Choice Hotels International, Inc. v. Savannah Shakti Corp. et al
Filing
7
MEMORANDUM OPINION (c/m to Defendants 10/25/11 sat). Signed by Chief Judge Deborah K. Chasanow on 10/25/11. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
CHOICE HOTELS INTERNATIONAL,
INC.
:
v.
:
Civil Action No. DKC 11-0438
:
SAVANNAH SHAKTI CORP., et al.
:
MEMORANDUM OPINION
Presently pending and ready for resolution in this case are
motions filed by Plaintiff Choice Hotels International, Inc.,
for entry of default and default judgment.
(ECF Nos. 5, 6).
The relevant issues have been briefed and the court now rules
pursuant to Local Rule 105.6, no hearing being deemed necessary.
For the reasons that follow, the motion for entry of default
will be granted and the motion for default judgment will be
granted in part and denied in part.
I.
Background
Plaintiff Choice Hotels International, Inc., commenced this
action on February 17, 2011, by filing an application to confirm
an
arbitration
award
against
Defendants
Savannah
Corporation, Devandra Patel, and Charulatta Patel.
The
attached
November
12,
“ex-parte
2010,
final
recites
that
award
of
Plaintiff
Shakti
(ECF No. 1).
arbitrator,”
demonstrated
dated
at
a
hearing before the arbitrator that Defendants “breached the June
30, 2005 franchise agreement and addenda thereto by failing to
construct a Comfort Suites hotel as contractually required” and
that the “franchise agreement provides for liquidated damages
under
these
circumstances.”
(ECF
No.
1-1,
at
1).1
The
arbitrator ordered Defendants to pay, jointly and severally, the
total
sum
of
$112,388.00
(consisting
of
$108,000.00
in
liquidated damages, plus $4,388.00 in administrative fees and
arbitrator compensation) within thirty days of the date of the
award.
Plaintiff’s application requests entry of a judgment in
favor of Plaintiff and against Defendants “in the amount of
$112,388.00, plus post-judgment interest until paid.”
(ECF No.
1, at 2).
Plaintiff effected service of process on or about April 6,
2011.
When Defendants failed to respond within the requisite
time period and Plaintiff took no further action, the court
issued an order, on July 11, directing Plaintiff to file and
serve on Defendants a motion for clerk’s entry of default and a
motion for default judgment, or to provide an explanation as to
why the filing of such motions would be inappropriate.
(ECF No.
4).
1
The award indicates that Defendants did not appear at the
hearing or otherwise defend before the arbitrator.
The
arbitration provision contained in the parties’ franchise
agreement states, “If any party fails to appear at any properly
noticed arbitration proceeding, an award may be entered against
the party, notwithstanding its failure to appear.” (ECF No. 12).
2
On July 21, 2011, Plaintiff separately filed the pending
motions for entry of default (ECF No. 5) and default judgment
(ECF No. 6).
II.
Defendants have not responded to these motions.
Motion for Entry of Default
Pursuant
to
Fed.R.Civ.P.
55(a),
“[w]hen
a
party
against
whom a judgment for affirmative relief is sought has failed to
plead
or
otherwise
defend,
otherwise,
that
entered
by
the
court.”
Breuer
that
a
Elec.
default
Mfg.
the
by
Although this rule refers to entry of default by the
well-established
enter
shown
default.”
is
must
is
or
“it
clerk
failure
affidavit
clerk,
the
and
also
Co.
Systems of America, Inc., 687 F.2d 182, 185 (7th
v.
party’s
may
be
Toronado
Cir. 1982)
(citing 6 Moore’s Federal Practice ¶ 55.03(1), at 55-31 (1976));
see also Trevino v. D.H. Kim Enterprises, Inc., 168 F.R.D. 181,
183 n. 3 (D.Md. 1996) (citing Breuer for the same proposition);
Structural Concrete Products, LLC v. Clarendon America Ins. Co.,
244 F.R.D. 317, 328 (E.D.Va. 2007) (“Before the plaintiff can
move for default judgment, the clerk or the court must enter
default.”).
Here, Plaintiff’s request for entry of default recites that
Defendants were served on April 6, 2011; that they were required
to respond within twenty days thereafter; and that they failed
to do so.
