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Atmosphere Hospitality Management, LLC v. Shiba Investments, Inc.

United States District Court, Eighth Circuit

December 18, 2013

ATMOSPHERE HOSPITALITY MANAGEMENT, LLC, Plaintiff,
v.
SHIBA INVESTMENTS, INC., KARIM MERALI, and ZELIJKA CURTULLO, Defendants and Third-Party Plaintiffs,
v.
JAMES HENDERSON, Third-Party Defendant.

ORDER GRANTING IN PART AND MOTION FOR PRELIMINARY INJUNCTION

KAREN E. SCHREIER, District Judge.

Plaintiff, Atmosphere Hospitality Management, LLC, moves for a preliminary injunction against defendants, Shiba Investments, Inc., Karim Merali, and Zelijka Curtullo. Atmosphere asks the court to enjoin defendants from using the Adoba® brand and processes associated with the brand and also asks the court to order Shiba to pay all debts owed to vendors incurred during the operation of the Adoba® hotel. Defendants resist the motion and claim they are entitled to continue using the Adoba® brand and processes associated with it in the operation of the hotel. The court held a hearing on this motion and heard testimony from James Henderson, Adrienne Pumphrey, Karim Merali, and James Postma. For the following reasons, the motion for a preliminary injunction is granted in part and denied in part.

BACKGROUND

Atmosphere is a Delaware limited liability company with its principal place of business in Colorado. Atmosphere is in the hotel hospitality business. James Henderson and Adrienne Pumphrey are managing partners of Atmosphere.

Shiba is a Texas corporation with its principal place of business in South Dakota. Shiba owns the hotel located in Rapid City, South Dakota, that is at the center of this litigation. Karim Merali is a resident of South Dakota and an equity owner of Shiba.

In May 2011, Merali and Henderson began discussing the possibility of Atmosphere taking over management of Shiba's hotel and re-branding it as an Adoba® hotel.[1] Atmosphere trademarked Adoba® and intended to create a hotel brand using the Adoba® name.[2] An Adoba® hotel uses "a green hotel design concept and operating standard... to maximize energy efficiency and apply environmentally responsible and sound operating and management standards and sustainable practices." Docket 37-3 at 1. There were no other Adoba® hotels in existence at the time Henderson and Merali entered into discussions.[3]

The parties ultimately agreed that the hotel would re-brand as an Adoba® and that Atmosphere would manage the hotel as such. Henderson's attorney, Lyle Boll, drafted two contracts-a licensing agreement and a management agreement-to memorialize the parties' agreement, and the contracts were provided to Merali in either October or November of 2011. After Merali and his attorney reviewed the contracts, Merali asked for and received a copy of them in Microsoft Word format. Atmosphere informed Merali that it wanted to get the agreements signed before the end of 2011.

The parties dispute the events that took place from the time Merali received the contracts and December 31, 2011, the date the Licensing Agreement and Management Agreement were signed. Atmosphere claims very few discussions took place regarding the language of the contracts and that Merali often refused to respond to emails and phone calls. Merali claims he and Henderson spent several days discussing the various terms of the agreements and, at times, exchanged drafts.

On December 31, 2011, Merali sent Henderson an email at 4:59 p.m. that included the final version of the Licensing Agreement. The email stated, "Jim, Attached is the license Agreement... Please review and let me know if ok as per our discussions late last night." Exhibit Y. Later that same evening, Merali and Henderson met in Merali's office, which is located in the hotel, and signed both the Licensing Agreement and the Management Agreement.[4] Both Henderson and Merali initialed or signed every page in each agreement.

On January 8, 2012, Henderson sent Merali an email that said:

The management contract as well as the license agreement we wrote is really not good. It is basically a 90 day contract and not worth anything to you or Atmosphere.... I suggest we write an addendum that omits that 90 day out and we write legitimate reasons why either can terminate, or, write more basic language. I had to show the agreement to my insurance company, Lyle and Wells Fargo in order to get insurance, show my lawyer and to open up an operating account with benefits at Wells Fargo, I asked your approval prior to showing any of these parties the other day. In unison, all the parties I just mentioned state the contract is worthless with that 90 day out term for any reason written in the contract.

Docket 35-1. No addendums, amendments, or changes were ever made to either agreement, and the parties operated under the Licensing Agreement and Management Agreement for over a year.

On April 23, 2013, Shiba, acting through its attorney, sent Atmosphere an email informing Atmosphere that Shiba was canceling the Licensing Agreement pursuant to § 3b and canceling the Management Agreement pursuant to § 5.01(b). Additionally, the email indicated that "Shiba is electing (per 3. (b). of the Licensing Agreement) to... keep the technology and the Adoba Brand as an independent operation." Docket 31-25. Section 3b of the Licensing Agreement states:

Notwithstanding the foregoing, [Shiba] or Atmosphere can cancel this contract without cause with 90 days written cancellation at any time, without any penalties. This clause supersedes any other cancellation or termination clause in this entire agreement. Due to the nature and circumstances of a deep and long lasting friendship, [Shiba] and Atmosphere both agree that a termination will have significant impact on either party and as such each party should leave the agreement with vested interest. [Shiba] will keep the technology and the Adoba Brand as an independent operation. If [Shiba] chooses not to continue use of the Adoba Brand, he will remove all brand material and signage in a reasonable time mutually agreed upon. In any event, upon termination of this agreement by [Shiba], Atmosphere will receive all current monies due in full to date.

Docket 37-3 at 5. Shiba and Karim Merali took over operation of the hotel on May 1, 2013.

Currently, there are unpaid bills from vendors who serviced the hotel prior to May 1, 2013. Merali represented to vendors that Atmosphere is responsible for those debts. Atmosphere disagrees and claims Shiba is the party responsible for paying the debts.

DISCUSSION

Atmosphere seeks a preliminary injunction and asks the court to enjoin defendants in two respects. First, Atmosphere claims defendants are not entitled to use of the Adoba® brand and processes associated with it and asks the court to enjoin them from doing so. Second, Atmosphere asks the court to order defendants to pay all debts owed to vendors which arose from the operation of the hotel.

"A preliminary injunction is an extraordinary remedy and the burden of establishing the propriety of an injunction is on the movant." Roudachevski v. All-American Care Ctrs., Inc. , 648 F.3d 701, 705 (8th Cir. 2011) (citing Watkins, Inc. v. Lewis , 346 F.3d 841, 844 (8th Cir. 2003)). To determine whether a preliminary injunction is appropriate the court considers the Dataphase factors:

(1) whether the movant is likely to prevail on the merits;
(2) the threat of irreparable harm to the movant;
(3) the state of balance between this harm and the injury that granting the injunction will inflict on the other parties litigant; and
(4) the public interest.

TCF Nat'l Bank v. Bernanke, 643 F.3d 1158, 1162 (8th Cir. 2011) (citing Planned Parenthood Minn., N.D., S.D. v. Rounds , 530 F.3d 724, 733 (8th Cir. 2008); Dataphase Sys., Inc. v. C L Sys., Inc. , 640 F.2d 109, 113 (8th Cir. 1981)).

The Dataphase test for preliminary injunctive relief is a flexible analysis. Hubbard Feeds, Inc. v. Animal Feed Supplement, Inc. , 182 F.3d 598, 601 (8th Cir. 1999). "While no single factor is determinative, the probability of success factor is the most significant." Home Instead, Inc. v. Florance , ...


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