Atmosphere Hospitality Management, LLC v. Shiba Investments, Inc. et al

Filing 384

ORDER granting in part and denying in part 368 Motion for Attorney Fees; denying 374 Motion for Hearing. Signed by U.S. District Judge Karen E. Schreier on 7/30/18. (JLS)

UNITED STATES DISTRICT COURT
DISTRICT OF SOUTH DAKOTA
WESTERN DIVISION
ATMOSPHERE HOSPITALITY
MANAGEMENT, LLC,
Plaintiff,

5:13-CV-05040-KES
ORDER GRANTING MOTION FOR
ATTORNEY FEES IN PART AND
DENYING IN PART

vs.
SHIBA INVESTMENTS, INC., KARIM
MERALI, ZELJKA CURTULLO,
Defendants.

Plaintiff, Atmosphere Hospitality Management, LLC, moves the court to
award it attorney fees and costs incurred to enforce the parties’ settlement
agreement. Docket 368. Atmosphere asks for $27,158 in attorney fees and
$6,750.54 in costs. Docket 381-1. Defendants Shiba Investments, Inc., Karim
Merali, and Zeljka Curtollo oppose Atmosphere’s motion. Docket 379.
Defendants also move the court for a hearing on Atmosphere’s motion for
attorney fees. Docket 374. For the reasons stated below, the court grants
Atmosphere’s motion for attorney fees in part and denies defendants’ motion
for a hearing.
FACTUAL BACKGROUND
On May 20, 2013, Atmosphere filed its complaint against defendants
alleging several violations of law. Docket 1. After several years of discovery and
dispositive motions, the trial was set to begin on September 26, 2016.
Docket 294. On September 9, 2016, the parties informed the court that they
had reached a mediated settlement agreement. Docket 346-1. On September

27, 2016, the court entered an order and judgment of dismissal without
prejudice. Docket 329. The order stated that “[t]he court will retain jurisdiction
over this matter until the settlement is completed and a joint motion for
dismissal with prejudice is filed.” Id. On October 14, 2016, the parties entered
into a settlement agreement and mutual release. Docket 346. On August 30,
2017, defendants filed a motion to reopen the case and enforce the settlement
agreement and a motion to dismiss with prejudice. Docket 333; Docket 334.
Defendants’ brief in support of their motion to dismiss argued that they had
substantially complied with the settlement agreement and asked the court to
enforce the settlement agreement and dismiss the case with prejudice. Docket
336 at 7-8. Atmosphere did not oppose reopening the case and enforcing the
agreement, but it did oppose dismissing the case with prejudice. Docket 344.
Atmosphere argued in its brief that defendants had not complied with the
terms set out in paragraph four of the settlement agreement, so Atmosphere
refused to agree to a dismissal. Id.
On February 8, 2018, and March 8, 2018, the court held an evidentiary
hearing on defendants’ motions. Docket 354; Docket 360. As a result of the
evidentiary hearing, the court denied defendants’ motion to dismiss and
motion to enforce the settlement agreement. Docket 367. After reviewing the
motions, briefs, exhibits, and testimony, the court found:
Plaintiff Atmosphere and the Defendants entered into a
written settlement agreement dated October 14, 2016. In paragraph
four of the settlement agreement, Defendants agreed to remove from
the Internet, including their web site and social media, all references
and links within their control to their association, past or present,
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with Adoba hotels. Paragraph four further required Defendants to
do so within 30 days from the date of the settlement agreement.
The Court relies in part upon the testimony of Stacie Hull, who
testified that Merali met with her and instructed her to remove
references to Adoba on Shiba’s hotel website. Stacie Hull lacked the
skill and training to remove references to Adoba that were embedded
in the HTML code. While some or a majority of the public references
to Adoba on the website have been removed, Defendants did not take
sufficient action to ensure that all references to the Adoba Hotel were
removed from the website’s HTML code. Such requirement is clearly
covered within paragraph four of the settlement agreement. Even on
the day of March 8, 2018 hearing, the website still contained Adoba
references embedded in its HTML code. Having Adoba references
embedded within the website’s code drives up search responses for
Defendant’s hotel when the public searches online for Adoba.
Atmosphere gave notice in April of 2017 that Defendants had
not met the provisions of the settlement agreement. Such notice was
sufficient and adequately put Defendants on notice that they needed
to take further action to fully comply with the settlement agreement.
Defendants did not take such actions.
Atmosphere was not required to hire an expert and inform
Defendants what they needed to do to fully comply with removing all
Adoba references from the internet. Such was Defendants’
responsibility and they were capable of doing so and should have on
their own.
Merali is experienced in the hotel industry and has rebranded
the hotel in the past a number of times. Rebranding is [] not a new
concept for Merali.
With regard to third-party booking sites, the Court finds that
the third-party booking vendors were contacted in March 2016 with
instructions to change the name of the hotel from Adoba Eco-Hotel
or Adoba Hotel to the The Rushmore Hotel and Suites. There were,
however, no instructions given that all references to Adoba EcoHotel or Adoba Hotel should be removed. Defendants only made
such requests of some third-party booking sites shortly before the
February and March 2018 hearings on this matter. Contacting
third-party vendors to instruct them to change the name of the hotel
is not sufficient to meet the requirements of paragraph four of the
settlement agreement.
Docket 367.
Atmosphere now moves for an award of attorney fees and costs under
paragraph six of the settlement agreement. Docket 368.
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DISCUSSION
Atmosphere moves for attorney fees under a provision of its settlement
agreement with the defendants. In an action based on diversity of citizenship, a
federal district court must apply the substantive law of the state in which it
sits. And paragraph 21 of the settlement agreement is a choice-of-law provision
indicating that the agreement should be governed by the laws of the state of
South Dakota. Docket 346 ¶ 21. Thus, the contract laws of the State of South
Dakota will govern the court’s analysis.
I.

