Atmosphere Hospitality Mgmt., LLC v. Shiba Invs., Inc.

• Citation: 158 F.Supp.3d 837
• Decision Date: 29 January 2016
• Docket Number: 5:13-CV-05040-KES
• Parties: Atmosphere Hospitality Management, LLC, Plaintiff, v. Shiba Investments, Inc., Karim Merali, and Zeljka Curtullo, Defendants.
• Court: United States District Courts. 8th Circuit. United States District Courts. 8th Circuit. District of South Dakota

158 F.Supp.3d 837

Atmosphere Hospitality Management, LLC, Plaintiff,

v.Shiba Investments, Inc., Karim Merali, and Zeljka Curtullo, Defendants.

5:13-CV-05040-KES

United States District Court, D. South Dakota, Western Division.

Signed January 29, 2016

Sara Frankenstein, David E. Lust, Jana Smoot White, Nathan R. Chicoine, Gunderson, Palmer, Nelson & Ashmore, LLP, Rapid City, SD, for Plaintiff.

Stephen J. Wesolick, The Wesolick Law Firm, Courtney R. Clayborne, Clayborne, Loos & Sabers, Rapid City, SD, for Defendants.

MEMORANDUM OPINION AND ORDER

KAREN E. SCHREIER

, UNITED STATES DISTRICT JUDGE

Plaintiff, Atmosphere Hospitality Management, LLC, moves for an order excluding settlement negotiations. Docket 228. Atmosphere also moves for summary judgment on several breach of contract theories against defendants, Shiba Investments, Inc., Karim Merali, and Zeljka Curtullo. Docket 217. In conjunction with Atmosphere's motion for summary judgment, Atmosphere moves the court to deem certain facts as admitted. Docket 243. Defendants resist Atmosphere's motions. Defendants move for partial summary judgment on the issue of whether rescission is available to Atmosphere. Docket 210. Atmosphere resists defendants' motion.

BACKGROUND

Atmosphere is a Delaware Limited Liability Company with its principal place of business in Colorado. James Henderson and Adrienne Pumphrey have been managing partners of Atmosphere at all times relevant to this litigation. Shiba is a Texas corporation with its principal place of business in Rapid City, South Dakota. The ownership structure of Shiba includes Karim Merali and his son Sacha Merali. Curtullo is a former employee of Atmosphere.

Atmosphere brought this action against Shiba and Karim to resolve issues related to a licensing contract and management contract between the parties.¹ The agreements enabled Shiba to operate a hotel in Rapid City, South Dakota, that it owns under Atmosphere's brand name, “Adoba,” and gave management of the hotel to Atmosphere. This litigation began in 2013 after defendants terminated both agreements.

Atmosphere alleges, among other claims, that defendants have breached the parties' agreements, tortuously interfered with Atmosphere's business expectancies, fraudulently induced Atmosphere to enter the agreements, and misappropriated Atmosphere's trade secrets. Docket 37. Because this matter is now over two years old and numerous pre-trial motions, discovery disputes, and other matters have since come before this court, additional factual matters will be set forth below as those facts pertain to the parties' pending motions.

I. Atmosphere's Motion to Exclude Settlement Negotiations

BACKGROUND

Defendants reference several communications between the parties' attorneys in support of their motion for partial summary judgment and in resistance to Atmosphere's motion for summary judgment. Atmosphere contends that these communications are inadmissible settlement negotiations pursuant to Federal Rule of Evidence 408

.

The first contested document is a letter written by Atmosphere's counsel to Karim. Docket 213–4 (Exhibit D).² It is dated March 27, 2013, approximately two months before Atmosphere filed its original complaint. See Docket 1. Exhibit D accuses Karim of violating several provisions of the property management agreement. For example, the letter states that Karim is interfering with hotel employees in contravention of §§ 1.03 and 2.05 of the agreement. Docket 213–4 at 1. The letter explains that “if you persist in such conduct, Atmosphere will pursue all legal remedies necessary including, without limitation, pursuit of a restraining order if necessary.” Id. at 2.

The second contested document is comprised of two communications: an email sent on March 29, 2013, from defendants' counsel to Atmosphere's counsel in response to the Exhibit D letter, and a subsequent reply also sent on March 29, 2013, from Atmosphere's counsel. Docket 213–5 (Exhibit E). Defendants' response addresses “the current dispute/disagreement which has arisen between Karim Merali and Jim Henderson and with the hopes of resolving the same.” Id. at 1. The bulk of the Exhibit E email explains the basis for recent contacts between Karim and representatives of Radisson, although it denies that Karim disclosed any of Atmosphere's proprietary information to Radisson.³ It states that the Radisson representatives and Karim were pursuing their own settlement negotiations to resolve a lawsuit between Radisson and Karim. Additionally, the email states that “it appears that Karim will be paying them something” and that two proposals are being investigated to potentially satisfy that obligation. Under the first proposal, Radisson would be allowed to take over management of the hotel for a period of time until it was able to generate money sufficient to satisfy the settlement. The second proposal would involve a tri-party agreement between Radisson, Shiba, and Atmosphere. More specifically, Radisson would be assigned some of the hotel profits which Atmosphere would agree to pay and that Karim would personally guarantee.

