DAYS INNS WORLDWIDE, INC. v. JERBEV CORPORATION et al

Filing 24

LETTER OPINION. Signed by Judge William J. Martini on 4/8/09. (gh, )

UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY
M A R T I N LU T H E R KIN G JR. FE D E R A L BLD G . & U . S . COU R T H O U S E 5 0 W A L N U T ST R E E T , P.O. BOX 419 N E W A R K , N J 07101-0419

[phone]

WILLIAM J. MARTINI JUDGE

L E T T E R OPINION

A p ril 8, 2009

B ry a n Paul Couch J e ffre y L. O'Hara A n d re w Burr Buckman C o n n e ll Foley LLP 8 5 Livingston Avenue R o s e la n d , New Jersey 07068 (A tto r n e y for Plaintiff) P e te r J. Vazquez, Jr. G o ld ste in , Vespi & Vazquez, LLC 2 6 4 Union Boulevard T o to w a , New Jersey 07871 (A tto r n e y for Defendant)

RE:

D a y s Inn Worldwide v. Jerbev Corporation, et al. C iv . No. 08-1659 (WJM)

D e a r Counsel: T h is matter comes before the Court on Defendants' motion to set aside the entry of d e fa u lt. On February 2, 2009, this Court denied Defendants' motion but stated that it w o u ld reconsider if Defendants submitted supplemental briefing and factual support d e m o n stra tin g a "meritorious defense" to the claims set forth in Plaintiff's complaint.

After consideration of the supplemental briefing presented by Defendants, the Court G R A N T S Defendants' motion to set aside the entry of default. I. BAC K GR O U N D

O n May 15, 1991, Defendant Jerbev Corporation ("Jerbev") entered into a License A gre e m e n t with Plaintiff Days Inn Worldwide ("DIW"), under which Jerbev was o b liga te d to operate a Days Inn guest lodging facility. See Compl. Ex. A. This License A gre e m e n t was renewed on May 15, 2001. See id. Pursuant to Section Five of the May 1 5 , 2001 renewal agreement, the term of the License Agreement ran from the Effective D a te ­ defined in Appendix A to the Agreement as the date that Jerbev first took p o s s e s s io n of the facility ­ to the day prior to the fifteenth anniversary of the facility's O p e n in g Date. See id. at 7-8. Concurrent with the execution of the License Agreement, D e fe n d a n ts Gerald Grubb, Derek Grubb, and Darin Grubb provided DIW with a guaranty o f Jerbev's obligations. Compl. Ex. C. In its complaint, Plaintiff alleges that Defendant Jerbev stopped operating its fa c ility as a Days Inn on August 24, 2007. Compl. ¶ 25. As a result, DIW filed a c o m p la in t on April 3, 2008 demanding damages from Jerbev flowing from this alleged b re a c h of the License Agreement. Specifically, DIW sought liquidated damages and re c u rrin g fees from Jerbev and Jerbev's guarantors. Defendants failed to file an answer to this complaint with the Court. At DIW's request, the Clerk of the Court entered default on August 28, 2008 a ga in s t three of the Defendants ­ Jerbev, Gerald Grubb, and Derek Grubb. These three D e fe n d a n ts were served with a copy of the default on October 7, 2008. Default against th e final Defendant, Darin Grubb, was entered on October 10, 2008. Darin Grubb then w a s served with a copy of the default three days later. Plaintiffs filed a motion for d e fa u lt judgment pursuant to Fed. R. Civ. P. 55(b) on October 24, 2008. Defendants filed th e ir motion to set aside the default under Fed. R. Civ. P. 55(c) four days later. O n February 2, 2009, this Court denied Defendants' motion to set aside the d e fa u lt. See Docket No. 17. While denying Defendants' motion, this Court stated that it w o u ld reconsider its ruling in twenty days if Defendants presented the court with s u p p le m e n ta l briefing and factual support demonstrating a "meritorious defense" to P la in tiff's claims.1 Defendants then submitted a letter asserting various defenses, which w ill now be addressed.

The Court reserved on Plaintiff's motion for default judgment, pending Defendants' submission of supplemental briefing on the meritorious defense issue. 2

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II.

