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Leiserv, LLC v. Summit Entertainment Centers, LLC

United States District Court, D. Colorado

February 6, 2017

LEISERV, LLC, a Delaware limited liability company, Plaintiff,
v.
SUMMIT ENTERTAINMENT CENTERS, LLC, a Colorado limited liability company, and SUMMIT COMPANIES INCORPORATED, a Colorado corporation, Defendants.

          ORDER

          PHILIP A. BRIMMER United States District Judge.

         This matter is before the Court on Plaintiff's Motion for Partial Summary Judgment Regarding Defendants' Lost Profits and Fiduciary Duty Counterclaims [Docket No. 55] and Defendants' Motion for Partial Summary Judgment Regarding Plaintiff's Claim for Lost Profits [Docket No. 56]. This Court has jurisdiction pursuant to 28 U.S.C. § 1332.

         I. BACKGROUND[1]

         This action arises out of a dispute regarding the ownership and operations of a bowling and recreation center (the “Center”) in Colorado Springs. Defendant Summit Entertainment Centers, LLC (“Summit”) is the owner of the Center. Docket No. 56 at 2, Defendants' Statement of Undisputed Material Fact (“DSUMF”) 1. Plaintiff Leiserv, LLC and its affiliate companies own or operate numerous family entertainment centers around the country, many under the trade name “Brunswick XL Zone.” See Plaintiff's Statement of Undisputed Material Fact (“PSUMF”) 7-8; Docket No. 55 at 5, ¶¶ 7-8. Summit and Leiserv, Inc. (plaintiff's predecessor company) entered into an Operations Services Agreement (the “Agreement”), whose effective date was April 15, 2011. PSUMF 1; Docket No. 55 at 3, ¶ 1; see also Docket No. 29 at 3, ¶ 3.[2]

         The Agreement includes a disclaimer that reads, in part:

Disclaimer. Although the Service Provider [Leiserv] shall act in good-faith in performing Services, the Service Provider warrants neither the efficacy of the Services nor the eventual profitability of the Center.

         Docket No. 19-1 at 13, ¶ 14 (emphasis in original).

         Attached to and incorporated into the Agreement is Schedule A, entitled “Services to be provided by Service Provider, ” which requires that the “Center shall be operated and marketed in a manner consistent with the operational standards and policies in effect at least seventy-five percent (75.0%) or more of the Brunswick Zone XL bowling facilities owned or operated by Service Provider or its affiliates.” Docket No. 19-1 at 22, ¶ 3. Schedule A further provides for the creation of operating accounts “solely for use related to the operation of the Center. Owner-Operator shall provide Service Provider with access to the Operating Accounts for the purpose of depositing monies generated by the Center, processing checks related to expenses of the Center, and for other purpose generally related to the operation of the Center and agreed to by the parties, which access shall be deemed necessary for the Service Provider to perform its duties hereunder.” Id. at 23, ¶ 12. The Agreement allowed plaintiff “to withdraw any funds necessary to reimburse Service Provider for expenses of the Center paid by Service Provider on behalf of the Center in accordance with the terms of this Agreement and any fees due Service Provider pursuant to the terms of this Agreement from the Operating Accounts by automatic pre-authorized payment plan or electronic funds transfer.” Id. at 24, ¶ 13.

         The Center opened in April 2012. Defendants' Statement of Additional Disputed Facts (“DSADF”) 1; Docket No. 63 at 8, ¶ 1. At the time of the opening, the general manager was Mike Marquez. DSADF 6; Docket No. 63 at 9, ¶ 6. In July 2013, plaintiff transferred Mr. Marquez from the Center, which plaintiff operated but did not own, to a different Brunswick Zone XL bowling center that it did own. DSADF 3, 7; Docket No. 63 at 8, ¶ 3 and at 9, ¶ 7. This occurred the same month that Summit hired plaintiff's former Vice President of Operations to help develop and operate a different family fun center in Colorado. DSADF 14; Docket No. 63 at 10, ¶ 14.

         The Center was very successful. In 2013, the Center was the top performing Brunswick Zone XL bowling center in the country. PSUMF 7; Docket No. 55 at 5, ¶ 7. In 2014, it was the second highest performing center. PSUMF 8; Docket No. 55 at 5, ¶ 8. In the first quarter of 2015, the last quarter plaintiff operated the Center, the Center outperformed its financial results from 2014's first quarter. PSUMF 13; Docket No. 55 at 5, ¶ 13.

