United States District Court, D. South Dakota
MEMORANDUM OPINION AND ORDER
KAREN E. SCHREIER, 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.
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. 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
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). 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. 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.
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 where an offer of compromise is used to prove an element of the claim the compromise offer was meant to settle." Weems v. Tyson Foods, Inc., 665 F.3d 959, 966-67 (8th Cir. 2011).
The Eighth Circuit has traditionally "viewed the scope of Rule 408 narrowly." Dahlgren v. First Nat'l Bank of Holdrege, 533 F.3d 681, 699 (8th Cir. 2008) (citing Vulcan Hart Corp. v. NLRB, 718 F.2d 269, 276-77 (8th Cir. 1983)). But in E.E.O.C. v. UMB Bank Fin. Corp., 558 F.3d 784, 791 (8th Cir. 2009), the court noted that the "spirit of the rule" supported a construction of Rule 408 that is "sufficiently broad to encompass certain material in addition to actual offers of settlement." And in Weems, 665 F.3d at 965, the court quoted with approval the Tenth Circuit's holding in Bradbury v. Phillips Petroleum Co., 815 F.2d 1356, 1364 (10th Cir. 1987), which held that "when the issue is doubtful, the better practice is to exclude evidence of compromises or compromise offers."
Also in Weems, id. , the Eighth Circuit expounded on the appropriate test to determine whether a party's proffered evidence falls within the ambit of Rule 408. First, the evidence must be "an offer of compromise within the meaning of Rule 408." Id. at 965 (citing Swan v. Interstate Brands Corp., 333 F.3d 863, 864 (8th Cir. 2003)). Such evidence includes "honest attempts to settle controverted claims without resorting to expensive and time consuming litigation." Bradbury, 815 F.2d at 1363. Second, to be excludable under Rule 408(a), the compromise evidence must "relate to a claim that was in dispute as to validity or amount at the time the [evidence] was proffered." Weems, 665 F.3d at 965. The definition of a "claim" for Rule 408 purposes is not a literalism that turns on what a party may have pleaded but is "fact-specific, and tethered to the rationales underlying the rule." Lyondell Chem. Co. v. Occidental Chem. Corp., 608 F.3d 284, 298 (5th Cir. 2010). Thus,
it seems preferable to make the meaning of "claim" turn on whether the result of the interpretation is likely to discourage parties from entering into compromise negotiations and whether the exclusion of the evidence of compromise would be fair in the case before the court.
23 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure, Federal Rules of Evidence § 5306 (1st ed.) (hereinafter Wright & Miller). And a dispute concerning the claim "need not crystallize to the point of threatened litigation' for the 408 exclusion rule to apply." Id. (quoting Affiliated Mfrs., Inc. v. Aluminum Co. of Am., 56 F.3d 521, 527 (3d Cir. 1995)). Rather, "[a] dispute exists for Rule 408 purposes so long as there is an actual dispute or difference of opinion' regarding a party's liability for or the amount of the claim." Id. (quoting id. ). Finally, and although subject to Rule 403, if the compromise evidence is "offered for another purpose, i.e., for a purpose other than to prove or disprove the validity of the claims that the offers were meant to settle, " then the evidence is admissible under Rule 408(b). Id. at 966 (quotation omitted).
A. Are the communications an offer or offers of compromise within the meaning of Rule 408?
The court's first inquiry is to determine if any of the communications are offers to compromise within the meaning of Rule 408. Exhibit D sets out several of Atmosphere's pre-lawsuit factual and legal grievances as well as its demands. Such letters are generally not "compromise negotiations" within the meaning of Rule 408. See, e.g., Ullmann v. Olwine, Connelly, Chase, O'Donnell & Weyher, 123 F.R.D. 237, 242 (S.D. Ohio 1987) (finding letters consisting of factual positions, legal demands, and threats of litigation are not "compromise negotiations" within the meaning of Rule 408); Sunstar, Inc. v. Alberto-Culver Co., Inc., Nos. 01-C-0736 and 01-C-5285, 2004 WL 1899927, at *22 (N.D. Ill. Aug. 23, 2004) (admitting letters setting forth parties' factual positions, asserting legal claims, and making legal demands because the letters "fail to contain any suggestion of compromise"); see also Atronic Int'l., GmbH v. SAI Semispecialists of Am., Inc., No. 03-CV-4892, 2006 WL 2654827, at *7 n. 4 (E.D.N.Y. Sept. 15, 2006) ("Where a letter provides solely demands and lacks any suggestion of compromise, such a document would not be excludable by Rule 408."); but see Kritikos v. Palmer Johnson, Inc., 821 F.2d 418, 423 (7th Cir. 1987) (letters subject to exclusion under Rule 408 because they were written "with the objective of advising the plaintiff of [a] possible compromise solution before legal action was commenced" and they detailed a specific compromise solution for the plaintiff to consider in an attempt to reconcile the differences between the parties). The court finds that Exhibit D is not an offer of compromise and therefore is not excludable pursuant to Rule 408.