D ISC U S S IO N

A meritorious defense is demonstrated when "allegations of defendant's answer, if e s ta b lis h e d on trial, would constitute a complete defense to the action." United States v. $ 5 5 ,5 1 8 .0 5 in U.S. Currency, 728 F.2d 192, 195 (3d Cir. 1984) (citation omitted). As s u c h , the presentation of a "meritorious defense" must contain specific facts that would a llo w Defendants to advance a complete defense ­ that is, specific facts beyond c o n c lu s o ry allegations or a general denial. See id. at 195-96. In assessing whether Defendants have asserted a "meritorious defense," the Court is required to consider the substantive sufficiency of the defenses asserted, not merely th e ir facial validity. See Harad v. Aetna Cas. and Sur. Co., 839 F.2d 979, 983 (3d Cir. 1 9 8 8 ) ("We cannot conclude, however, that the court erred in examining the substance of A e tn a 's defense. It could no less. The district court would have applied an incorrect legal s ta n d a rd if it had merely facially scrutinized Aetna's defense."). A. T e r m of the License Agreement

In their letter to the Court, Defendants first assert that "the agreement that Plaintiff re lie s on in support of its claim for liquidated damages expired prior to Defendants [sic] s a le of the hotel." See Defs.' Supplemental Br. at 1. As such, Defendants contend that th e y cannot be found in breach of a contract that was not in effect between the parties. A s noted, supra, the May 15, 2001 renewal License Agreement executed by D e fe n d a n t Jerbev and Plaintiff DIW states that its term runs from the Effective Date to th e day prior to the fifteenth anniversary of the Opening Date. See Compl. Ex. A. D e fe n d a n ts represent in their letter that both the Effective Date and the Opening Date of th e Jerbev facility was May 15, 1991.2 See Defs.' Supplemental Br. at 1. Consequently, b a s e d on this representation, the term of the Agreement expired on May 14, 2006. In its Complaint, Plaintiff contends that Jerbev breached the License Agreement by c e a s in g to operate its facility as a Days Inn on August 24, 2007. Compl. ¶ 25. This a lle ge d breach occurred approximately fifteen months after the term of the License A gre e m e n t expired, using the Effective Date and Opening Date supplied by Defendants. B y asserting that there was no contract in effect on the date of the alleged breach, D e fe n d a n ts have put forth a meritorious defense at this juncture to DIW's claims for

Plaintiff has not contested Defendants' claim that the Effective Date and Opening Date for the Jerbev facility was May 15, 1991. 3

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damages under the contract. As such, Defendants have asserted a meritorious defense to P la in tiff's liquidated damages claims.3 Accordingly, Defendants' motion to set aside the e n try of default is granted as to Jerbev and as to its guarantors, Defendants Gerald Grubb, D e re k Grubb, and Darin Grubb. 4 IV . C O N C L U S IO N

F o r the foregoing reasons, Defendants' motion to set aside the entry of default is n o w GRANTED. Defendants shall submit an answer to Plaintiff's complaint within tw e n ty (20) days. Further, Plaintiff's motion for default judgment is hereby DENIED AS M OOT.

/s/ William J. Martini WILLIAM J. MARTINI, U.S.D.J.

In addition, Plaintiff asserts in Counts Four and Five of its Complaint that Jerbev failed to pay $71,792.41 in Recurring Fees due under the License Agreement. Compl. ¶¶ 46-49. It is unclear from the complaint when Jerbev allegedly stopped paying these fees. To the extent that any of these fees were derived after May 14, 2006, Defendants have asserted a meritorious defense to the demand for $71,792.41 put forth in Counts Four and Five. If DIW demands payment of recurring fees stemming from an earlier date, DIW is free to amend its complaint to state so specifically. Defendants asserted other defenses in their supplemental submission, including: (1) the failure of Plaintiff to honor Defendants' attempt to terminate the Agreement; (2) Plaintiff's failure to comply with advertising and computer-related obligations; and, (3) "waiver and estoppel defenses." It is not necessary at this juncture for the Court to address these other purported defenses, since the Court grants Defendants' motion on other grounds. 4
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