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XXX International Amusements, Inc. v. Gulf Coast Visuals Management Company, LLC

United States District Court, E.D. Michigan, Southern Division

March 30, 2018

XXX International Amusements, Inc., f/k/a VGR Systems Corp., Plaintiff,
v.
Gulf Coast Visuals Management Company, LLC, et al., Defendants.

          Judge David R. Grand, U.S. Magistrate

         ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTION TO DISMISS [44]; DENYING DEFENDANT'S MOTION TO DISMISS [45]; DENYING PLAINTIFF'S MOTION TO DISMISS [54]; DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT [55]; AND GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT [56, 57]

          Arthur J. Tarnow, Senior United States District Judge

         The following motions are before the Court: a Motion to Dismiss [44] filed by Defendants SGS Management Company, Inc. and Anwar Enterprises, Inc., LaGrange Trading Co., and Western Adult Enterprises; a Motion to Dismiss [45] filed by Defendant Gulf Coast Visuals Management Company, LLC; a Motion to Dismiss Counter-plaintiffs' Claim for Accounting [54] filed by Plaintiff XXX International Amusements, Inc.; a Motion for Partial Summary Judgment [55] filed by Plaintiff XXX International Amusements, Inc.; a Motion for Summary Judgment [56] 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 [57] filed by Defendant Gulf Coast Visuals Management Company, LLC.

         For the reasons stated below, and incorporating the reasons stated on the record, the Court: GRANTS in part and DENIES in part Defendants' Motion to Dismiss [44]; DENIES Defendant's Motion to Dismiss [45]; DENIES Plaintiff's Motion for Partial Summary Judgment [55]; 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 [54].

         Factual and Procedural Background

         This is 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 stores.[1]

         I. XXX, Gulf Coast, and the Adult Bookstores

         In 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.

         Entratter 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.

         In 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 company's manager.

         Pursuant 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.

         On April 15, 2010, XXX and Gulf Coast entered into the 2010 Service Agreements which are the subject of this action (hereinafter “the Agreements”).[2]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.

         On 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.

         Gulf 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.

         Between 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.

         After 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.

         On 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.

         On October 7, 2014, XXX informed Gulf Coast of its belief that Gulf Coast's actions amounted to a gross violation of the Agreements.

         On February 28, 2015, XXX attempted to remove its equipment from storage and discovered that it was damaged.

         II. XXX and SGS

         SGS was 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.

         XXX 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, 650.

         III. Procedural History

         XXX commenced this action on November 25, 2015. XXX filed a Motion for Leave to File an Amended Complaint [24] on January 30, 2017, which the Court granted in part and denied in part. [Dkt. #38]. XXX filed the Amended Complaint [40] 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 Complaint.

         On May 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 [54] pursuant to Fed.R.Civ.P. 12(c) and a Motion for Partial Summary Judgment [55] 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.

         Legal Standards

          On a 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)).

         “Motions 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).

         On a 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).

         The 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.

         Analysis

          I. Breach of Contract (Counts I-III)

         Alabama law governs the Agreements listing Birmingham Books and Alabama Books. Louisiana law governs the Agreement listing Airline Books.

         Under 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.

         A. Whether the Agreements bind the Adult Bookstores and Gulf Coast as parties

          A 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 627, 631.

         i. The Agreements bind the Adult ...


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