DAYS INNS WORLDWIDE, INC. v. SAVITA HOSPITALITY GROUP, INC. et al

Filing 11

MEMORANDUM OPINION. Signed by Judge Kevin McNulty on 7/28/14. (gmd, )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

DAYS INNS WORLDWIDE, INC., a
Delaware Corporation,

Civ. No. 13-2863 (KM)(MCA)

:

Plaintiff,

MEMORANDUM OPINION

V.

SAVITA HOSPITALITY GROUP,
INC., a Utah Corporation; ARUN
BHULA, an individual; and SMITA
A. BHULA, an individual,
Defendants.

MCNULTY, U.S.D.J.:
This matter comes before the Court on the unopposed motion of Plaintiff
Days Inns Worldwide, Inc. (“DIW”) for default judgment against Defendants
Savita Hospitality Group, Inc., Arun Bhula, and Smita A. Bhula, pursuant to
Fed. R. Civ. P. 55(b)(2). For the reasons set forth below, I find that default
judgment is appropriate. I will also award compensatory damages.
I. BACKGROUND
DIW is a corporation organized under the Delaware law and based in
New Jersey. (Compi. at ¶ 1 [ECF No. 1]). Savita is a Utah-organized and based
corporation, and its principals are Arun and Smita Bhula. (Id. at ¶J 2-4).
On May 19, 2008, DIW and Savita entered into a 15-year franchise
agreement for Savita’s operation of a 42-room Days Inn hotel in Rexburg,
Idaho. (Id. at ¶J 9-10). On the same day, DIW and Savita entered into a
“Connectivity Equipment Lease and Services Addendum”. (Id. at ¶j 18-19).
Arun Bhula signed both the franchise agreement and the addendum on
Savita’s behalf. (See id. at Exs. A-B). In addition, both Arun and Smita Bhula
signed a guaranty of all of Savita’s obligations under the above agreements,
effective the date of the franchise agreement. (See id. at Ex. C).

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The gist of the complaint is that Savita, on May 12, 2011, lost possession
of the hotel facility to a third party, effecting a termination of the franchise
agreement pursuant to section 11.2 thereof (providing that DIW “may terminate
this Agreement, effective when we send written notice to you... when [inter
alia]. ..you discontinue operating the Facility as a “Days Inn”.. .you lose
possession or the right to possession of the Facility...”). (See id. at ¶j 15, 23;
Ex.Aat 11.2).
Further, DIW seeks liquidated damages, which it says defendants owe
under the franchise agreement and connectivity addendum upon termination,
but have not paid. (See id. at ¶J 16, 19, 24, 29-36; Ex. A at § 12). It alleges that
the amount of liquidated damages is to accord with a formula set forth in the
connectivity addendum. (See id. at ¶ 19). In its complaint, DIW specified that
the amount of liquidated damages was $86,500.
DIW also seeks recurring fees, which it says defendants owe under the
franchise agreement, but have not paid. (See id. at ¶J 11, 41-44; Ex. A at § 7).
As to the liquidated damages and recurring fees it seeks, DIW alleges
that it is entitled to prejudgment interest, pursuant to section 7.3 of the
franchise agreement. (See id. at ¶ 12).
Finally, DIW claims that it is entitled to its attorneys’ fees and costs in
pursuing these remedies and prevailing, based on section 17.4 of the franchise
agreement. (See id. at ¶ 17).
DIW served Savita with the summons and complaint by regular and
certified mail on August 27, 2013. [ECF No. 8 at p. 10]. DIW served Arun and
Smita Bhula with the summons and complaint via process server on
September 2, 2013. [ECF No. 7]. Pursuant to Fed. R. Civ. P. 12(a)(1),
defendants had 21 days to respond to the complaint; their time to respond
expired on September 17 and 23, 2013, respectively. They have not answered
or otherwise responded at any point, On DIW’s request, the Clerk of Court
entered default against all of the defendants on October 10, 2013. On
December 13, 2013, DIW filed the now-pending motion for default judgment
against all of the defendants.

