs were entitled to damages, damages would be limited to
those incurred in the six years before the commencement of this adversary proceeding on
January 27, 2021.
F. 	An Injunction Is Not Warranted
A party seeking an injunction must show irreparable injury, which is “an injury that is not
remote or speculative but actual and imminent, and for which a monetary award cannot be
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adequate compensation.” Dexter 345 Inc. v. Cuomo, 663 F.3d 59, 63 (2d Cir. 2011). As
explained below, the Court views it as a close question whether the Plaintiffs are entitled to an
injunction.
Here, both parties have a right to use certain intellectual property, including domain
names, for their respective restaurants. The question is whether, in addition to a declaratory
judgment that clarifies the rights of the parties, the parties are entitled to an injunction against
any interference with their rights to use the domain names for their respective restaurants.
First, the Plaintiffs themselves have indicated that, due to the Defendants’ admission that
the IM-III License permits the Plaintiffs to use the domain names, “Plaintiffs do not anticipate
future direct harms that require financial or other remedies from the Court.” (Pls. Supp. at 52.)
In addition, the Plaintiffs have not shown that damages would be an inadequate remedy.
While restriction of the use of a domain name may cause the Plaintiffs to lose business, the
Plaintiffs would be able to calculate any such loss of business based on historical records and the
records of comparable businesses during the period that they are unable to use the domain name.
The Second Circuit’s analysis in Dexter 345 Inc. v. Cuomo, 663 F.3d at 63, is directly on point.
In that case, the Second Circuit concluded that the inability of a long-running business to
continue operations as it had in the past was insufficient to show irreparable injury, reasoning
that the business would be able to calculate damages that would be adequate to compensate the
loss, including from lost profits and loss of goodwill, from its prior business records. Id.
Moreover, while an injunction is the standard remedy for trademark infringement, that is
because trademark infringement involves damage to business reputation and loss of the goodwill
that the trademark represents, which is difficult to compensate with monetary damages:
A likelihood of damage to reputation is by its nature “irreparable”
in the legal sense. 	Like trying to un-ring a bell, trying to
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“compensate” after the fact for damage to business goodwill and
reputation cannot constitute a just or full compensation.
5 M CCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 30:1.
The usual rationale for an injunction in the trademark context does not apply here, even
aside from the fact that this is not a trademark infringement case, as the Defendants’ use of the
mark has not caused any reputational damage to the Plaintiffs. In fact, much of the value of the
mark comes from the Defendants’ historical use of the mark. In addition, any act by the
Defendants to prevent the Plaintiffs from using domain names would likely not affect the
Plaintiffs’ reputation, but would rather simply lead to lost business, which can be remedied with
monetary damages.
The Plaintiffs, for the first time at closing argument, argued that an injunction would be
warranted to avoid consumer confusion, citing Frisch’s Restaurants, Inc. v. Elby’s Big Boy of
Steubenville, Inc., 670 F.2d 642 (6th Cir. 1982). This argument is misplaced, as likelihood of
confusion is the test for trademark infringement. See 4 M CCARTHY ON TRADEMARKS & UNFAIR
COMPETITION § 23:1.50 (“All courts, in analyzing a claim of infringement based on both federal
and state law, will apply a single analysis: the likelihood of confusion test.”). Therefore,
likelihood of confusion is wholly inapplicable, not only because the Plaintiffs have dropped their
claim for infringement, but also because GFB, if acting within the scope of its license, cannot be
an infringer. See 3 M CCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 18:44.50 (noting
that licensees that use trademarks under licenses from the trademark owner “cannot be
‘infringers’”).
Any argument that the Plaintiffs might be harmed by the Defendants’ future advertising
in competition with the Plaintiffs’ restaurants is likewise misplaced, as there is no evidence in the
record of any agreement among the parties to this lawsuit not to compete, nor is there any
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evidence in the record regarding the damages that the Plaintiffs would incur by such competition,
let alone why any harm from such competition would be irreparable. In addition, the parties did
not raise in their papers—or list in the Joint Pretrial Order regarding the issues to be tried—the
issue of whether the parties can compete with each other, which certainly could have been raised
separately from issues regarding the right to use the Intellectual Property. As there is no live
controversy regarding the permissible scope of competition, the Court refrains from speculating
which forms of competition by which parties would be permissible.
While declining here to grant BSP injunctive relief, the Court is very troubled that Mr.
Katzoff (a non-practicing lawyer who should have known better) has at least twice acted to
breach BSP’s unassailable rights derived from the IM-III License and the Sale Order. The first
time there was a clear breach of the IM-III License occurred when Mr. Katzoff sought
impermissibly to expand GFB’s rights to use the trademark and domain names to develop
additional restaurants and market products (see 2020 Amendment), rights that were exclusively
granted to IM USA (and now BSP). But Mr. Katzoff rescinded the 2020 Amendment before any
damages resulted. The second breach was the breach to the Sale Order (discussed above) when
Mr. Katzoff threatened to strip BSP of its clear rights to use the ilmulino.com domain name and
associated intellectual property rights. Mr. Katzoff retreated from his threats without carrying
them out. But, as the Court commented during closing arguments, the Court doubts that this
expensive adversary proceeding would have been filed if Mr. Katzoff had not made his threats to
strip BSP of some of the valuable assets it acquired in the section 363 sale. Do these
circumstances support granting the exceptional remedy of an injunction? Maybe so, but the
Court declines to exercise its discretion to grant what it expects to be an unnecessary remedy.
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Suffice it to say, if IM-I and Mr. Katzoff repeat their folly, the harshest remedy would be in
order.
Accordingly, while both the Plaintiffs and the Defendants are entitled to a declaratory
judgment clarifying their rights to use the intellectual property, it has not been shown that an
injunction is necessary to avoid irreparable harm.
G. Prior Notice of the GFB License
Finally, the Court notes that the Plaintiffs have attempted to present a narrative in which
Mr. Katzoff has hidden the GFB License—a supposedly secret license—from them, only to
spring it upon them in an alleged post-sale ambush. The Plaintiffs state in the Second Amended
Complaint that “Defendants had never disclosed the existence or terms of the GFB License prior
to the advent of this adversary proceeding.” (SAC ¶ 7.) The Plaintiffs expanded on this
allegation in their opening brief:
At the commencement of this action, Plaintiffs did not know the
predicate for Defendants’ unlawful conduct – they just knew it was
unlawful. But this action has unearthed a secret, breaching license
of the intellectual property, signed by Mr. Katzoff and himself on
behalf of two non-Debtor entities each controlled by Mr. Katzoff—
Defendant IM LLC-I (“IM-I”) and Defendant GFB Restaurant Corp.
(“GFB”)—which license surfaced for the very first time as an
attachment to Defendants’ Answer (see ECF No. 35-1 (the “GFB
License”)). This GFB License purports to allow GFB the use of the
“trade name of Il Mulino” in direct breach of the IM USA License.
As this Court is already aware, this GFB License was never
disclosed during the course of the chapter 11 cases to the Court. As
the Court will hear at trial, this GFB License was also never
disclosed to the Debtors in possession or BSP; moreover, in addition
to the fact of the license being concealed, GFB has never paid a cent
to IM I pursuant to this GFB License.
(Pls. Br. at 12.)
The evidence in the record shows that these allegations are simply false. As already
explained above, as part of BSP’s due diligence before it extended its loan to the Debtors, it was
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provided a report by Citrin Cooperman that disclosed that “[l]icensing fees are charged by IM1
to GFB . . . .” (Defs. Ex. O at 7.) It is noteworthy that BSP offered no testimony of anyone who
acted for BSP in the negotiations or due diligence in connection with the extension of credit. If
BSP had any witness who could have corroborated its allegation that the GFB License was not
disclosed to it, it should have provided evidence to that effect.
