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StreetEasy, Inc. v. Chertok

United States Court of Appeals, Second Circuit

June 5, 2014

STREETEASY, INC., Plaintiff-Appellee,
v.
DOUGLAS CHERTOK, Defendant-Appellant.[*]

Submitted February 10, 2014

Page 299

[Copyrighted Material Omitted]

Page 300

Plaintiff-appellee StreetEasy, Inc. sued defendant-appellant Douglas Chertok under (inter alia) the Anticybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d). The parties entered into a settlement agreement on the record before the magistrate judge, and stipulated to a dismissal of the suit with prejudice. When Chertok subsequently moved to vacate the order of dismissal and to rescind the settlement agreement, the United States District Court for the Southern District of New York (Richard J. Sullivan, Judge) granted plaintiff's cross-motion to enforce the settlement agreement, imposed sanctions on Chertok for propounding unfounded factual contentions, and ultimately held the defendant in contempt for noncompliance with the court's enforcement order. Because the district court lacked jurisdiction to enforce the parties' settlement agreement, we vacate the orders enforcing the settlement agreement and holding Chertok in contempt; we vacate the district court's award of sanctions, and remand the case for reconsideration of the proper amount of the sanctions in light of this opinion.

Douglas Chertok, pro se, New York, New York, for Defendant-Appellant.

Emily S. Reisbaum, Isaac Zaur, Clarick Gueron Reisbaum LLP, New York, New York, for Plaintiff-Appellee.

Before: JACOBS, LIVINGSTON, and LYNCH, Circuit Judges.

OPINION

Page 301

Gerard E. Lynch, Circuit Judge.

This appeal arises out of the attempted resolution of a dispute between a real estate listing website and one of its co-founders over the propriety of actions taken by the co-founder when he separated from the company in 2007, and the validity of corporate actions that occurred before his departure. It requires us to decide whether the district court had jurisdiction to enforce a settlement agreement that resulted in the dismissal of the underlying case. We must also decide whether the district court properly exercised its authority under Federal Rule of Civil Procedure 11 to sanction the defendant for proffering unfounded factual contentions in his filings with and oral representations to the court. Because the order of dismissal failed to retain jurisdiction over enforcement of the parties' settlement agreement, or to incorporate the terms of that agreement, the district court lacked jurisdiction to enforce the agreement. Accordingly, we vacate the district court's orders enforcing the settlement agreement and holding the defendant in contempt for noncompliance. In addition, because the defendant was properly sanctioned for only one of the three factual contentions identified by the district court as the basis for its sanctions award, we vacate that award and remand the matter for reconsideration of the appropriate amount of monetary sanctions in light of this decision.

BACKGROUND

Appellee StreetEasy, Inc. (" StreetEasy" ) operates a website that provides real estate listings and related information

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to brokers and the public.[1] Appellant Douglas Chertok (" Chertok" ) co-founded StreetEasy in or around 2005 with nonparties Michael Smith (" Smith" ), Anthony Schmitz, and Nataly Kogan.[2] In the process of establishing StreetEasy, Chertok registered the domain name " streeteasy.com." In August 2006, StreetEasy sought and obtained $2.5 million in venture capital financing by issuing preferred stock (the " Series A Stock Sale" ). Consummation of this transaction required certain actions to be taken by the company's board and shareholders.[3] The parties strongly dispute whether these corporate actions were validly effected. While StreetEasy claims that approval was obtained through telephonic board and shareholder meetings in which Chertok participated on August 29, 2006, Chertok contends that approval was fabricated as part of a scheme by Smith -- StreetEasy's Chief Executive Officer -- to usurp control of the company.

Around the same time that StreetEasy was negotiating the venture capital investment, Chertok's relationship with the company began to sour. StreetEasy alleges that in the summer of 2006 the company discovered that Chertok had embezzled $55,000. Upon making this discovery, the company severed all relations with Chertok, removing him as a co-signer on the company's bank account and later electing a new board of directors that excluded Chertok. After Chertok and StreetEasy parted ways, Chertok allegedly refused to provide the company with possession and control of its domain names, including " streeteasy.com." [4] StreetEasy also claims that in 2011 Chertok attempted to gain access to the company's bank records by falsely representing to bank staff that he was still associated with StreetEasy.

Following these actions by Chertok, StreetEasy initiated suit in the Southern District of New York, asserting claims under the Anticybersquatting Consumer Protection Act, 15 U.S.C. § 1125(d), as well as claims for breach of a fiduciary duty and conversion, and requesting a declaratory judgment that Chertok has no continuing relationship with StreetEasy. After commencement of the action, Chertok took the position that the 2006-2007 corporate actions -- including the election of a new board of directors -- were invalid, because he was allegedly the sole board member at the time of those actions, and he allegedly had not approved them. Chertok agreed, however, to transfer control of the domain names to StreetEasy. StreetEasy then amended its complaint, maintaining its previously asserted claims, and adding claims for a declaratory judgment that the corporate actions taken in August 2006 and StreetEasy's election of a new board of directors in 2007 were valid.

On January 24, 2012, after limited discovery, the parties reached a settlement

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agreement during a settlement conference with Magistrate Judge Andrew J. Peck. Judge Peck stated the terms of the parties' agreement, and the parties confirmed their consent to the agreement, on the record. Pursuant to the settlement, Chertok agreed, among other things, to (1) transfer to StreetEasy any and all StreetEasy Internet domain names that he had not already transferred, and not to register any similar domain names; (2) acknowledge that his involvement with StreetEasy, other than as a shareholder, ended in October 2007, and that he would not hold himself out as a representative of StreetEasy; (3) " ratif[y] and consent[] to the actions taken at the August 29, 2006 board and shareholder meetings and . . . sign any and all documents required by that, including the action by written consent dated as of August 30, 2006" ; (4) acknowledge that the revised certificate of incorporation and bylaws are valid; and (5) sign the Series A Stock Sale documents. In return, StreetEasy agreed, among other things, to create an " About Us" page on its website recognizing Chertok's contribution to the company, and to provide Chertok with certain financial documents each calendar quarter. Both parties also agreed " to execute mutual general releases so that the company releases Mr. Chertok and ...


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