Choice Hotels International, Inc. v. Cherokee Hospitality, LLC et al
Filing
18
MEMORANDUM OPINION (c/m to Defendants 11/29/12 sat). Signed by Chief Judge Deborah K. Chasanow on 11/29/12. (sat, Chambers)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
:
CHOICE HOTELS INTERNATIONAL,
INC.
v.
:
:
Civil Action No. DKC 11-2095
:
CHEROKEE HOSPITALITY, LLC,
et al.
:
MEMORANDUM OPINION
Presently pending and ready for resolution is a motion for
default judgment filed by Plaintiff Choice Hotels International,
Inc.
(ECF No. 14).
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
will be granted in part and denied in part.
I.
Background
Plaintiff Choice Hotels International, Inc., commenced this
action on July 28, 2011, by filing an application to confirm an
arbitration award against Defendants Cherokee Hospitality, LLC,
Bhupatbhai Patel, Bipinchandra Patel, and Ratilal Patel.
No. 1).
(ECF
The attached “ex-parte award of arbitrator” (ECF No. 1-
1), dated April 8, 2011, recites that on or about May 25, 2004,
the parties entered into a franchise agreement pursuant to which
Defendants were to operate a hotel in Cherokee, North Carolina,
using Plaintiff’s tradename, service marks and franchise system.
The franchise agreement required Defendants to pay franchise and
related fees on a monthly basis.
Defendants fell behind on
these payments and, on May 2, 2008, Plaintiff sent Defendants a
notice of default.
When Defendants failed to cure the default,
Plaintiff
notice
provided
terminated.
that
the
franchise
agreement
was
A final statement of the franchise charges showed
that, as of August 14, 2008, Defendants owed $40,754.66.
Before
the arbitrator, Plaintiff sought an award in that amount, plus
interest, liquidated damages, and arbitration fees pursuant to
the terms of the parties’ agreement.
After a hearing, the arbitrator found in favor of Plaintiff
in the amounts of “$40,794.66 for [franchise] fees and charges
owed, plus $35,317.93 as liquidated damages,” plus “interest at
the
rate
of
1.5%
per
month,
or
the
whichever is lower, . . . until paid.”
applicable
legal
rate,
(ECF No. 1-1, at 3-4).1
The arbitrator additionally awarded prejudgment interest in the
amount of $16,521.84, as of August 14, 2008, and “$3,735.00
representing that portion of [arbitration] fees and expenses in
excess
of
[Plaintiff].”
the
apportioned
costs
previously
incurred
by
(Id. at 4).
1
The award indicates that Defendants did not appear at the
hearing or otherwise respond at any point during the arbitration
proceedings.
The arbitrator invoked “Rule 29 of the AAA
Commercial
Arbitration
Rules,”
which
provides
that
“the
arbitration may proceed in the absence of any party or
representative who, after due notice, fails to be present or
fails to obtain a postponement.” (ECF No. 1-1, at 2).
2
Plaintiff effected service of process of the petition to
confirm arbitration award on each defendant as of February 21,
2012.
When Defendants failed to respond within the requisite
time period, the court issued an order directing Plaintiff to
file and serve a motion for entry of default.
On May 17,
Plaintiff separately filed motions for entry of default (ECF No.
13)
and
default
judgment
(ECF
default on the same date.
No.
14).
The
clerk
entered
Defendants have not responded to
these motions.
II.
Standard of Review
Under
Federal
Rule
of
Civil
Procedure
55(a),
“[w]hen
a
party against whom a judgment for affirmative relief is sought
has failed to plead or otherwise defend, and that failure is
shown
by
affidavit
party’s default.”
or
otherwise,
the
clerk
must
enter
the
Where a default has been previously entered
by the clerk and the complaint does not specify a certain amount
of damages, the court may enter a default judgment upon the
plaintiff’s
application
and
notice
pursuant to Fed. R.Civ.P. 55(b)(2).
to
the
defaulting
party,
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 Lewis v. Lynn, 236 F.3d 766, 767 (5th Cir. 2001).
The Fourth Circuit has a “strong policy” that “cases be decided
on their merits,” Dow v. Jones, 232 F.Supp.2d 491, 494 (D.Md.
3
2002) (citing United States v. Shaffer Equip. Co., 11 F.3d 450,
453 (4th Cir. 1993)), but default judgment may be appropriate
where
a
party
is
unresponsive,
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
Federal
Rule
are
of
not.”
Civil
Lawbaugh,
Procedure
359
54(c)
F.Supp.2d
limits
the
at
422.
