Nebraska Data Centers, LLC v. Khayet

Filing 158

MEMORANDUM AND ORDER - The Motion to Dismiss, ECF No. 78 , filed by Defendant Leo Khayet, is granted, in part, as follows: a. Plaintiff Nebraska Data Centers, LLC's, claims under Nebraska law against Defendant Leo Khayet for breach of the Confi dentiality Agreement, unfair competition, and common-law trademark infringement are dismissed, with prejudice; b. Plaintiff Nebraska Data Centers, LLC's, claims under Nebraska law for fraudulent misrepresentation, negligent misrepresentation, an d a violation of § 59-805 of the Junkin Act are dismissed, without prejudice. The Motion is otherwise denied. Plaintiff Nebraska Data Centers may, but is not required to, amend its Amended Complaint in accordance with this Memorandum and Order o n or before May 25, 2018. If NDC does not file a second amended complaint, Defendant Leo Khayet must file an answer to the Amended Complaint on or before June 4, 2018. The Motion for Sanctions, ECF No. 94 , filed by Plaintiff Nebraska Data Centers, LLC, is denied, without prejudice and subject to reassertion. The Motion to Strike Order, ECF No. 143 , and the Objection to Order, ECF No. 147 , filed by Defendant Leo Khayet, are denied. Ordered by Chief Judge Laurie Smith Camp. (KLF)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA

NEBRASKA DATA CENTERS, LLC,
Plaintiff,

8:17CV369

vs.
MEMORANDUM
AND ORDER

LEO KHAYET,
Defendant.

This matter is before the Court on the Motion to Dismiss, ECF No. 78, filed by
Defendant Leo Khayet. Also before the Court are the Motion for Sanctions, ECF No.
94, filed by Plaintiff Nebraska Data Centers, LLC (NDC), the Motion to Strike Order,
ECF No. 143, filed by Khayet, and the Objection to Order, ECF No. 147, filed by Khayet.
For the reasons stated below, the Motion to Dismiss will be granted, in part.; the Motion
for Sanctions will be denied, without prejudice and subject reassertion; and the Motion
to Strike Order and the Objection to Order will be denied.
BACKGROUND
I. Factual Background
The following facts are those alleged in the Amended Complaint, ECF No. 11,
and assumed true for purposes of the pending Motion to Dismiss.
On August 8, 2017, Khayet and NDC entered into a Consulting Agreement, ECF
No. 2, which 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.

Am. Comp. ¶ 6, ECF No. 11, Page ID 23 (citing Consulting Agreement, ECF No. 2).
The terms of the Consulting 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 . . . .” Consulting Agreement § 2.a., ECF
No. 2, Page ID 6. 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. The next day, Khayet disputed NDC’s
asserted termination and, despite NDC’s repeated requests to stop, he has since
continued to contact individuals and business entities interested in NDC’s assets under
his perceived authority to perform the Consulting Agreement.

NDC alleges that

Khayet’s purpose is to “embarrass, harass and interfere with [its] business and . . .
relationships . . . .” Am. Comp. ¶ 22, ECF No. 11, Page ID 25. NDC also alleges that
Khayet has been making efforts to buy NDC’s assets himself or with a group of other
buyers.
On December 1, 2016, prior to executing the Consulting Agreement, NDC and
Timber Ventures, LLC, of which Khayet is the President, also entered into a Mutual
Confidentiality and Nondisclosure Agreement (Confidentiality Agreement), ECF No. 12.
The parties entered into the Confidentiality Agreement “for the purpose of determining
whether [NDC] would engage [Khayet].” Am. Comp. ¶ 50, ECF No. 11, Page ID 27.

2

NDC alleges Khayet was a party to the Confidentiality Agreement and that he breached
it by disclosing NDC’s confidential information without its prior authorization.
II. Procedural 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 November 2, 2017, NDC filed the
Amended Complaint, ECF No. 11, which sought a similar 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; (8) common-law trademark infringement; and (9)
injunctive relief.

NDC also sought a preliminary injunction through the Amended

Complaint, and on November 17, 2017, it moved for a preliminary injunction, ECF No.
21.
On December 7, 2017, a hearing on the Motion for Preliminary Injunction was
held and an attorney, Benjamin Maxell, appeared on Khayet’s behalf to oppose the
Motion. The Court allowed Khayet until December 29, 2017, to submit a response brief
and any supporting evidence. On December 19, 2017, Maxell moved to withdraw as
counsel for Khayet and the Court held a hearing on that motion as well as on NDC’s
Motion for Contempt of Court Order, ECF No. 40. Khayet personally appeared at the
December 19, 2017, hearing and the Court permitted Maxell to withdraw his
representation. Khayet has proceeded pro se since Maxell’s withdrawal.
3

After denying his first two motions to dismiss, ECF Nos. 61 and 68, for failing to
comply with the Court’s local rule NECivR. 7.1(a)(1)(A), the Court permitted Khayet to
submit a responsive pleading to the Amended Complaint on or before February 2, 2018.
See Text Order, ECF No. 63; see also Order on Mot. Prelim. Inj., ECF No. 76, Page ID
519 (granting NDC’s request for a preliminary injunction, in part).

