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High Elevations, LLC v. Garber

United States District Court, N.D. Illinois, Eastern Division

March 30, 2018

HIGH ELEVATIONS, LLC, Plaintiff,
v.
SCOTT GARBER, JACOB SADOFF, and JORDAN SADOFF, Defendants, JACOB SADOFF, JORDAN SADOFF, and and SCOTT GARBER Counter-Plaintiffs,
v.
ARA ARZOUMIAN and MARSHALL SMOLLER, Counter-Defendants.

          MEMORANDUM OPINION AND ORDER

          VIRGINIA M. KENDALL, UNITED STATES DISTRICT JUDGE

         Plaintiff High Elevations, LLC, a company co-owned by Counter Defendants Ara Arzoumanian and Marshall Smoller (collectively, the “HEL parties”), sued Defendants/Counter-Plaintiffs Scott Garber, Jacob Sadoff and Jordan Sadoff (collectively “Defendants”) alleging breach of contract in violation of Illinois common law. See (Dkt. 4). Defendants filed a counter-complaint against Arzoumanian and Smoller in this proceeding alleging breach of contract (Count I) and unjust enrichment (Count II). See (Dkt. 24). Both complaints concern a dispute over an agreement that the parties made regarding the opening of a Sky Zone franchise trampoline park. Following discovery, the Defendants moved for summary judgment arguing that as a matter of law they were entitled to recover money that they had tendered to the HEL parties as part of the agreement. The Court denied summary judgment and held that there was some ambiguity in the language of the agreement regarding whether three specified payments were due after three separate events occurred or whether the payments were due regardless. (Dkt. 81). In denying the Defendants' Motion for Summary Judgment, the Court held that a trial was necessary and allowed parol evidence to be presented to determine the parties' intent with respect to (1) the meaning of the phrase “proceed with Sky Zone franchise” as used in the contract; and (2) whether the contract intended for any refunds if the park did not come to fruition. See id. The Court held a one-day bench trial.

         FACTS FROM THE TRIAL

         Pre-Agreement Negotiations and Party Actions

         Arzoumanian testified that he and Smoller are business partners who originally became involved in the trampoline park business in the beginning of 2014 and opened their first High Elevations trampoline park in New Jersey at the end of 2014. Tr. at 20-21. In November 2014, Arzoumanian contacted Jordan Sadoff who was in Chicago and told him he and Smoller were working on an exciting project and wanted to get Jordan and his brother Jacob Sadoff involved. Tr. at 21. Arzoumanian and Smoller had met the Sadoff brothers through a mutual friend about fifteen years before and since then had done a few smaller business deals with them. Tr. at 21-22; (Dkt. 84-1, at 2).[1] The Sadoff brothers traveled to New Jersey to learn about Arzoumanian and Smoller's business idea. When they arrived, Arzoumanian and Smoller required that they sign a Non-Disclosure and Non-Compete Agreement (“November 2014 Agreement”) before telling them about their proposed business venture. Tr. at 22; see also (Sadoff 6). At trial, Arzoumanian referred to the November 2014 Agreement as “the non-disclosure agreement.” However, he testified the purpose behind the November 2014 Agreement was two-fold: (1) to prevent the Sadoffs from taking the High Elevations trampoline park concept for their own use, and (2) to partner with the Sadoff brothers in order to expand the High Elevations business to the Chicagoland area. Tr. at 23, 44-45.

         After the signing of the November 2014 Agreement, Arzoumanian and Smoller told the Sadoff brothers (Garber was not part of the agreement at the time) about their trampoline park concept, showed them their High Elevations park, which at the time was about 90% complete, and then showed them a couple of the Sky Zone parks in the area. Tr. at 22-23, 77-79. Azroumanian testified that he was very excited to bring the trampoline park idea to the Sadoffs because they are “sharp guys” and “business-minded” and “know how to grow businesses.” Id. at 23. He hoped they could all partner together to open a second High Elevations trampoline park in Chicago. Id. at 23.

         At trial, Jordan Sadoff testified that the parties discussed opening one or more Chicago-area trampoline parks with High Elevations and that he too expressed excitement about the business opportunity. Id. at 79. Arzoumanian testified that when he told the Sadoff brothers about the concept, they responded that “they never would have guessed this concept themselves” and “never would have even know about this business as far as getting involved in it and the success rate of it” unless Arzoumanian and Smoller had shown them. Id. at 22. Arzoumanian also admitted, however, that there were “hundreds” of trampoline parks all over the country. Id. at 46-47. Indeed, Jordan Sadoff testified that, while he did not know a lot about the trampoline park concept at that time, he knew that trampoline parks existed and was at least familiar with the idea. Id. at 78. Sadoff also testified that discussions in New Jersey were “on a very high level” and that they “more so discuss[ed] the excitement around the trampoline park industry.” Id. at 79.

         The Sadoffs returned to Chicago and folded their business partner Scott Garber into the proposed venture. Id. The parties proceeded to negotiate a joint venture, initially proposing a 50/50 venture between the HEL parties and the Sadoffs and eventually agreeing to a 40/60 venture between the HEL parties and all three Defendants. Id. at 24-25, 88, 110.

