United States District Court, E.D. Michigan, Southern Division
XXX International Amusements, Inc., f/k/a VGR Systems Corp., Plaintiff,
Gulf Coast Visuals Management Company, LLC, et al., Defendants.
David R. Grand, U.S. Magistrate
GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION
TO DISMISS ; DENYING DEFENDANT'S
MOTION TO DISMISS ; DENYING
PLAINTIFF'S MOTION TO DISMISS ; DENYING
PLAINTIFF'S MOTION FOR PARTIAL SUMMARY
JUDGMENT ; AND GRANTING IN PART AND DENYING IN
PART DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT
J. Tarnow, Senior United States District Judge
following motions are before the Court: a Motion to Dismiss
 filed by Defendants SGS Management Company, Inc. and
Anwar Enterprises, Inc., LaGrange Trading Co., and Western
Adult Enterprises; a Motion to Dismiss  filed by
Defendant Gulf Coast Visuals Management Company, LLC; a
Motion to Dismiss Counter-plaintiffs' Claim for
Accounting  filed by Plaintiff XXX International
Amusements, Inc.; a Motion for Partial Summary Judgment 
filed by Plaintiff XXX International Amusements, Inc.; a
Motion for Summary Judgment  filed by Defendants SGS
Management Company, Inc. and Anwar Enterprises, Inc.,
LaGrange Trading Co., and Western Adult Enterprises, Inc.;
and a Motion for Summary Judgment  filed by Defendant
Gulf Coast Visuals Management Company, LLC.
reasons stated below, and incorporating the reasons stated on
the record, the Court: GRANTS in part and DENIES in
part Defendants' Motion to Dismiss ;
DENIES Defendant's Motion to Dismiss
; DENIES Plaintiff's Motion for
Partial Summary Judgment ; GRANTS in part and
DENIES in part Defendants' motions for summary
judgment [56, 57]; and DENIES
Plaintiff's Motion to Dismiss Counter-plaintiffs'
Claim for an Accounting .
and Procedural Background
a breach of contract case arising out of agreements for the
service and maintenance of video arcade equipment, known as
“peep show booths” in adult bookstores. Plaintiff
XXX International Amusements, Inc. (“XXX”)
installs, manages, and services video arcade devices in adult
book and video entertainment businesses. Defendant Gulf Coast
Visuals Management Company, LLC (“Gulf Coast”)
owns adult book and video entertainment businesses, including
Defendants Anwar Enterprises (“Birmingham
Books”), LaGrange Trading Co. (“Airline
Bookstore”), and Western Adult Enterprises, Inc.
(“Alabama Books”) (hereinafter “the Adult
Bookstores”). Defendant SGS Management Company, Inc.
(“SGS”) also manages adult retail
XXX, Gulf Coast, and the Adult Bookstores
October 1997, the Adult Bookstores entered into service
agreements with non-party Goalie Entertainment, Inc.
(“Goalie”). Pursuant to the 1997 service
agreements, Goalie agreed to provide services for the
installation, maintenance, and repair of video arcade devices
in the Adult Bookstores, in exchange for 50% gross revenues
collected from customers' use of the devices. Upon the
execution of the 1997 service agreements, non-party Lynda
Entratter owned the Adult Bookstores. In January 2008, Goalie
assigned the 1997 service agreements to XXX.
died in December 2009. Edward Wedelstedt, then-owner of XXX,
was named Personal Representative of her estate. As Personal
Representative of the estate, Wedelstedt became the
“owner” of the Adult Bookstores.
January 2010, James Olsafsky and Ded Dedvukaj formed Gulf
Coast in order to purchase the Adult Bookstores from
Entratter's estate. At that time, Olsafsky and Dedvukaj
were 50/50 members of Gulf Coast, with Olsafsky as the
to a Management Agreement effective April 15, 2010, but not
dated and signed until April 20, 2011, Gulf Coast became the
manager of the Adult Bookstores. The Management Agreement
authorized Gulf Coast to enter into contracts on behalf of
the Adult Bookstores. The Management Agreement also provided
that Gulf Coast had the option to purchase the Adult
Bookstores from Entratter's estate.
