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Nebraska Data Centers, LLC v. Khayet

United States District Court, D. Nebraska

January 26, 2018

LEO KHAYET, Defendant.


          Laurie Smith Camp Chief United States District Judge.

         This matter is before the Court on the Motion for Preliminary Injunction, ECF No. 21, and Motion to Enjoin, ECF No. 69, filed by Plaintiff Nebraska Data Centers, LLC (NDC). Also before the Court are various Motions, ECF Nos. 65, 66, 67, 68, and 72, filed by Defendant Leo Khayet. For the reasons stated below, NDC's Motion for Preliminary Injunction will be granted in part, and its Motion to Enjoin will be granted. Khayet will be permitted to refile his Motion to Dismiss, ECF No. 68, in compliance with the Court's local rules, or file another responsive pleading to the Amended Complaint on or before February 2, 2018.


         NDC, along with all of its “affiliates and Principals, ” entered into a Consulting Agreement with Khayet on August 8, 2017. Consulting Agreement, ECF No. 2, Page ID 6. The Consulting Agreement provided that

NDC has asked [Khayet] to introduce or re-introduce [NDC] to targeted family offices, high net worth individuals, strategic real estate investors and other capital groups and/or individuals identified in Appendix A[1] that have the financial ability to purchase the assets of NDC [ ]: including all tangible and intangible assets.

Id. Under the Consulting Agreement, Khayet was entitled to compensation only if NDC consummated a sale with one of the parties listed in Appendix A within thirty-six months of execution. Id. Khayet was not authorized to act as an agent or negotiate on NDC's behalf and NDC agreed that it would not “execute transactions with any [parties identified in Appendix A], without [Khayet's permission].” Id.

         Before the Parties entered into the Consulting Agreement, Nebraska Colocation Centers, LLC, and Timber Ventures, LLC, [2] entered into a separate Mutual Confidentiality and Nondisclosure Agreement (Confidentiality Agreement). ECF No. 12, Page ID 34. Khayet was the president of Timber Ventures, and Nebraska Colocation Centers was a trade name registered to NDC. The purpose of the Confidentiality Agreement was to facilitate execution of the Consulting Agreement. Id.

         Shortly after the Parties entered into the Consulting Agreement, their relationship deteriorated. NDC became concerned that Khayet would be unable to find a satisfactory buyer, and NDC decided to reduce its communications with Khayet. On October 4, 2017, NDC sent Khayet a letter notifying him that NDC was terminating the Consulting Agreement and ordering Khayet to cease all activity in connection with the Consulting Agreement. Termination Letter, ECF No. 2, Page ID 11-12. NDC cited Khayet's apparent inability to find an acceptable buyer and persistent, inappropriate communications with NDC's officers and owners, as the basis for its decision to terminate. Pl.'s Br. Mot. Prelim. Inj., ECF No. 22, Page ID 99. The Consulting Agreement did not include a clause or provision addressing termination by either party.

         After Khayet received the termination letter, he insisted he had a right to attempt to perform under the Consulting Agreement. He made several attempts to communicate with Joel Mogy, a trustee for the Ralph and Barbara Edwards Insurance Trust, which is a member of NDC. Mogy Declaration, ECF No. 22-3. He also made several attempts to communicate with officers of NDC. Cushing Declaration, ECF No. 22-1; E-mail Correspondence, ECF No. 22-2, Page ID 138. And he reached out to an architect that NDC retained to prepare for a potential sale of the company. Knott Declaration, ECF No. 25-1, Page ID 170. NDC alleges the foregoing communications were persistent, inappropriate, and aimed at decreasing NDC's value as well as disrupting NDC's own efforts to consummate a sale of its assets. NDC was also concerned when it learned Khayet was interested in purchasing NDC's assets. NDC concluded “it is reasonable to assume Khayet has been contacting potential third-party buyers of NDC in an effort to prevent NDC from completing a sale of its business assets.” Pl.'s Br. Mot. Prelim. Inj., ECF No. 22, Page ID 101. NDC further asserts “Khayet may also be disclosing confidential information about NDC . . . .” Id.