And, again, as already explained, on June 30, 2020, Gerard Catalanello (the Debtors’
counsel in the main case), wrote to Michael Goldstein (BSP’s counsel in the main case), stating
that “there is a direct license between IM LLC-I and GFB (it predates IM USA and was put in
place when GFB was purchased many years before the BSP transaction).” (Defs. Ex. GG at 2–
3.) This exchange of communications occurred months before the section 363 sale was approved
by the Court. No one raised this issue with the Court.
At trial, the Plaintiffs attempted to show that Mr. Katzoff had stonewalled attempts to
obtain the GFB License, to which Mr. Katzoff replied:
Brian Gallagher, who’s our lawyer, had the documents since 2002.
He was asked for it in November 19 [sic], I think, of 2020. And he
turned it over to them. 	I had previously given it to Bill Heuer on
October 30 of 2020 when everybody was asking for the document.
So, I turned it over to Bill Heuer, who was my lawyer, and Brian
Gallagher turned it over to Alston & Bird.
(“Transcript,” ECF Doc. # 92, at 147:3–9.)
However, even if Mr. Katzoff had stonewalled, and BSP had not obtained a copy of the
GFB License before the sale, BSP knew of its existence and proceeded with the sale anyway,
knowing that they had an incomplete picture of “all of the pieces to this puzzle,” as Mr.
Catalanello put it.
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In short, the Court concludes that Plaintiffs’ trial counsel actively promoted a false
narrative. The record convinces the Court that the Plaintiffs cannot credibly argue that the wool
was pulled over their eyes.
VI. 	COUNT V: INFRINGEMENT
The Plaintiffs have dropped this claim. (Pls. Reply at 21.)
VII. COUNT VI: FRAUDULENT TRANSFER UNDER N.Y. D.C.L. §§ 273, 274, AND
276
The Plaintiffs argue that IM USA has standing as a creditor of IM-I to assert fraudulent
conveyance under New York Debtor & Creditor Law (“DCL”). To have standing to allege a
fraudulent conveyance claim under DCL § 273, a plaintiff must demonstrate that it was a
“creditor” whose claim arose before or after the transfer was made. DCL § 273. To have
standing to allege a fraudulent conveyance claim under DCL § 274, a plaintiff must demonstrate
that it was a “creditor” whose claim arose before the transfer was made. Id. § 274. A “claim” is
“a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or
unsecured.” Id. § 270(c).
In the Second Amended Complaint and the Plaintiffs’ Opening Brief, the Plaintiffs allege
that IM USA was a creditor of IM-I because of its unliquidated claim relating to IM-I’s breach of
the IM-III License. It fails to give any detail as to what unliquidated claim provides IM USA
with standing as a creditor. The Plaintiffs’ Supplemental Brief provides a number of theories, all
of which must fail.
First, the Plaintiffs contend that IM USA was a creditor by virtue of its position as
assignee of the IM-III License because it held a contingent claim against IM-I. However, the
Plaintiffs fail to point to any part of the IM-III License giving it a “right to payment” from IM-I.
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Any theory that it held a contingent claim for an unliquidated claim relating to the breach also
fails.32 In determining if a breach of contract claim arose before the conveyance, New York
courts look at the time at which the breach of contract claim accrued. See Bd. of Managers of
Chocolate Factory Condo. ex rel. Chocolate Factory Condo. v. Chocolate Partners, LLC, 992
N.Y.S.2d 157 (N.Y. Sup. Ct. 2014). Under New York law, a claim for breach of contract
accrues at the time of the alleged breach rather than at the time of execution of the agreement.
Ely-Cruikshank Co. v. Bank of Montreal, 615 N.E.2d 985, 986 (N.Y. 1993) (“In New York, a
breach of contract cause of action accrues at the time of the breach.”).
Next, the Plaintiffs argue IM-I committed numerous breaches of the IM-III License,
mostly based on events occurring before the execution of the 2020 Amendment on April 5, 2020.
(See Pls. Br. at 57–64) (describing instantaneous and continuing breach because of conflicting
license to GFB in 2004; breach of representation of no previous, inconsistent grant in 2004;
amended and new GFB License in 2005; and extended and new GFB License in 2012)).
However, most of the alleged breaches are clearly barred by the six-year statute of limitations.
The only claim that is not barred by the statute of limitations is the alleged breach by the
2020 Amendment itself. That alleged breach arises simultaneously out of the same transaction
underlying the fraudulent transfer claim––the 2020 Amendment. However, the Plaintiffs have
32 	A “contingent claim” still has limits:
The expansive definition of claim and its legislative history “surely points us in a
direction, but provides little indication of how far we should travel [in delimiting
a contingent claim].” After all, a contingent right to payment is, by definition, a
right to payment that, because it is contingent, is not yet and may never be a right
to payment. 	In the strangely appropriate language of philosopher Martin
Heidegger, it might be said to exist somewhere on a continuum between being
and nonbeing. At some point on that continuum, a right to payment becomes so
contingent that it cannot fairly be deemed a right to payment at all.
In re CD Realty Partners, 205 B.R. 651, 656 (Bankr. D. Mass. 1997) (quoting In re Chateaugay Corp., 944 F.2d
997, 1003 (2d Cir. 1991)). Under the circumstances of this case, the Plaintiffs’ argument that there is a contingent
claim of an unliquidated claim is too contingent and cannot be deemed a right to payment at all.
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not offered any authority to support that the breach of contract by the 2020 Amendment gave IM
USA standing as a pre-existing creditor. In fact, New York law appears to reject the argument
that one can obtain standing for a fraudulent conveyance claim in the same transaction giving
rise to the fraudulent conveyance claim. See Harris v. Coleman, 863 F. Supp. 2d 336, 343
(S.D.N.Y. 2012) (dismissing a New York fraudulent conveyance claim because the plaintiffs
“ha[d] not alleged any [independent,] pre-existing tort claim” and “their status as ‘tort creditors’
[wa]s based on the alleged fraudulent conveyance itself”); Refco Grp. Ltd., LLC v. Cantor
Fitzgerald, L.P., No. 13 CIV. 1654 RA, 2014 WL 2610608, at *44 (S.D.N.Y. June 10, 2014)
(finding that a single transaction giving rise to the creditor-debtor relationship could not also give
rise to a New York fraudulent conveyance claim because there could be no fraudulent
conveyance of anything with the intent to frustrate a creditor’s ability to recover a judgment
against them). A claim that arises simultaneously with a fraudulent transfer claim does not
constitute a pre-existing claim. See Breeden v. L.I. Bridge Fund, L.L.C. (In re Bennett Funding
Grp., Inc.), 220 B.R. 739, 742 (2d Cir. BAP 1998) (finding the phrase “owed by the debtor when
the transfer was made” in 11 U.S.C. § 547(b)(2) means that “at the time of the transfer there was
a recognizable ‘claim’ that was: (1) against the debtor, rather than only against a third party, and
(2) that was pre-existing, rather than one which arose simultaneously with the transfer”); see also
In re Garcia, 494 B.R. 799, 811–14 (Bankr. E.D.N.Y. 2013). Nor does it seem to arise after the
transaction. In fact, the Plaintiffs have not argued that they have a claim that arises after the
alleged fraudulent transfer that would give them standing to assert their fraudulent transfer claim.
The claims for breach due to the 2020 Amendment arose simultaneously with the alleged
fraudulent transfer, and therefore fall outside of the scope of both sections 273 and 274.
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Accordingly, IM USA lacks standing as a creditor, and the Plaintiffs’ fraudulent conveyance
claims under the DCL fail.
VIII. COUNT VII: FRAUDULENT TRANSFER UNDER 11 U.S.C. §§ 544, 548, AND 550
In contrast to Count VI, in Count VII the alleged roles are reversed, whereby IM-I is
alleged to be a creditor of IM USA, the debtor.
In their Supplemental Brief, the Plaintiffs argue that the 2020 Amendment was a transfer
of IM-I’s property for two reasons: (1) IM-I released its right to royalty payments that were
already accrued and that were otherwise to be accrued prospectively; and (2) IM-I granted GFB
the right to use intellectual property owned by IM-I that GFB previously had no right to use.