Khayet then

submitted the pending Motion to Dismiss, ECF No. 78, in compliance with the Court’s
local rules. Prior to submitting the pending Motion to Dismiss, Khayet submitted several
motions and other filings seeking various forms of relief. ECF Nos. 19, 49, 51, 55-9, 62,
67, 72. Since filing the pending Motion to Dismiss, Khayet has continued to submit
motions and other filings also requesting various forms of relief. ECF Nos. 81-2, 87, 93,
98, 119, 133, 135, 140, 143, 147.
In his Motion to Dismiss, Khayet asserts the Court lacks personal jurisdiction
over him, that the District of Nebraska is an improper venue, and that NDC’s Amended
Complaint should be dismissed in its entirety because it fails to state a claim upon which
relief can be granted.

He also asserts the Court lacks subject-matter jurisdiction

because NDC failed to demonstrate that the amount in controversy exceeds $75,000.
STANDARD OF REVIEW1
A complaint must contain “a short and plain statement of the claim showing that
the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). To satisfy this requirement, a
plaintiff must plead “enough facts to state a claim to relief that is plausible on its face.”
Corrado v. Life Inv'rs Ins. Co. of Am., 804 F.3d 915, 917 (8th Cir. 2015) (quoting Bell

1

Because the Court finds that Khayet submitted to personal jurisdiction and waived his improper
venue defense, it will not recite the standard under which Rule 12(b)(2) and (3) are reviewed.

4

Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “A claim has facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Barton v. Taber, 820
F.3d 958, 964 (8th Cir. 2016) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
“Threadbare recitals of the elements of a cause of action, supported by mere conclusory
statements, do not suffice.” Zink v. Lombardi, 783 F.3d 1089, 1098 (8th Cir. 2015)
(quoting Iqbal, 556 U.S. at 678), cert. denied, 135 S. Ct. 2941 (2015). The complaint’s
factual allegations must be “sufficient to ‘raise a right to relief above the speculative
level.’” McDonough v. Anoka Cty., 799 F.3d 931, 946 (8th Cir. 2015) (quoting Twombly,
550 U.S. at 555).

The Court must accept factual allegations as true, but it is not

required to accept any “legal conclusion couched as a factual allegation.” Brown v.
Green Tree Servicing LLC, 820 F.3d 371, 373 (8th Cir. 2016) (quoting Iqbal, 556 U.S. at
678). Thus, “[a] pleading that offers ‘labels and conclusions’ or ‘a formulaic recitation of
the elements of a cause of action will not do.’” Ash v. Anderson Merchandisers, LLC,
799 F.3d 957, 960 (8th Cir. 2015) (quoting Iqbal, 556 U.S. at 678), cert. denied, 136 S.
Ct. 804 (2016).
On a motion to dismiss, courts must rule “on the assumption that all the
allegations in the complaint are true,” and “a well-pleaded complaint may proceed even
if it strikes a savvy judge that actual proof of those facts is improbable, and ‘that a
recovery is very remote and unlikely.’”

Twombly, 550 U.S. at 555 & 556 (quoting

Scheuer v. Rhodes, 416 U.S. 232, 236 (1974)). “Determining whether a complaint
states a plausible claim for relief . . . [is] a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Mickelson v.
5

Cty. of Ramsey, 823 F.3d 918, 923 (8th Cir. 2016) (alternation in original) (quoting Iqbal,
556 U.S. at 679).
DISCUSSION
By his conduct and appearances, Khayet waived his defenses under Fed. R. Civ.
P. 12(b)(2) and 12(b)(3) for lack of personal jurisdiction and improper venue, and NDC
sufficiently pled that the amount in controversy exceeds $75,000. Thus, the Court will
not dismiss this case under Fed. R. Civ. P. 12(b)(1), (2), or (3). The Court will, however,
dismiss the following claims under Fed. R. Civ. P. 12(b)(6) for failure to state claims
upon which relief can be granted: (1) fraudulent misrepresentation, (2) negligent
misrepresentation, (3) breach of the Confidentiality Agreement against Khayet, (4)
violation of § 59-805 of the Junkin Act, (5) unfair competition under Nebraska law, and
(6) common-law trademark infringement under Nebraska law.

NDC’s Motion for

Sanctions, Khayet’s Motion to Strike Order, and Khayet’s Objection to Order will be
denied.
I. Personal Jurisdiction and Venue
Rule 12 “sets only the outer limits of waiver; it does not preclude waiver by
implication.” Yeldell v. Tutt, 913 F.2d 533, 539 (8th Cir. 1990) (quoting Marquest Med.
Prods. v. EMDE Corp., 496 F. Supp. 1242, 1245 n.1 (D. Colo. 1980)). Defenses under
12(b)(2) and 12(b)(3) “may be lost by failure to assert [them] seasonably, by formal
submission in a cause, or by submission through conduct.” First Bank Bus. Capital, Inc.
v. Agriprocessors, Inc., 602 F. Supp. 2d 1076, 1090 (N.D. Iowa 2009) (quoting Neirbo
Co. v. Bethlehem Shipbuilding Corp., 308 U.S. 165, 168 (1939)); see also Yeldell, 913
F.2d at 539; TLC Vision (USA) Corp. v. Freeman, No. 4:12CV01855 ERW, 2013 WL
6