Interpretation of the Settlement Agreement
Atmosphere moves for attorney fees under paragraph six of the

settlement agreement. Paragraph six states, “In the event Defendants Shiba
and Merali breach any of the covenants contained in the above paragraphs 4
and 5, Defendants Shiba and Merali agree to pay Plaintiff’s reasonable
attorney fees as may be necessary to compel enforcement of those provisions of
the settlement. Should the Plaintiff believe that a breach has occurred then the
Plaintiff or its counsel shall provide advance written notice of the purported
breach and a reasonable opportunity to cure.” Docket 346 ¶ 6. Defendants
argue that the attorney fees incurred in the evidentiary hearing were not
incurred “to compel enforcement of” the settlement agreement but instead
were incurred in defending against defendants’ motions.
“The interpretation of a contract is a question of law for the court[.]”
Stern Oil Co. v. Brown, 908 N.W.2d 144, 157-58 (S.D. 2018). “[I]n determining
the proper interpretation of a contract the court must seek to ascertain and
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give effect to the intention of the parties.” Hisgen v. Hisgen, 554 N.W.2d 494,
496 (S.D. 1996). “In order to ascertain the terms and conditions of a contract,
we must examine the contract as a whole and give words their ‘plain and
ordinary meaning.’ ” Gloe v. Union Ins. Co., 694 N.W.2d 252, 260 (S.D. 2005)
(quoting Elrod v. Gen. Cas. Co. of Wis., 566 N.W.2d 482, 486 (S.D. 1997)).
“Whether the language of a contract is ambiguous is a question of law.”
Bunkers v. Jacobson, 653 N.W.2d 732, 738 (S.D. 2002). “Ambiguity exists
‘when it is capable of more than one meaning when viewed objectively by a
reasonably intelligent person who has examined the context of the entire
integrated agreement.’ ” Id. (quoting Divich v. Divich, 640 N.W.2d 758, 761
(S.D. 2002)).
Here, paragraph six is unambiguous. The language makes it clear that
the parties intended attorney fees to be available if Atmosphere had to take
some action to force defendants to perform under the agreement. “ ‘The court
is to enforce and give effect to the unambiguous language and terms of the
contract[.]’ ” Bunkers, 653 N.W.2d at 738 (quoting Kimball Inv. Land, Ltd. v.
Chmela, 604 N.W.2d 289, 292 (S.D. 2000)). The question then becomes
whether Atmosphere “compelled” enforcement of the settlement agreement
within the ordinary meaning or the word “compel.” The ordinary meaning 1 of
“compel” is “[t]o cause or bring about by force, threats, or overwhelming
pressure[.]” Compel, Black’s Law Dictionary (10th ed. 2014).