As for Exhibits E and F, however, the court concludes that these communications are offers of compromise within the meaning of Rule 408. See Freidus v. First Nat'l Bank of Council Bluffs, 928 F.2d 793, 795 (8th Cir. 1991) (observing that it is permissible to read several exhibits together to determine whether they fall within Rule 408). Exhibit E provides defendants' counter arguments to Atmosphere's assertions that appeared in Exhibit D and suggests that the parties meet in order to determine whether certain billed amounts are owed short of resorting to litigation. Specifically, it notes that the purpose of such a meeting is to "avoid needless legal expense" and that the parties "should be easily able to agree on what would be due and owing under the Agreements." Docket 213-5 at 2; cf. Bradbury, 815 F.2d at 1363. Exhibit F is a summary of that meeting and details the parties' compromises. Those compromises include the resolution of several of Atmosphere's contentions in the Exhibit D letter and also several of defendants' counter arguments in the Exhibit E email. Some issues, however, required additional time to investigate or implement, such as whether property taxes were paid by the correct party and Karim's need to ensure that a balance of $200, 000 was maintained in the hotel operating account. Nonetheless, these communications describe the give-and-take that the parties made in order to reconcile their disputes short of resorting to litigation. Thus, they are offers of compromise within the meaning of Rule 408.
Exhibit G is similar to Exhibit D insofar as it includes a demand for payment in the form of a bill or invoice. Generally, bills that set forth an amount the sender believes the recipient owes are not offers of settlement. Winchester Packaging, Inc. v. Mobil Chem. Co., 14 F.3d 316, 319 (7th Cir. 1994). But this letter also explains that it is sent "per our discussions on Monday, " referencing the meeting summarized by Exhibit F. Docket 213-7. According to Exhibit F, the original bill was for approximately $180, 000, of which roughly $93, 000 was not disputed. Docket 213-6 at 1. Karim disputed whether a $20, 000 application fee had already been paid, but Atmosphere agreed that two fees totaling $49, 000 were not justified. Id. The parties further agreed that $18, 000 worth of accounting fees would be revisited. Id. The revised bill in Exhibit G contains the same $93, 000 charge that was not disputed, but also contains the disputed $20, 000 fee and a revised accounting fee of $4, 800. Docket 213-7 at 2. In this light, the bill in Exhibit G can be interpreted as a compromised amount that Atmosphere was willing to accept to resolve the parties' dispute short of litigation. Winchester, 14 F.3d at 320 (explaining that "it would make sense for Winchester in submitting a bill to Mobil in an atmosphere in which the threat of a lawsuit was looming to offer an inducement that would avoid the necessity of incur[ring] any additional legal costs.'") (alteration in original). Thus, Exhibit G is also an offer of compromise within the meaning of Rule 408.
Exhibit A is contested for the first time in Atmosphere's reply brief because the exhibit was not docketed by defendants until after Atmosphere filed the present motion. Although the letter references an ancillary lawsuit, it also contains a means of resolving a matter of contention between the parties. Docket 237-1. Specifically, the letter references the fact that the proper use of the Adoba® name is being disputed. Nonetheless, Atmosphere was willing to assent to defendants' use of the Adoba® name under certain circumstances and that Atmosphere would continue to monitor that use. Thus, the court finds that Atmosphere's conditional assent to the use of the Adoba® name short of litigation is also an offer of compromise within Rule 408.