2181267, at *6 (E.D. Mo. May 20, 2013) (finding “the privileges of these 12(b)(2)-(3)
defenses were lost by ‘submission through conduct’”) (quoting Neirbo, 308 U.S. at 168).
Khayet raised his defenses under 12(b)(2) and 12(b)(3) for the first time in his
initial Motion to Dismiss. ECF No. 61. However, prior to raising these defenses, Maxell
appeared on Khayet’s behalf at the preliminary injunction hearing and Khayet personally
appeared at the hearing on Maxell’s motion to withdraw. Neither Maxell nor Khayet
indicated they were making a special appearance; they did not object to the Court’s
exercise of personal jurisdiction; and they did not argue that this District was an
improper venue. Khayet also submitted the following motions with the Court seeking
various forms of relief: (1) Motion to Compel, ECF No. 19 (requesting that the Court
order counsel to provide evidentiary proof of his authority to represent NDC); (2) Motion
for Extension of Time, ECF No. 49 (requesting response deadline extensions and an
order vacating the Court’s prior orders); (3) Motion for Sanctions, ECF No. 51
(requesting “compensatory and coercive sanctions” against NDC’s counsel for violating
Fed. R. Evid. 408); (4) Motions to Clarify, ECF Nos. 55-7 (requesting a written order
clarifying the Court’s reason for denying Khayet’s motion to sanction NDC’s counsel for
violating Fed. R. Evid. 408); (5) Motion to Amend Order, ECF No. 58 (requesting that
the Court amend a prior order); and (6) Motion to Reconsider, ECF No. 59 (requesting
that the Court reconsider granting Khayet’s motion at ECF No. 49). Based on these
appearances and motions, Khayet submitted to the Court’s personal jurisdiction and
waived his improper venue defense.
Khayet’s filings subsequent to raising his 12(b)(2) and 12(b)(3) defenses also
support the Court’s finding that he may no longer assert these defenses. See Columbia
7

Sportswear N. Am., Inc. v. Seirus Innovative Accessories, Inc., 265 F. Supp. 3d 1196,
1202-03 (D. Or. 2017) (citing Peterson v. Highland Music, Inc., 140 F.3d 1313, 1318
(9th Cir. 1998) (explaining that the defense of improper venue “may be waived as a
result of the course of conduct pursued by a party during litigation”)).2 After Khayet
raised these defenses, he submitted a Motion to Disqualify [NDC’s] Counsel, ECF No.
82, and specifically asked the Court to rule on this motion before ruling on his Motion to
Dismiss.

He also continued to submit several other motions and filings requesting

various forms of relief. See, e.g., Motion to Initiate Disciplinary Proceedings, ECF No.
93, against NDC’s counsel; Motion to Compel, ECF No. 119 (requesting that the Court
“issue Litigation Holds” to various individuals); Motions for Status, Scheduling, and Case
Management Conferences, ECF Nos. 125-27; Notices of Criminal Activity, ECF Nos.
133 and 135 (stating criminal indictments against NDC’s counsel and NDC executives
may be forthcoming and that the Court “should immediately dismiss this case and
vacate all previous orders”).3 The motions were referred to and denied by Magistrate
Judge Zwart, Memorandum and Order, ECF No. 141, and Khayet moved to strike that
order, ECF Nos. 141, and separately objected to it, ECF No. 147.
Based on Khayet’s appearances, motions, and filings in this case, both before
and after he asserted his 12(b)(2) and 12(b)(3) defenses, the Court finds he has
submitted to personal jurisdiction and that he has waived his improper venue defense.
2

See also Plunkett v. Valhalla Inv. Servs., Inc., 409 F. Supp. 2d 39, 41-42 (D. Mass. 2006)
(stating timely Rule 12 defenses may be forfeited by subsequent actions); Koninklijke Philips N.V. v.
ASUSTek Comput. Inc., No. CV 15-1125-GMS, 2017 WL 3055517, at *3 (D. Del. July 19, 2017) (finding
“Defendants’ subsequent conduct further demonstrated abandonment of the venue defense”).
3

Khayet has made several unusual Notice filings throughout this case. See, e.g., Notice, ECF
No. 98 (requesting that the Court “encourage” NDC’s counsel to respond to his communication efforts);
Notice of NDC Salaries, ECF No. 138 (stating the salaries of various NDC employees).

8

II. Subject-Matter Jurisdiction—Amount in Controversy
NDC invoked the Court’s diversity jurisdiction under 28 U.S.C. § 1332(a)(1),
which provides “that federal jurisdiction exists over ‘civil actions’ between ‘citizens of
different States’ where the amount in controversy exceeds ‘the sum or value of
$75,000.’” Clark v. Matthews Int’l Corp., 639 F.3d 391, 396 (8th Cir. 2011). The parties
agree the diversity-of-citizenship requirement is satisfied, but Khayet argues NDC failed
to demonstrate that the amount in controversy exceeds $75,000.
It is the plaintiff’s burden to establish that the diversity jurisdiction requirements
were satisfied at the time of filing, by a preponderance of the evidence. Scottsdale Ins.
Co. v. Universal Crop Prot. All., LLC, 620 F.3d 926, 931 (8th Cir. 2010). At the pleading
stage, a complaint that “alleges the jurisdictional amount in good faith will suffice to
confer jurisdiction, but the complaint will be dismissed if it ‘appears to a legal certainty
that the claim is really for less than the jurisdictional amount.’” Id. (quoting Kopp v.
Kopp, 280 F.3d 883, 884 (8th Cir. 2002)). Events subsequent to the time of filing which
reduce the amount in controversy “do not destroy diversity jurisdiction.”

