Seven Stars on Hudson Corp. v. MDG Powerline Holdings (In re Seven Stars on Hudson Corp.)

Decision Date28 January 2022
Docket Number19-17544-SMG,Adv. 19-1230-SMG
PartiesIn re: Seven Stars on the Hudson Corp., Debtor. v. MDG Powerline Holdings, LLC and XBK Management, LLC, Defendants. Seven Stars on the Hudson Corp., Plaintiff,
CourtU.S. Bankruptcy Court — Southern District of Florida
MEMORANDUM OPINION

When a plaintiffs case will rely upon an expert witness to prove damages, but the plaintiff fails to timely disclose any expert witness or expert report, the consequences can be devastating. Such is the case here. The plaintiff failed to timely make its expert disclosures required by Federal Rule of Civil Procedure 26(a)(2). Without these disclosures, the plaintiff may not present any expert testimony. And with no expert testimony - and no other competent evidence of damages in the record - the defendants moved for summary judgment, arguing there is no genuine issue of material fact and they are entitled to judgment as a matter of law. For this and other reasons discussed in detail below, the Court agrees and will grant the defendants' motions for summary judgment.

I. BACKGROUND.

Plaintiff Seven Stars on the Hudson Corp. ("Seven Stars") operates a trampoline park and "family fun center" inside a larger indoor entertainment complex called Xtreme Action Park. Xtreme Action Park - which is operated by XBK Management, LLC d/b/a Xtreme Action Park ("Xtreme") - also has a go-cart track, bowling alley, roller rink escape rooms, and arcade games, among other attractions. MDG Powerline Holdings, LLC ("MDG") - which is allegedly owned and controlled by the same principals who own and control Xtreme - owns the facility and leases the space to Seven Stars, Xtreme, and a few other tenants (some of which may also be affiliated with MDG and Xtreme).[1] Although MDG is its landlord, Seven Stars alleges that its co-tenant Xtreme effectively serves as the property manager.[2] Jens Berding ("Mr. Berding") and Eddy Manzo-Berding ("Ms. Manzo-Berding") are the principals and owners of Seven Stars. They claim to have initially capitalized Seven Stars with $1, 963, 110, consisting of a $553, 532 equity investment from their retirement savings, and $1, 409, 578 in financing from Wells Fargo Bank, N.A. ("Wells Fargo").[3] Seven Stars began operating its trampoline park in November 2016, [4] as a franchisee of Rockin' Jump, LLC ("Rockin' Jump"). About a year later, the relationship between Seven Stars and its co-tenant Xtreme began to deteriorate.[5]Seven Stars alleges that Xtreme and MDG essentially colluded to squeeze out Seven Stars, by taking actions designed to deprive it of revenue and customers, while interfering with Seven Stars' rights under its Lease. And there is certainly some evidence to support these claims, including an email from a representative of Xtreme who stated that Mr. Berding "doesn't want to work with us. He won't listen to reason so it appears we will just need to beat him into default."[6]

Specifically, Seven Stars alleges that Xtreme, acting as MDG's agent, removed signs for Seven Stars' business, shut off power to and then dismantled Seven Stars' registration desk, blocked views of Seven Stars' logo, and limited access to its premises. Seven Stars also alleges that Xtreme refused to engage in cross-marketing with Seven Stars, [7] delayed delivery of food orders to Seven Stars' customers, [8] held "lock-out" events that served to block access to Seven Stars' trampoline park, [9]intentionally confused Seven Stars' customers about liability waivers, misled its customers in advertisements, [10] and impermissibly installed video cameras in Seven Stars' premises.[11] Seven Stars also alleges that MDG painted over Seven Stars' signature green color in its entrance hallway and blocked access to its loading dock.[12]As a result, Seven Stars alleges that it saw an approximately 40% decrease in revenue compared to its performance in 2017.[13]

A. Seven Stars I and Seven Stars II.

On June 5, 2019, Seven Stars filed a chapter 11 bankruptcy case ('Seven Stars 7")[14] to address these disputes with MDG and Xtreme, as well as disputes it had with its now-former franchisor, Rockin' Jump, and its secured creditor, Wells Fargo. Seven Stars then commenced this adversary proceeding against MDG and Xtreme on July 19, 2019.[15] In the Seven Stars I main bankruptcy case, Seven Stars quickly sought[16] - and then obtained - authority to use Wells Fargo's cash collateral.[17] As for Rockin' Jump, it sought relief from the automatic stay to terminate Seven Stars' franchise agreement.[18] Meanwhile, Seven Stars filed a motion to assume its Lease with MDG.[19] But based on Seven Stars' ongoing dispute with Rockin' Jump, MDG and Seven Stars agreed to defer resolution of the assumption motion until after the franchise issues were resolved.[20]