April 15, 2010, XXX and Gulf Coast entered into the 2010
Service Agreements which are the subject of this action
(hereinafter “the Agreements”).The Agreements
were signed by Olsafsky, on behalf of Gulf Coast, and Scott
Moore on behalf of XXX. Like the 1997 service agreements, the
Agreements provided that XXX would be responsible for the
installation, maintenance, and repair of the arcade devices
in the Adult Bookstores, in exchange for 30% of all gross
revenues for a term of ten years.
November 22, 2010, XXX and Gulf Coast entered into an
Addendum to the Agreements. The 2010 Addendum altered the
profits' split, entitling XXX to 40% of gross revenues.
Coast exercised its stock purchase option, set forth in the
Management Agreement, on May 2, 2011. Wedelstedt transferred
100% of the stock to Gulf Coast on October 7, 2011.
2012 and 2013, it was discovered that Olsafsky was engaging
in fraudulent conduct in various business enterprises.
Dedvukaj, on behalf of Gulf Coast, filed a lawsuit against
Olsafsky in Wayne County Circuit Court. Pursuant to a
settlement agreement entered into in March 2014, Olsafsky
agreed to pay Gulf Coast $300, 000 and relinquish his
membership in the LLC. Dedvukaj is currently the sole owner
of Gulf Coast and the Adult Bookstores.
Olsafsky left Gulf Coast, Dedvukaj hired Brian White to
supervise the Adult Bookstores. Defendants submit that in
late 2013, Dedvukaj and White discovered that XXX was
collecting walk-out fees in excess of the amount authorized
under the 60/40 split.
September 30, 2014, Gulf Coast notified XXX via letter that,
beginning on October 1, 2014, it would no longer require
XXX's services. In the letter, Gulf Coast indicated that
XXX was to promptly remove all of its equipment from the
Adult Bookstores. Gulf Coast did not provide a reason for
terminating the Agreements in its letter.
October 7, 2014, XXX informed Gulf Coast of its belief that
Gulf Coast's actions amounted to a gross violation of the
February 28, 2015, XXX attempted to remove its equipment from
storage and discovered that it was damaged.
XXX and SGS
formed in December 2011 to manage the cash flow of the Adult
Bookstores. XXX alleges that SGS, on behalf of the Adult
Bookstores, was delinquent in paying its portion of the video
arcade proceeds under the Agreements. On June 9, 2014, XXX
drafted a Promissory Note to evidence the debt the Adult
Bookstores allegedly owed to XXX and to establish a repayment
scheme of $1, 000 per week by SGS. The payment scheme was
reached based on email communications between Moore, on
behalf of XXX, and White, on behalf of SGS. In the emails,
White indicated that SGS would agree to pay XXX $1, 000 per
week. White further agreed to allow Moore to memorialize the
arrangement and stated that he would forward it to Dedvukaj
for approval. The Promissory Note was never signed.
submits that between June 2014 and October 2014, SGS made
regular payments to XXX on the Promissory Note, but has
failed to make any payments on the outstanding debt since
October 2014. XXX argues that SGS defaulted on its
obligations under the assumed debt and owes a balance of $29,
commenced this action on November 25, 2015. XXX filed a
Motion for Leave to File an Amended Complaint  on January
30, 2017, which the Court granted in part and denied in part.
[Dkt. #38]. XXX filed the Amended Complaint  on May 3,
2017. Counts I-III of the Amended Complaint allege breach of
each 2010 Service Agreement. Count IV alleges breach of
contract against SGS for failing to pay on the Promissory
Note. Count V alleges unjust enrichment against all
Defendants. Defendants have not filed answers to the Amended
17, 2017, SGS and the Adult Bookstores, and Gulf Coast, filed
motions to dismiss [44, 45] pursuant to Fed.R.Civ.P.
12(b)(6). On July 31, 2017, XXX filed a Motion to Dismiss
Counter-plaintiffs' Claim  pursuant to Fed.R.Civ.P.
