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Atmosphere Hospitality Management, LLC v. Curtullo

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

July 8, 2014

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

ORDER DENYING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT AND GRANTING PLAINTIFF'S MOTIONS

KAREN E. SCHREIER, District Judge.

Plaintiff, Atmosphere Hospitality Management, Inc., brought suit against defendants Shiba Investments, Inc. and Karim Merali alleging a claim for fraud in the inducement of a contract, among others. Defendants Shiba and Merali move for summary judgment on the issue of whether Atmosphere can seek the remedy of rescission for its fraudulent inducement claim. Atmosphere resists the motion and also moves for a continuance or denial of defendants' motion because discovery has not taken place and it cannot present facts essential to justify its opposition to defendants' motion for summary judgment. For the following reasons, defendants' motion is denied without prejudice, and Atmosphere's motion is granted.

Atmosphere also moves for an extension of time to serve defendant Zeljka Curtullo. Because good cause appears for Atmosphere's failure to serve Curtullo within the 120-day period, the motion is granted.

PROCEDURAL BACKGROUND

Atmosphere filed suit against Shiba and Merali on May 20, 2013. The initial complaint alleged claims for breach of contract, tortious interference with a business expectancy, and defamation and sought damages and injunctive relief. Docket 1. On September 5, 2013, Atmosphere moved to amend its complaint to add an additional defendant, Zeljka Curtullo, and to add additional claims for fraud in the inducement of a contract, deceit, misappropriation of trade secrets, and conversion.[1] Dockets 25 and 26. One day later-September 6, 2013-Atmosphere moved for a preliminary injunction asking the court to order Shiba, Merali, and Curtullo to cease representing its hotel under the Adoba® name, using Adoba® proprietary information, using non-approved marketing regarding the Adoba® brand, representing to vendors that it is Atmosphere's responsibility to pay Shiba's debts, contacting Atmosphere's business affiliates, and making false statements about Atmosphere. Docket 27. Atmosphere also asked that defendants be ordered to pay all their debts to vendors. Id.

A three-day hearing was held on Atmosphere's motion for preliminary injunction. After considering the evidence presented during the hearing and the parties' arguments, the court granted in part and denied in part Atmosphere's motion for preliminary injunction. Docket 53. The evidence presented during the hearing is more fully set out in this court's December 18, 2013, order. In summary, Atmosphere failed to put forth sufficient evidence to meet its burden to show that defendants should be enjoined from using the Adoba® brand and processes associated with the brand while this action is pending. Additionally, Shiba was ordered to pay all debts owed to vendors that were incurred in the operation of the hotel and to refrain from informing vendors that Atmosphere is responsible to pay these debts.

After the court was supplied with the parties' Form 52 report and scheduling information, the court entered a scheduling order in this case on December 30, 2013. Docket 55. The discovery deadline was June 2, 2014, and the motions deadline was July 15, 2014. Defendants then filed their motion for summary judgment on January 24, 2014. Docket 58. The court has since granted a motion to extend the discovery deadline until September 2, 2014, and the motions deadline until October 17, 2014.

FACTUAL BACKGROUND

Atmosphere is a Delaware limited liability company with its principal place of business in Colorado and is in the hotel hospitality business. James Henderson is a managing partner 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 issue in this litigation. Karim Merali is a resident of South Dakota and an equity owner of Shiba. Curtullo was a former employee of Atmosphere and allegedly a current employee of Shiba.

In 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.[2] Atmosphere trademarked Adoba® and intended to create a hotel brand using the Adoba® name.

The parties ultimately agreed that the hotel would re-brand as an Adoba® and that Atmosphere would manage the hotel as such. Two agreements-a licensing agreement and a management agreement-were signed on December 31, 2011, by Merali and Henderson.

There are disputes, however, regarding the agreement that the parties actually reached, the negotiations leading up to the execution of these agreements, the circumstances surrounding the execution of the agreements, and the parties' conduct after signing the agreements. Atmosphere claims, among other things, that it was fraudulently induced into signing these agreements and maintains that it has the option to rescind these contracts in the event it is successful on its fraudulent inducement claim. Because discovery has not ...


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