However, these arguments are only relevant to Count VI (which fails as explained above). As to
Count VII, the Plaintiffs must demonstrate a fraudulent transfer of IM USA’s (the debtor’s)
property.
The Plaintiffs additionally argue that
the 2020 GFB License Amendment also constituted a transfer of IM
USA’s property, because IM USA was the exclusive licensee of the
Il 	Mulino 	Intellectual 	Property 	and 	the 	2020 	GFB 	License
Amendment purported to license certain of that intellectual property
to GFB. And under section 548, IM USA was provided the right to
“avoid any transfer . . . of an interest of the debtor in property.” 11
U.S.C. § 548.
(Pls. Supp. at 39 (emphasis added).) The alleged “purported” transfer is not enough under
section 548. The trustee or debtor-in-possession may only avoid actual transfers of an interest of
the debtor in property. Trauner v. SEICO, Inc. (In re Carter Bros. Sec. Servs., LLC), No. 18-
61490-JWC, 2021 WL 1157896, at *2 (Bankr. N.D. Ga. Mar. 25, 2021) (“In the instant case,
there are no actual transfers to consider against the Complaint or § 548—there are only
hypotheticals. Without any actual transfers to consider, Trustee puts the cart before the horse.”).
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Even if there was an actual transfer by the 2020 Amendment, it cannot be avoided because the
2020 Amendment has already been rescinded.
The cases Plaintiffs cite in support of the proposition that a grant of a license by a non-
debtor that has the effect of devaluing a license held by a debtor constitutes a fraudulent transfer
are irrelevant here. Argyle Online, LLC v. Nielson (In re GGW Brands, LLC), 504 B.R. 577
(Bankr. C.D. Cal. 2013) is easily distinguishable. That action arose from certain assignments of
intellectual property that the debtors owned that left the debtors insolvent because the debtors all
faced “massive litigation exposure” and lost their “most important asset” as a result of the
assignments. GGW Brands, 504 B.R. at 603. Here, however, the 2020 Amendment (which is
the alleged fraudulent transfer) merely licenses the use of trademarks and domain names.
The Plaintiffs fail to recognize the critical distinction between licenses and assignments
in the trademark context. “An ‘assignment’ of a mark is an outright sale of all rights in that
mark,” and “a ‘license’ of a mark is a limited permit to another to use the mark.” 3 MCCARTHY
ON TRADEMARKS & UNFAIR COMPETITION § 18:1. A trademark “is a very unusual and delicate
kind of property,” and must be assigned in full or not at all. 1 M CCARTHY ON TRADEMARKS &
UNFAIR C OMPETITION § 2:15. “A trademark cannot be sliced up and ownership of pieces of it
apportioned among independent entities.” Id.; see also Marshak v. Green, 746 F.2d 927, 929 (2d
Cir. 1984) (“[A] trademark cannot be sold or assigned apart from [the] goodwill it symbolizes.”).
Unlike an assignment, a trademark license is not a transfer of ownership rights in the trademark:
A licensee’s use inures to the benefit of the licensor-owner of the
mark and the licensee acquires no ownership rights in the mark
itself. . . .
The licensee of a trademark is in the position of a renter of an
apartment, who does not acquire real estate ownership rights, no
matter how long the tenancy.
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3 M CCARTHY ON TRADEMARKS & UNFAIR COMPETITION § 18:52 (emphasis added) (citing City-
Core Hospitality, LLC v. Palmer, 2018 WL 398257, at *2 (N.D. Cal. 2018) (“The licensee is
only renting the licensor’s own goodwill.”)).
While substance will prevail over form, and therefore an agreement titled “license” will
be construed as an assignment where it is in fact an assignment, the GFB License and the 2020
Amendment are clearly licenses rather than assignments. The crucial question to determine
whether a “license” is in fact a license or is instead an assignment is whether the license includes
quality control measures. “If the trademark owner exercises reasonable control over the nature
and quality of the licensee’s goods or services,” the agreement is a license, as “the benefits of the
licensee’s use accrue to the trademark owner.” RESTATEMENT (THIRD ) OF UNFAIR COMPETITION
§ 33 & cmt. b (1995). The purpose of such quality control measures is to protect the goodwill
that the trademark—which is owned by the licensor—represents. The GFB License includes
quality control measures (see, e.g., GFB License ¶ 7), which were not eliminated by the 2020
Amendment. The GFB License and the 2020 Amendment are therefore licenses rather than
assignments.
The Plaintiffs argue that the New York fraudulent transfer statute states that the term
“[t]ransfer . . . includes . . . license.” (Pls. Br. at 69 (quoting DCL § 270(p)).) However, this
does not mean that a license is necessarily a transfer. For example, an exclusive copyright
license is a transfer of ownership rights in the copyright, but a trademark license is never a
transfer of ownership rights in the trademark. Thus, an exclusive copyright license can be the
basis for a fraudulent transfer claim, but a trademark license cannot be the basis for a fraudulent
transfer claim based on transferred rights, because no ownership rights are transferred under a
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trademark license.33 In the trademark context, ownership rights are only transferred in an
assignment, rather than a license.34
Accordingly, as the Plaintiffs have failed to show that anything was transferred under the
2020 Amendment, the Plaintiffs’ claim that the 2020 Amendment constituted a fraudulent
transfer of IM USA’s property fails.
IX. 	COUNT VIII: TORTIOUS INTERFERENCE WITH CONTRACT
In Count VIII of the Second Amended Complaint, the Plaintiffs allege that GFB, IM-II,
and Mr. Katzoff, by virtue of the 2020 Amendment, tortiously interfered with the IM-III License.
The Plaintiffs are no longer asking the Court to find IM-II liable for tortious interference because
there is no evidence in the trial record of IM-II being granted any rights from IM-I in breach of
the IM-III License. (Pls. Supp. at 40.)
Under New York law, the elements of a claim for tortious interference with contract are:
(1) “the existence of a valid contract between the plaintiff and a third
party”; (2) the “defendant’s knowledge of the contract”; (3) the
“defendant’s intentional procurement of the third-party’s breach of
33 	Two of the cases cited by the Plaintiffs––Davis v. Blige, 505 F.3d 90 (2d Cir. 2007) and In re Golden
Books Family Entertainment, Inc., 269 B.R. 311 (Bankr. D. Del. 2001)––concern exclusive copyright licenses. (See
Pls. Supp. at 39.) An exclusive copyright license does indeed transfer an ownership interest in the copyright.
Golden Books, 269 B.R. at 319 (finding that, under applicable copyright law, exclusive licenses convey an
ownership interest to the licensee that allows that licensee to freely transfer its rights). But, as explained above, a
trademark license (exclusive or not) does not transfer any rights in the trademark itself; it is simply a permit to use
the trademark.
The Telebrands case cited by the Plaintiffs is similarly unhelpful to the Plaintiffs. In that case, the court
found that an exclusive trademark licensee may have a sufficient interest in the trademark for purposes of standing
to bring a trademark infringement claim, by finding that the exclusive licensee was “effectively an assignee.”
Telebrands Corp. v. Del Laboratories, Inc., 719 F. Supp. 2d 283, 293 (S.D.N.Y. 2010). More recently, the Second
Circuit has stated unequivocally that:
Congress could easily have included “licensee” or “exclusive licensee” among the
terms in 15 U.S.C. § 1127 that define a “registrant.” It chose instead to limit
standing to parties having a more specific set of interests in the registered mark.
A plaintiff therefore must show that its “license” amounts, in fact, to an
assignment to establish entitlement to sue under Section 32(1).
Fed. Treasury Enter. Sojuzplodoimport v. SPI Spirits Ltd., 726 F.3d 62, 78 (2d Cir. 2013).
