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Nebraska Data Centers, LLC v. Khayet

United States District Court, D. Nebraska

September 5, 2018

NEBRASKA DATA CENTERS, LLC, and AMERICAN NEBRASKA LIMITED PARTNERSHIP, Plaintiffs,
v.
LEO KHAYET, AND TIMBER VENTURES, LLC, Defendants.

          MEMORANDUM AND ORDER

          LAURIE SMITH CAMP CHIEF UNITED STATES DISTRICT JUDGE

         This matter is before the Court on the Motion for Default Judgment, ECF No. 206, the Motion for Sanctions, ECF No. 227, and the Motion for Attorney Fees, ECF No. 229, filed by Plaintiffs Nebraska Data Centers, LLC (NDC), and American Nebraska Limited Partnership (ANLP) (collectively, Plaintiffs). For the reasons stated below, the Motions will be granted.

         BACKGROUND

         1. Factual Background

         The following facts are those alleged in the Second Amended Complaint, ECF No. 166.

         NDC and Defendant Leo Khayet entered into a Consulting Agreement, ECF No. 2, on August 8, 2017. The Consulting Agreement provided:

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

         Consulting Agreement, ECF No. 2, Page ID 6. The terms of the Agreement also provided that “[i]f NDC or any affiliate[ ] completes any transaction with any party listed in Appendix A within thirty-six [ ] months after the date of this Agreement” Khayet shall be paid two percent “of the purchase and/or sale of NDC assets in whole or in part . . . .” Id. Neither NDC nor any of its assets were sold.

         On October 4, 2017, NDC sent Khayet a letter that stated NDC “hereby terminates the Consulting Agreement with immediate effect as of the date of this letter.” Termination Letter, ECF No. 2, Page ID 11. Khayet disputed NDC's legal ability to terminate the Consulting Agreement and, despite NDC's multiple requests to stop, he continued to contact individuals and business entities interested in purchasing NDC's assets. He also contacted some of NDC's vendors and discussed the prospect of a transaction involving NDC and its assets. Eventually, Khayet revealed to NDC that he was personally interested in purchasing NDC's assets either individually or as a member of a group of purchasers. Plaintiffs allege Khayet's intent was to interfere with their business relationships, decrease Plaintiffs' perceived market value, and damage their ability to sell NDC's and ANLP's assets.

         On December 1, 2016, prior to executing the Consulting Agreement, NDC and Defendant Timber Ventures, LLC, of which Khayet is the President, entered into a Mutual Confidentiality and Nondisclosure Agreement (Confidentiality Agreement), ECF No. 12. NDC and Timber Ventures, LLC, entered into the Confidentiality Agreement for the purpose of determining whether NDC would engage Khayet or Timber Ventures, LLC, with respect to the proposed sale of NDC's and ANLP's assets. Plaintiffs allege Khayet disclosed their confidential information to unauthorized individuals and business entities.

         II. Procedural Background

         Although this case has not progressed beyond the pleading stage, the procedural background is extensive. The Court incorporates the procedural background discussion from its Memorandum and Order, ECF No. 158, Page ID 1171-72, by reference, and provides the following summary and additional background:

         On October 5, 2017, NDC filed a Complaint for Declaratory Judgment, ECF No. 1, against Khayet, seeking a declaration that the Consulting Agreement was terminated and that Khayet was owed no compensation. On October 26, 2017, Khayet filed his own Complaint, ECF No. 1 in No. 8:18cv330, against several defendants, including NDC and ANLP, in the U.S. District Court for the District of Kansas. Khayet later amended his Complaint, see ECF No. 10, to assert claims against only Todd Cushing, the President of NDC.

         On November 2, 2017, NDC filed the Amended Complaint, ECF No. 11, which sought a declaratory judgment and asserted the following claims: (1) tortious interference with a business relationship or expectancy; (2) fraudulent misrepresentation; (3) negligent misrepresentation; (4) breach of contract; (5) a violation of the Junkin Act, Neb. Rev. Stat. § 59-805; (6) unfair competition; (7) a violation of the Nebraska Uniform Deceptive Trade Practices Act (UDTPA), Neb. Rev. Stat. § 87-302; and (8) common-law trademark infringement. On November 17, 2017, NDC moved for a preliminary injunction, ECF No. 21, and on January 11, 2018, NDC also moved to enjoin Khayet from prosecuting his case in the District of Kansas under the first-to-file rule. ECF No. 69.

         On January 26, 2018, the Court granted NDC's Motion for Preliminary Injunction, in part, and enjoined Khayet from prosecuting his case in the District of Kansas. Memorandum and Order, ECF No. 76. On May 10, 2018, the Court granted, in part, and denied, in part, Khayet's Motion to Dismiss the Amended Complaint, ECF No. 78, and granted NDC's request for leave to file a second amended complaint. Memorandum and Order, ECF No. 158. NDC timely filed its Second Amended Complaint on May 25, 2018, which added ANLP as a plaintiff and Timber Ventures, LLC, as a defendant. Khayet was ordered to answer or otherwise respond to Plaintiffs' Second Amended Complaint on or before June 15, 2018, and Timber Ventures, LLC, was ordered to answer or otherwise respond on or before June 19, 2018. ECF No. 178.