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II. DISCUSSION
A. Legal Standard for Entry of Default Judgment
“[T]he entry of a default judgment is left primarily to the discretion of the
district court.” Hritz v. Woma Corp., 732 F.2d 1178, 1180 (3d Cir. 1984) (citing
Tozer v. Charles A. Krause Milling Co., 189 F.2d 242, 244 (3d Cir.1951)).
Because the entry of a default judgment prevents the resolution of claims on
the merits, “this court does not favor entry of defaults and default judgments.”
United States v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984).
Thus, before entering default judgment, the Court must determine whether the
“unchallenged facts constitute a legitimate cause of action” so that default
judgment would be permissible. DirecTV, Inc. v. Asher, 03-cv-1969, 2006 WL
680533, at *1 (D.N.J. Mar.14, 2006) (citing Wright, Miller, Kane, 1OA Federal
Practice and Procedure: Civil 3d § 2688, at 58—59, 63).
“[D]efendants are deemed to have admitted the factual allegations of the
Complaint by virtue of their default, except those factual allegations related to
the amount of damages.” Doe v. Simone, CIV.A. 12-5825, 2013 WL 3772532, at
*2 (D.N.J. July 17, 2013). While “courts must accept the plaintiffs well-pleaded
factual allegations as true,” they “need not accept the plaintiffs factual
allegations regarding damages as true.” Id. (citing Chanel, Inc. v. Gordasheusky,
558 F.Supp.2d 532, 536 (D.N.J. 2008). Moreover, if a court finds evidentiary
support to be lacking, it may order or permit a plaintiff seeking default
judgment to provide additional evidence in support of the allegations. Doe,
2013 WL 3772532, at * 2.
Before a Court may enter default judgment against a defendant, the
summons and complaint must have been properly served, and the defendant
must have failed to file an answer or otherwise respond to the complaint within
the time frame provided by the Federal Rules, which is 21 days. See Gold Kist,
Inc. v. Laurinburg Oil Co., Inc., 756 F.2d 14, 18—19 (3d Cir. 1985); Fed. R. Civ.
P. 12(a). Here, Defendants were properly served but subsequently failed to
respond to the complaint. I am satisfied that the service-related prerequisites to
default judgment are met. See Gold Kist, Inc., 756 F.2d at 18—19.
I must now evaluate the following three factors: (1) whether the party
subject to default has a meritorious defense, (2) the prejudice suffered by the
party seeking default, and (3) the culpability of the party subject to default.
Doug Brady, Inc. v. N.J. Bldg. Laborers Statewide Funds, 250 F. R. D. 171, 177
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(D.N.J. 2008) (citing Emcasco Ins. Co. v. Sambrick, 834 F.2d 71, 74 (3d
Cir. 1987)). Those factors, considered in light of the record of this case, weigh in
favor of entry of a default judgment.
B. Analysis

As to the first factor, I am disadvantaged, of course, by the lack of any
submission by Defendants. My independent review of the limited record before
me, however, reveals no suggestion that DIW’s claims are legally flawed or that
there is a meritorious defense to them. See Doe, 2013 WL 3772532, at *
Accepting the factual allegations as true, I readily find that Plaintiffs have
stated a claim for breach of the franchise agreement.
“Under New Jersey law, the following elements are necessary in a breach
of contract claim: (1) a contract; (2) a breach of that contract; (3) damages
flowing therefrom; and (4) plaintiff performed its own contractual duties.” Nat’l
Reprographics, Inc. v. Strom, 621 F. Supp. 2d 204, 222 (D.N.J. 2008).
I am satisfied that DIW has set forth a legally sufficient claim of breach of
contract, and I cannot ascertain, without more, any meritorious defense in
Defendants’ favor. Simply put, DIW has alleged the existence of a contract; that
all of the defendants are bound by its terms and answerable for the
consequences of any breach by Savita; that Savita’s actions caused the
termination of the contract; and that from the breach flowed various types of
damages and monetary obligations that remain unpaid. Meanwhile, there are no
facts before me indicating that Plaintiff did not perform its own obligations. I
find that the second and third factors weigh in favor of default, too.