34 	A trademark license could also include a transfer where the debtor is the licensee and pays royalties under
the license, but the transfer in question would be a transfer of money, rather than a transfer of rights.
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the 	contract 	without 	justification”; 	(4) 	“actual 	breach 	of 	the
contract”; and (5) “damages resulting therefrom.”
Kirch v. Liberty Media Corp., 449 F.3d 388, 401 (2d Cir. 2006) (quoting Lama Holding Co. v.
Smith Barney Inc., 668 N.E.2d 1370, 1375 (N.Y. 1996)).
For the following reasons, the Court finds that Mr. Katzoff and GFB cannot be liable for
a tortious interference claim because they were not strangers to the 2020 Amendment.
Additionally, the Court finds that Mr. Katzoff and GFB cannot be liable because of the
Plaintiff’s failure to show actual damages.
A. New York’s Stranger Rule
Before even examining the elements of a tortious interference claim, the Court first
considers whether the Plaintiffs can overcome New York’s “stranger rule.” This rule holds that
“[a] claim for tortious interference with a contract must be based on a non-party improperly
interfering with a contract between two contracting parties, and cannot be based on the actions of
a director or officer in his official capacity.” Rockland Exposition, Inc. v. All. of Auto. Serv.
Providers of N.J., 894 F. Supp. 2d 288, 336 (S.D.N.Y. 2012); see also IMG Fragrance Brands,
LLC v. Houbigant, Inc., 679 F. Supp. 2d 395, 407 (S.D.N.Y. 2009) (“[T]he general rule is that a
claim for tortious interference will lie only against a stranger who improperly interferes with a
contract between two contracting parties.”); Solow v. Stone, 994 F. Supp. 173, 182 (S.D.N.Y.
1998) (explaining that corporate administrators were “insiders” and not third parties to the
allegedly breached contract, and thus could not be held liable for tortious interference with
contract). New York’s stranger rule “is rooted in cases in which a corporation’s officer or
director is sued as an individual for causing the corporation to breach a contract.” Renaissance
Search Partners v. Renaissance Ltd., L.L.C., No. 12-CV-05638, 2014 WL 12770400, at *5
(S.D.N.Y. July 3, 2014), report and recommendation adopted, 2014 WL 4928945 (S.D.N.Y.
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Oct. 1, 2014). Thus, an LLC manager acting within the scope of his or her authority is not a
third party to the LLC and as such cannot interfere with the LLC’s own contract. See
ConocoPhillips v. 261 East Merrick Rd. Corp., 428 F. Supp. 2d 111, 122 (E.D.N.Y. 2006);
Murtha v. Yonkers Child Care Ass’n, Inc., 383 N.E.2d 865 (N.Y. 1978) (“A director of a
corporation is not personally liable to one who has contracted with the corporation on the theory
of inducing a breach of contract, merely due to the fact that, while acting for the corporation, he
has made decisions and taken steps that resulted in the corporation’s promise being broken.”).
However, there is a “narrow exception . . . for officers acting wholly outside the scope of
their authority for purely personal gain” as well as the exception’s “enhanced pleading standard”
requiring allegations of malicious acts calculated to harm the plaintiff’s business for the
defendant’s personal profit. Houbigant, 679 F. Supp. 2d 395, 407–08; Joan Hansen & Co., Inc.
v. Everlast World’s Boxing Headquarters Corp., 744 N.Y.S.2d 384, 390–91 (1st Dep’t 2002).
This exception requires that “the acts of the defendant corporate officers which resulted in the
tortious interference with contract either were beyond the scope of their employment or, if not,
were motivated by their personal gain, as distinguished from gain for the corporation.” Petkanas
v. Kooyman, 759 N.Y.S.2d 1, 2 (1st Dep’t 2003).
Lastly, one is not a stranger to the contract, for purposes of a claim for tortious
interference, just because one is not a party to the contract: one also must be a stranger to the
contractual relationship giving rise to and underpinning the contract at issue. See UBS Sec. LLC
v. Highland Cap. Mgmt., L.P., 927 N.Y.S.2d 59, 66 (1st Dep’t 2011) (finding the tortious
interference claim failed where the defendant was not a stranger to the contractual relationship
giving rise to and underpinning the contract at issue); Castle Restoration, LLC v. Castle
Restoration & Constr., Inc., 129 N.Y.S.3d 265, 265 (N.Y. Sup. Ct. 2020) (“Robert Castaldi was
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the president of Castle Inc., and Diane Castaldi was its sole shareholder. As such, they were not
strangers to the asset-sale agreement.”).
1. 	Mr. Katzoff
To assert that Mr. Katzoff tortiously induced IM-I into executing the 2020 Amendment,
the Plaintiffs must demonstrate that he was working outside his official capacity as a managing
member of IM-I. While the tortious interference claim is brought under New York law, the
parties dispute whether Delaware or New York law applies in determining whether Mr. Katzoff
was working outside his capacity as managing member of IM-I when signing the 2020
Amendment. The Defendants persuasively contend that under either law, the result would be the
same. In that case, the Court is not required to conduct a choice-of-law analysis, because the
result is the same regardless of the law applied. See Creazioni Artistiche Musicali, S.r.l. v.
Carlin Am., Inc., 747 F. App’x 3, 5 (2d Cir. 2018).
Under Delaware law, “[l]imited liability companies are creatures of contract, and the
parties have broad discretion to use an LLC agreement to define the character of the company
and the rights and obligations of its members. . . . Accordingly, as with any contract, the Court
must look to the language of the LLC Agreement to determine” the scope of the capacity of the
Operating Manager. See Kuroda v. SPJS Holdings, L.L.C., 971 A.2d 872, 880–81 (Del. Ch.
2009).
The analysis is no different under New York law. As stated by the Appellate Division,
First Department:
It is often said that LLCs are “creatures of contract,” and that “[o]ne
attraction of the LLC form of entity is the statutory freedom granted
to members to shape, by contract, their own approach to common
business relationship problems.” Article IV of the New York LLC
Act makes clear that the operating agreement of an LLC governs the
relationships among members and the powers and authority of the
members and manager.
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LNYC Loft, LLC v. Hudson Opportunity Fund I, LLC, 57 N.Y.S.3d 479, 483 (1st Dep’t 2017)
(citations omitted).
Thus, the Court refrains from conducting a choice of law analysis and instead will
consider both New York law and Delaware law in determining whether Mr. Katzoff was
working within his capacity as an LLC Manager.
IM-I’s Operating Agreement sets the scope of authority for Mr. Katzoff as Operating
Manager. Section 5.4 of the IM-I Operating Agreement provides:
The Company shall be managed by the Operating Manager and the
conduct 	of 	the 	Company’s 	business 	shall 	be 	controlled 	and
conducted solely and exclusively by the Operating Manager in
accordance with this Agreement. In addition to and not in limitation
of any rights and powers conferred by law or other provisions of this
Agreement, the Operating Manager shall have and may exercise on
behalf of the Company all powers and rights necessary, proper,
convenient or advisable to effectuate and carry out the purposes,
business and objectives of the Company, and to maximize Company
profits.
(Pls. Ex. 4 § 5.4.)
When executing the 2020 Amendment on behalf of IM-I, Mr. Katzoff was clearly acting
within the broad contractual capacity of Operating Manager. The record shows that when
drafting and executing the 2020 Amendment, Mr. Katzoff was acting in his capacity as a
corporate officer of both IM-I and GFB, as Mr. Katzoff is the president of GFB and operating
manager of IM-I. (Katzoff Test. at 3:12–13; 16–17.) Clearly, any actions taken by Mr. Katzoff
in connection with the 2020 Amendment were well within the scope of his corporate
representative capacities.
