DAYS INNS WORLDWIDE, INC. v. KB WILSONVILLE, LLC et al

Filing 12

OPINION. Signed by Judge William H. Walls on 5/13/14. (DD, )

NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
DISTRICT OF NEW JERSEY

DAYS INNS WORLDWIDE, INC.,
Plaintiff,
v.
KB WILSONVILLE, LLC, et al.,
Defendants.

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OPINION
No. 2:13-cv-04484 (WHW)

Walls, Senior District Judge
Plaintiff Days Inns Worldwide, Inc. (“DIW”) moves for entry of default judgment against
KB Wilsonville, LLC (“KB Wilsonville”), Pranav Patel, Subhast Chandra Kharod, Sant Prakash
Bhagat, and Pankaj Bhagat (collectively, “Defendants”) pursuant to Federal Rule of Civil
Procedure 55(b)(2). The motion has been decided from the written submissions of the parties under
Federal Rule of Civil Procedure 78. DIW’s motion is granted.
FACTUAL AND PROCEDURAL BACKGROUND
Plaintiff DIW is a corporation organized and existing under the laws of Delaware, with its
principal place of business in Parsippany, New Jersey. Compl. ¶ 1. Defendant KB Wilsonville is
a corporation organized and existing under the laws of Oregon, with its principal place of business
at 8855 S.W. Citizens Drive, Wilsonville, Oregon 97070. Id. ¶ 2. Defendants Subhast Chandra
Kharod, Sant Prakash Bhagat, and Pankaj Bhagat are members of KB Wilsonville and citizens of
Oregon, having an address at 8855 S.W. Citizens Drive, Wilsonville, Oregon 97070. Id. ¶¶ 5-7.

NOT FOR PUBLICATION
Defendant Pranav Patel is a member of KB Wilsonville and a citizen of Oregon, having an address
at 112 W. 2nd Street, The Dalles, Oregon 97058. Id. ¶ 3.
On September 18, 2008, DIW entered into a franchise agreement (the “Franchise
Agreement”) with KB Wilsonville for the operation of a 64-room Days Inn® guest lodging facility
located at 8855 S.W. Citizens Drive, Wilsonville, Oregon 97070, Site No. 31405-81548-01 (the
“Facility”). See Aff. of Suzanne Fenimore in Supp. of Mot. for Final J. by Default (“Fenimore
Aff.”) Ex. A. The Franchise Agreement provided for multiple obligations on behalf of Defendants.
Under section 5 of the Franchise Agreement, KB Wilsonville was obligated to operate a Days
Inn® guest lodging facility for a fifteen-year term. See id. Ex. A § 5. Under section 7, section 18.2
and Schedule C of the Franchise Agreement, KB Wilsonville was required to make certain periodic
payments to DIW for royalties, system assessment fees, taxes, interest, reservation system user
fees, and other fees (collectively, the “Recurring Fees”). See id. Ex. A §§ 7, 18.2, Schedule C. KB
Wilsonville also agreed, under section 7.3 of the Franchise Agreement, that interest was payable
“on any past due amount payable to [DIW] under this [Franchise] Agreement at the rate of 1.5%
per month or the maximum rate permitted by applicable law, whichever is less, accruing from the
due date until the amount is paid.” Id. Ex. A § 7.3. Under section 3.6, KB Wilsonville was required
to disclose to DIW, among other things, the amount of gross room revenue earned by KB
Wilsonville at the Facility in the preceding month for purposes of establishing the amount of
royalties and other Recurring Fees due to DIW. Id. Ex. A § 3.6. Also under that section, KB
Wilsonville agreed to maintain at the Facility accurate financial information, including books,
records, and accounts, relating to the gross room revenue of the Facility, and KB Wilsonville
agreed to allow DIW to examine, audit, and make copies of the entries in these books, records and
accounts. Id. Ex. A §§ 3.6, 4.8. Under section 9 of the Franchise Agreement, KB Wilsonville could

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not lease the Facility, nor engage in any change, assignment, transfer, conveyance, or pledge of its
interest, except with DIW’s prior written consent. Any attempted transfer, assignment,
conveyance, or pledge not in accordance with section 9 of the Franchise Agreement would be void
as between DIW and KB Wilsonville, and would give DIW the right to terminate the Franchise
Agreement. Id. Ex. A § 9.
Section 11.2 of the Franchise Agreement provided that DIW could terminate the franchise
agreement, with notice to KB Wilsonville, if KB Wilsonville (a) discontinued operating the
Facility as a Days Inn® guest lodging establishment, and/or (b) lost possession or the right to
possession of the Facility. Id. Ex. A § 11.2. In the event of termination of the Franchise Agreement
under section 11.2, section 12.1 of the Franchise Agreement provided that KB Wilsonville would
pay liquidated damages to DIW in accordance with a formula specified in the Franchise
Agreement. Id. Ex. A § 12.1. Section 18.1 of the Franchise Agreement specifically set liquidated
damages for the Facility at $1,000.00 for each guest room of the Facility KB Wilsonville was
authorized to operate at the time of termination. Id. Ex. A § 18.1. KB Wilsonville also agreed,
under section 17.4 of the Franchise Agreement, that the non-prevailing party would “pay all costs
and expenses, including reasonable attorneys’ fees, incurred by the prevailing party to enforce this
[Franchise] Agreement or collect amounts owed under this [Franchise] Agreement.” Id. Ex. A §
17.4.
On September 18, 2008, DIW entered into a Connectivity Equipment Lease and Services
Addendum (the “Connectivity Addendum”) with KB Wilsonville. See id. Ex. B. Under section
12(c) of the Connectivity Addendum, KB Wilsonville agreed that, in the event of a termination of
the Connectivity Addendum, including by virtue of termination of the Franchise Agreement, it