Ultimately Seven Stars and Rockin' Jump entered into a settlement agreement on March 18, 2020, [21] which resulted in termination of the franchise agreement.[22] This was just as the COVID-19 pandemic was hitting the United States. Only a few days later, all nonessential retail and commercial businesses in Broward County, Florida - including Xtreme Action Park and Seven Stars' trampoline park - were shut down by government order, [23] and remained closed well into June 2020.[24] Against this backdrop, Seven Stars and MDG continued to litigate whether Seven Stars could assume its Lease with MDG.[25]

MDG argued that Seven Stars could not assume the Lease because termination of the Rockin' Jump franchise agreement violated the Lease's use clause, and because Seven Stars owed post-petition rent that it had not paid for April and May 2020, when it was prohibited by law from operating. After extensive briefing and argument, on June 1, 2020, the Court granted Seven Stars' motion to assume the Lease, ruling that termination of the Rockin' Jump franchise did not prohibit assumption, and that, under the terms of the Lease and in light of the COVID-19 pandemic, failure to timely pay April and May rent likewise did not prohibit assumption.[26] The Court did, however, require Seven Stars to pay $130, 000 in unpaid rent to MDG by the effective date of any chapter 11 plan it confirmed.[27] Apparently unable to make that payment, Seven Stars then elected to proceed with its case under the newly enacted subchapter V of chapter 11 of the Bankruptcy Code, which became effective a few months earlier.[28] But because it first elected to proceed under subchapter V after expiration of subchapter V's strict 90-day deadline to file a plan, [29] this Court dismissed the case under 11 U.S.C. § 1112(b)(4)(J).[30]

After the Court dismissed Seven Stars I, it set a status conference to determine whether the Court should retain jurisdiction over this adversary proceeding. [31] The day before the status conference, however, Seven Stars filed another chapter 11 petition under subchapter V ('Seven Stars IF).[32] After the status conference, the Court entered an order[33] giving the defendants a deadline to file motions to dismiss the adversary proceeding based upon the dismissal of Seven Stars I. But, perhaps due to the filing of Seven Stars II, neither of the defendants elected to file a motion to dismiss, so this adversary proceeding remained pending before this Court.

In Seven Stars II, Seven Stars and MDG again litigated over assumption of the Lease, as well as confirmation of Seven Stars' chapter 11 plan. After a contested confirmation hearing, the Court overruled MDG's objection to confirmation, [34] granted Seven Stars' motion to assume its Lease with MDG, [35] and confirmed Seven Stars' third amended plan.[36] Upon confirmation of the plan, Seven Stars secured the right to remain in the leased premises at Xtreme Action Park and continued operating its trampoline park under its Lease with MDG.

B. This Adversary Proceeding.

After an August 25, 2020, hearing in this adversary proceeding, the Court entered an Agreed Scheduling Order[37] setting certain pretrial deadlines, [38] including the following:

November 6, 2020 - deadline to file motions to amend the complaint;
January 15, 2021 - deadline to complete fact discovery;
February 5, 2021 - deadline to exchange expert witness summaries and reports;
February 26, 2021 - deadline to exchange rebuttal expert witness summaries and reports;
March 15, 2021- deadline to complete expert discovery; and
April 15, 2021- deadline to file dispositive motions.

Seven Stars then timely moved for leave to file a second amended complaint.[39] Over MDG's objection, [40] the Court granted that motion[41] and permitted Seven Stars to file a second amended complaint.[42] MDG and Xtreme then filed answers and affirmative defenses.[43]

In the second amended complaint, Seven Stars asserts claims for: (1) breach of the covenant of quiet enjoyment under its Lease against MDG; (2) breach of the implied duty of good faith and fair dealing against MDG; (3) violation of Florida's Deceptive and Unfair Trade Practices Act[44] ("FDUTPA") against MDG; (4) violation of FDUTPA against Xtreme; (5) tortious interference with advantageous business relationships against Xtreme; and (6) tortious interference with contract against MDG and Xtreme. In short, Seven Stars alleges that MDG and Xtreme, through various actions and inactions, have caused damage to Seven Stars' business, resulting in its bankruptcy filing and the loss of its franchise agreement. Its alleged damages consist of lost revenue and profits, lost business opportunities, and lost goodwill.[45] After an unsuccessful attempt at mediation, [46] the parties submitted - and on March 17, 2021, the Court entered - a Second Agreed Scheduling Order, [47] which included the following relevant deadlines:

March 16, 2021 -
...

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