AFC Franchising LLC v. Reed et al

Filing 43

MEMORANDUM OPINION. Signed by Judge Annemarie Carney Axon on 10/2/2018. (TLM, )

FILED
2018 Oct-02 AM 10:53
U.S. DISTRICT COURT
N.D. OF ALABAMA

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
AFC FRANCHISING LLC,
Plaintiff,
v.
EARL S REED, JR., et al.,
Defendants.

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2:16-cv-01770-ACA

MEMORANDUM OPINION
This matter comes before the court on Plaintiff AFC Franchising LLC’s
motion for default judgment. (Doc. 41). After the Clerk entered a default against
Defendant Earl S. Reed, Jr. (doc. 27), AFC Franchising moved under Federal Rule
of Civil Procedure 55(b) for a default judgment, seeking an award of $104,833.25.
(Doc. 41 at 1). The court WILL GRANT IN PART and DENY IN PART the
motion. Because AFC Franchising’s well-pleaded allegations support its claim for
breach of the agreement to pay royalties, the court finds that AFC Franchising has
established that Mr. Reed is liable for breach of the agreement to pay royalties.1
But AFC Franchising is not entitled to recover the amount it requested in its

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AFC Franchising also asserts claims of breach of the covenant not to
compete, breach of the agreement not to divert customers, breach of the agreement
not to cause harm to a protected mark or system, and breach of the agreement not
to disclose or use confidential information. (Doc. 31 at 13–18). But AFC
Franchising does not seek a default judgment on those claims.

motion for a default judgment because that amount exceeds the amount requested
in the amended complaint.

Accordingly, the court WILL AWARD AFC

Franchising only $59,436.80 in damages.

Finally, the court finds that AFC

Franchising’s request for attorneys’ fees and costs in the amount of $35,348.24 is
reasonable, and it WILL GRANT AFC Franchising’s request for those fees and
costs.
I.

BACKGROUND

A defaulting defendant “admits the plaintiff’s well-pleaded allegations of
fact” for purposes of liability. Buchanan v. Bowman, 820 F.2d 359, 361 (11th Cir.
1987) (quotation marks omitted)). Accordingly, the court takes as true the wellpleaded allegations of AFC Franchising’s amended complaint. Those allegations
establish that AFC Franchising is the franchisor of a system of urgent care centers
that operate under the service mark AFC/DOCTORS EXPRESS. (Doc. 31 at 4).
Mr. Reed is the managing owner of Urgent Care of Mt. Vernon, LLC, which
managed an AFC/DOCTORS EXPRESS franchise in Virginia until September 10,
2016. 2 (Id. at 1, 10).
On May 1, 2009, Mr. Reed, acting in his individual capacity, executed a
franchise agreement with Doctors Express Franchising that granted him the right to

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AFC Franchising initially named both Mr. Reed and Urgent Care of
Mt. Vernon as defendants, but it has since dismissed the company and Mr. Reed is
the only remaining defendant. (See Doc. 31 at 3; Doc. 34).
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operate an urgent care facility using the DOCTORS EXPRESS (now
AFC/DOCTORS EXPRESS) marks, system, and operations manual. (Id. at 5;
Doc. 31-2 at 6–7; see also Doc. 31-2 at 56).

The agreement provided that

Mr. Reed would pay a weekly royalty fee of 6% of the business’s gross sales from
the preceding week. (Doc. 31-2 at 13, 51). Any late payments would bear a
monthly 1.5% interest rate.

(Doc. 31-2 at 14).

Finally, Mr. Reed agreed to

reimburse AFC Franchising “for all of the costs and expenses that [AFC
Franchising] incur[s], including, without limitation, reasonable accounting,
attorneys’ and related fees” in relation to any future failure to pay amounts due.
(Doc. 31-2 at 45).
Mr. Reed opened the franchise in late 2009. (Doc. 31 at 5). In 2012, the
franchise agreement was assigned to DRX Urgent Care LLC, which then assigned
the agreement to AFC Franchising.

(Doc. 31 at 4–5; Doc. 31-3 at 2).

On

September 10, 2016, Mr. Reed notified AFC Franchising that he had closed the
franchise. (Doc. 31 at 1; Doc. 31-1 at 2). At the time of the closure, he owed AFC
Franchising $59,436.80. (Doc. 31 at 10; Doc. 31-1 at 2).
On September 14, 2016, AFC Franchising sent Mr. Reed a notice of
termination of the franchise agreement. (Doc. 31-1 at 2). In the letter, AFC
Franchising notified Mr. Reed that he and Urgent Care of Mt. Vernon owed

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$59,436.80 and demanded payment in full. (Id.). Mr. Reed has not paid any part
of the amount owed. (Doc. 41-4).
AFC Franchising filed its complaint in this action on October 28, 2016.
(Doc. 1). The court granted it until March 27, 2017, to serve Mr. Reed, and AFC
Franchising served him on February 10, 2017. (Docs. 18, 23). After Mr. Reed
failed to plead or otherwise defend the action, AFC Franchising moved for an entry
of default against Mr. Reed, which the Clerk entered. (Docs. 25, 27).
In May 2017, AFC Franchising filed an amended complaint, which it served
on Mr. Reed in July 2017. (Docs. 31, 35). After Mr. Reed again failed to plead or
otherwise defend the case, AFC Franchising moved for a default judgment against
him. (Doc. 41).
II.

DISCUSSION

Federal Rule of Civil Procedure 55 establishes a two-step procedure for
obtaining a default judgment. First, when a defendant fails to plead or otherwise
defend a lawsuit, the Clerk of Court must enter the party’s default.
Fed. R. Civ. P. 55(a). Second, if the defendant is not an infant or an incompetent
person, the court may enter a default judgment against the defendant as long as the
well-pleaded

allegations

in

the

complaint

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state

a

claim

for

relief.