         Upon returning to Chicago, the Defendants did “quite a bit” of research into the industry and learned it “was much more complicated than what [they] initially thought.” Id. at 79-80. Accordingly, Jordan Sadoff testified that, through their research, they became concerned about not having a proven concept or brand name and thought it would be better to work underneath the Sky Zone franchise. Id. at 81. Sadoff testified that when first he discussed the idea of using the Sky Zone brand with Arzoumanian and Smoller, they were “fine with it” but noted they would have to become silent partners in the venture as their own High Elevations trampoline park was nearly open. Id. at 81. Sadoff testified, however, that he, his brother and Garber eventually decided to open the Sky Zone franchise on their own. Id. at 81; see also id. at 89 (“Q. And after looking at locations, that's when you told Ara and Marshall or you and Scott and Gar -- and Jacob told Ara and Marshall that you would not be working with them at all. A. It was some period of time after that. I don't remember the exact amount of time, but that's correct.”); id. at 124 (Garber direct examination) (“At some point did you, Jake, and Jordan decide to go it alone without High Elevations? A. We did.”). He further testified that Arzoumanian and Smoller were not happy about this decision and wanted the Sadoff brothers and Garber to pay them money pursuant to the November 2014 Non-Disclosure and Non-Compete Agreement. Id. at 81-82.

         The January 2015 Agreement

         The parties had multiple discussions regarding what this payment would be, and it changed over time, starting at $500, 000 and eventually negotiating it down to $175, 000. Tr. at 27-33. On January 15, 2015, Azroumanian sent the group email which stated:

Gentlemen,
Just to confirm our conversation from today, Marshall and I agree to be paid $175, 000 (the following as full compensation) towards the trampoline concept from Jake Sadoff, Jordan Sadoff, and Scott Garber:
25% ($43, 750) Upon signing of lease at Orland Park location. 50% ($87, 500) Upon City approval to build trampoline park 25% ($43, 750) Upon Landlord construction of the park.
Upon receipt of the $175, 000 no other monies shall be due to Ara Arzoumanian or Marshall Smoller.

Id. at 33; (HELX 9, at PRO 070-71). After receiving this email, the Defendants provided a contract that they had written for signature. Tr. at 34. Shortly thereafter, the parties signed an Agreement on January 19, 2015 (“January 2015 Agreement”). See (HELX 1, at 1). As relevant to the parties' dispute, the January 2015 Agreement states:

4. One-Time Royalty Payment.
In the event that the Garber and Sadoff Parties proceed with the Sky Zone franchise located in Orland Park, Illinois, the Garber and Sadoff Parties shall pay the Ham [sic] Parties a one-time royalty payment in the sum of One Hundred Seventy Five Thousand and 00/100 Dollars ($175, 000.00) as follows:
(i) Twenty percent (25%) [sic] or the sum of Forty Three Thousand Seven Hundred Fifty ($43, 750.00) due upon the execution of a lease for a location in Orland Park, Illinois; and
(ii) Fifty Percent (50%) or the sum of Eighty Seven Thousand Five Hundred and 00/100 Dollars ($87, 500.00) at such time as the Garber and Sadoff parties receive any and all required permits and licensing required to construct Sky Zone in trampoline park at the Orland Park, Illinois[sic]; and
(iii) Twenty Percent (25%) [sic] or the sum of Forty Three Thousand Seven Hundred Fifty and 00/100 Dollars ($43, 750.00) due when the landlord begins its construction of landlord's work pursuant to the lease for the Orland Park, Illinois.
It is understood and agreed that the payments by the Garber and Sadoff Parties pursuant to this Paragraph 4 are expressly conditioned on the occurrence of items 4(i), (ii) and (iii). Nothing contained in this Paragraph 4, obligates the Garber and Sadoff Parties to execute a lease for the Orland Park, Illinois location or proceed with a Sky Zone franchise.

See (HELX 1, at 1-2) (emphasis added). The parties disagree on which side requested that the “one-time royalty payment” be segmented into three separate payments with attached conditions but do not dispute that the January 2015 Agreement was the operative contract. Tr. at 35, 82-83; 132-34.

         Subsequently, the Sadoff brothers and Garber formed the company SG Trampoline, LLC, secured a location for a Sky Zone franchise in Orland Park and signed a franchise agreement with Sky Zone. See (HELX 3); see also Tr. at 93. When the lease for the Orland Park location was executed, as contemplated by paragraph 4(i) of the Agreement, the Sadoffs and Garber made a payment of $43, 750.00 to Arzoumanian and Smoller on February 13, 2015. See (Dkt. 84-1, at ¶¶ 17-19); Tr. at 84, 102, 114-15, 125. Furthermore, at some point the landlord of the Defendants' tentative Orland Park location began construction on the property. See (Dkt. 84-1, at ¶ 21); see also Tr. at 37. In March 2015, Arzoumanian demanded, via email, payment of the balance of the agreement based on his understanding that conditions 4(ii) and 4(iii) had been fulfilled. (HELX 9, at 087-88). The Defendants did not pay. The Defendants' franchise deal ultimately fell through because they were unable to obtain the necessary permits and had issues with their landlord, so they never actually opened the Sky Zone-franchised attraction in Orland Park. See (Dkt. 84-1, at ¶¶ 22-23); Tr. 36-37; 84; 106; 115-16. Accordingly, in October 2015, they demanded a return of the $43, 750 payment made to the HEL parties pursuant to 4(i). See (HELX 3). These consolidated lawsuits are the result of the parties' impasse.

         a. “proceed with Sky ...


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