B. Whether Exhibits E, F, G, and A relate to a claim that was in dispute at the time the communications were made?
The second inquiry is whether the offers of compromise are excludable under Rule 408(a). This inquiry that turns on whether the communications related to a claim that was disputed at the time the communications were made. Exhibit E specifically refers to amounts that Atmosphere claimed were due under the parties' signed agreements and that defendants disputed, such as the $20, 000 licensing application fee, the $18, 000 in accounting fees, and several other fees. Exhibit F acknowledges that the parties were able to come to an agreement regarding several of Atmosphere's claims, but noted that Karim still disputed that the $20, 000 licensing application fee was due and that the amount of the accounting fees would need to be revised. Those differences reflect "an actual dispute or difference of opinion' regarding a party's liability for or the amount of the claim." Weems, 665 F.3d at 965; see also Affiliated Mfrs., 56 F.3d at 527 ("The district court properly interpreted the scope of the term dispute' to include a clear difference of opinion between the parties here concerning payment of two invoices."). It also details several disputes that the parties had yet to satisfy, such as Karim's agreement to refrain from communicating with Atmosphere personnel, Henderson's agreement to deposit $62, 000 into the hotel operating account, and the need for Karim to keep that account funded with at least $200, 000. The bill in Exhibit G was sent three days after the Exhibit F email was sent and includes a demand for the disputed $20, 000 licensing application fee and Atmosphere's revised accounting fees. Defendants have presented no evidence to suggest that those amounts were free from dispute at the time the bill was sent. Thus, Exhibits E, F, and G are communications related to claims that were disputed at the time the communications were made and are therefore excludable under Rule 408(a).
Likewise, the letter in Exhibit A relates to a claim that was disputed at the time the letter was sent. That dispute concerns the use of the Adoba® name. While Atmosphere agreed to allow defendants to continue using the name in spite of that dispute, Atmosphere's acquiescence is conditional. Moreover, Atmosphere informed defendants that it would monitor their usage of the Adoba® name and that Atmosphere would intervene to protect its interests if needed. Thus, the permissible use and scope of the use of the Adoba® name was disputed at the time this letter was sent. The court concludes Exhibit A is also excludable under Rule 408(a).
C. Whether the excludable communications are nonetheless admissible under Rule 408(b)?
Because the court has determined that Exhibits E, F, G, and A are excludable under Rule 408(a), the court must next determine if those documents are nonetheless admissible under Rule 408(b). The answer to that question depends on the purpose for which the documents are offered. Cf. Athey v. Farmers Ins. Exch., 234 F.3d 357, 362 (8th Cir. 2000) (holding that an insurer's conduct during settlement negotiations may be offered to demonstrate its bad faith and therefore the evidence was "offered for another purpose" under Rule 408(b)).
Defendants contend that they are offering Exhibits E, F, and G to demonstrate when Atmosphere had knowledge of certain facts pertaining to the terms of the parties' agreements. Defendants contend that proof of Atmosphere's knowledge of the terms of the parties' agreements will preclude Atmosphere from electing the remedy of rescission.
Rescission of a contract is an available remedy "if the consent of the party seeking rescission was obtained by... fraud[.]" Shedd v. Lamb, 533 N.W.2d 241, 244 (S.D. 1996) (citing SDCL 53-11-2(1) and (2)). Among other claims, Atmosphere asserts that defendants fraudulently induced it to enter the licensing agreement by either concealing or misrepresenting the extent of numerous alterations to the parties' agreement that were made by Karim. Docket 37 at 27-28. "Fraudulent inducement entails willfully deceiving persons to act to their disadvantage." Law Capital, Inc. v. Kettering, 836 N.W.2d 642, 646 (S.D. 2013). To establish fraud, Atmosphere must prove defendants committed one of the following acts:
(1) The suggestion as a fact of that which is not true by one who does not believe it to be true;
(2) The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;
(3) The suppression of that which is true by one having knowledge or belief of the facts;
(4) A promise made without any intention of performing it; or
(5) Any other act fitted to deceive.