Fed. R. Civ. P. 55(b); Nishimatsu Contr. Co. v. Houston Nat’l Bank, 515 F.2d 1200,
1206 (5th Cir. 1975).3
Here, the Clerk has already entered Mr. Reed’s default, so the court must
determine whether the well-pleaded factual allegations support AFC Franchising’s
claim. Its motion for default judgment addresses only its claim for breach of the
agreement to pay royalties. (See Doc. 41). Accordingly, the court will also address
only that claim.
The franchising agreement provides that Maryland law will govern all claims

arising out of the agreement.

(Doc. 31-2 at 45).

Under Maryland law, the

elements of a breach of contract action include the existence of a contractual
obligation, a material breach of the obligation, and damages. Kumar v. Dhanda,
17 A. 3d 744 (Md. Ct. Spec. App. 2011). AFC Franchising’s allegations and the
evidence establish the existence of the franchising agreement between AFC
Franchising and Mr. Reed; a provision requiring Mr. Reed to pay royalties; and
Mr. Reed’s failure to pay those royalties.

Accordingly, AFC Franchising has

established liability on Mr. Reed’s part.
Next, the court must address the amount of damages it will award. “A
default judgment must not differ in kind from, or exceed in amount, what is demanded
in the pleadings.” Fed. R. Civ. P. 54(c). The court may enter a default judgment
3

In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir.1981) (en
banc), the Eleventh Circuit adopted as binding precedent all decisions of the
former Fifth Circuit handed down before October 1, 1981.
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without a hearing only if “the amount claimed is a liquidated sum or one capable of

mathematical calculation.” United States Artist Corp. v. Freeman, 605 F.2d 854,
857 (5th Cir. 1979) (citations omitted); see also Fed. R. Civ. P. 55(b)(1). Unlike a
finding of liability, the court may award damages only if the record adequately
reflects the basis for such an award through “a hearing or a demonstration by
detailed affidavits establishing the necessary facts.”

Adolph Coors Co. v.

Movement Against Racism & the Klan, 777 F.2d 1538, 1544 (11th Cir. 1985)
(quotation marks omitted).
In the amended complaint, AFC Franchising alleged that Mr. Reed owed it
$59,436.80 in unpaid royalties. (Doc. 31 at 2, 18). It did not seek to recover the
1.5% interest on late payments of the royalties. (See generally Doc. 31). But in its
motion for a default judgment, AFC Franchising asserts that Mr. Reed owes it
$67,780.87 in unpaid royalties and $1,704.14 in interest. (Doc. 41 at 1). In
support of that assertion, it presents an affidavit from Christopher Rice, an
Assistant Controller for AFC Franchising’s parent company, who attests that AFC
Franchising’s “corporate records” show that as of September 10, 2016—the date of
termination of the franchising agreement—Mr. Reed owed $67,780.87. (Doc. 41-4
at 2). He further attests that as of May 23, 2018, Mr. Reed owed $1,704.14 in
interest. (Id. at 3).

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The court cannot award AFC Franchising any more than it sought in its
amended complaint.

See Fed. R. Civ. P. 54.

As a result, AFC Franchising’s

damages are limited to $59,436.80. The court finds that the record supports AFC

Franchising’s allegation that Mr. Reed owed that amount because AFC Franchising
submitted a termination letter that it sent to Mr. Reed in September 2016, in which
it informed him that as of September 10, 2016, he owed $59,436.80 in unpaid
royalties. (Doc. 31-1). Accordingly, the court WILL AWARD AFC Franchising
$59,436.80 in damages on its claim for breach of the agreement to pay royalties.
AFC Franchising also seeks $34,655.00 in attorneys’ fees and $693.24 in
costs. (Doc. 41 at 1). The franchising agreement provided that Mr. Reed would
pay “all of the costs and expenses that [AFC Franchising] incur[s], including,
without limitation, reasonable accounting, attorneys’ and related fees” for
Mr. Reed’s failure to pay amounts due. (Doc. 31-2 at 45). Thus, the court finds it
appropriate to award attorneys’ fees and costs in this case.
In support of its request for attorneys’ fees, AFC Franchising submits a
declaration from its attorney, who attests that he did 131.8 hours of work on the
case at rates of $200 and $250 per hour, and a paralegal did 30.8 hours of work at a
rate of $125. (Doc. 41-5 at 7). Based on the expertise required in this case, the
amount of royalties being collected, and the time expended, the court finds that
attorneys’ fees and costs requested in this case are reasonable. The court therefore

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WILL GRANT AFC Franchising’s request for attorneys’ fees and costs against
Mr. Reed in the amount of $35,348.24.
III.

CONCLUSION

The court WILL GRANT IN PART and DENY IN PART AFC
Franchising’s motion for default judgment. (Doc. 41). The court WILL GRANT
the motion as to Mr. Reed’s liability on the claim that he breached the agreement
to pay royalties, and WILL ENTER DEFAULT JUDGMENT in favor of AFC
Franchising and against Mr. Reed in the following amounts: (1) $59,436.80 in
unpaid royalties, (2) $35,348.24 in attorneys’ fees and costs, and (3) post-judgment
interest at the statutory rate in accordance with 28 U.S.C. § 1961. The court
WILL DENY the motion for default judgment to the extent it seeks to recover
unpaid royalties in an amount higher than asserted in the amended complaint. The
court will enter a separate order consistent with this memorandum opinion.
DONE and ORDERED this October 2, 2018.

_________________________________
ANNEMARIE CARNEY AXON
UNITED STATES DISTRICT JUDGE

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