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would pay Connectivity Addendum Liquidated Damages to DIW in the amount of $2,500.00
within 10 days following the date of termination. Id. Ex. B § 12(c).
Effective as of the date of the Franchise Agreement, Pranav Patel, Jayantibai Patel,1
Subhast Chandra Kharod, Sant Prakash Bhagat, and Pankaj Bhagat provided DIW with a Guaranty
of KB Wilsonville’s obligations under the Franchise Agreement. See id. Ex. C. Under the terms of
the Guaranty, Pranav Patel, Jayantibai Patel, Subhast Chandra Kharod, Sant Prakash Bhagat, and
Pankaj Bhagat agreed, among other things, that upon a default under the Franchise Agreement,
they would “immediately make each payment and perform or cause [KB Wilsonville] to perform,
each unpaid or unperformed obligation of [KB Wilsonville] under the [Franchise] Agreement.” Id.
Pranav Patel, Jayantibai Patel, Subhast Chandra Kharod, Sant Prakash Bhagat, and Pankaj Bhagat
also agreed, under the terms of the Guaranty, to pay the costs, including reasonable attorneys’ fees,
incurred by DIW in enforcing its rights or remedies under the Guaranty or the Franchise
Agreement. Id.
On February 12, 2011, KB Wilsonville relinquished control of the Facility to a third party.
Id. ¶ 29. By letter dated March 31, 2011, DIW acknowledged KB Wilsonville’s unilateral
termination of the Franchise Agreement, effective February 12, 2011, and advised KB Wilsonville
that it was required to pay the sum of $66,500.00 to DIW as liquidated damages for premature
termination as required under the Franchise Agreement and Connectivity Addendum, and all
outstanding Recurring Fees through the date of termination. Fenimore Aff. Ex. D.
Because Defendants never paid those amounts, the complaint in this matter was filed on
July 25, 2013. ECF No. 1; Certification of Bryan P. Couch in Supp. of Mot. for Final J. by Default
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While it appears that Jayantibai Patel was a member of KB Wilsonville and signed a Guaranty
for the Facility, DIW did not request default against him, and the Clerk of the Court did not enter
default against him. As such, Jayantibai Patel is not included as a defendant for the purposes of
DIW’s motion for default judgment or this Court’s opinion granting that motion.
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(“Couch Cert.”) ¶ 3. Also on July 25, 2013, the summons and complaint were forwarded to Recon
Management Group to effectuate personal service upon Defendants. Couch Cert. ¶ 4. The
summons and complaint were served upon Subhast Chandra Kharod on August 28, 2013 and upon
Pankaj Bhagat on August 30, 2013, as appears from the returns of service filed with the Court. Id.
¶¶ 5-6; ECF Nos. 5, 6. Despite diligent efforts and inquiry, Recon Management Group has been
unable to locate defendants KB Wilsonville, Pranav Patel, and Sant Prakash Bhagat. Couch Cert.
¶¶ 7-9. By letter dated September 18, 2013, DIW served KB Wilsonville, Pranav Patel, and Sant
Prakash Bhagat with a copy of the summons and complaint via certified and regular mail under
New Jersey Court Rule 4:4-4(b)(1)(C). Id. ¶ 10. The time in which Defendants had to answer or
otherwise respond to the complaint expired, and Defendants did not answer or otherwise move. Id.
¶ 11. Default was entered by the Clerk of the Court against Defendants on October 30, 2013 for
their failure to plead or otherwise defend this action. Id. ¶ 12. By letter dated October 30, 2013,
DIW served a copy of the default upon Defendants. Id. Ex. E.
DIW moved for default judgment on March 14, 2013. ECF No. 10.
STANDARD OF REVIEW
Federal Rule of Civil Procedure 55 governs the entry of default and default judgment. The
power to grant default judgment “has generally been considered an ‘inherent power,’ governed not
by rule or statute but by the control necessarily vested in courts to manage their own affairs so as
to achieve the orderly and expeditious disposition of cases.” Hritz v. Woma Corp., 732 F.2d 1178,
1181 (3d Cir. 1984) (citations omitted). Because the entry of default prevents claims from being
decided on the merits, courts do “not favor entry of defaults or default judgments.” United States
v. $55,518.05 in U.S. Currency, 728 F.2d 192, 194 (3d Cir. 1984).