SDCL 53-4-5; see also Poeppel v. Lester, 827 N.W.2d 580, 587 (S.D. 2013). Atmosphere must also prove defendants' fraudulent behavior induced it to act to its detriment. Johnson v. Miller, 818 N.W.2d 804, 808 (S.D. 2012).
But even if Atmosphere was entitled to rescission because of defendants' fraud, Atmosphere "may ratify the contract by [its] actions." Shedd, 533 N.W.2d at 244. The "[f]ailure of a party to disaffirm a contract over a period of time may ripen into ratification, especially if rescission will result in prejudice to the other party." Id. at 244-45 (citing First State Bank of Sinai v. Hyland, 399 N.W.2d 894, 898 (S.D. 1987)). Therefore, "[t]he party seeking rescission must do so promptly upon discovery of the facts which entitle them to rescind." Id. at 245 (citing SDCL 53-11-4).
There is some authority for the proposition that offers of compromise are not admissible under Rule 408 when the purpose for using such evidence is to defeat a party's remedy. In Caterpillar Inc. v. Sturman Indus., Inc., No. 99-CV-1201, 2006 WL 452597 at *3 (C.D. Ill. Feb. 22, 2006), the district court explained that:
While Rule 408 may not prohibit the introduction of evidence relating to settlement negotiations when offered for some purpose other than establishing liability, the Court finds that it would be bad public policy to allow evidence of prior settlement negotiations to be used in the way that [the defendants] are attempting to use it here, that is as a shield to avoid the imposition of a remedy flowing from a breach of contract.
The court also explained that a contrary rule would discourage settlement negotiations "if doing so would result in the inability to assert [a party's] full rights" during trial if the dispute could not be resolved through those negotiations. Id. And in Abundis v. United States, 15 Cl. Ct. 619, 621 (Ct. Cl. 1988), the court excluded settlement discussions that were "relate[d] directly... to remedy." Thus, Rule 408 not only excludes offers of compromise used to disprove the validity of a claim but also excludes the same evidence used to disprove the availability of a remedy for a claim.
Defendants also contend that Exhibits E, F, and G are admissible to show that Atmosphere was not induced to enter the agreements by defendants' representations. Defendants' email in Exhibit E references that several changes were made to the fees and termination provisions of the agreements. Exhibit F also refers to some of the requirements of the termination provisions in the property management agreement. According to defendants, Atmosphere's citation to those provisions shows that Atmosphere knew that changes had been made to those provisions when it signed the agreements and that the changes did not concern Atmosphere until litigation began. If Atmosphere was aware when it signed the agreements that material alterations had been made to them, Atmosphere cannot later argue that it was induced to enter into the agreements due to defendants' fraudulent representations. Cf. Windedahl v. Harris, 156 N.W. 489, 490 (S.D. 1916) (holding that "no matter what representations were made" regarding the condition of land for sale, if the party alleging fraud had knowledge of the conditions of the land then "they could not demand rescission on account of any misrepresentations as to such surface conditions."); First State Bank v. Gunderson, 223 N.W. 596, 600 (S.D. 1929) ("If respondent, at the time of executing the renewal note sued on, had knowledge of the alleged fraud practice upon him in inducing him to give such original notes, he could not now argue such fraud as a defense to the note sued upon."). But using these exhibits for the purpose of disputing the validity of a party's claim goes to the heart of the exclusionary rationale of Rule 408. See Weems, 665 F.3d at 966-67. Thus, the court concludes that Exhibits E, F, and G are inadmissible to defeat Atmosphere's fraudulent inducement claim as well as its potential remedy of rescission for that claim.
Similarly, defendants' cite Exhibit A in response to Atmosphere's motion for summary judgment to argue that defendants received written permission to continue using the Adoba® name and therefore defendants did not breach the parties' licensing agreement. Docket 235 at 11. Defendants' use of Exhibit A to dispute the validity of Atmosphere's breach of contract claim is not a permissible use of an offer of compromise under Rule 408. Thus, Exhibit A is inadmissible for that purpose.