Id. (citing

Rosado v. Wyman, 397 U.S. 397, 405 n.6 (1970)). “Subsequent events may, however,
be relevant to prove the existence or nonexistence of diversity jurisdiction at the time of
filing.” Id. (citing Grinnel Mut. Reins. Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir.
1997)).
Khayet argues the amount-in-controversy requirement is not met because “[t]he
only money Defendant [Khayet] has thus far claimed is owed to him under the
Consulting Agreement is a few thousand dollars[ ] . . . .” Def.’s Br., ECF No. 79, Page
ID 528. This argument fails to recognize how the amount in controversy is measured.
9

“[T]he amount in controversy is measured by ‘the value to the plaintiff of the right sought
to be enforced.’” Federated Mut. Ins. Co. v. Moody Station and Grocery, 821 F.3d 973,
977 (8th Cir. 2016) (quoting Schubert v. Auto Owners Ins. Co., 649 F.3d 817, 821 (8th
Cir. 2011)).
NDC’s Complaint alleges that “[u]nder Section 2.a. of the Consulting Agreement,
the consideration that would be payable to [Khayet] in the event the conditions for
compensation were met . . .” exceeds $75,000. Thus, NDC has alleged that the value
of its claim for a declaratory judgment exceeds $75,000.

NDC has also alleged

damages in connection with its other claims, including tortious interference with a
business relationship or expectancy. See Lynch v. Porter, 446 F.2d 225, 228 (8th Cir.
1971) (“[A] single plaintiff may properly aggregate all of the claims which he has against
the defendants to satisfy the jurisdictional amount.”). It appears these allegations are
made in good faith and, at least at the pleading stage, it does not appear to a legal
certainty that NDC’s claims are for $75,000 or less. See Scottsdale, 620 F.3d at 931.
Therefore, NDC has sufficiently pled the requisite amount in controversy for purposes of
§ 1332(a)(1).
III. Failure to State a Claim—12(b)(6)
Khayet argues that each of NDC’s claims is not adequately pled.
A. Declaratory Judgment
“The 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.
10

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 plaintiff must seek ‘specific relief through a decree of a conclusive character,
as distinguished from an opinion advising what the law would be upon a hypothetical
state of facts.’” Maytag, 687 F.3d at 1081.
NDC alleges it expressly terminated the Consulting Agreement on October 4,
2017, and that Khayet is entitled to no compensation thereunder. It also alleges that
Khayet disputes NDC’s ability to terminate the Consulting Agreement and that he
believes he is entitled to some compensation.

Khayet contends the Consulting

Agreement remains executory and enforceable because NDC had no right to terminate
it unilaterally. As a result, NDC seeks a declaration from the Court that (1) Khayet is
owed nothing under the Consulting Agreement; (2) NDC has not breached the
Consulting Agreement; and (3) the Consulting Agreement is terminated, except with
respect to any surviving terms and conditions. Thus, there is a concrete legal dispute
between NDC and Khayet and NDC seeks specific relief of a conclusive character. See
id. The Court will not dismiss NDC’s claim for a declaratory judgment.
B. Tortious Interference with a Business Relationship or Expectancy
To succeed on a claim for tortious interference with a business
relationship or expectancy, a plaintiff must prove (1) the existence of a
valid business relationship or expectancy, (2) knowledge by the interferer
of the relationship or expectancy, (3) an unjustified intentional act of
interference on the part of the interferer, (4) proof that the interference
11

caused the harm sustained, and (5) damage to the party whose
relationship or expectancy was disrupted.
Midland Props., L.L.C. v. Wells Fargo, N.A., 893 N.W.2d 460, 465 (Neb. 2017). Khayet
argues this claim was not sufficiently pled because NDC did not specifically identify any
business relationships or expectancies with which he interfered, and because NDC
made only a general statement of damages.
Under Fed. R. Civ. P. 8(a), it is not always necessary for a plaintiff to allege
specifically, with particularity, the business relationships or expectancies that the
defendant interfered with; rather, the facts must support a claim that is plausible. See
Infogroup, Inc. v. DatabaseLLC, 95 F. Supp. 3d 1170, 1196 (D. Neb. 2015); see also
McDonald Apiary, LLC v. Starrh Bees, Inc., 8:14-CV-351, 2015 WL 11108873, at *3 (D.
Neb. May 22, 2015); Am. Home Assurance Co. v. Greater Omaha Packing Co., Inc.,
No. 8:11CV270, 2012 WL 2061941, at *2 (D. Neb. June 7, 2012).
The Amended Complaint states that after NDC told Khayet the Consulting
Agreement was terminated, he persisted in “contact[ing] certain persons and entities . . .
interested in [NDC’s] business,” and “he also contacted certain business partners,
potential business partners, and vendors . . . regarding a potential transaction involving
[NDC].” Am. Comp. ¶¶ 19 & 21, ECF No. 11, Page ID 24-5. NDC alleges Khayet’s
unwanted conduct caused interruptions, delays, and confusion in its business
operations and potential sale of the company. NDC also alleges that its value has
decreased, its goodwill has been damaged, and it has lost profits. Based on these
allegations, the Court finds NDC has pled enough factual content to permit “the
reasonable inference that [Khayet] is liable for the misconduct alleged.” Barton, 820

