Cramton v. Grabbagreen Franchising LLC

Kim Cramton, Plaintiff, v. Grabbagreen Franchising LLC, et al., Defendants.

No. CV-17-04663-PHX-DWL

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF ARIZONA

October 2, 2020

ORDER

Pending before the Court are four motions filed after the Final Pretrial Conference. First, Plaintiff Kim Cramton ("Cramton") has moved to preclude Defendants Keely Newman ("Keely"), Eat Clean Holdings ("ECH"), and Grabbagreen Franchising, LLC ("GFL") (collectively, "Defendants") from presenting certain damages-related evidence and arguments at trial. (Doc. 320). Second, Defendants have filed a dueling motion to preclude Cramton from presenting certain damages-related evidence and arguments at trial. (Doc. 321.) Third, Defendants have moved to strike Cramton's jury demand. (Doc. 322.) Fourth, Defendants have moved for reconsideration of certain aspects of last year's summary judgment ruling. (Doc. 339.) For the following reasons, the first three motions will be granted in part and denied in part and the fourth motion will be denied.

BACKGROUND

From September 2014 through September 25, 2017, Cramton worked in various capacities with Defendants to operate the "Grabbagreen" restaurant franchise, which serves healthy fast food and juice. Cramton also held an 18.6%¹ membership interest in ECH, the entity that owned the Grabbagreen brand. Soon after Cramton's departure, Keely repurchased Cramton's membership interest for $1, which the ECH Operating Agreement² permitted Keely to do if Cramton resigned voluntarily.

One of the key disputed issues in this action is whether Cramton was improperly duped into resigning. Cramton alleges that she resigned because Keely falsely told her, during a telephone call on September 18, 2017, that a planned sale of Grabbagreen to a third-party acquiror, Kahala Brands Ltd. ("Kahala"), had fallen through and that the Kahala deal was dead. Keely denies making these statements and contends that Cramton chose to voluntarily resign for other reasons.

As it turns out, the Kahala deal wasn't dead. Kahala ended up purchasing the Grabbagreen brand from ECH in March 2018 for $2.6 million. Cramton has now asserted a variety of claims against Defendants, but the big-ticket item is her claim for the fair market value of the membership interest that Keely repurchased for $1, which Cramton claims was actually worth around $500,000 (i.e., 18.6% of the Kahala purchase price).

I. Procedural History

On December 15, 2017, Cramton initiated this action. (Doc. 1.)

On November 12, 2018, Cramton filed an amended complaint. (Doc. 88.)

On November 29, 2018, Defendants filed an answer to the amended complaint and amended counterclaims. (Doc. 95.)

On March 1, 2019, Cramton filed a motion for summary judgment (Doc. 142) and Defendants filed a motion for partial summary judgment (Doc. 143).

On April 1, 2019, both parties filed responses to the summary judgment motions.(Docs. 158, 159.)

On April 16, 2019, both parties filed replies to the summary judgment motions. (Docs. 171, 172.)

On April 30, 2019, the Court, upon motion, authorized Defendants to reopen Cramton's deposition. (Doc. 175.)

On December 23, 2019, the Court issued a 73-page order addressing a variety of motions, including the parties' cross-motions for summary judgment. (Doc. 247.) That order granted judgment on a number of claims and counterclaims, leaving only the following claims for trial: (1) Cramton's minimum wage claim (Count Four) against Keely and GFL; (2) Cramton's claim for breach of the promissory note (Count Five), limited to the issue of damages, against Eat Clean Operations, LLC ("ECO");³ and (3) Cramton's claims for breach of the implied covenant of good faith and fair dealing, negligent misrepresentation, and fraud (Counts Seven, Nine, and Ten) against Keely and ECH.

On January 2, 2020, Defendants filed a motion for reconsideration as to Counts Nine and Ten. (Doc. 249.) That motion asserted that "Plaintiff has no right to receive payment of any of the proceeds of ECH's sale of the Grabbagreen Brand to Kahala . . . under the terms of the Operating Agreement." (Id. at 2.)

On January 7, 2020, the Court denied this motion because "Defendants are belatedly attempting to raise an argument they could have raised—but, for whatever reason, chose not to raise—in their summary judgment motion." (Doc. 251 at 2.)

On May 22, 2020, the parties filed the joint proposed final pretrial order. (Doc. 303.)

On May 27, 2020, the Court held the Final Pretrial Conference. (Doc. 309.) During it, the Court ruled on various motions in limine but declined to resolve, on the merits, Cramton's motion in limine to exclude portions of Defendants' damages defense. (Id.) Instead, the Court solicited additional briefing from the parties, "permit[ting] each side tofile a motion to exclude the other side's theories and/or evidence bearing on damages." (Id. at 2.)