II. The Parties' Motions For Summary Judgment
LEGAL STANDARD Summary judgment on all or part of a claim is appropriate when the movant "shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see also In re Craig, 144 F.3d 593, 595 (8th Cir. 1998). The moving party can meet its burden by presenting evidence that there is no dispute of material fact or that the nonmoving party has not presented evidence to support an element of its case on which it bears the ultimate burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). Once the moving party has met this burden, "[t]he nonmoving party may not rest on mere allegations or denials, but must demonstrate on the record the existence of specific facts which create a genuine issue for trial.'" Mosley v. City of Northwoods, Mo., 415 F.3d 908, 910 (8th Cir. 2005) (quoting Krenik v. Cty. of Le Sueur, 47 F.3d 953, 957 (8th Cir. 1995)); see also Fed.R.Civ.P. 56(e). "Further, the mere existence of some alleged factual dispute between the parties is not sufficient by itself to deny summary judgment.... Instead, the dispute must be outcome determinative under prevailing law.'" Id. (quoting Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir. 1992)). The facts, and inferences drawn from those facts, are "viewed in the light most favorable to the party opposing the motion" for summary judgment. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655 (1962)).
In addition to the Federal Rules of Civil Procedure, this court has adopted local rules in civil cases that are binding on the parties. Braxton v. Bi-State Dev. Agency, 728 F.2d 1105, 1107 (8th Cir. 1984) ("Rules of practice adopted by United States District Courts have the force and effect of law."). Local Rule 56.1 is the local rule governing motions for summary judgment. When a party moves for summary judgment, the moving party is required to support its motion with "a separate, short, and concise statement of the material facts as to which the moving party contends there is no genuine issue to be tried." D.S.D. Civ. L.R. 56.1(A). A party's statement of material facts (SMF) must be separated into paragraphs by number and must contain "an appropriate citation to the record in the case." Id. The party opposing the summary judgment motion must respond to each assertion in the moving party's SMF "with a separately numbered response and appropriate citations to the record." D.S.D. Civ. L.R. 56.1(B). The opposing party must also "identify any material facts as to which it is contended that there exists a genuine material issue to be tried." Id. But "[a]ll material facts set forth in the movant's statement of material facts will be deemed to be admitted unless controverted by the opposing party's statement of material facts." D.S.D. Civ. L.R. 56.1(D).
The purpose of local rules like Local Rule 56.1(A) and (B) "is to distill to a manageable volume the matters that must be reviewed by a court undertaking to decide whether a genuine issue of fact exists for trial. [They are] designed to prevent a district court from engaging in the proverbial search for a needle in the haystack.'" Jones v. United Parcel Serv., Inc., 461 F.3d 982, 990 (8th Cir. 2006) (discussing W.D. Mo. L.R. 56.1(a)) (quoting Nw. Bank & Trust Co. v. First Ill. Nat'l Bank, 354 F.3d 721, 725 (8th Cir. 2003)). The rules reflect "the aphorism that it is the parties who know the case better than the judge." Northwest Bank, 354 F.3d at 725. And "the application of local rules is a matter peculiarly within the district court's province." Yannacopoulos v. Gen. Dynamics Corp., 75 F.3d 1298, 1305 (8th Cir.1996) (internal quotations and citation omitted). Thus, the court is vested with a large measure of discretion in applying its local rules. Silberstein v. IRS, 16 F.3d 858, 860 (8th Cir. 1994).
A. Atmosphere's Motion for Summary Judgment and Motion to Deem Facts Admitted
The pertinent, undisputed facts are as follows:
In approximately May 2011, Henderson, Pumphrey, and Karim began discussing a business arrangement whereby defendants' hotel, which was formerly a Radisson, would be converted into an Adoba® brand hotel. The Adoba® brand was conceived and created by Henderson and Pumphrey. No other Adoba® hotel existed at that time.
On December 31, 2011, the parties signed two agreements-a licensing agreement and a property management agreement. Under the licensing agreement, Atmosphere granted defendants the right to use Atmosphere's Adoba® brand for defendants' Rapid City hotel. Under the property management agreement, Atmosphere undertook management of the new Adoba® hotel. Defendants terminated both agreements in 2013.