12(c) and a Motion for Partial Summary Judgment  pursuant
to Fed.R.Civ.P. 56. Also on that date, SGS and the Adult
Bookstores, and Gulf Coast, filed motions for summary
judgment [56, 57] pursuant to Fed.R.Civ.P. 56. The Court held
a hearing on the motions on March 19, 2018.
Rule 12(b)(6) motion to dismiss, the Court must “assume
the veracity of [the plaintiff's] well-pleaded factual
allegations and determine whether the plaintiff is entitled
to legal relief as a matter of law.” McCormick v.
Miami Univ., 693 F.3d 654, 658 (6th Cir. 2012) (citing
Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)).
“To survive a motion to dismiss, [plaintiff] must
allege ‘enough facts to state a claim to relief that is
plausible on its face.'” Traverse Bay Area
Intermediate Sch. Dist. v. Mich. Dep't of Educ., 615
F.3d 622, 627 (6th Cir. 2010) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)).
for judgment on the pleadings pursuant to Federal Rule of
Civil Procedure 12(c) are analyzed under the same de novo
standard as motions to dismiss pursuant to Rule
12(b)(6).” Sensations, Inc. v. City of Grand
Rapids, 526 F.3d 291, 295 (6th Cir. 2008).
Rule 56 motion for summary judgment, the Court must determine
whether “the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law.” Fed.R.Civ.P. 56(c). The
moving party has the burden of establishing that there are no
genuine issues of material fact, which may be accomplished by
demonstrating that the nonmoving party lacks evidence to
support an essential element of its case. Celotex Corp.
v. Catrett, 477 U.S. 317, 322 (1986). The Court must
construe the evidence and all reasonable inferences drawn
therefrom in the light most favorable to the nonmoving party.
Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986). A genuine issue for
trial exists if “the evidence is such that a reasonable
jury could return a verdict for the nonmoving party.”
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248
(1986). “[T]he standards upon which the court evaluates
the motions for summary judgment do not change simply because
the parties present cross-motions.” Taft Broad. Co.
v. United States, 929 F.2d 240, 248 (6th Cir. 1991).
arguments set forth in Defendants' motions to dismiss,
and repeated in their motions for summary judgment, are
assessed first under the Rule 12(b)(6) standard, and, where
necessary, under the Rule 56 standard. The few issues raised
exclusively in Defendants' motions for summary judgment
are assessed strictly under the Rule 56 standard.
I. Breach of Contract (Counts I-III)
law governs the Agreements listing Birmingham Books and
Alabama Books. Louisiana law governs the Agreement listing
Alabama law, the elements of a breach of contract claim are:
“(1) the existence of a valid contract binding the
parties in the action, (2) the plaintiff's own
performance under the contract, (3) the defendant's
nonperformance, and (4) damages.” S. Med. Health
Sys., Inc. v. Vaughn, 669 So.2d 98, 99 (Ala. 1995). In
Louisiana, “to prevail on a breach of contract claim,
the plaintiff must prove by a preponderance of the evidence:
1) defendant owed him an obligation; 2) defendant failed to
perform the obligation; and 3) defendant's failure to
perform resulted in damage to the plaintiff.” Stipp
v. MetLife Auto & Home Ins. Agency, Inc., 17-61
(La.App. 5 Cir. 8/30/17), 225 So.3d 1182, 1189, writ
denied, 2017-1774 (La. 12/5/17), 231 So.3d 632.
Whether the Agreements bind the Adult Bookstores and Gulf
Coast as parties
contract is an agreement that imposes a mutuality of
obligation on the parties. See Marcrum v. Embry, 291
Ala. 400, 403 (1973); Le Mieux Bros. v. Tremont Lumber
Co., 52 F.Supp. 116, 120 (W.D. La. 1943),
aff'd, 140 F.2d 387 (5th Cir. 1944).
“[T]he capacity in which a party executes a document is
largely a matter of that party's intention as determined
from the circumstances surrounding the transaction.”
Veterans Commercial Properties, LLC v. Barry's
Flooring, Inc., 11-6 (La.App. 5 Cir. 5/24/11), 67 So.3d
The Agreements bind the Adult ...