On June 17, 2020, the parties filed dueling motions to exclude certain aspects of the other side's theory of damages. (Docs. 320, 321.) That same day, Defendants filed a motion to strike Cramton's jury demand. (Doc. 322.)

On July 1, 2020, the parties filed responses to those motions. (Docs. 324, 325, 326.)

On July 2, 2020, Defendants refiled their response to Cramton's motion to exclude. (Doc. 327.)

On July 10, 2020, Defendants filed replies in support of their two motions. (Docs. 330, 331.)

On July 14, 2020, Cramton filed a motion to strike Defendants' damages-related reply. (Doc. 333.) That same day, Defendants filed a response to the motion to strike. (Doc. 334.)

On August 27, 2020, the parties participated in a settlement conference before a magistrate judge but were unable to reach a settlement. (Doc. 336.)

On September 3, 2020, the Court denied Cramton's motion to strike and authorized Cramton to file a reply in support of her motion to exclude. (Doc. 327.)

On September 10, 2020, Cramton filed a reply. (Doc. 338.)

On September 14, 2020, Defendants filed another motion for reconsideration concerning the December 2019 summary judgment ruling. (Doc. 339.)

On September 16, 2020, Defendants filed a motion to strike certain portions of Cramton's damages-related reply. (Doc. 340.) That same day, this motion was denied. (Doc. 341.)

On September 17, 2020, the Court issued a tentative ruling addressing the four pending motions. (Doc. 343.)

On September 29, 2020, the Court heard oral argument. (Doc. 344.)

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DISCUSSION

I. Motions To Exclude Damages-Related Evidence And Arguments

Defendants seek to preclude Cramton from presenting any evidence or argument that she is entitled to (1) proceeds from ECH's asset sale to Kahala, (2) damages arising from wrongfully taken property, (3) emotional distress damages, and (4) certain minimum wage damages. (Doc. 321.) Defendants also seek to preclude Cramton from presenting any other theories based on "new false and previously undisclosed statements" Cramton made during the Final Pretrial Conference. (Id. at 12.) Cramton, in turn, seeks to "prohibit Defendants from presenting any evidence or argument at trial that: (1) the sale of [ECH] or its assets yielded no proceeds; (2) Plaintiff's remedy is limited to a return of her membership interest; or (3) that the fair market value of Plaintiff's membership interest is subject to any offsets or any adjustments from 18.6% of the Kahala purchase price." (Doc. 320 at 15.)

A. Legal Standard

The District of Arizona's Mandatory Initial Discovery Pilot Project ("MIDP"), which was in effect at all relevant times in this case, provides that each party must, "[f]or each of your claims or defenses, state the facts relevant to it and the legal theories upon which it is based." D. Ariz. G.O. 17-08 ¶ B(4). The MIDP also requires each party to "[p]rovide a computation of each category of damages claimed by you, and a description of the documents or other evidentiary material on which it is based, including materials bearing on the nature and extent of the injuries suffered." Id. ¶ B(5).⁴ "The discovery obligations [created by the MIDP] supersede the disclosures required by Rule 26(a)(1) and are framed as court-ordered mandatory initial discovery pursuant to the Court's inherent authority to manage cases." Id. at 1. Accord id. ¶ A(2) ("The responses are called for bythe Court, not by discovery requests actually served by an opposing party.").

Rule 37(c)(1) of the Federal Rules of Civil Procedure provides that "[i]f a party fails to provide information . . . as required by Rule 26(a) or (e), the party is not allowed to use that information . . . to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." The purpose of this rule is to "'give[] teeth' to Rule 26's disclosure requirements by forbidding the use at trial of any information that is not properly disclosed." Goodman v. Staples The Office Superstore, LLC, 644 F.3d 817, 827 (9th Cir. 2011).

"The party requesting sanctions [under Rule 37] bears the initial burden of establishing that the opposing party failed to comply with the [applicable] disclosure requirements." Silvagni v. Wal-Mart Stores, Inc., 320 F.R.D. 237, 241 (D. Nev. 2017). If the movant makes this showing, "[t]he party facing sanctions bears the burden of proving that its failure to disclose the required information was substantially justified or is harmless." R&R Sails, Inc. v. Ins. Co. of Penn., 673 F.3d 1240, 1246 (9th Cir. 2012). When evaluating substantial justification and harmlessness, courts often consider (1) prejudice or surprise to the other party, (2) the ability of that party to cure the prejudice, (3) the likelihood of disruption of trial, and (4) willfulness or bad faith. Silvagni, 320 F.R.D. at 242.

B. Defendants' Motion

1. Proceeds from Kahala Sale

Defendants argue that Cramton failed to timely disclose her theory that she has a right to a portion of the proceeds from Kahala transaction. (Doc. 321 at 5-9.) In response, Cramton argues that her theory is different—she is...