At trial, Mr. Katzoff denied that his actions in connection with the 2020 Amendment
were motivated to obtain personal gains, as opposed to benefit IM-I and GFB. (Transcript at
97:7–9.) Here, the only relevant inquiry is whether the Defendants had a legitimate profit-
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seeking motive, not whether the there was an actual benefit. Furthermore, Mr. Katzoff’s
deposition states that the 2020 Amendment was made under the assumption to prepare the entire
entity for sale to someone new rather than BSP. (Katzoff Depo. at 121:2–8.) Mr. Katzoff also
states that the benefit in the transaction was “to keep the flagship Il Mulino at GFB open” and to
“let[] a buyer see that it’s going to stay around for a long time.” (Id. at 121:9–20.)
In response, the Plaintiffs argue that Mr. Katzoff’s statements are not credible, as any
buyer of the “entire entity” would have been able to freely grant sublicenses through the IM USA
license. However, for the narrow exception to the stranger rule to apply, the Plaintiffs must meet
an enhanced pleading standard requiring allegations of malicious acts calculated to harm the
plaintiff’s business for the defendant’s personal profit. Houbigant, 679 F. Supp. 2d 395, 407–08.
Yet, the Second Amended Complaint is full of conclusory allegations. Of course, this decision is
reached after trial, not on a motion to dismiss the complaint. To prevail on this claim Plaintiffs
were required to prove malicious acts calculated to harm the Plaintiffs’ business for Mr.
Katzoff’s personal profit, and this they failed to do. The Plaintiffs have not pointed to specific
facts demonstrating that Mr. Katzoff acted with the requisite level of bad faith or malice needed
to prevail on this claim for tortious interference. See Castle Restoration, LLC, 129 N.Y.S.3d at
265 (finding the conclusory allegations that defendants were personally motivated by a desire to
save themselves money insufficient to survive a motion for summary judgment where the record
did not reflect that the defendants’ actions were performed with malice nor that they were
calculated to impair plaintiff’s business for their personal profit). In fact, the Plaintiffs’
Supplemental Brief did not assert that Mr. Katzoff was working outside the interests of IM-I; it
only states that Mr. Katzoff was working to the benefit of GFB and to the detriment of IM USA.
It is consistent to find that Mr. Katzoff was working to the benefit of GFB and to the benefit of
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IM-I. And the Plaintiffs’ contention that Mr. Katzoff was working outside the interests of IM
USA is irrelevant to showing that Mr. Katzoff intentionally procured IM-I’s breach.
This Court will not second guess Mr. Katzoff’s purported motives and business
judgment. If genuine, Mr. Katzoff’s purported reasons for engaging in the 2020 Amendment
constitute a legitimate profit-seeking activity of the affiliated enterprise. See MTI/The Image
Grp., 690 N.Y.S.2d 576 (1st Dep’t 1999) (“[S]ince all named companies are affiliated with
defendant, either as parent or sister companies, and thus had economic interest, plaintiff failed to
demonstrate malice, and corporate agents who allegedly committed tort were simultaneously
acting as agents (in negotiating and executing contracts) of defendant, signatory to contracts.”);
Shearin v. E.F. Hutton Group, Inc., 652 A.2d 578, 591 (Del. Ch. 1994) (defendant was justified
in pursuing “in good faith the legitimate profit seeking activities of [its] affiliated enterprise[]”
that was a party to the contract). And, as already explained above, the Plaintiffs have not
demonstrated that any acts by the Defendants are inherently wrongful. As a managing member
of IM-I, Mr. Katzoff was entitled to breach the IM-III License on behalf of IM-I.
Accordingly, under either Delaware law or New York law, the tortious interference claim
against Mr. Katzoff plainly fails.
2. 	GFB
As for GFB, the Plaintiffs have also failed to show that GFB is a stranger to the IM-III
License. There is no dispute that GFB is an affiliate of IM-I. The Plaintiffs contend that while
GFB is an affiliate of IM-I, GFB can be held liable for inducing the breach of the IM-III License
because it is a third party to the IM-III License between IM-I and IM-III (as assigned to IM
USA). However, the Plaintiffs provide no facts to show that GFB was indeed a stranger to the
contractual relationship giving rise to and underpinning the IM-III License.
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The Defendants’ argument that GFB cannot be liable for tortious interference as an
affiliate is persuasive. MTI/The Image Grp., 690 N.Y.S.2d at 579 (“It was also error not to
dismiss the third cause of action, for tortious interference with contractual relations and
prospective economic advantage, since all the named companies are affiliated with [the party to
the contract.]”); Koret, Inc. v. Christian Dior, S.A., 554 N.Y.S.2d 867, 869 (1st Dep’t 1990)
(citing Felsen v. Sol Cafe Mfg. Corp., 249 N.E.2d 459 (N.Y. 1969)) (stating that a company
“ha[s] a right to interfere with the contract of its subsidiary in order to protect its economic
interests”). Like in Koret, “[GFB] was no stranger to the [IM-III License], in view of the fact
that Mr. [Katzoff], who was both managing [IM USA with Mr. Galligan] and [president] of
[GFB], played a role in negotiation of the [IM-III License] and executed same.” Koret, 554
N.Y.S.2d at 869. Furthermore, as stated above, the Plaintiffs have failed to show that Mr.
Katzoff was not acting in furtherance of the shared legitimate business interests on behalf of
GFB and IM-I.35
35 	As explained by the Delaware Court of Chancery:
Delaware law . . . shields companies affiliated through common ownership from
tortious interference with contract claims when the companies act in furtherance
of their shared legitimate business interests. In [Shearin], Chancellor Allen noted
that other cases had applied the affiliate privilege to situations where a parent
allegedly tortiously interfered with a subsidiary’s contract and held that the
privilege also applied to discussions between wholly owned affiliates with a
common parent. The court based its ruling, in part, on the fact that “[s]uch entities
share a commonality of economic interests which underlay the creation of an
interference privilege.” 	To overcome the affiliate privilege, a plaintiff must
adequately plead that the defendant “was motivated by some malicious or other
bad faith purpose.” 652 A.2d at 591. As explained in Allied Capital Corp. v.
GCSun Holdings, L.P., 910 A.2d 1020, 1039 (Del. Ch. 2006):
Chancellor Allen [in Shearin] acknowledged that the test for holding a
parent corporation liable for tortious interference had to be high or every-
day 	consultation 	or 	direction 	between 	parent 	corporations 	and
subsidiaries about contractual implementation would lead parents to be
always brought into breach of contract cases. He also feared that the
option of efficient breach—the conscious decision to breach a contract
and pay the required damages because of the potential for profit even
after the payment of those damages—would be chilled by holding the
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Accordingly, the Plaintiffs’ claim for tortious interference against GFB also fails.
B. Damages
Even if the Plaintiffs could overcome New York’s stranger rule, the Court finds that Mr.
Katzoff and GFB cannot be liable for tortious interference because no damages resulted from the
underlying breach. See Kronos, Inc. v. AVX Corp., 612 N.E.2d 289, 294 (N.Y. 1993) (“To
summarize, no cause of action for tortious inducement to breach a contract arises until actual
damages are sustained; nominal damages associated with the underlying breach of contract will
not stand in the stead of actual damages; and, finally, no inference of actual damages is implicit
by the facts alleged in the amended complaint.”). IM-I and GFB rescinded the 2020 Amendment
in its entirety on May 24, 2021. (2021 Amendment.) The Plaintiffs have not shown and cannot
show any damages from the 2020 Amendment, which was never acted upon, and was
subsequently rescinded.
The only argument left for the Plaintiffs is that the 2020 Amendment “damaged IM USA
by infringing upon its exclusive license, and if reinstated, would make it difficult for Plaintiffs to
profitably manage their restaurants and market the enterprise to a potential buyer.” (Pls. Br. at
86.) The Plaintiffs have failed to show actual damages resulting from the breach of the IM-III
License and are attempting to improperly bootstrap damages that might have been available for
their abandoned trademark infringement claim.