Compel is also defined as to “take by force, extort, requisition” or “bring about
or evoke by force.” Compel, The New Shorter Oxford Dictionary (4th ed. 1993).
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Here, Atmosphere did not make a motion to enforce the settlement
agreement. But Atmosphere in its response stated that it did not oppose 2 the
motion to reopen the case and enforce the settlement agreement and
Atmosphere requested an award of attorney fees at that time. Docket 344 at 1.
Thus, Atmosphere joined in defendants’ motion to seek enforcement of the
settlement agreement. While defendants filed their motion first, Atmosphere
made its intention clear that it also sought enforcement of the agreement by
joining in the motion, and the fees Atmosphere incurred for the evidentiary
hearing were the result of compelling enforcement of the terms of the
settlement agreement.
Defendants also argue that they were not in breach of paragraph four of
the settlement agreement, so Atmosphere cannot recover fees under paragraph
six. Docket 379 at 3. That is incorrect. Paragraph four states “Defendants
Shiba and Merali further agree that within 30 days of final settlement (i.e., the
date of this Agreement) they will remove from the Internet, including their web
site and social media, and all references and links within their control to their
associations, past or present, with Adoba hotels.” Docket 346 ¶ 4. “When
performance of a duty under a contract is due any non-performance is a
breach.” Restatement (Second) of Contracts § 235. “Performance of a duty
subject to a condition cannot become due unless the condition occurs or its
non-occurrence is excused.” Id. § 225. “Non-occurrence of a condition is not a
“Atmosphere generally does not oppose reopening the case and enforcement
of the settlement agreement, but Atmosphere opposes the Motion to Dismiss
with Prejudice[.]” Docket 344 at 1.
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breach by a party unless he is under a duty that the condition occur.” Id.
§ 225. Here, defendants were obligated under paragraph four of the settlement
agreement to remove associations to the Adoba hotel from the Internet. Docket
346 ¶ 4. Defendants’ performance was due 30 days after October 14, 2016. Id.
As this court found, defendants had not met their obligations as of March 8,
2018, and Atmosphere provided defendants with adequate notice that they
were not in compliance with the settlement agreement. Docket 367. Thus,
defendants were in breach of the settlement agreement. Because defendants
were in breach of the settlement agreement and Atmosphere compelled
enforcement of the agreement, Atmosphere is entitled to reasonable attorney
fees under paragraph six of the agreement.
II.

Atmosphere’s Reasonable Attorney Fees
“South Dakota utilizes the American rule that each party bears the