Atmosphere's motion for summary judgment asserts that it is entitled to judgment as a matter of law because defendants' breached several provisions of the parties' agreements. In conjunction with that motion, Atmosphere submitted a list of material facts to establish the predicates for its arguments. Atmosphere contends that several of defendants' responses to Atmosphere's statement of material facts (SMF) are not in compliance with this court's local rules. Atmosphere therefore requests that the court deem the facts that were not properly responded to as admitted or conclude that there is no genuine dispute concerning those facts. The court will address Atmosphere's motion to deem facts admitted first. The facts that the court deems admitted or that are free from dispute will be considered in support of Atmosphere's motion for summary judgment. The facts that are not deemed admitted or that remain in dispute will be considered disputed. Additionally, Atmosphere asks this court to deem facts admitted that are not relevant to the parties' summary judgment motions - namely, SMFs #8, 9, 38, 83, 85, 88, 89, 90, 129, 138, 145, 146, 147, 149, 163, and 164. Because the resolution of those issues is not relevant to this decision, the court denies as moot Atmosphere's request to deem those facts admitted.
a. Atmosphere's motion to deem facts admitted
Atmosphere's SMF #5: "Henderson and Pumphrey designed, created, and trademarked the Adoba® brand, its marks, concept, and proprietary secrets." Docket 223 at 2 (citing Docket 219-3, -4, -6, and -15).
Defendants responded that "[i]t is not disputed that Henderson and Pumphrey design[ed], created, [and] trademarked the name Adoba.'" Docket 236 at 2. Defendants do not address Atmosphere's assertions concerning the Adoba® brand, its marks, concept, or proprietary secrets. The court concludes SMF #5 is admitted.
Atmosphere's SMF #6: "On or before April 22, 2010, Henderson and Pumphrey created Atmosphere, a company which manages Adoba® hotels." Docket 223 at 2 (citing Docket 219-6).
Defendants responded that "[i]t is not disputed that Atmosphere was incorporated by Henderson and Pumphrey on or before April 2, 2012." Docket 236 at 2. Defendants do not refute Atmosphere's contention that the company manages Adoba® hotels. The court concludes SMF #6 is admitted.
Atmosphere's SMF #30: This SMF concerns defendants' Exhibit Y that was introduced at the October 2013 preliminary injunction hearing.
Exhibit Y depicts an email allegedly sent from Karim to James Henderson on December 31, 2011. Atmosphere's SMF asserts that the email "was never emailed to James Henderson." Docket 223 at 5. The court has already concluded the email shown in Exhibit Y was never sent. Docket 258 (order on motion for sanctions); Docket 288 (order denying defendants' request to reconsider). Thus, there is no genuine dispute that the Exhibit Y email was never sent.
Atmosphere's SMF #40: "Zeljka [Curtullo] signed a mutual non-disclosure and confidentiality agreement." Docket 223 at 6 (citing Docket 219-3).
Atmosphere also cites Docket 30 for support. Docket 30 was an affidavit filed by Atmosphere's counsel on September 6, 2013, in support of Atmosphere's preliminary injunction motion. That affidavit, however, contains a docketing notice that it was filed in error and should be disregarded. The court presumes Atmosphere intended to cite to Docket 33, which is an affidavit filed on September 10, 2013, in support of Atmosphere's preliminary injunction motion. Docket 33-3 is a copy of the confidentiality agreement signed by Curtullo.
Defendants respond that this fact is "[d]isputed to the extent that this is an oversimplification of the contents of the document." Docket 236 at 4. Atmosphere was not, however, asserting anything about the contents of the confidentiality agreement. Rather, Atmosphere asserted that Curtullo signed the document. Defendants have not cited any evidence in the record refuting Atmosphere's showing that Curtullo did sign the document. Thus, the court concludes SMF #40 is admitted.
Atmosphere's SMF #41: "[Curtullo] agreed to keep proprietary information, including intellectual property, design, and other concepts regarding the Adoba® Eco Hotel brand, confidential." Docket 223 at 6.
Atmosphere cites Docket 30 for support, and the court again presumes Atmosphere meant to cite Docket 33-3, the confidentiality agreement signed by Curtullo. Defendants repeat their objection to SMF #40 that the fact is "[d]isputed to the extent that this is an oversimplification of the contents of the document." Docket 236 at 4. While defendants' response to this SMF is generalized, Atmosphere's SMF nonetheless calls for a legal conclusion regarding the requirements of the nondisclosure agreement. A party cannot dictate a court's resolution of a legal issue by labeling it as a statement of fact and asking the court to deem it admitted. Thus, the court denies Atmosphere's request to do so here.