These allegations are supported by affidavits of
service, demonstrating that Defendants were properly served by a
3
deputy sheriff of Chatham County, Georgia (ECF No. 3), and the
docket, which reflects that Defendants have made no filing in
this case in the nine-plus months that it has been pending.
Accordingly, Plaintiff’s motion for entry of default will be
granted.
III. Motion for Default Judgment
A defendant’s default does not automatically entitle the
plaintiff to entry of a default judgment; rather, that decision
is left to the discretion of the court.
See Dow v. Jones, 232
F.Supp.2d
Fourth
491,
494
(D.Md.
2002).
The
Circuit
has
a
“strong policy” that “cases be decided on their merits,” id.
(citing United States v. Shaffer Equip. Co., 11 F.3d 450, 453
(4th Cir. 1993)), but default judgment may be appropriate when
the adversary process has been halted because of an essentially
unresponsive party, see S.E.C. v. Lawbaugh, 359 F.Supp.2d 418,
421 (D.Md. 2005) (citing Jackson v. Beech, 636 F.2d 831, 836
(D.C.Cir. 1980)).
Upon
entry
of
default,
the
well-pled
allegations
in
a
complaint as to liability are taken as true, but the allegations
as to damages are not.
Lawbaugh, 359 F.Supp.2d at 422.
Federal
Rule of Civil Procedure 54(c) limits the type of judgment that
may be entered based on a party’s default: “A default judgment
must not differ in kind from, or exceed in amount, what is
demanded in the pleadings.”
Thus, where a complaint specifies
4
the amount of damages sought, the plaintiff is limited to entry
of a default judgment in that amount.
“[C]ourts have generally
held that a default judgment cannot award additional damages . .
. because the defendant could not reasonably have expected that
his
damages
would
exceed
that
amount.”
In
re
Genesys
Data
Techs., Inc., 204 F.3d 124, 132 (4th Cir. 2000).
Here, Plaintiff requests entry of a default judgment “in
the amount of $112,388.00 with interest at the post-judgment
rate until paid, plus the cost of this action.”
2).
(ECF No. 6, at
Because costs were not requested in the complaint, they
cannot
54(c).
be
awarded
by
a
default
judgment.
See
Fed.R.Civ.P.
Thus, insofar as Plaintiff seeks reimbursement of the
filing fee in this case, its motion for default judgment will be
denied.
Moreover, the court need not specifically grant an
award of post-judgment interest because Plaintiff is entitled to
recover such interest by operation of law.
See 28 U.S.C. §
1961(a) (“[i]nterest shall be allowed on any money judgment in a
civil case recovered in a district court.”).2
2
Notably, the arbitration award provides that if Defendants
failed to pay the award amount “on or before thirty (30) days
from the date of this signed Award . . . interest shall continue
to accrue on the principal sum awarded ($112,388.00) at the rate
of 18% per annum . . . from the date of this Award until the
date paid in full.” (ECF No. 6-2 ¶ 3). The complaint, however,
requests only “post-judgment interest until paid.” (ECF No. 1,
at 2).
5
Where
application
default
for
judgment
is
sought
confirmation
of
an
with
respect
arbitration
to
award,
an
the
petitioner “must show that it is entitled to confirmation of the
arbitration award as a matter of law.”
United Community Bank v.
Arruarana, Civil No. 1:10cv248, 2011 WL 2748722, at *2 (W.D.N.C.
July 13, 2011) (citing D.H. Blair & Co. v. Gottdiener, 462 F.3d
95, 109-10);
3:10cv247,
McColl Partners, LLC v. DME Holdings, LLC, No.
2011
WL
971575,
at
*1
(W.D.N.C.
Mar.
17,
2011).
Pursuant to 9 U.S.C. § 9:
If the parties in their agreement have
agreed that a judgment of the court shall be
entered upon the award made pursuant to the
arbitration, and shall specify the court,
then at any time within one year after the
award is made any party to the arbitration
may apply to the court so specified for an
order confirming the award, and thereupon
the court must grant such an order unless
the award is vacated, modified, or corrected
as prescribed in sections 10 and 11 of this
title. If no court is specified in the
agreement
of
the
parties,
then
such
application may be made to the United States
court in and for the district within which
such award was made.