burden of the party’s own attorney fees.” In re S.D. Microsoft Antitrust Litig.,
707 N.W.2d 85, 98 (S.D. 2005) (citing Crisman v. Determan Chiropractic, Inc.,
687 N.W.2d 507, 513 (S.D. 2004)). “However, two exceptions to this general
rule exist, first when a contractual agreement between the parties entitles the
prevailing party to attorney fees, and second when an award of attorney fees is
authorized by statute.” Id. at 98 (citing Crisman, 687 N.W.2d at 513). The
South Dakota Supreme Court set out the following factors to consider when
determining reasonable attorney fees:
(1) The time and labor required, the novelty and difficulty of the
questions involved, and the skill requisite to perform the legal
service properly; (2) the likelihood, if apparent to the client, that the
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acceptance of the particular employment will preclude other
employment by the lawyer; (3) the fee customarily charged in the
locality for similar legal services; (4) the amount involved and the
results obtained; (5) the time limitations imposed by the client or by
the circumstances; (6) the nature and length of the professional
relationship with the client; (7) the experience, reputation, and
ability of the lawyer or lawyers performing the services; and (8)
whether
the
fee
is
fixed
or
contingent.
City of Sioux Falls v. Kelley, 513 N.W.2d 97, 111 (S.D. 1994). “However, before
considering any of the factors listed above, the calculation of attorney fees
must begin with the hourly fee multiplied by the attorney’s hours.” In re South
Dakota Microsoft Antitrust Litig., Inc., 707 N.W.2d at 99. Atmosphere moves for
a total of $27,158.00 in attorney fees and $6,750.54 in costs. Docket 380 at 2.
“The party requesting an award of attorneys’ fees has the burden to show its
basis by a preponderance of the evidence.” Arrowhead Ridge I, LLC v. Cold
Stone Creamery, Inc., 800 N.W.2d 730, 737 (S.D. 2011).
A. Reasonable Hourly Rate
Defendants do not object to the hourly rates billed by Atmosphere, but
the court must still make its own determination. 3 Neither party informs the
court what attorney fee rates are in South Dakota for commercial litigation. But
the court may determine the prevailing rates based on its own knowledge of
attorney fee rates in the community. Attorney Sara Frankenstein billed her
time at $250 per hour, and Attorney Nathan Chicoine billed his time at $140

During the pendency of this litigation, the court and Magistrate Judge
Veronica Duffy have ruled on motions for attorney fees on five occasions.
Dockets 67; 173; 202; 225; 258. Because several of the attorneys are the same,
the court relies on those previous decisions for guidance.
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per hour. Docket 381-1. This court has previously found during this litigation
that Attorney Frankestein’s hourly rate of $250 and Attorney Chicoine’s hourly
rate of $140 are reasonable. Docket 202; Docket 225; Docket 258.
Attorney Mathew Naasz billed his time at $175 per hour. Id. Attorney
Naasz has been practicing law since 2006. Docket 369 ¶ 5. In his twelve years
of practice he has worked at Gunderson Palmer Law Firm in the litigation
department, worked as a staff attorney to the South Dakota Supreme Court,
and worked as an Assistant Attorney General in the civil litigation department.
Id. Previously, this court found that $180 per hour was a reasonable rate for an
associate in the Gunderson Palmer Law Firm with 9 years of experience. See
Docket 202 at 7. Thus, the court finds that Attorney Naasz’s rate of $175 per
hour is reasonable.
Paralegal Teri Farland billed her time at $120 per hour. Id. Previously,
this court has found that $75 per hour and $100 per hour are reasonable rates
for a paralegal. Docket 202 at 75; Docket 225 at 5; and Docket 258 at 26.
Paralegal Farland has 24 years of experience and is an Advanced Certified
Paralegal. Docket 369 ¶ 6. Based on Paralegal Farland’s extensive experience
and high level of education, the court finds that her rate of $120 per hour is
reasonable.
Intern Ali Tonow billed her time at $120 per hour. Id. It is unclear
whether Tonow is an attorney intern or a paralegal intern and it is unclear
what level of education and experience Tonow has attained. Previously, this
court disallowed time billed to an unidentified intern. Docket 225 at 5-6.
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Because Atmosphere has not offered further supporting information as to the
hourly rate of an intern, Tonow’s time is disallowed.
B. Reasonable Number of Hours
Atmosphere requests compensation for a total of 144.5 hours.
Defendants argue that many of the hours expended were not in furtherance of
enforcing the settlement agreement. Docket 379. The court analyzes the
amended attorney fees chart to determine whether the number of hours
expended related to enforcing the settlement agreement and whether they are
reasonable. Docket 381-1.
Weighing the factors listed in City of Sioux Falls v. Kelley, the court finds
that some of the time spent on the evidentiary hearing was excessive.
Specifically, the court notes that the hearing had to be significantly extended
and rescheduled from the original amount of time the parties allotted—adding
to the cost of preparation for the hearing. Prior to the February 8, 2018
hearing, the court inquired as to how long the parties believed the hearing
would take. Defendants’ attorney indicated that the hearing would be “a few
hours” and Atmosphere’s attorneys never responded. The February 8, 2018
hearing began at 10 AM (Central Time) and lasted until 1:20 PM with one tenminute break. Docket 354. At that time, the court determined that the hearing
would have to be continued because there were other hearings scheduled for
the afternoon. Prior to taking a recess, the court again inquired as to how long
the parties expected the remainder of the hearing to take. See Docket 358 at
116. Attorney Frankenstein stated “I think realistically there’s another three
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hours left of the hearing.” Id. After the hearing ended, the court again inquired
with the parties as to how long they believed the hearing would take. Attorney
for defendants agreed with Attorney Frankenstein’s three-hour estimate. The
court then continued the remainder of the hearing to March 8, 2018. The
March 8, 2018 hearing began at 10 AM (Central Time) and concluded at 5:45
PM with two fifteen-minute breaks and a one-hour lunch break. Docket 360.
The court finds that the additional costs incurred because of the
unanticipated continuance of the hearing are unreasonable. If the parties had
accurately informed the court as to the length of the hearing, the court, the
plaintiff, and the defendants could have planned accordingly and avoided
duplicative costs such as prepping witnesses, preparing exhibits, and
attending two hearings. Thus, the court will exclude costs incurred by plaintiff
related to preparing and attending the second hearing with the exception of
costs incurred in relation to new evidence that surfaced between the two
hearings. 4
The court’s calculation of fees for reasonable time spent on the
evidentiary hearing 5 less duplicative time spent preparing for the second
hearing is as follows:
Sara Frankenstein:

45.2 hours x $250/hr =

$11,300

Nathan Chicoine:

51.9 hours x $140/hr =

$7,266

After the February 8, 2018 hearing and before the March 8, 2018 hearing,
defendants deleted references to the Adoba name in the HTML code of the
Rushmore Hotel website. Plaintiffs discovered this and presented it as evidence
at the second hearing. The court will not omit time spent in relation to this new
evidence.
5 The court omitted all of intern Tonow’s time. See supra Section II.A.
4

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Mathew Naasz:

2 hours x $175/hr =

$350

Teri Farland:

7.3 hours x $120/hr =

$876

Total:

$19,792

C. Costs
Atmosphere moves for attorney fees and costs under paragraph six of
the settlement agreement. Paragraph six permits Atmosphere to recover
reasonable attorney fees to enforce the settlement agreement, but it does not
permit the recovery of other costs. Docket 346 ¶ 6. “ ‘The court is to enforce

and give effect to the unambiguous language and terms of the
contract[.]’ ” Bunkers, 653 N.W.2d at 738 (quoting Chmela, 604 N.W.2d
at 292). Thus, Atmosphere may not recover $6,750.54 in costs.
CONCLUSION
In conclusion, by joining defendants’ motion to reopen the case and
enforce the settlement agreement, Atmosphere compelled enforcement of
the settlement agreement and is entitled to attorney fees under
paragraph six of the settlement. But Atmosphere is not entitled to the
duplicative fees incurred related to the second hearing and is not entitled
to costs. Thus, the court awards Atmosphere $19,792 in attorney fees.
Dated July 30, 2018.
BY THE COURT:
/s/ Karen E. Schreier
KAREN E. SCHREIER
UNITED STATES DISTRICT JUDGE
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