Atmosphere's SMF #44: "[Curtullo] agreed that she would not use or permit the use of Adoba® Eco Hotel and Suites and Atmosphere Hospitality name, logo, concept, design, trademarks, or other identifying data without Atmosphere's prior written consent." Docket 223 at 6.
Both parties cite Docket 30 for support of their positions, and this court again assumes the intended document is Docket 33-3. But as with SMF #41, Atmosphere's SMF calls for a legal conclusion regarding the requirements of the nondisclosure agreement. Thus, as with SMF #41, the court will not deem this SMF as admitted regardless of defendants' response.
Atmosphere's SMF #46: "Antonio Bellatori was hired to create a design for the rooms at Adoba." Docket 223 at 7 (citing Docket 219-11).
Defendants respond that "[i]t is not disputed that Antonio Bellatori was hired by Shiba to provide design services." Docket 236 at 5. Defendants do not cite any portion of the record to contradict Atmosphere's more specific statement of fact regarding Bellatori's services. Thus, the court concludes SMF #46 is admitted.
Atmosphere's SMF #47: "Antonio Bellatori created a design and prototype for the hotel rooms." Docket 223 at 7 (citing Docket 219-10 and -11).
Defendants respond that "[i]t is not disputed that Antonio Bellatori the [sic] signed a prototype room for Shiba." Docket 236 at 5. Defendants do not cite any portion of the record that indicates Bellatori did not create a design and prototype of the hotel rooms as Atmosphere contends. The court concludes SMF #47 is admitted.
Atmosphere's SMF #49: "Dena Belon of BelonSayre was hired as a LEED-certified designer to create the LEED certification plan and manage the requirements necessary for the hotel renovation to achieve LEED certification." Docket 223 at 7 (citing Docket 219-10).
Defendants respond that "[i]t is not disputed that Dena Belon was hired by Shiba to provide design services." Docket 236 at 5. Defendants do not cite any portion of the record that shows Belon was not hired in the capacity that Atmosphere depicts. The court concludes SMF #49 is admitted.
Atmosphere's SMF #50: "Karim Merali fired Dena Belon after receiving Belon's information as to how to become LEED certified." Docket 223 at 7 (citing Docket 219-10).
Defendants respond that it "[i]s not disputed that Belon was terminated by Merali." Docket 236 at 5. Defendants further suggest that Atmosphere's citation to the record does not support its assertion. The portion of the record cited by Atmosphere is an excerpt from a deposition taken of Sacha. He was asked why Belon was hired and about the timing of her termination. Sacha testified that "[t]he last thing I remember from [Belon] was that she provided a plan of action to - I think it was Jim, it could have been Karim, for how to take - no, not for how to take, but for how to get the property LEED certified." Docket 219-10 at 5. Thus, the court concludes the fact that Belon provided defendants information on how to become LEED certified prior to her termination is not genuinely disputed and it is deemed admitted.
Atmosphere's SMF #81: "[Curtullo] testified her role was never to satisfy LEED requirements or certification." Docket 223 at 11 (citing Docket 219-11).
Defendants responded that Curtullo "testified that there were no LEED checklist[s] to follow however they consciously tried to incorporate certain aspects of LEED products and processes." Docket 236 at 8. This response is not responsive to Atmosphere's SMF. Moreover, Atmosphere's SMF is taken verbatim from Curtullo's testimony. See Docket 219-11 at 13 ("My role was never to satisfy LEED requirements or certification[.]"). While Curtullo's testimony also explains that "there were no checklists to comply with, other than what we consciously tried to do knowing certain aspects of what LEED products are and processes are, " that does not alter her testimony that her role was not to satisfy LEED requirements or certification. Thus, the court concludes this fact is not genuinely disputed and it is deemed admitted.
Atmosphere's SMF #82: "Neither [Curtullo] nor Sacha Merali utilized any LEED documents or instructions in order to make sure they designed and renovated in a way that would accomplish LEED compliance." ...