Accordingly, the Plaintiffs’ claim for tortious interference against Mr. Katzoff and GFB
fails.
parent responsible in tort. For these reasons, Chancellor Allen indicated
that plaintiffs could only hold a parent corporation liable for tortious
interference under a stringent bad faith standard.
James Cable, LLC v. Millennium Digit. Media Sys., L.L.C., No. 3637-VCL, 2009 WL 1638634, at
*4 (Del. Ch. June 11, 2009) (footnotes omitted).
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X. 	COUNT IX: FRAUD
The Plaintiffs have dropped this claim. (Joint Pretrial Order at 9 n.2.)
XI. 	COUNT X: BREACH OF FIDUCIARY DUTY
The Plaintiffs allege that, by executing the 2020 GFB License Amendment on behalf of
IM-I and GFB, Mr. Katzoff breached fiduciary duties that he owed to IM USA. 36 (Joint Pretrial
Order at 9.) Specifically, the Plaintiffs allege that “[t]he 2020 GFB License Agreement stripped
IM USA of certain value of the [IM-III License], and benefitted GFB, and ultimately Mr.
Katzoff, who orchestrated the transaction to benefit himself and entities he controlled while
diminishing the value of IM USA’s assets.” (SAC ¶ 216.) The Plaintiffs seek only nominal
damages with respect to this cause of action. (See Pls. Supp. at 57.)
Under Delaware law, a breach of fiduciary duty claim has two elements: “a plaintiff must
demonstrate that the defendant owed [the plaintiff] a fiduciary duty and that the defendant
breached it.” Estate of Eller v. Bartron, 31 A.3d 895, 897 (Del. 2011). Damages, however, are
not a required element of a breach of fiduciary duty claim under Delaware law. See, e.g.,
Ravenswood Inv. Co., L.P. v. Estate of Winmill, C.A. No. 3730-VCS, C.A. No. 7048-VCS, 2018
WL 1410860 at *27 (Del. Ch. Mar. 21, 2018) (awarding plaintiff nominal damages on breach of
duty of loyalty claim).
The Defendants contend that damages are also a required element of this claim (Defs. Br.
at 42), but that is true only if New York law applies. See Pokoik v. Pokoik, 928 N.Y.S.2d 67, 70
(1st Dep’t 2014) (“To establish a breach of fiduciary duty, the movant must prove the existence
36 	While the Plaintiffs initially alleged that Mr. Katzoff also breached duties to K.G. IM (SAC ¶ 219), and that
K.G. IM breached duties that it owed to IM USA (id. ¶ 218), those allegations do not appear in the Joint Pretrial
Order, which only contains allegations that Mr. Katzoff breached fiduciary duties that he owed to IM USA. (Joint
Pretrial Order at 9.)
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of a fiduciary relationship, misconduct by the other party, and damages directly caused by that
party’s misconduct.”).
“Generally, New York law requires that claims related to corporate affairs . . . are
governed by the internal affairs doctrine.” In re BP p.l.c. Derivative Litig., 507 F. Supp. 2d 302,
307 (S.D.N.Y. 2007). As explained by the Supreme Court:
The internal affairs doctrine is a conflict of laws principle which
recognizes that only one State should have the authority to regulate
a corporation’s internal affairs—matters peculiar to the relationships
among or between the corporation and its current officers, directors,
and shareholders—because otherwise a corporation could be faced
with conflicting demands.
Edgar v. Mite Corp., 457 U.S. 624, 645 (1982). Breach of fiduciary duty claims are related to
corporate affairs and are therefore governed by the internal affairs doctrine. See, e.g., Hausman
v. Buckley, 299 F.2d 696, 703 (2d Cir. 1962) (“[T]he ‘internal affairs’ rule has been applied
repeatedly in order to determine the fiduciary duty of a foreign corporation’s directors.”); Sama
v. Mullaney (In re Wonderwork, Inc.), 611 B.R. 169, 194 (Bankr. S.D.N.Y. 2020) (“The Debtor
was incorporated under Delaware law and claims for breach of fiduciary duty are governed by
Delaware law under the internal affairs doctrine.”).
IM USA and K.G. IM are both LLCs organized under the laws of Delaware. (See “IM
USA Operating Agreement,” Pls. Ex. 17, at 4; “K.G. IM Operating Agreement,” Case No. 20-
11723, ECF Doc. # 20-20, at 2.) Delaware law therefore applies to the Plaintiffs’ breach of
fiduciary duty claim. And fiduciary duties do apply in the context of an LLC. See DEL . CODE
ANN. tit. 6, § 18-1104 (2021) (“In any case not provided for in this chapter, the rules of law and
equity, including the rules of law and equity relating to fiduciary duties . . . shall govern.”); see
also CSH Theatres, LLC v. Nederlander of San Francisco Assocs., C.A. No. 9380-VCP, 2015
WL 1839684, at *11 (Del. Ch. Apr. 21, 2015) (“In the absence of language in an LLC agreement
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to the contrary, the managers of an LLC owe traditional duties of care and loyalty.”). The
Delaware Limited Liability Company Act provides that such duties may, however, be displaced
by express language to the contrary in an LLC’s operating agreement:
To the extent that, at law or in equity, a member or manager or other
person has duties (including fiduciary duties) to a limited liability
company or to another member or manager or to another person that
is a party to or is otherwise bound by a limited liability company
agreement, the member’s or manager’s or other person’s duties may
be expanded or restricted or eliminated by provisions in the limited
liability company agreement; provided, that the limited liability
company agreement may not eliminate the implied contractual
covenant of good faith and fair dealing.
DEL . CODE ANN. tit. 6, § 18-1101(c) (2021). Language that eliminates fiduciary duties must be
clear and unambiguous. See Ross Holding & Mgmt. Co. v. Advance Realty Grp., LLC, No.
4113-VCN, 2014 WL 4374261, at *15 (Del. Ch. Sept. 4, 2014) (“Although fiduciary duties may
be disclaimed, agreements’ drafters must do so clearly, and should not be incentivized to
obfuscate or surprise investors by ambiguously stripping away the protections investors would
ordinarily receive.”). Thus, the Plaintiffs may assert a claim for breach of fiduciary duty under
Delaware law, but only to the extent that the operating agreements of IM USA and K.G. IM
permit such a claim.
Neither the IM USA Operating Agreement nor the K.G. IM Operating Agreement
expressly eliminates fiduciary duties. Article VIII, Section 8.01 of the IM USA Operating
Agreement provides, inter alia:
(b) To the extent that, at law or in equity, any Indemnified Person[37]
has duties or is deemed to have duties (including fiduciary duties)
and liabilities relating thereto to the Company or to any Member,
the Manager and any other Indemnified Person acting in connection
with this Agreement or the Company’s business or affairs shall not
37 	The IM USA Operating Agreement defines “Indemnified Person” as “the Manager and its members,
directors. [sic] officers, employees, representatives, agents and Affiliates.” (IM USA Operating Agreement,
Appendix A.) It defines the “Manager” as K.G I.M, LLC. (Id.)
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be liable to the Company or to any Member for its good faith
reliance on the provisions of this Agreement or any approval or
authorization granted by the Members. 	The provisions of this
Agreement, to the extent that they restrict the duties and liabilities
of any Indemnified Person otherwise existing at law or in equity, are
agreed by the Members to replace such other duties and liabilities of
such Indemnified Person.
(IM USA Operating Agreement § 8.10(b).) Thus, the IM USA Operating Agreement borrows
some of the precise language of the Delaware statute (“To the extent that, at law or in equity, a
member or manager or other person has duties (including fiduciary duties) to a limited liability
company or to another member or manager”), but the IM USA Operating Agreement does not
explicitly eliminate duties. On the contrary, it recognizes that an Indemnified Person may have,
or be deemed to have, fiduciary duties. The IM USA Operating Agreement limits the liability of
an Indemnified Person, including K.G. IM, based on that Indemnified Person’s good faith
reliance on provisions of the IM USA Operating Agreement, but it does not eliminate fiduciary
duties altogether. Similarly, the K.G. IM Operating Agreement contains provisions on
exculpation and indemnification, but it does not make any explicit reference to fiduciary duties
and certainly does not clearly and unambiguously eliminate them. (See K.G. IM Operating
Agreement Art. 4.) Delaware’s default fiduciaries duties remained applicable to K.G. IM and IM
USA when Mr. Katzoff executed the 2020 Amendment, and Mr. Katzoff owed a duty to K.G.