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The Third Circuit considers three factors in determining “whether a default judgment
should be granted: (1) prejudice to the plaintiff if default is denied, (2) whether the defendant
appears to have a litigable defense, and (3) whether defendant’s delay is due to culpable conduct.”
Chamberlain v. Giampapa, 210 F.3d 154, 164 (3d Cir. 2000).
In deciding a motion for default judgment, “the factual allegations in a complaint, other
than those as to damages, are treated as conceded by the defendant.” DIRECTV, Inc. v. Pepe, 431
F.3d 162, 165 (3d Cir. 2005). The court must, however, make “an independent inquiry into
‘whether the unchallenged facts constitute a legitimate cause of action’” and “must make an
independent determination” regarding questions of law. Days Inn Worldwide, Inc. v. Mayu &
Roshan, L.L.C., No. 06-cv-1581(PGS), 2007 WL 1674485, at *4 (D.N.J. June 8, 2007). Similarly,
a court does not accept as true allegations pertaining to the amount of damages, and may employ
various methods to ascertain the amount of damages due. While the court may conduct a hearing
to determine the damages amount, Fed. R. Civ. P. 55(b)(2), a damages determination may be made
without a hearing “as long as [the court] ensure[s] that there [is] a basis for the damages specified
in the default judgment.” Transatlantic Marine Claims Agency, Inc. v. Ace Shipping Corp., 109
F.3d 105, 111 (2d Cir. 1997).
DISCUSSION
I.

Default Judgment is Appropriate
This cause of action is based on the Defendants’ breach of contract. The elements of such

a claim are “(1) a contract between the parties; (2) a breach of that contract; (3) damages flowing
therefrom; and (4) that the party stating the claim performed its own contractual obligations.”
Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir. 2007). Here, the parties entered into the
Franchise Agreement, Connectivity Addendum and Guaranty for the operation of a lodging

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facility. Defendants breached those contracts by prematurely terminating (by relinquishing control
of the Facility to a third party) the Franchise Agreement and the Connectivity Addendum and not
paying the liquidated damages or the Recurring Fees they owed DIW as a result of that termination.
Damages flowed therefrom because DIW performed services without being compensated for them
(the Recurring Fees) and DIW has not been compensated for the reasonable liquidated damages
agreed to by contract. DIW performed its own contractual obligations under the Franchise
Agreement and Connectivity Addendum because it performed the services contracted for and only
terminated the Franchise Agreement and Connectivity Addendum upon notification from
Defendants that Defendants had lost possession of the Facility to a third party, a proper termination
under the Franchise Agreement and Connectivity Addendum. DIW has pled the elements of this
claim and put forth unchallenged facts which constitute a legitimate cause of action.
Under the Chamberlain factors, default judgment is appropriate. DIW will suffer prejudice
if default is denied because it has already waited over three years since terminating the Franchise
Agreement and Connectivity Addendum to be paid the Recurring Fees and the liquidated damages
it is entitled to under the contracts. The Defendants have not presented any facts or arguments to
suggest they have a litigable defense for their breaches of contract with DIW. It is not clear if
Defendants’ failure to litigate is the result of willful or bad faith conduct, though they have failed
to retain counsel for over nine months since the filing of the complaint. Having considered these
three factors, the Court finds that default judgment is appropriate.
II.

Damages
DIW seeks damages that include the Recurring Fees ($95,609.25 including interest

calculated at 1.5% per month under section 7.3 of the Franchise Agreement), liquidated damages
($64,000.00 under sections 12.1 and 18.1 of the Franchise Agreement, and $2,500.00 under section

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12(c) of the Connectivity Addendum, plus interest on that amount calculated at the rate of 1.5%
per month for a total of $36,834.40), attorneys’ fees ($7,800.00 under section 17.4 of the Franchise
Agreement), and costs ($1,303.21, also under section 17.4 of the Franchise Agreement). The Court
has reviewed DIW’s submissions and finds that these amounts accurately represent the amount
Defendants owe DIW under the Franchise Agreement, Connectivity Addendum and Guaranty. See
Fenimore Aff. ¶¶ 21-31; id. Ex. E (Itemized Statement of Recurring Fees); id. Ex. F (Itemized
Breakdown of Amounts Owed); Couch Cert., Ex. F (Attorney Billing Records). Judgment will be
entered against Defendants in the amount of $208,046.86.
CONCLUSION
Plaintiff’s motion for default judgment is granted. Judgment is entered against Defendants
in the amount of $208,046.86.

May 13, 2014
/s/ William H. Walls
United States Senior District Judge

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