         On October 5, 2017, NDC filed the Complaint, ECF No. 1, requesting a declaratory judgment to determine the Parties' rights and obligations under the Consulting Agreement. Specifically, the Complaint sought a declaration that

(a) no amount is due or owing to Defendant under the Agreement; (b) [NDC] has complied with all terms and conditions of the Agreement and has not breached any of the terms and conditions of the Agreement; and (c) the Agreement is terminated, except with respect to those terms and conditions which survive the termination of the Agreement.

Complaint ¶ 15, ECF No. 1, Page ID 3. On October 18, 2017, Khayet told NDC's counsel that he did not accept NDC's termination of the Consulting Agreement and, citing his perceived rights under the Consulting Agreement, he asserted he will not stop seeking potential buyers. ECF No. 22-2, Page ID 129. On November 2, 2017, NDC filed its Amended Complaint, ECF No. 11, adding claims against Khayet for tortious interference with a business relationship or expectancy; fraud; negligent misrepresentation; breach of contract; violations of the Junkin Act, Neb. Rev. Stat. § 59-805; unfair competition; violations of the Nebraska Uniform Deceptive Trade Practices Act, Neb. Rev. Stat. § 87-302 et seq.; and trademark infringement. Am. Comp., ECF No. 11. The Amended Complaint also requested injunctive relief and, on November 17, 2017, NDC filed its Motion for Preliminary Injunction, ECF No. 21, that specifically asked the Court to enjoin Khayet and any of his agents and representatives from engaging in the following conduct:

(1) discussing contacting, or otherwise communicating with any entity or person (other than Khayet's legal counsel) any matter referencing, relating to, or associated with the Consulting Agreement; (2) holding Khayet (or any of Khayet's agents, affiliates or representatives) out as an agent, affiliate or otherwise as a person authorized to transact business on behalf, of NDC; (3) contacting or otherwise communicating with regard to any matters related to the Consulting Agreement with: (i) NDC's customers, vendors, service providers and business partners known to Khayet or disclosed to Khayet under the terms of the Consulting Agreement or Confidentiality Agreement; (ii) NDC; (iii) NDC'[s] officers: Mr. Jerry Appel, Mr. Martin S. Appel and Mr. Todd Cushing; (iv) NDC's employees; (v) NDC's owners: the Ralph and Barbara Edwards Insurance Trust, the Christine Alison Edwards Tandy Trust, the Gary Livingstone Lenhart Trust, and the Lauren Avery Edwards Lenhart Trust (the “Trusts”); (vi) the trustees of NDC's owners, Mr. Martin S Appel and Mr. Joel Mogy (the “Trustees”); and (vii) NDC's affiliate: American Nebraska Limited Partnership (the “Affiliate”) and its owners, the Trusts, and their respective Trustees; and (4) taking any action intended to harm NDC, its officers, its employees or business operations, the Trusts, the Trustees or the Affiliate.

Pl.'s Br. Mot. Prelim. Inj., ECF No. 112-13.

         The Court held a hearing on the Motion on December 7, 2017, and an attorney, Benjamin Maxell, appeared on behalf of Khayet.[3] The Court heard oral arguments from counsel and set deadlines for supplemental briefing; Khayet was given until December 29, 2017, to submit a brief in opposition to the Motion, and NDC was to submit any reply brief on or before January 12, 2017. ECF No. 33. The Court also requested that Mr. Maxell instruct Khayet not to contact NDC or any of its officers, principals, vendors, or clients; and that any such contact was to be made through counsel. On December 11, 2017, Khayet moved for an extension of time to respond to the Amended Complaint and the Court ordered that he respond on or before December 26, 2017. ECF No. 35.

         On December 19, 2017, Mr. Maxell moved to withdraw as counsel for Khayet, ECF No. 39, and NDC filed a Motion for Contempt of Court, ECF No. 40, because Khayet continued to attempt to communicate with NDC principals and officers. The Court held another hearing on December 21, 2017, regarding the two newest motions. The Court permitted Mr. Maxell to withdraw; denied the Motion for Contempt of Court; and issued a Temporary Restraining Order. TRO, ECF No. 53. On December 26, 2017, Khayet again moved for an extension of time to respond to the Amended Complaint, and the Court ordered that he submit a response on or before December 29, 2017. ECF No. 54. The Court also reminded Khayet that he was permitted, but not required, to submit a brief in opposition to the pending Motion for Preliminary Injunction on or before December 29, 2017.