12

F.3d at 964 (quoting Iqbal, 556 U.S. at 678). Thus, NDC has stated a plausible claim
for tortious interference with a business relationship or expectancy.
C. Fraudulent and Negligent Misrepresentation
NDC claims Khayet defrauded it by misrepresenting that he had the lawful
authority—i.e. a Nebraska real estate broker’s license and other necessary licenses4—
to broker a transaction for NDC’s tangible and intangible assets and by concealing the
fact that he did not have those licenses. While there can be some overlap, fraudulent
misrepresentation and fraudulent concealment are distinct claims under Nebraska law.
Knights of Columbus Council 3152 v. KFS BD, Inc., 791 N.W.2d 317, 331-334 (Neb.
2010). However, the parties only addressed whether NDC stated a plausible claim for
fraudulent misrepresentation.
To state a claim for fraudulent misrepresentation under Nebraska law,
a plaintiff must allege (1) that a representation was made; (2) that the
representation was false; (3) that when made, the representation was
known to be false or made recklessly without knowledge of its truth and as
a positive assertion; (4) that the representation was made with the
intention that the plaintiff should rely on it; (5) that the plaintiff did so rely
on it; and (6) that the plaintiff suffered damage as a result.
Zawaidah v. Neb. Dep’t of Health and Human Servs. Regulation and Licensure, 825
N.W.2d 204, 212 (Neb. 2013).
NDC does not allege Khayet made a particular statement that he possessed any
professional licenses. Drobnak v. Andersen Corp., 561 F.3d 778, 783 (8th Cir. 2009)
(Fed. R. Civ. P. 9(b) requires plaintiffs to allege “the time, place, and contents of false

4

In addition to alleging Khayet misrepresented that he had a Nebraska real estate broker’s
license, NDC alleges he misrepresented that he was registered with the Securities and Exchange
Commission as a Broker under the Securities and Exchange Act and that he was registered with the
Financial Industry Regulatory Authority.

13

representations . . . .”). Rather, NDC argues Khayet impliedly misrepresented he was
appropriately licensed to perform the Consulting Agreement through his conduct of
entering into and negotiating it. Ed Miller & Sons, Inc. v. Earl, 502 N.W.2d 444, 454
(Neb. 1993) (“Misrepresentation is a manifestation, by word or conduct, which
constitutes an assertion not in accordance with fact.”); see also Restatement (Second)
of Torts § 525 cmt. b (Am. Law Inst. 1977) (defining “misrepresentation”).5 Khayet
primarily argues NDC failed to allege reliance on any alleged misrepresentation his
conduct may have implied.
There are no allegations in the Amended Complaint that NDC believed Khayet
actually had the professional licenses it claims were necessary for him to perform under
the Consulting Agreement. Nor are there any allegations that NDC believed it was
necessary for Khayet to have such licenses when the Consulting Agreement was being
considered or negotiated. Nevertheless, NDC argues that, at the pleading stage, it is
reasonable to infer from the facts alleged in the Amended Complaint that NDC was
relying on Khayet being a licensed real estate broker, among other things, when it
executed the Consulting Agreement. Yet, the Consulting Agreement only asked Khayet
to “introduce” NDC to potential buyers and expressly clarified that he was not authorized
to act as an agent for or negotiate on behalf of NDC. Consulting Agreement §§ 1, 11,
ECF No. 2, Page ID 1, 8. The issue of Khayet’s professional qualifications was never
discussed. Thus, the Court finds NDC has not sufficiently alleged that it was relying on
Khayet being a licensed real estate broker and registered with multiple regulatory
5

Fraudulent misrepresentation is a “tort cause[ ] of action adopted from the Restatement
(Second) of Torts § 525. Zawaidah v. Neb. Dep’t of Health and Human Servs. Regulation and Licensure,
825 N.W.2d 204, 212 (Neb. 2013).

14

agencies when it executed the Consulting Agreement. The Court will dismiss NDC’s
fraudulent and negligent misrepresentation6 claims, without prejudice, and permit NDC
to amend its Amended Complaint to allege such facts, if they exist. See Mickelson, 823
F.3d at 923 (quoting Iqbal, 556 U.S. at 679) (“Determining whether a complaint states a
plausible claim for relief . . . [is] a context-specific task that requires the reviewing court
to draw on its judicial experience and common sense.”).
D. Breach of Contract
1. Breach of the Confidentiality Agreement
“For breach of contract, the plaintiff must plead the existence of a promise, its
breach, damages, and compliance with any conditions precedent that activate the
defendant’s duty.” Kotrous v. Zerbe, 846 N.W.2d 122, 126 (Neb. 2014). Although the
Amended Complaint alleged Khayet was a party to the Confidentiality Agreement, the
contract itself shows only Timber Ventures, LLC, and NDC7 were the contracting parties
with Khayet signing the contract on Timber Ventures, LLC’s, behalf. See Brown, 820
F.3d at 373 (quoting Iqbal, 556 U.S. at 678) (The Court is not required to accept any
“legal conclusion couched as a factual allegation.”). Thus, Khayet did not personally
promise anything to NDC in the Confidentiality Agreement and NDC’s claim for a breach
of that contract is properly asserted against Timber Ventures, LLC. Accordingly, this
claim against Khayet will be dismissed, with prejudice, and NDC will be granted leave to

