United States District Court, D. Nebraska
NEBRASKA DATA CENTERS, LLC, and AMERICAN NEBRASKA LIMITED PARTNERSHIP, Plaintiffs,
LEO KHAYET, AND TIMBER VENTURES, LLC, Defendants.
MEMORANDUM AND ORDER
SMITH CAMP CHIEF UNITED STATES DISTRICT JUDGE
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
following facts are those alleged in the Second Amended
Complaint, ECF No. 166.
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.
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
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
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.
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:
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.
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.
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.
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.
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.
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
request that default judgment be entered against both Khayet
and Timber Ventures, LLC, based on their failure to answer
the Second Amended Complaint.
“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)). “[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)).
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.
Count I-Declaratory Judgment
Declaratory Judgment Act provides that any federal court,
‘[i]n a case of actual controversy within its
jurisdiction . . . 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.). “There must be a concrete
dispute between parties having adverse legal interests, and
the declaratory judgment ...