IM, which in turn owed a duty to IM USA. Thus, to the extent that Mr. Katzoff’s duties flowed
directly to IM USA, he is liable for breaches of fiduciary duty as to IM USA.
For the proposition that they are entitled to relief based on a theory of “second-tier
controller” fiduciary liability—as Mr. Katzoff was the manager of K.G. IM, which was the
manager of IM USA—the Plaintiffs cite In re USACafes, L.P. Litigation, 600 A.2d 43 (Del. Ch.
1991). (Pls. Br. at 83.) However, the Plaintiffs here have failed to prove that the USACafes
doctrine is satisfied here. In USACafes, the plaintiffs were holders of limited partnership
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interests, and the defendants were individual directors of the corporate general partner of the
limited partnership in which the plaintiffs were investors. USACafes, 600 A.2d at 45. The
plaintiffs alleged breaches of the duty of loyalty by the general partner’s directors based on
receipt of side payments in connection with the sale of the partnership to a third-party buyer. Id.
at 46. In denying the individual directors’ motion to dismiss, the Delaware Court of Chancery
found that “the assertion by the directors that the independent existence of the corporate General
Partner is inconsistent with their owing fiduciary duties directly to the limited partners [was]
incorrect.” Id. at 48. The court specifically envisioned such liability in the context of a “classic
self-dealing transaction,” e.g., a situation in which “a majority of the board of the corporate
general partner formed a new entity and then caused the general partner to sell partnership assets
to the new entity at an unfairly small price, injuring the partnership and the limited partners.” Id.
at 49. The court reasoned that the duty of a second-tier controller “surely entails the duty not to
use control over the partnership’s property to advantage the corporate director at the expense of
the partnership.” Id.
That same language from USACafes—“the duty not to use control over the partnership’s
property to advantage the corporate director at the expense of the partnership”—was later
adopted by then-Vice Chancellor Strine in Bay Center Apartments Owner, LLC v. Emery Bay
PKI, LLC, C.A. No. 3658-VCS, 2009 WL 1124451 (Del. Ch. Apr. 20, 2009), when applying the
USACafes theory of second-tier liability in the LLC context.38 Acknowledging that “USACafes
does not apply to all affiliates in all circumstances,” the court then set out to determine the proper
breadth of USACafes-style liability:
38 	The court noted, however, that the defendants in Bay Center did “not challenge the general applicability of
[the USACafes] doctrine in the LLC context.” Bay Center, 2009 WL 1124451 at *9.
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First, to have any fiduciary duties to an entity, the affiliate must exert
control over the assets of that entity. . . . Second, USACafes suggests
that controlling affiliates do not have the full range of traditional
fiduciary duties, although that case specifically disclaims any effort
to fully delineate the scope of controlling affiliate duties.
Id. at *9. In seeking to delineate the scope of such duties, the court reasoned that “[l]imiting the
application of USACafes to this duty [the duty not to use control over the first-tier entity’s
property to advantage the second-tier manager at the expense of the first-tier entity] provides . . .
a rational and disciplined way of protecting investors in alternative entities with managing
members who are themselves entities, while not subjecting all the individuals who work for
managing members to wide-ranging causes of action.” Id. at *10. Thus, the court concluded, it
was necessary for a plaintiff to plead that an individual second-tier controller had “benefited
himself at the expense of [the first-tier, LLC-managed LLC] in order to withstand [a] motion to
dismiss.” Id.
While USACafes can no doubt be a powerful tool for plaintiffs under appropriate
circumstances, the USACafes doctrine is a narrow one, which “recognizes [that] remote
controllers . . . will owe limited fiduciary duties if they ‘exert control over the assets of that
entity.’” 77 Charters, Inc. v. Gould, C.A. No. 2019-0127-JRS, 2020 WL 2520272, at *9 (Del.
Ch. May 18, 2020) (quoting Bay Ctr., 2009 WL 1124451 at *9–10).39
39 	The USACafes doctrine may be further limited by a requirement that a plaintiff show a breach of duty on
the part of the managing entity in order to establish liability for the manager of that entity, although this is not
entirely clear from the Delaware caselaw. See Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 795 A.2d
1, 34 (Del. Ch. 2001) (Strine, V.C.) (“I agree with the defendants that [the corporate owner of a corporate general
partner] and [the directors of the corporate owner of the general partner] cannot be held liable for breach of fiduciary
duty in a situation where the General Partner, because of its compliance with a contractual safe harbor, does not owe
such liability.”), aff’d in part, rev’d in part, 817 A.2d 160 (Del. 2002). It is thus unclear whether the intermediary
entity must generally owe such liability itself or whether the Gotham Partners court was merely declining to impose
third-tier controller liability. However, it is not necessary to settle that question in this instance, as there is an
independent basis on which to conclude that there was no breach of fiduciary duty by Mr. Katzoff.
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Notwithstanding the limits of the USACafes doctrine, it is clear under Delaware law that,
where the individual manager (e.g., Katzoff) of an LLC (e.g., K.G. IM), which is itself the
manager of another LLC (e.g., IM USA), exerts control over the property of the LLC-managed
entity at the expense of the LLC-managed entity, the individual manager can be liable for
breaches of the duty of loyalty. While the result of the 2020 Amendment—if Mr. Katzoff had
acted upon it, and if he not rescinded it—may have been to benefit Mr. Katzoff (by way of GFB,
of which he was and remains a beneficial owner) at the expense of IM USA, 40 the execution of
the 2020 Amendment was not an exercise of control over IM USA’s property. The 2020
Amendment was an amendment of the GFB License, executed by Mr. Katzoff on behalf of IM-I
and GFB. While there may have been some effect on IM USA’s property (i.e., IM USA’s rights
under the IM-III License may have been stripped of some value, as the Plaintiffs allege),41 Mr.
Katzoff did not exert control over that property in executing the 2020 Amendment, as would be
required for a finding of USACafes-style liability. This is not to say the Mr. Katzoff’s treatment
of the various entities that were under his care deserves praise. But, as noted above, this is a
narrow doctrine, and the Plaintiffs have failed to prove that it is satisfied in this instance.
Accordingly, the Plaintiffs are not entitled to a judgment in their favor on Count X.
40 	Whether Mr. Katzoff personally benefited from the 2020 Amendment is far from certain for at least two
reasons. First, Mr. Katzoff owned a larger share in K.G. IM/IM USA than he did in GFB, making any transfer in
value (if indeed there was one) from the K.G. IM/IM USA entity group to GFB detrimental to Mr. Katzoff, at least
in theory. Second, Mr. Katzoff had personally guaranteed IM USA’s debts to BSP (Pls. Ex. 100), so any decrease in
IM USA’s value could have led to a corresponding increase in Mr. Katzoff’s personal liability on his guarantee.
41 	Whether the 2020 Amendment stripped value from IM USA’s rights under the IM-III License is also
unclear. IM-I’s execution of the 2020 Amendment was clearly a breach of the promise of exclusivity in Section 1.1
of the IM-III License, but a breach of the promise of exclusivity does not turn an exclusive right into a non-exclusive
right. IM USA still had exclusive rights to use the Intellectual Property under the IM-III License and could sue to
enforce those rights; it did not lose those rights due to the breach.
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XII. DEFENDANTS’ COUNTERCLAIMS
A. Counterclaim for a Declaration that the GFB License Is Valid
Defendants’ first counterclaim is for a declaration that the GFB License is valid. The two
“issues to be tried” listed in the Joint Pretrial Order with respect to this counterclaim are as
follows:
a. 	Whether the GFB License breaches the IM USA License;
b. 	Whether the IM USA License recognizes and allows for the
existence of the GFB License.