6

Both fraudulent and negligent misrepresentation require a plaintiff to show reliance. Knights of
Columbus Council 3152 v. KFS BD, Inc., 791 N.W.2d 317, 917 (Neb. 2010).
7

The Confidentiality Agreement was “between Nebraska Colocation Centers, LLC [ ], and Timber
Ventures, LLC.” Confidentiality Agreement, ECF No. 12, Page ID 34 & 36. At the time this contract was
executed, Nebraska Colocation Centers, LLC, was a trade name registered to NDC.

15

amend its Amended Complaint to include a claim for breach of the Confidentiality
Agreement against Timber Ventures, LLC.
The Court notes that according to the Kansas Secretary of State’s public
records,8 the current status of Timber Ventures, LLC, is: Forfeited—Failed to Timely File
[Annual Report]. The date of forfeiture is July 15, 2017. The Confidentiality Agreement
was executed on December 1, 2016. Thus, to the extent Timber Ventures, LLC, has
become insolvent or is no longer subject to suit, NDC has plausibly alleged that Khayet
may be personally liable for Timber Ventures, LLC’s, debts and obligations.9 See infra
Section III.H. (discussing Khayet’s personal responsibility for Timber Ventures, LLC’s,
liabilities under a corporate veil-piercing theory of liability).
2. Breach of the Consulting Agreement
Khayet was a personal signatory and party to the Consulting Agreement, wherein
he promised he would not disclose certain information that NDC sought to keep
confidential. Consulting Agreement, ECF No. 2 § 6., Page ID 7. NDC alleges Khayet
breached that promise which damaged its goodwill and reputation, decreased its profits
and value, and resulted in the loss of confidentiality. Based on these allegations, NDC
has stated a plausible claim against Khayet for breach of the Consulting Agreement.
See Kotrous, 846 N.W.2d at 126. This claim will not be dismissed.
E. Junkin Act—Neb. Rev. Stat. § 59-805

8

“[C]ourts may consider matters of public record . . .” when reviewing a motion to dismiss for
failure to state a claim under Fed. R. Civ. P. 12(b)(6). Greenman v. Jessen, 787 F.3d 882, 887 (8th Cir.
2015).
9

See Kan. Stat. Ann. §§ 17-76,139; 17-7509; and 17-7510(a) (stating the legal effect of failing to
file an annual report for a limited liability company).

16

Section 59-805 of the Junkin Act “makes it unlawful to drive another entity out of
business.” Credit Bureau Servs., Inc. v. Experian Info. Sols., Inc., 828 N.W.2d 147, 151
(Neb. 2013) (citing Neb. Rev. Stat. § 59-805).

“The statute reaches intentional

predatory conduct which has no purpose other than to drive another entity out of
business.” Credit Bureau Servs., 828 N.W.2d at 152. Thus, the plaintiff must show the
defendant committed an “act with the intent and for the purpose of driving the plaintiff
out of business.” Id. at 153. “[T]he ordinary meaning of the phrase ‘out of business’ [is]
a complete cessation of business operations.” Id.
Khayet argues NDC has not alleged he engaged in any act “that might lead to
the complete cessation of [NDC’s] business operations.” Def.’s Br., ECF No. 79, Page
ID 532.

Whether he took action that might actually drive NDC out of business is

irrelevant; to state a plausible claim NDC must only allege that Khayet took action
intended to and with the purpose of driving NDC out of business. The facts in the
Amended Complaint, however, do not support an inference that Khayet took any action
with the purpose and intent of driving NDC completely out of business.
The Court will dismiss NDC’s § 59-805 Junkin Act claim, without prejudice.
Since the Amended Complaint and Khayet’s Motion to Dismiss were filed and briefed,
Khayet has filed multiple notices in this case, ECF Nos. 133 and 135, stating he has
pressed criminal charges against NDC and its executives with municipal, state, and
federal law enforcement agencies.10 To the extent that NDC believes these criminal
allegations are not legitimately based in fact and constitute “predatory conduct which

10

“[C]ourts may consider . . . items appearing in the record of the case” when evaluating a motion
to dismiss for failure to state a claim. Greenman v. Jessen, 787 F.3d 882, 887 (8th Cir. 2015).