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 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
amount.”
have
expected
his
damages
exceed
that
“the
court
Where a complaint does not specify an
is
required
to
determination of the sum to be awarded.”
F.Supp.2d
would
In re Genesys Data Technologies, Inc., 204 F.3d 124,
132 (4th Cir. 2000).
amount,
that
15,
17
(D.D.C.
2001)
(citing
make
an
independent
Adkins v. Teseo, 180
S.E.C.
v.
Management
Dynamics, Inc., 515 F.2d 801, 814 (2nd Cir. 1975); Au Bon Pain
Corp. v. Artect, Inc., 653 F.2d 61, 65 (2nd Cir. 1981)).
4
While
the court may hold a hearing to consider evidence as to damages,
it is not required to do so; it may rely instead on “detailed
affidavits or documentary evidence to determine the appropriate
sum.”
v.
Adkins, 180 F.Supp.2d at 17 (citing United Artists Corp.
Freeman,
605
F.2d
854,
857
(5th
Cir.
1979));
see
also
Laborers’ District Council Pension, et al. v. E.G.S., Inc., Civ.
No. WDQ–09–3174, 2010 WL 1568595, at *3 (D.Md. Apr. 16, 2010)
(“[O]n
without
default
a
judgment,
hearing
if
the
Court
the
may
record
only
award
damages
the
damages
supports
requested.”).
III. Analysis
Where
default
application
for
judgment
confirmation
is
of
sought
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, 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 (2nd Cir. 2006); McColl Partners, LLC v. DME Holdings,
LLC, No. 3:10cv247, 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
5
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
franchise
this
case,
agreement
the
arbitration
provides
that
clause
“actions
in
for
the
parties’
collection
of
moneys owed [Plaintiff] under this Agreement (or any related
agreement), any controversy or claim arising out of or relating
to this Agreement, 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.”
(ECF No. 1-2).
Although Plaintiff’s motion does
not identify the jurisdiction in which the arbitration award was
made, the agreement requires that any arbitration proceeding be
conducted in Maryland and that Maryland substantive law applies.
In any event, the parties appear to be diverse and the amount in
controversy satisfies the jurisdictional minimum for diversity
jurisdiction in this court.
court
is
satisfied
arbitration
award.
that
it
There
See 28 U.S.C. § 1332(a).
has
is
jurisdiction
no
question,
to
Thus, the
confirm
moreover,
the
that
Plaintiff filed its application “within one year after the award
[was] made.”
9 U.S.C. § 9.
As the Fourth Circuit has explained:
6
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).
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 forth in § 10 of the
Federal Arbitration Act.
That section allows vacatur of an
award only:
(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
7
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 law”); Upshur Coals
Corp. v. United Mine Workers of America, Dist. 31, 933 F.2d 225,
229 (4th Cir. 1991).
Mere misinterpretation of a contract or an
error of law does not suffice to overturn an award.
See Upshur,
933 F.2d at 229.
Plaintiff has established that there was a valid contract
between the parties requiring arbitration of “any controversy or
claim arising out of or relating to this Agreement.”
The record
makes clear that the arbitration award arose from Defendant’s
default
under
the
franchise
agreement;
thus,
the
court
is
satisfied that the claims resolved at arbitration are within the
scope of the parties’ arbitration clause.
There has been no
showing of the narrow grounds listed in the FAA for vacatur of
the arbitration award, nor is there any suggestion that the
arbitrator acted in manifest disregard of the law.
8
The
arbitrator
awarded
Plaintiff
a
total
of
$96,369.43,
consisting of $40,794.66 for unpaid franchise and related fees,
$35,317.93
in
liquidated
damages,
$16,521.81
in
prejudgment
interest of fees owed as of August 14, 2008, and $3,735.00 for
arbitration expenses.
judgment
in
that
Plaintiff requests entry of a default
amount,
“plus
post-judgment
interest
until
paid” and “the costs of this action in the amount of three
hundred fifty dollars ($350.00).”
costs
were
not
requested
in
the
awarded by a default judgment.
(ECF No. 14-2).
complaint,
they
Because
cannot
See Fed.R.Civ.P. 54(c).
be
Thus,
insofar as Plaintiff seeks reimbursement of the filing fee, its
motion for default judgment will be denied.
Moreover, the court
need not specifically grant an award of post-judgment interest
because
Plaintiff
operation of law.
is
entitled
to
recover
such
interest
by
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.”).
In all other respects, however, Plaintiff
has demonstrated entitlement to confirmation of the arbitration
award.
Accordingly, a default judgment in that amount will be
entered.
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IV.
Conclusion
For the foregoing reasons, Plaintiff’s motion for 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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