According to the email, “[t]his is where the current issues [between Atmosphere and Karim] have arisen. In order for Karim/Shiba to entertain the second proposal, they need assurance that the Hotel will generate income sufficient to pay Radisson and to provide Karim with money to meet his obligations.” Id. The email then discusses a bill that was recently sent from Atmosphere that allegedly contained “fees that are contrary to the agreement of the parties.” Id. The email provides several justifications to support its assertion and requested an accounting of all books, records, and accounts of the hotel. Id. at 2. It states:

In order to avoid needless legal expense, I think it would be best if all involved simply laid their cards on the table and allowed an open inspection of the books and accounts and arrive at a clear understanding of what is or is not an appropriate expense or charge. From there the [sic] should be easily able to agree on what would be due and owing under the Agreements.

Id. The email concludes with a request for a meeting between Karim, Henderson, and the parties' attorneys. Atmosphere's reply to this email consists of a thank-you and an agreement to meet. Id. at 1.

The third document is an email sent on April 3, 2013, from Atmosphere's counsel to defendants' counsel. Docket 213–6 (Exhibit F). It is a summary of the discussions that took place following the parties' meeting. Exhibit F contains eight bullet points. For example, the parties agreed that “Jim will make available to Karim all bank statements, including checks, on a monthly basis[.]” Id. at 1. Additionally, “Karim and his agents will refrain from communicating with Atmosphere employees.” Id. Regarding the bill referenced in the Exhibit E email, the parties were able to resolve whether some of the amounts were due. Also, Henderson agreed to deposit $62,000 into the hotel operating account for “immediate payroll needs” and the parties discussed that Karim would need to “fulfill his obligations under the PMA” and “make sure there is a balance of $200,000 in the operating account.” Id.

The fourth document is an email sent on April 6, 2013, from Henderson to Karim. Docket 213–7 (Exhibit G). It contains “the adjusted management fee invoice per our discussions on Monday.” Id. at 1. The invoice listed three separate fees totaling $118,221.00 purportedly due from Shiba. Id. at 2.

The fifth document is a letter sent on May 17, 2013, from Atmosphere's counsel to defendants' counsel. Docket 237–1 (Exhibit A). Atmosphere's counsel stated that he was “in receipt of the lawsuit you recently filed against Adrienne Pumphrey, Jade Walton, and Anthony Noon” and that his “firm will be representing these individuals[.]” Id. at 1. Additionally, counsel acknowledged that “the right to use the Adoba name is currently in dispute” but that “Atmosphere is willing to allow Shiba Investments to use it for the Rapid City hotel only.” Id. The letter explained that Atmosphere “will monitor the utilization of the name and will protect its proprietary interest if the use is harmful to the intellectual property associated with the Adoba name” but also that Atmosphere “will assist where necessary to indicate its assent to Shiba Investment's use of the name” if Shiba “desire[d] to work with vendors to utilize the Adoba name[.]” Id. Atmosphere's complaint was filed in this case three days later. Docket 1.

DISCUSSION

Rule 408

governs the admissibility of compromise offers and negotiations. The rule provides in part that:

Evidence of the following is not admissible—on behalf of any party—either to prove or disprove the validity or amount of a disputed claim or to impeach by a prior inconsistent statement or a contradiction:

(1) furnishing, promising, or offering—or accepting, promising to accept, or offering to accept—a valuable consideration in compromising or attempting to compromise the claim; and

(2) conduct or a statement made during compromise negotiations about the claim—except when offered in a criminal case and when the negotiations related to a claim by a public office in the exercise of its regulatory, investigative, or enforcement authority.

Fed. R. Evid. 408(a)

. Such evidence may be admissible, however, “for another purpose, such as proving a witness's bias or prejudice, negating a contention of undue delay, or proving an effort to obstruct a criminal investigation or prosecution.” Fed R. Evid. 408(b)

. The purpose of the rule is the “promotion of the public policy favoring the compromise and settlement of disputes.” Fed. R. Evid. 408 (advisory committee's note to 1972 proposed rule). It is concerned with “excluding proof of compromise to show liability of [an] offeror.” Crues v. KFC Corp. , 768 F.2d 230, 233–34 (8th Cir.1985) (citing McCormick on Evidence § 264, at 712 (E. Cleary 3d ed. 1984) ). “The policy concerns underlying Rule 408 are strongly implicated...