There is no conclusion to draw but that defendants are liable for Savita’s
failures under the franchise agreement. Accordingly, I find that the entry of a
default judgment is appropriate.
C. Remedies

Plaintiff alleged its entitlement to several types of remedies, and now
seeks three specific types of monetary damages totaling $268,053.67: 1.
liquidated damages, with interest ($126,600.40); 2. recurring fees due and
owing under the franchise agreement, with interest ($135,858.69); and 3.
attorneys’ fees and costs ($5,594.58). (See Proposed Judgment [ECF No. 9-1]).
Plaintiff has set forth some evidence in support of its demands, while
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defendants have, obviously, submitted nothing. An ex parte “evidentiary
hearing” would serve little additional purpose, so I now rule based on the
record before me.

With respect to liquidated damages, I find that DIW’s request is well
founded upon Section 12.1 of the Franchise Agreement (setting liquidated
damages at $2000 multiplied by the number of guest rooms), Section 12(c) of
the Connectivity of the Addendum (setting an additional $2,500 amount of
liquidated damages), and section 7.3 of the Franchise Agreement (establishing
a 1.5% interest rate on all unpaid sums).
The liquidated damages rate of $2,000 multiplied by 42 guest rooms
yields a figure of $84,000 under the Franchise Agreement. Addition of the
$2500 amount set out in the Addendum produces a total of $86,500. (Aff. of
Susan Fenimore ¶J 24-26 [ECF No. 9-3]). I agree with DIW that the contractual
interest rate of 1.5% monthly applies to this liquidated damages sum (see
Franchise Agreement § 7.3) I disagree, however, as to the date liquidated
damages began to accrued. The accrual date, according to DIW, is June 11,
2011, 30 days after Defendant Savita “unilaterally terminated” the agreement
by losing possession of the motel. (Fenimore Aff. at ¶ 27; Compi. at ¶j 23-24).
That approach is inconsistent with the termination provision of the Franchise
Agreement. (Franchise Agreement at § 11.2). Under that provision, it was
Plaintiff DIW that terminated the Franchise Agreement at its option by sending
Savita a letter dated June 20, 2011, effectively declaring Savita to be in breach.
Accordingly, the liquidated damages accrued 30 days after that letter, on July
20, 2011.
I shall therefore apply the contractual interest rate from July 20, 2011,
through today, a period of 1104 days. Interest thus equals $47,096.64.
Liquidated damages plus interest therefore totals $133,596.64.
I will not grant DIW’s request for all of the recurring fees (set forth in the
Franchise Agreement at § 7 and Schedule C thereto, see also Compl. ¶ 11)
accruing at the Rexburg, Idaho facility from January 2011 through November
2013. I find that this would be duplicative of the liquidated damages. The
franchise agreement explicitly provides that “Liquidated Damages are paid in
place of our claims for lost future Recurring Fees under this Agreement.”
(Franchise Agreement at § 12.1; emphasis added). Accordingly, DIW may only
receive whatever recurring fees were unpaid as of the date of breach. DIW has
set forth recurring fees from January 2011 through November 2013; 1 will
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include
those accrued through June 2011 only—a total of $13,053.81,
inclusive (I believe) of contractual interest through November 25, 2013. (See
Fenimore Aff. at Ex. E (table of recurring fee charges combined with “finance
charges” through date of chart)).
Contractual interest is owed through the date of this judgment. At 1.5%
per month, per diem interest is $6.44, and the unaccounted-for period of
accrual is 244 days. Thus the total recurring fees due and owing, including
interest, is $14,624.56.
Finally, as to attorneys’ fees and costs, I adopt DIW’s analysis, which it
supports with evidence of its reasonable attorneys’ fees. (See Franchise
Agreement § 17.4 (giving prevailing party the right to reasonable attorneys’ fee
recovery); Fenimore Aff. at ¶ 28; Bryan A. Couch, Esq. Aff. at Ex. D). I will thus
enter a judgment that includes $5,594.58 in attorneys’ fees ($3,900) and costs
($1,694.58), which I find to be proportionate and reasonable.
In closing, it is important to stress the following. A default judgment, by
its nature, simply reflects a determination that defendants, by virtue of their
default, has refused to contest the well-pled allegations, and will be bound by
that refusal.

III. CONCLUSION
For the foregoing reasons, a default judgment will be entered in favor of
Plaintiff Days Inns Worldwide, Inc. A written Order and Judgment will be
entered separately.

Dated: July 28, 2014
Newark, New Jersey
HON. KEVIN MCNULTY
United States District Judg

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