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has no purpose other than to drive [it] out of business,” the Court will permit NDC to
amend its Amended Complaint to include such allegations, and any other relevant facts,
in support of its claim under § 59-805 of the Junkin Act.
F. Unfair Competition and Trademark Infringement
The Nebraska Supreme Court has explained that “the common-law definition of
unfair competition involves ‘palming off’ one’s goods as the goods of another.” Edge in
Coll. Preparation, LLC v. Peterson’s Nelnet, LLC, 8:16-CV-559, 2017 WL 2423510, at
*3 (D. Neb. June 5, 2017) (quoting John Merkel Ford, Inc. v. Auto-Owners Ins. Co., 543
N.W.2d 173, 178 (Neb. 1996)). The “gravamen of ‘unfair competition’ . . . is whether the
defendant made a representation relating to its own goods or services ‘that is likely to
deceive or mislead prospective purchasers to the likely commercial detriment of another
. . . .”

Edge, 2017 WL 2423510, at *3 (quoting Restatement (Third) of Unfair

Competition § 2 (Am. Law Inst. 1995)). Further, in Nebraska, common-law trademark
infringement requires a plaintiff to show ‘that it has ownership or rights in the trademark
and that the defendant has used the mark in connection with goods or services in a
manner likely to cause consumer confusion as to the source or sponsorship of the
goods or services.’” Two Men and a Truck/Int’l, Inc. v. Thomas, 908 F. Supp. 2d 1029,
1036-37 (D. Neb. 2012) (quoting Cmty. of Christ Copyright Corp. v. Devon Park
Restoration Branch of Jesus Christ’s Church, 634 F.3d 1005, 1009 (8th Cir. 2011)).
There are no allegations that Khayet used NDC’s name in connection with his
own consumer goods or services, nor are there any allegations that the consumers of
NDC’s products or services are likely to be confused about the source those products or
services. NDC also does not allege that Khayet was a market competitor, only that he
18

was briefly engaged to introduce potential buyers to NDC.

See Edge, 2017 WL

2423510, at *3 (finding there can be no unfair competition where the plaintiff and the
defendant are not competitors in the marketplace). Accordingly, NDC’s claims for unfair
competition and common-law trademark infringement will be dismissed, with prejudice.
G. Deceptive Trade Practices
NDC claims Khayet violated § 87-302 of the UDTPA, which provides, in relevant
part:
(a) A person engages in a deceptive trade practice when, in the course of
his or her business, vocation, or occupation, he or she:
...
(3) Causes likelihood of confusion or of misunderstanding as to
affiliation, connection, or association with, or certification by,
another;
...
(5) Represents that . . . a person has a sponsorship, approval,
status, affiliation, or connection that he or she does not have;
...
(9) Disparages the goods, services, or business of another by false
or misleading representation of fact;
...
(16) Uses any scheme or device to defraud by means of . . .
obtaining money or property by knowingly false or fraudulent
pretenses, representations, or promises[.]
Neb. Rev. Stat. § 87-302(a). “In order to prevail in an action under the [UDTPA], a
complainant need not prove competition between the parties.” Neb. Rev. Stat. § 87302(b).
NDC has stated a plausible claim under § 87-302(a). After NDC communicated
its termination of the Consulting Agreement to Khayet, he insisted the contract remained

19

executory and enforceable. He continued to misrepresent to third parties that he had
the authority to facilitate a purchase of NDC’s assets despite NDC’s requests to stop.
He also began forming a group of potential buyers, including himself, to collectively
purchase NDC’s assets.

The Amended Complaint alleges Khayet engaged in the

foregoing activity as part of a fraudulent scheme, first to earn NDC’s confidence and
then to decrease NDC’s value so that he could purchase its assets at a reduced price.
Based on these factual allegations, the Court finds that the Amended Complaint states
a plausible claim under the above sections of the UDTPA.
H. Corporate Veil
In its Amended Complaint, NDC asserts Khayet should be held personally liable
for the obligations of LK Capital and Timber Ventures, LLC.
“State law is viewed to determine whether and how to pierce the corporate veil.”
Epps v. Stewart Info. Servs. Corp., 327 F.3d 642, 649 (8th Cir. 2003). In Nebraska,
“[p]roceedings seeking disregard of corporate entity, that is, piercing the corporate veil
to impose liability on a shareholder for a corporation’s debt or other obligation, are
equitable actions.” Christian v. Smith, 759 N.W.2d 447, 461 (Neb. 2008). A corporation
is generally “viewed as a complete and separate entity from its shareholders and
officers, who are not, as a rule, liable for the debts and obligations of the corporation.”
Id. at 462; see also Thomas & Thomas Court Reporters, L.L.C. v. Switzer, 810 N.W.2d
677, 685 (Neb. 2012) (applying Nebraska veil-piercing principles to a limited liability
company). “A court will disregard a corporation’s [or limited liability company’s] identity
only where the [business entity] has been used to commit fraud, violate a legal duty, or
perpetrate a dishonest or unjust act in contravention of the rights of another.” Christian,
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759 N.W.2d at 462; Switzer, 810 N.W.2d at 685. “A plaintiff seeking to pierce the
corporate veil must allege and prove that the [entity] was under the actual control of the
shareholder and that the shareholder exercised such control to commit a fraud or other
wrong in contravention of the plaintiff’s rights.” Id.
Neither LK Capital nor Timber Ventures, LLC, was made a party to this action
and NDC has not claimed these entities are liable for anything. Khayet cannot be held
responsible, in equity, for the liabilities of these legal entities when no liability has been
asserted against them. Accordingly, NDC’s equitable claim to pierce the corporate veil
of LK Capital and Timber Ventures, LLC, is not adequately pled. As stated above,
however, NDC will be granted leave to amend the Amended Complaint to properly
assert its claim for breach of the Confidentiality Agreement against Timber Ventures,
LLC.