(Joint Pretrial Order at 9.)
For the reasons stated above, the Court concludes that the GFB License and the IM-III
License do not overlap. Accordingly, the GFB License does not breach the IM-III License, and
the IM-III License allows for the existence of the GFB License.
The Court also concludes that it is unnecessary to determine whether the IM-III License
“recognizes” the GFB License. The IM-III License and the GFB License deal with distinct uses
of the Intellectual Property; it is not necessary for the IM-III License to have acknowledged the
GFB License for the two licenses not to overlap.
B. Counterclaim for Breach of Section 3.1.1 of the IM-III License
Defendants’ second counterclaim is for breach of the IM-III License. The Defendants
argue that the Plaintiffs breached Section 3.1.1 by bringing infringement claims against the
Defendants, and challenging the Defendants’ rights in the Intellectual Property. (Defs. Br. at 33–
34.) The Defendants seek rescission or termination of the IM-III License because of the alleged
breach.
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Section 3.1.1 provides:
3.1 Ownership of the Intellectual Property.
3.1.1. 	Licensee acknowledges and agrees that Licensor is
the owner of all right, title and interest in and to the
Intellectual 	Property, 	including 	all 	related 	trademark
registrations and applications for registration and all “il
mulino” formative domain names, even if registered to
Licensee, and substantially similar domain names, even if
registered to Licensee, and retains all rights therein except as
g ranted herein, and that no such right, title or interest therein
is conveyed hereby. Licensee shall not challenge or, directly
or indirectly, assert any right, title or interest in or to the
Intellectual Property or any “il mulino” formative trademark
applications for registration or registration thereof or any “il
mulino” formative domain names or substantially similar
domain names. 	Licensee shall not use or permit others to
use the Intellectual Property or an “il mulino” formative
trademark, company name, domain name or a substantially
similar trademark, company name or domain name in any
way inconsistent with Licensor's rights therein and all uses
of the Intellectual Property shall inure to the benefit of
Licensor.
(IM-III License § 3.1.)
The Plaintiffs respond that they have not breached Section 3.1.1, as they concede that
IM-I, and not the Plaintiffs, own the Intellectual Property. (Pls. Br. at 95–96; Pls. Reply at 29.)42
42 	As noted above, this seems inconsistent with the Plaintiffs’ other statements that
trial will show that all expenses for maintenance and upkeep of the websites and
social media, including compensation for the employees and consultants who
worked on them, was paid by IM USA. As a result, Debtor IM USA was the
registrant and record owner of each of the Il Mulino Websites, corresponding
Email Accounts, and Social Media Accounts.
Pursuant to the APA, BSP also acquired “all of the Sellers’ telephone numbers,
fax numbers, e-mail addresses, websites, URLs and internet domain names related
to the Business.” APA § 2.1(x). Accordingly, Plaintiffs acquired the Il Mulino
Websites, Email Accounts, and Social Media Accounts, and are entitled to an
order requiring Defendants to transition control of the these [sic] assets. See, e.g.,
Tiffany (NJ) LLC v. Dong, 11 Civ. 2183 (GBD) (FM), at *19 (S.D.N.Y. Aug. 9,
2013) (granting permanent injunction “compelling the Seller Defendants to
transfer to [Plaintiff] the registrations of the infringing websites’ domain names”).
(Pls. Br. at 87–88.)
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In addition, the IM-III License explicitly provides the authority for the licensee to bring an
infringement action if the appropriate measures are taken. (See IM-III License § 3.3.) It would
be illogical for the initiation of an infringement action, as authorized by Section 3.3, to constitute
a breach of Section 3.1.1. Accordingly, the Court concludes that the Plaintiffs have not breached
Section 3.1.1.
The Plaintiffs also argue that, even if they had breached Section 3.1.1, this would not be
grounds for termination of the contract. The Plaintiffs point to Section 6.2, which provides:
6.2. 	Termination for Breach: Upon written notice from Licensor
to Licensee, Licensor may terminate this Agreement and all rights
granted herein if Licensee materially breaches Section 4.2 of this
Agreement, which has a material adverse effect on Licensor, and
Licensee fails to cure such breach, if curable, within thirty (30)
business days after receiving written notice of such breach from
Licensor.
(IM-III License § 6.2.) The Plaintiffs argue that the only grounds for termination are those stated
in Section 6.2.
Contrary to the Plaintiffs’ position, Section 6.2 does not state that it is an exhaustive list
of all the grounds for termination; it does not say that “Licensor may terminate this Agreement
and all rights granted herein only if Licensee materially breaches Section 4.2.” “Under New
York law, when one party has committed a material breach of a contract, the non-breaching party
is discharged from performing any further obligations under the contract, and the non-breaching
party may elect to terminate the contract and sue for damages.” NAS Elecs., Inc. v. Transtech
Elecs. Pte Ltd., 262 F. Supp. 2d 134, 145 (S.D.N.Y. 2003). The Second Circuit has described a
“material breach” under New York law as follows:
Under New York law, for a breach of a contract to be material, it
must “go to the root of the agreement between the parties.” 	A
party’s obligation to perform under a contract is only excused where
the other party's breach of the contract is so substantial that it defeats
the object of the parties in making the contract.
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Frank Felix Assocs., Ltd. v. Austin Drugs, Inc., 111 F.3d 284, 289 (2d Cir. 1997) (quoting
Septembertide, 884 F.2d at 678).
In another case, the Second Circuit has cast doubt on the possibility of a contract limiting
the equitable remedy of rescission:
it seems to us unlikely that parties to a contract may, as a matter of
law, contractually limit a buyer’s right to the equitable remedy of
rescission. . . . 	[I]nsofar as the effect of rescission is to declare a
contract void from its inception, it would be odd at best to allow the
availability of this remedy to be curtailed by the very contract that
the plaintiff seeks to rescind.
Pyskaty v. Wide World of Cars, LLC, 856 F.3d 216, 229 (2d Cir. 2017) (internal quotation marks
and citations omitted).
However, the Second Circuit also noted:
Under New York law, a plaintiff may obtain rescission—in lieu of
actual damages—when a breach of contract is either material and
willful or so substantial and fundamental that it strongly tends to
defeat the purpose of the contract. 	Because it is an equitable
remedy, rescission is available only if damages would not be a
complete 	and 	adequate 	remedy 	and 	the 	status 	quo 	may 	be
substantially restored by equitable relief.
Id. at 227 (internal quotation marks and citations omitted).
Even if there were a breach of Section 3.1.1, the Defendants have not proven that the
breach of Section 3.1.1 “goes to the root of” the contract or is “so substantial and fundamental
that it strongly tends to defeat the purpose of the contract.” Accordingly, even if a breach of
Section 3.1.1 occurred, it would not be a material breach, and the Defendants would not be
entitled to termination or rescission.
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XIII. CONCLUSION
For the reasons stated above, the Court finds that the licenses do not conflict with each
other, and the licenses can coexist. While the Court finds two breaches of the IM-III License, the
Plaintiffs are entitled to only nominal damages.
With respect to the Plaintiffs’ other claims, the Court concludes that the Post-Closing
Letters did not violate the CRO Order but did violate the Sale Order (but the Plaintiffs are not
entitled to attorneys’ fees), and the claims for fraudulent transfer, tortious interference, and
breach of fiduciary duty all fail.
As nominal damages for the breaches of the IM-III License, the Court awards Plaintiffs
$2.00.
Plaintiffs’ counsel shall settle a judgment consistent with this opinion in accordance with
Local Bankruptcy Rule 9074-1.
IT IS SO ORDERED.
Dated: 	August 12, 2021
New York, New York
______Martin Glenn______
MARTIN GLENN
United States Bankruptcy Judge
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