         During the time plaintiff operated the Center, the parties changed the way the Center's property taxes were paid. Summit made the first installment payment of property taxes in 2012. Docket No. 63 at 6-7, ¶ 22. Thereafter, at plaintiff's request, plaintiff began receiving the property tax bills and paying them. Id. Each month, plaintiff would request and withdraw money from the Center's Operating Account to pay future taxes as they came due and would deposit that money in plaintiff's own account. Id. Defendants claim that, despite accruing funds, plaintiff did not make required property tax payments in 2014 and 2015. PSUMF 24; Docket No. 55 at 7, ¶ 24.

         Disputes between Leiserv and Summit arose after Leiserv was purchased by Bowlmor AMF Corp. in the summer of 2014. Plaintiff's Statement of Additional Disputed Facts (“PSADF”) 1; Docket No. 66 at 2, ¶ 1. On April 19, 2015, Summit took over operations of the Center. PSUMF 2; Docket No. 55 at 3, ¶ 2. On June 17, 2015, Leiserv notified Summit of its intent to exercise a purchase option in the agreement based on an alleged appraised value of $5, 100, 000. PSADF 7; Docket No. 66 at 3, ¶ 7; Docket No. 43 at 3. Before the filing of litigation, the parties unsuccessfully participated in non-binding mediation. DSUMF 3; Docket No. 56 at 2, ¶ 3.

         On June 18, 2015, Leiserv filed a complaint in this Court alleging, in part, that defendants breached the Agreement by not negotiating the fair market value of the Center in good faith. Docket No. 1 at 5-6. Plaintiff alleges that defendants' failure to negotiate in good faith is “delaying its ownership and enjoyment of the profits of the Center.” Docket No. 1 at 6, ¶ 27. On July 10, 2015, defendants filed counterclaims alleging, in part, that plaintiff breached its obligations of good faith and fair dealing under the Agreement by “mismanaging the business affairs of the Center (through personnel and other maneuverings) to deflate the value of the Center.” Docket No. 13 at 13, ¶ 31. Defendants also counterclaimed that plaintiff breached its fiduciary duty to Summit by failing to pay the Center's property taxes with funds it accrued for that purpose. Id. at 17-18.

         On May 31, 2016, the parties filed the present cross-motions for partial summary judgment. Docket Nos. 55, 56. Plaintiff's motion argues that it disclaimed all warranties of profitability in the Agreement and, therefore, defendants cannot seek lost profits under their counterclaims. Docket No. 55 at 9-11. Plaintiff's motion also argues that defendants cannot show that plaintiff was a fiduciary with respect to holding business proceeds to pay taxes or, in the alternative, that the claim is barred under the economic value rule because it is properly a breach of contract claim. Id. at 11-13. Defendants' motion argues that plaintiff cannot prove lost profits damages because potential damages are speculative and evidence of defendants' conduct during the mediation is not admissible. Docket No. 56 at 3-7.

         II. STANDARD OF REVIEW

         Summary judgment is warranted under Federal Rule of Civil Procedure 56 when the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a); see Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A disputed fact is “material” if under the relevant substantive law it is essential to proper disposition of the claim. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). Only disputes over material facts can create a genuine issue for trial and preclude summary judgment. Faustin v. City & Cty. of Denver, 423 F.3d 1192, 1198 (10th Cir. 2005). An issue is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, 119 F.3d 837, 839 (10th Cir. 1997).

         Where “the moving party does not bear the ultimate burden of persuasion at trial, it may satisfy its burden at the summary judgment stage by identifying a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.” Bausman v. Interstate Brands Corp., 252 F.3d 1111, 1115 (10th Cir. 2001) (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir. 1998) (internal quotation marks omitted)). “Once the moving party meets this burden, the burden shifts to the nonmoving party to demonstrate a genuine issue for trial on a material matter.” Concrete Works of Colo., Inc. v. City & Cty. of Denver, 36 F.3d 1513, 1518 (10th Cir. 1994) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). The nonmoving party may not rest solely on the allegations in the pleadings, but instead must designate “specific facts showing that there is a genuine issue for trial.” Celotex, 477 U.S. at 324; see Fed. R. Civ. P. 56(e). “To avoid summary judgment, the nonmovant must establish, at a minimum, an inference of the presence of each element essential to the case.” Bausman, 252 F.3d at 1115 (citation omitted). When reviewing a motion for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. Id.; see McBeth v. Himes, 598 F.3d 708, 715 (10th Cir. 2010).

         III. PLAINTIFF'S SUMMARY JUDGMENT MOTION

         A. Defendants' ...


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