         Khayet and Timber Ventures, LLC, failed to file an answer or otherwise respond to the Second Amended Complaint. From the date the Second Amended Complaint was filed to June 15, 2018, Khayet filed a discovery motion, ECF No. 170, a “Motion to Restore Justice, ” ECF No. 173, a “Notice of Exigent Filing in District of Kansas, ” ECF No. 176, and a Motion to Stay and Vacate, ECF No. 181. These filings did not answer or otherwise respond to the Second Amended Complaint, and Khayet's motions were summarily denied. No. filings were made, and no attorney appearance was entered on Timber Ventures, LLC's, behalf. On June 25, 2018, Magistrate Judge Zwart issued a Findings and Recommendation, ECF No. 195, recommending that the Court enter default judgment against Khayet and Timber Ventures, LLC. The Court did not adopt that recommendation, and specifically instructed Khayet and Timber Ventures, LLC, to file an answer to the Second Amended Complaint on or before July 17, 2018. ECF No. 200. The Court also stated that default would be entered under Fed.R.Civ.P. 55(a) if an answer was not timely filed. Id. Neither Khayet nor Timber Ventures, LLC, filed an answer to the Second Amended Complaint. See ECF No. 202.

         On July 18, 2018, the Court directed the Clerk to enter default against Khayet and Timber Ventures, LLC. Although the Court explained in its Memorandum and Order, ECF No. 200, that Khayet and Timber Ventures, LLC, could move to set aside the entry default for good cause under Fed.R.Civ.P. 55(c), no such motion was made. Plaintiffs moved for entry of Default Judgment under Fed.R.Civ.P. 55(b)(2), ECF No. 206, and on August 27, 2018, the Court held a hearing on that motion pursuant to Fed.R.Civ.P. 55(b)(2)(B), ECF No. 249.

         Throughout this case, Khayet has disregarded the orders of this Court and has engaged in conduct designed to harass Court employees, harass and obstruct opposing counsel, and needlessly waste the time and resources of the Court, opposing counsel, and adverse parties. Rather than answer or meaningfully respond to the Second Amended Complaint, he engaged in a pattern of accusing Plaintiffs, Plaintiffs' counsel, Court staff, and chambers staff of various improprieties, including fraud and criminal activity. See, e.g., ECF Nos. 133, 135, 136, 145, 189, 199, 202, 204, 205, 209, 230, 243, 247, 252, 253. He attempted to influence the outcome of this case by threatening opposing counsel, see, e.g., ECF No. 226, Page ID 1608-09, and repeatedly warning opposing counsel, chambers staff, and Clerk's Office staff that he has initiated criminal investigations against them. Khayet's conduct toward Clerk's Office staff and chambers staff resulted in Magistrate Judge Zwart issuing orders that prohibited him from initiating contact with the employees working in the Clerk's Office and her chambers. ECF Nos. 145, 189, 205. He subsequently violated the express restrictions contained in those orders on several occasions. ECF No. 226 (transcript of contempt hearing). Further, Khayet regularly stated in filings and motions that he believed the Court's orders were unlawful and questioned their validity. See, e.g., ECF No. 248, Page ID 1966-67. He also contacted other judges in this District asking them to intervene in this case.

         DISCUSSION

         I. Default Judgment

         Plaintiffs request that default judgment be entered against both Khayet and Timber Ventures, LLC, based on their failure to answer the Second Amended Complaint.

         It is “appropriate for a district court to enter a default judgment when a party fails to appropriately respond in a timely manner.” Marshall v. Baggett, 616 F.3d 849, 852 (8th Cir. 2010) (citing Inman v. Am Home Furniture Placement, Inc., 120 F.3d 117, 119 (8th Cir. 1997)).[1] “[W]hen a default judgment is entered, facts alleged in the complaint may not be later contested.” Marshall, 616 F.3d at 852 (citing Thomson v. Wooster, 114 U.S. 104 (1885)). It is, however, “incumbent upon the district court to ensure that ‘the unchallenged facts constitute a legitimate cause of action' prior to entering final judgment.” Marshall, 616 F.3d at 852-53 (quoting Murray v. Lene, 595 F.3d 868, 871 (8th Cir. 2010)).

         The Second Amended Complaint asserts the following claims: Count I- Declaratory Judgment; Count II-Tortious Interference with a Business Relationship or Expectancy; Count III-Breach of the Confidentiality Agreement; Count IV-Breach of the Consulting Agreement; Count V-Violation of the Junkin Act, Neb. Rev. Stat. § 59-805; and Count VI-Violation of the Nebraska Uniform Deceptive Trade Practices Act, Neb. Rev. Stat. § 87-302 et seq. Plaintiffs voluntarily dismissed Counts II, III, and IV during the Rule 55(b)(2)(B) hearing, and the remaining claims-Counts I, V, and VI-are asserted against Khayet individually and exclusively. Timber Ventures, LLC, will, therefore, be dismissed from this action and default judgment will not be entered against it. Accordingly, the Court will first address Counts I, V, and VI to ensure the unchallenged facts support a legitimate cause of action against Khayet. The Court will then address Plaintiffs' request for injunctive relief, damages, and attorney fees. Marshall, 616 F.3d at 852-53.

         A. Count I-Declaratory Judgment

         “The Declaratory Judgment Act provides that any federal court, ‘[i]n a case of actual controversy within its jurisdiction[2] . . . may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.'” Maytag Corp. v. Int'l Union, United Auto., Aerospace & Agric. Implement Workers of Am., 687 F.3d 1076, 1081 (8th Cir. 2012) (quoting 28 U.S.C. § 2201(a)). “The phrase ‘case of actual controversy' in § 2201 ‘refers to the type of Cases and Controversies that are justiciable under Article III.'” U.S. Water Servs., Inc. v. ChemTreat, Inc., 794 F.3d 966, 971 (8th Cir. 2015) (quoting Id.). ‚ÄúThere must be a concrete dispute between parties having adverse legal interests, and the declaratory judgment ...


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