         Khayet filed a motion to dismiss the Amended Complaint, ECF No. 61, which failed to comply with the Court local rule, NECivR 7.1(a)(1)(A). In that motion, Khayet argued that the Court has not permitted him enough time to obtain counsel; that the Court lacks personal jurisdiction over him; that venue is improper; and that NDC's claims are “not adequately pled.” Id. Khayet did not file a timely brief in opposition to the Motion for Preliminary Injunction.[4]

         The Court has denied Khayet's repeated motions for additional extensions of time, and it denied his Motion to Dismiss Plaintiff's Amended Complaint in Lieu of Answer for failure to comply with the Court's local rules. ECF No. 63. Khayet has resubmitted a Motion to Dismiss along with a Motion for leave to submit it out of time. ECF Nos. 65-68. The resubmitted Motion to Dismiss also fails to comply with the Court's local rule NECivR 7.1(a)(1)(A).. Khayet also filed a complaint against Todd Cushing, the president of NDC, in the United States District Court for the District of Kansas. Khayet v. Cushing, 2:17cv2624 (D. Kan. October 26, 2017).


         I. Motion for Preliminary Injunction

         Courts in the Eighth Circuit apply the factors set forth in Dataphase Sys., Inc. v. CL Sys., Inc., 640 F.2d 109, 114 (8th Cir. 1981) (en banc), when determining whether to issue a preliminary injunction. Those factors are: “(1) the threat of irreparable harm to the movant; (2) the state of balance between this harm and the injury that granting the injunction will inflict on other parties litigant; (3) the probability that movant will succeed on the merits; and (4) the public interest.” Id. “No single factor is determinative.” WWP, Inc. v. Wounded Warriors, Inc., 566 F.Supp.2d 970, 974 (D. Neb. 2008). “A preliminary injunction is an extraordinary remedy and the burden of establishing the propriety of an injunction is on the movant.” Roudachevski v. All-Am. Care Centers, Inc., 648 F.3d 701, 705 (8th Cir. 2011) (citing Watkins, Inc. v. Lewis, 346 F.3d 841, 844 (8th Cir. 2003)). “The purpose of a preliminary injunction is to ‘preserve the relative positions of the parties until a trial on the merits can be held.'” Paisley Park Ents., Inc. v. Boxill, 253 F.Supp.3d 1037, 1043 (D. Minn. 2017) (quoting Univ. of Texas v. Camenisch, 451 U.S. 390, 395 (1981).

         A. Likelihood of Success on the Merits

         “In deciding whether to grant a preliminary injunction, likelihood of success on the merits is most significant.” S.J.W. ex rel. Wilson v. Lee's Summit R-7 Sch. Dist., 696 F.3d 771, 776 (8th Cir. 2012) (quoting Minn. Ass'n of Nurse Anesthetists v. Unity Hosp., 59 F.3d 80, 83 (8th Cir.1995)). With respect to this factor, it is not necessary for the movant to prove they are more likely than not to prevail, the movant “need only show a reasonable probability of success, that is, a fair chance of prevailing” on the merits. Kroupa v. Nielsen, 731 F.3d 813, 818 (8th Cir. 2013); Dataphase, 640 F.2d at 113. NDC's Amended Complaint enumerates nine separate claims, but it is only necessary to demonstrate a likelihood of success on one of its claims. League of Wilderness Defenders/Blue Mountains Biodiversity Project v. Connaughton, 752 F.3d 755, 759 n.1 (9th Cir. 2014); accord Abbott Labs. v. Andrx Pharm., Inc., 473 F.3d 1196, 1201 (Fed. Cir. 2007).

         NDC seeks three declarations from the Court: (1) “no amount is due or owing to [Khayet] under the Agreement;” (2) NDC has complied with all the terms and conditions of, and has not breached, the Agreement; and (3) “the Agreement is terminated, ” with the exception of ...

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