NDC will also be permitted to include in any second amended complaint its

equitable claim to pierce Timber Ventures, LLC’s, corporate veil to hold Khayet
personally responsible for its liabilities with respect to any breach of the Confidentiality
Agreement.
Other than claiming Khayet is responsible for LK Capital’s liabilities, there are no
factual allegations regarding LK Capital’s involvement in this dispute. Therefore, NDC’s
claim to pierce LK Capital’s veil is dismissed, with prejudice.
IV. Rule 11 Sanctions
NDC requests monetary and filing sanctions against Khayet for filing frivolous
motions and raising frivolous arguments.

The Court has the discretion to impose

sanctions under Fed. R. Civ. P. 11 and “substantial deference” is given “to the district
court’s determination as to whether sanctions are warranted because of its familiarity
21

with the case and counsel involved.” Meyer v. U.S. Nat’l Ass’n, 792 F.3d 923, 927 (8th
Cir. 2015). Khayet’s motions and notice filings are voluminous and often improper,
repetitive, and dilatory. As a result, Magistrate Judge Zwart has admonished Khayet
that if he continues to make inappropriate notice filings the Court will sanction him under
28 U.S.C. § 1927. Memorandum and Order, ECF No. 141, Page ID 1122-23; see also
Order, ECF No. 145, Page ID 1134 (prohibiting Khayet from directly contacting
chambers after he repeatedly requested the personal information of chambers staff). In
light of this admonishment, the Court will deny NDC’s Motion for Sanctions, without
prejudice and subject to reassertion, and remind Khayet that future submission of
improper or repetitive motions may lead to sanctions. See Am. Inmate Paralegal Assoc.
v. Cline, 859 F.2d 59, 61 (8th Cir. 1988) (“Pro se litigants are not excused from
complying with court orders or substantive and procedural law.”).
V. Motion to Strike Order and Objection to Order
Khayet’s Motion to Strike Order, ECF No. 143, and Objection to Order, ECF No.
147, ask the Court to review and vacate Magistrate Judge Zwart’s Memorandum and
Order, ECF No. 141. Both Motions were submitted without a brief, required by NECivR.
7.1(a)(1)(A), and Khayet has not demonstrated that he is entitled to relief under Fed. R.
Civ. P. 60 or 72. The Motions will, therefore, be denied. If Khayet continues to submit
motions raising substantial issues of law without making a good faith effort to
demonstrate that he is entitled to the relief sought, he will be sanctioned.
CONCLUSION
Through his conduct, Khayet submitted to the Court’s personal jurisdiction and
waived his improper-venue defense. NDC adequately pled the jurisdictional amount in
22

controversy. Thus, the Court will not dismiss this case under Fed. R. Civ. P. 12(b)(1),
(2), or (3).
NDC’s claims against Khayet under Nebraska law for breach of the
Confidentiality Agreement, unfair competition, and common-law trademark infringement
will be dismissed, with prejudice. Its claims for fraudulent misrepresentation, negligent
misrepresentation, and a violation of § 59-805 of the Junkin Act will be dismissed,
without prejudice. NDC will be granted leave to amend its Amended Complaint with
respect to its claims dismissed without prejudice. Any second amended complaint may
include a claim for breach of the Confidentiality Agreement against Timber Ventures,
LLC, as well as an equitable claim to pierce its corporate veil and hold Khayet
personally responsible for its liabilities.
NDC’s Motion for Rule 11 Sanctions will be denied, without prejudice and subject
to reassertion. Khayet’s Motion to Strike Order and Objection to Order will be denied.
Accordingly,
IT IS ORDERED:
1.

The Motion to Dismiss, ECF No. 78, filed by Defendant Leo Khayet, is
granted, in part, as follows:
a. Plaintiff Nebraska Data Centers, LLC’s, claims under Nebraska law
against Defendant Leo Khayet for breach of the Confidentiality
Agreement, unfair competition, and common-law trademark infringement
are dismissed, with prejudice;
b. Plaintiff Nebraska Data Centers, LLC’s, claims under Nebraska law for
fraudulent misrepresentation, negligent misrepresentation, and a violation
of § 59-805 of the Junkin Act are dismissed, without prejudice.

The Motion is otherwise denied;

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2.

Plaintiff Nebraska Data Centers may, but is not required to, amend its
Amended Complaint in accordance with this Memorandum and Order on
or before May 25, 2018;

3.

If NDC does not file a second amended complaint, Defendant Leo Khayet
must file an answer to the Amended Complaint on or before June 4, 2018;

4.

The Motion for Sanctions, ECF No. 94, filed by Plaintiff Nebraska Data
Centers, LLC, is denied, without prejudice and subject to reassertion; and

5.

The Motion to Strike Order, ECF No. 143, and the Objection to Order,
ECF No. 147, filed by Defendant Leo Khayet, are denied.

Dated this 10th day of May, 2018.

BY THE COURT:
s/Laurie Smith Camp
Chief United States District Judge

24