In this case, the parties’ franchise agreement includes an
arbitration
claim
clause,
arising
out
which
of
or
provides
relating
that
to
“any
this
controversy
Agreement,
or
or
the
breach of this Agreement, . . . will be sent to final and
binding arbitration,” and that “[j]udgment on the arbitration
award may be entered in any court having jurisdiction.”
6
(ECF
No. 1-2).
Although Plaintiff’s motion does not specifically
identify the jurisdiction in which the arbitration award was
made,
the
agreement
expressly
provides
that
proceeding would be conducted in Maryland.
any
arbitration
In any event, the
parties are diverse and the amount in controversy satisfies the
jurisdictional minimum for diversity jurisdiction in this court.
See 28 U.S.C. § 1332(a).
Thus, under the franchise agreement,
the court has jurisdiction to confirm the arbitration award.
There can be no question, moreover, that Plaintiff filed its
application “within one year after the award [was] made.”
9
U.S.C. § 9.
As
the
United
States
Court
of
Appeals
for
the
Fourth
Circuit has explained:
Review of an arbitrator’s award is severely
circumscribed.
Indeed, the scope of review
of an arbitrator’s valuation decision is
among the narrowest known at law because to
allow full scrutiny of such awards would
frustrate the purpose of having arbitration
at all – the quick resolution of disputes
and the avoidance of the expense and delay
associated with litigation.
Jih v. Long &
Foster Real Estate, Inc., 800 F.Supp. 312,
317 (D.Md. 1992). Federal courts may vacate
an arbitration award only upon a showing of
one of the grounds listed in the Federal
Arbitration Act, or if the arbitrator acted
in manifest disregard of law.
In re A.H.
Robins Co., Inc., 197 B.R. 513, 516 (E.D.Va.
1994).
Apex Plumbing Supply, Inc. v. U.S. Supply Co., Inc., 142 F.3d
188, 193 (4th Cir. 1998) (internal footnotes omitted).
7
If there is a valid contract between the parties providing
for arbitration, and if the dispute resolved in the arbitration
was within the scope of the arbitration clause, then substantive
review is limited to those grounds set out in § 10 of the
Federal Arbitration Act.
That section allows for vacatur of an
award:
(1)
where
the
award
was
procured
corruption, fraud, or undue means;
by
(2) where there was evident partiality or
corruption in the arbitrators, or either of
them;
(3) where the arbitrators were guilty of
misconduct in refusing to postpone the
hearing, upon sufficient cause shown, or in
refusing to hear evidence pertinent and
material to the controversy; or of any other
misbehavior by which the rights of any party
have been prejudiced; or
(4) where the arbitrators exceeded their
powers, or so imperfectly executed them that
a mutual, final, and definite award upon the
subject matter submitted was not made.
9 U.S.C. § 10(a).
In addition, a court may overturn a legal
interpretation of an arbitration panel if “it is in manifest
disregard for the law.”
See, e.g. Apex Plumbing, 142 F.3d at
193 (“Federal courts may vacate an arbitration award only upon a
showing of one of the grounds listed in the [FAA], or if the
arbitrator
acted
in
manifest
disregard
of
the
law”);
Upshur
Coals Corp. v. United Mine Workers of America, Dist. 31, 933
F.2d 225, 229 (4th
Cir. 1991).
8
Mere misinterpretation of a
contract or an error of law does not suffice to overturn an
award.
See Upshur, 933 F.2d at 229.
In this case, the award was issued in accordance with the
terms of the parties’ franchise agreement, which provided for an
award of liquidated damages in the event of a material breach,
and the arbitrator cited relevant provisions of the agreement in
determining the amount.
Breach of contract claims expressly
fall within the scope of the parties’ arbitration clause, and
the record reveals no basis for questioning the validity of the
franchise
agreement
or
the
conduct
of
the
arbitrator.
Accordingly, Plaintiff’s motion for entry of a default judgment
in the amount of $112,388.00, representing liquidated damages
plus arbitration expenses, will be granted.
IV.
Conclusion
For the foregoing reasons, Plaintiff’s motion for entry of
default will be granted and its motion for entry of default
judgment will be granted in part and denied in part.
A separate
order will follow.
________/s/_________________
DEBORAH K. CHASANOW
United States District Judge
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